UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2019

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________ to _______________________

 

Commission File Number: 001-38249

 

LIVEXLIVE MEDIA, INC.

(Exact name of registrant as specified in its charter) 

 

Delaware		98-0657263
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
9200 Sunset Blvd., Suite #1201 West Hollywood, California		90069
(Address of principal executive offices)		(Zip Code)

 

(310) 601-2500

(Registrant’s telephone number, including area code)

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, $0.001 par value per share		LIVX		The NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant is required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐		Accelerated filer	☒
Non-accelerated filer	☐		Smaller reporting company	☒
			Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

 

As of February 7, 2020, there were 58,879,492 shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.

 

 

 

LIVEXLIVE MEDIA, INC.

 

TABLE OF CONTENTS

 

		Page
PART I ― FINANCIAL INFORMATION		F-1
Item 1.	Financial Statements	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
PART II ― OTHER INFORMATION		25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
	Signatures	36

 

  

PART I ― FINANCIAL INFORMATION

 

Item 1. Financial Statements.
	Page
Condensed Consolidated Balance Sheets as of December 31, 2019 and March 31, 2019 (unaudited)	F-2
Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2019 and 2018 (unaudited)	F-3
Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the three and nine months ended December 31, 2019 and 2018 (unaudited)	F-4
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2019 and 2018 (unaudited)	F-5
Notes to the Condensed Consolidated Financial Statements (unaudited)	F-6 – F-31

 

 

LiveXLive Media, Inc.

Condensed Consolidated Balance Sheets

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

 

		December 31,				March 31,
		2019				2019
Assets
Current Assets
Cash and cash equivalents		$	13,965			$	13,704
Restricted cash			235				235
Accounts receivable, net			3,677				4,314
Prepaid expense and other assets			1,574				1,311
Total Current Assets			19,451				19,564
Property and equipment, net			3,282				2,720
Goodwill			9,672				9,672
Intangible assets, net			22,447				26,943
Other assets			146				-
Total Assets		$	54,998			$	58,899
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities		$	24,608			$	20,906
Accrued royalties			12,411				9,921
Note payable			327				312
Deferred revenue			919				950
Senior secured convertible debentures, net			3,047				2,111
Total Current Liabilities			41,312				34,200
Other long-term liabilities			2,901				-
Lease liabilities, noncurrent			67				-
Senior secured convertible debentures, net			7,375				10,284
Unsecured convertible notes, net of discount and current maturities			5,021				4,741
Deferred income taxes			211				211
Total Liabilities			56,887				49,436
Commitments and Contingencies
Stockholders’ Equity (Deficit)
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding			-				-
Common stock, $0.001 par value; 500,000,000 shares authorized; 58,231,811 and 52,275,236 shares issued and outstanding, respectively			58				52
Additional paid in capital			117,640				98,605
Accumulated deficit			(119,587	)			(89,194	)
Total stockholders’ equity (deficit)			(1,889	)			9,463
Total Liabilities and Stockholders’ Equity		$	54,998			$	58,899

 

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

 

 

LiveXLive Media, Inc.

Condensed Consolidated Statements of Operations

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

 

		Three Months Ended December 31,								Nine Months Ended December 31,
		2019				2018				2019				2018
Revenue:		$	9,699			$	8,964			$	28,780			$	24,522
Operating expenses:
Cost of sales			7,638				7,571				25,104				24,142
Sales and marketing			1,391				963				5,202				3,183
Product development			2,754				1,825				7,682				5,636
General and administrative			4,473				4,470				14,401				12,212
Amortization of intangible assets			1,355				(117	)			4,497				4,716
Total operating expenses			17,611				14,712				56,886				49,889
Loss from operations			(7,912	)			(5,748	)			(28,106	)			(25,367	)
Other income (expense):
Interest expense, net			(890	)			(839	)			(2,700	)			(2,236	)
Other income (expense)			(6	)			24				413				(53	)
Total other income (expense), net			(896	)			(815	)			(2,287	)			(2,289	)
Loss before provision for income taxes			(8,808	)			(6,563	)			(30,393	)			(27,656	)
Provision for income taxes			-				-				-				-
Net loss		$	(8,808	)		$	(6,563	)		$	(30,393	)		$	(27,656	)
Net loss per share – basic and diluted		$	(0.15	)		$	(0.13	)		$	(0.55	)		$	(0.53	)
Weighted average common shares – basic and diluted			57,927,217				51,984,790				55,390,589				51,821,782

 

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

 

 

LiveXLive Media, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)

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

 

		Common stock								Additional Paid in				Accumulated				Total Stockholders’
		Shares				Amount				Capital				Deficit				Equity
Balance as of September 30, 2019			57,834,822			$	58			$	114,972			$	(110,779	)		$	4,251
Shares issued for services to consultants			396,989				-				1,050				-				1,050
Stock-based compensation			-				-				1,668				-				1,668
Interest paid in kind			-				-				-				-				-
Offering costs			-				-				(50	)			-				(50	)
Net loss			-				-				-				(8,808	)			(8,808	)
Balance as of December 31, 2019			58,231,811			$	58			$	117,640			$	(119,587	)		$	(1,889	)

 

		Common stock								Additional Paid in				Accumulated				Total Stockholders’
		Shares				Amount				Capital				Deficit				Equity
Balance as of March 31, 2019			52,275,236			$	52			$	98,605			$	(89,194	)		$	9,463
Shares issued for services to consultants			956,575				1				3,518				-				3,519
Stock-based compensation			-				-				5,970				-				5,970
Interest paid in kind			-				-				29				-				29
Shares issued in the public offering, net of cost			5,000,000				5				9,518				-				9,523
Net loss			-				-				-				(30,393	)			(30,393	)
Balance as of December 31, 2019			58,231,811			$	58			$	117,640			$	(119,587	)		$	(1,889	)

 

		Common stock								Additional Paid in				Accumulated				Total Stockholders’
		Shares				Amount				Capital				Deficit				Equity
Balance as of September 30, 2018			51,969,385			$	52			$	96,966			$	(72,525	)		$	24,493
Shares issued for services to consultants			15,720				-				279				-				279
Stock-based compensation			-				-				2,276				-				2,276
Purchase price adjustment to fair value of shares issued for Slacker acquisition			-								(5,744	)							(5,744	)
Net loss			-				-				-				(6,563	)			(6,563	)
Balance as of December 31, 2018			51,985,105			$	52			$	93,777			$	(79,088	)		$	14,741

 

		Common stock								Additional Paid in				Accumulated				Total Stockholders’
		Shares				Amount				Capital				Deficit				Equity
Balance as of March 31, 2018			51,432,292			$	51			$	89,778			$	(51,432	)		$	38,397
Shares issued for services to consultants			159,243				-				1,435				-				1,435
Stock-based compensation			-				-				7,128				-				7,128
Shares issued for debt conversion			393,570				1				1,180				-				1,181
Purchase price adjustment to fair value of shares issued for Slacker acquisition			-				-				(5,744	)			-				(5,744	)
Net loss			-				-				-				(27,656	)			(27,656	)
Balance as of December 31, 2018			51,985,105			$	52			$	93,777			$	(79,088	)		$	14,741

 

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,
		2019				2018
Cash Flows from Operating Activities:
Net loss		$	(30,393	)		$	(27,656	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			6,157				5,295
Common stock issued for services			3,639				2,078
Stock-based compensation			5,501				6,634
Amortization of debt discount			522				753
Interest paid in kind			29				-
Change in fair value of bifurcated embedded derivatives			(189	)			2
Changes in operating assets and liabilities:
Accounts receivable			637				(724	)
Prepaid expenses and other current assets			(380	)			585
Deferred revenue			(31	)			(60	)
Accounts payable and accrued liabilities			9,140				9,275
Net cash used in operating activities			(5,368	)			(3,818	)
Cash Flows from Investing Activities:
Purchases of property and equipment			(1,755	)			(1,714	)
Net cash used in investing activities			(1,755	)			(1,714	)
Cash Flows from Financing Activities:
Repayment of senior secured convertible debentures			(1,989	)			-
Proceeds from senior secured convertible debentures payable, net			-				9,606
Amendment costs of senior secured debentures			(150	)			-
Proceeds from public offering, net			9,523				-
Repayment of bank debt			-				(3,515	)
Net cash provided by financing activities			7,384				6,091
Net change in cash, cash equivalents and restricted cash			261				559
Cash, cash equivalents and restricted cash, beginning of period			13,939				13,970
Cash, cash equivalents and restricted cash, end of period		$	14,200			$	14,529
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	1,289			$	605
Supplemental disclosure of non-cash investing and financing activities:
Fair value of options issued to employees, capitalized as internally-developed software		$	469			$	494
Common stock issued upon conversion of unsecured convertible notes payable		$	-			$	1,181
Purchase price adjustment to fair value of shares issued for Slacker acquisition		$	-			$	(5,744	)

 

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

 

 

LiveXLive Media, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Nine Months Ended December 31, 2019 and 2018

 

Note 1 — Organization and Basis of Presentation

 

Organization

 

LiveXLive Media, Inc. (“LiveXLive”) together with its subsidiaries (“we,” “us,” “our” or the “Company”) is a Delaware corporation headquartered in Beverly Hills, California. The Company is a global digital media company focused on live entertainment.

 

Basis of Presentation

 

The unaudited interim 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, 2019, 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, 2019. The results for the three and nine months ended December 31, 2019 are not necessarily indicative of the results expected for the full fiscal year ending March 31, 2020 (“fiscal 2020”). The condensed consolidated balance sheet as of March 31, 2019 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 24, 2019 (the “2019 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 2019 Form 10-K.

 

Going Concern and Liquidity

 

The Company’s condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

These financial statements have been prepared on the basis of the Company having sufficient liquidity to fund its operations for at least the next twelve months from the issuance of these condensed consolidated financial statements in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 205-40 (“ASC Topic 205-40”), Presentation of Financial Statements—Going Concern. The Company’s principal sources of liquidity have historically been its debt and equity issuances and its cash and cash equivalents (which cash and cash equivalents amounted to $14.0 million as of December 31, 2019, and $13.7 million as of March 31, 2019, respectively).

 

As reflected in its condensed consolidated financial statements included elsewhere herein, the Company has a history of losses, incurred a net loss of $30.4 million, and utilized cash of $5.4 million in operating activities for the nine months ended December 31, 2019, and had a working capital deficiency of $21.9 million as of December 31, 2019. The Company filed a universal shelf Registration Statement on Form S-3 which became effective in February 2019 to raise up to $150.0 million in cash from the sale of equity, debt and/or other financial instruments. During the nine months ended December 31, 2019, the Company sold 5,000,000 shares of its common stock to certain institutional investors for gross proceeds of $10.5 million.

 

 

While management believes it has sufficient sources of liquidity to fund its operations over the next twelve months, these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date that these financial statements are filed. The Company’s condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company’s long-term ability to continue as a going concern is dependent upon its ability to increase revenue, reduce costs, achieve a satisfactory level of profitable operations, and obtain additional sources of suitable and adequate financing. The Company’s ability to continue as a going concern is also dependent on its ability to further develop and execute on its business plan. The Company may also have to reduce certain overhead costs through the reduction of salaries and other means and settle liabilities through negotiation. There can be no assurance that management’s attempts at any or all of these endeavors will be successful.

 

The Company’s ability to continue as a going concern is dependent on its ability to execute its strategy and on its ability to raise additional funds and/or to consummate a public offering. Management is currently seeking additional funds, primarily through the issuance of equity and/or debt securities for cash to operate the Company’s business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to it.  Even if the Company is able to obtain additional financing, it may contain terms that result in undue restrictions on its operations, in the case of debt financing or cause substantial dilution for its stockholders, in case of equity and/or convertible debt financing. Furthermore, no assurance can be given that a public offering of the Company’s securities for cash will be successful or consummated.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Acquisitions are included in the Company’s condensed consolidated financial statements from the date of the acquisition. The Company uses purchase accounting for its acquisitions, which results in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. All intercompany balances and transactions have been eliminated in consolidation.

 

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

 

Use of Estimates

 

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue, allowance for doubtful accounts, the assigned value of acquired assets and assumed and contingent liabilities associated with business combinations and the related purchase price allocation, valuation of media content, useful lives and impairment of property and equipment, intangible assets, goodwill and other assets, the fair value of the Company’s equity-based compensation awards and convertible debt and 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.

 

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 subscription 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 did not restate contracts that began and were completed within the same annual reporting period.

 

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. 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 subscription service streams and may act as principal or agent for its advertising and licensing revenue streams.

 

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

 

Subscription Services

 

Subscription services revenue substantially consist of monthly to annual recurring subscription 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 subscription fees collected in advance and recognizes them in the period earned. Subscription revenue is recognized in the period of services rendered. The Company’s subscription 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 subscription 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 subscription revenue straight-line through the subscription period.

 

Subscription Services consist of:

 

Direct subscriber, mobile service provider and mobile app services

 

The Company generates revenue for subscription services on both a direct basis and through subscriptions sold through certain third-party mobile service providers and mobile app services (collectively the “Mobile Providers”). For subscriptions sold through the Mobile Providers, the subscriber executes an on-line agreement with Slacker, Inc., the Company’s wholly owned subsidiary that provides an internet music and radio streaming service (“Slacker”), outlining the terms and conditions between Slacker and the subscriber upon purchase of the subscription. The Mobile Providers promote the Slacker app through their e-store, process payments for subscriptions, 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 subscriber is Slacker’s customer in the contract and Slacker controls the service prior to the transfer to the subscriber. Subscription revenues from monthly subscriptions 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 subscription is sold on a direct basis or through Mobile Providers. Subscriptions sold on a direct basis require payment before the services are delivered to the customer. The payment terms for subscriptions sold through Mobile Providers vary, but are generally payable within 30 days.

 

 

Third-Party Original Equipment Manufacturers

 

The Company generates revenue for subscription services through subscriptions sold through a third-party Original Equipment Manufacturer (the “OEM”). For subscriptions 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 subscription. 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 the Slacker application installed. The number of customers, or the variable consideration, is reported by the OEM and resolved on a monthly basis. The Company’s payment terms with the 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.

 

Licensing Revenue

 

Licensing revenue primarily consists of sales of licensing rights to digitally stream its live music services in certain geographies (e.g. China). 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. The Company reports licensing revenue on a gross basis as the Company acts as the principal in the underlying transactions.

 

Cost of Sales

 

Cost of Sales principally consists of royalties paid for the right to stream video, music and non-music content to the Company’s customers and the cost of securing the rights and producing and streaming live events from venues and promoters. Royalties are calculated using negotiated and regulatory rates documented in content license agreements and are based on usage measures or revenue earned. Music royalties to record labels, professional rights organizations and music publishers primarily relate to the consumption of music listened to on Slacker’s radio services. As of December 31, 2019 and March 31, 2019, the Company accrued $12.4 million and $9.9 million of royalties, respectively.

 

Sales and Marketing

 

Sales and Marketing include the direct and indirect costs related to the Company’s product and event advertising and marketing.

 

 

Product Development

 

Product development costs primarily are expenses for research and development, product and content development activities, including internal software development and improvement costs which have not been capitalized by the Company.

 

Stock-Based Compensation

 

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period, on an accelerated basis. The Company accounts for awards with graded vesting as if each vesting tranche is valued as a separate award. The Company uses the Black-Scholes-Merton option pricing model to determine the grant date fair value of stock options. This model requires the Company to estimate the expected volatility and the expected term of the stock options which are highly complex and subjective variables. The variables take into consideration, among other things, actual and projected employee stock option exercise behavior. The Company uses a predicted volatility of its stock price during the expected life of the options that is based on the historical performance of the Company’s stock price as well as including an estimate using guideline companies. The expected term is computed using the simplified method as the Company’s best estimate given its lack of actual exercise history. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected term of the stock. Stock-based awards are comprised principally of stock options, restricted stock, restricted stock units (“RSUs”), restricted stock awards (“RSAs”) and warrant grants. Forfeitures are recognized as incurred.

 

Stock option awards issued to non-employees are accounted for at grant date fair value determined using the Black-Scholes-Merton option pricing model. Management believes that the fair value of the stock options is more reliably measured than the fair value of the services received. The Company records the fair value of these equity-based awards and expense at their cost ratably over related vesting periods.  

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Company’s Statements of Operations in the period that includes the enactment date.

 

Net Income (Loss) Per Share

 

Basic earnings (loss) per share are computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and the dilutive effect of contingent shares outstanding during the period. Potentially dilutive contingent shares, which primarily consist of stock options issued to employees, directors and consultants, restricted stock units, warrants issued to third parties and accounted for as equity instruments, convertible debentures and convertible notes have been excluded from the diluted loss per share calculation because their effect is anti-dilutive.

 

At December 31, 2019 and 2018, the Company had 167,363 warrants outstanding, 4,640,001 and 5,111,668 options outstanding, respectively, 3,878,287 and 673,408 restricted stock units outstanding, respectively, 24,675 and 0 restricted stock awards outstanding, respectively, and 3,912,671 and 2,662,267 shares of common stock issuable underlying the Company’s convertible notes and convertible debentures, respectively.

 

 

Business Combinations

 

The Company accounts for its business combinations using the acquisition method of accounting where the purchase consideration is allocated to the underlying net tangible and intangible assets acquired, based on their respective fair values. The excess of the purchase consideration over the estimated fair values of the net assets acquired is recorded as goodwill. Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Additionally, any contingent consideration is recorded at fair value on the acquisition date and classified as a liability. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling interest in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed and noncontrolling interests requires management’s judgment and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses and cash flows, weighted average cost of capital, discount rates, estimates of customer turnover rates and estimates of terminal values.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include all highly liquid investments with original maturities, when purchased, of three months or less.

 

The following table provides amounts included in cash, cash equivalents and restricted cash presented in the Company’s condensed consolidated statements of cash flows for the nine months ended December 31, (in thousands):

  

		2019				2018
Cash and cash equivalents		$	13,965			$	14,294
Restricted cash			235				235
Total cash and cash equivalents and restricted cash		$	14,200			$	14,529

 

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, 2019 and March 31, 2019, the Company had restricted cash of $0.2 million.

 

Accounts Receivable and 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. There were no impairment losses recorded on receivables for the three and nine months ended December 31, 2019 and 2018.

 

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 subscription receivables. At December 31, 2019, the Company had two customers that made up 16% and 56% of the total gross accounts receivable balance. At March 31, 2019, the Company had three customers that made up 10%, 26% and 36% of the total gross accounts receivable balance.

 

The Company’s accounts receivable at December 31, 2019 and March 31, 2019 is as follows (in thousands):

 

		December 31,				March 31,
		2019				2019
Accounts receivable, gross		$	3,681			$	4,318
Less: Allowance for doubtful accounts			(4	)			(4	)
Accounts receivable, net		$	3,677			$	4,314

 

 

Property and Equipment

 

Property and equipment are recorded at cost. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred.

 

Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are generally as follows: buildings and improvements (5 years), furniture and equipment (3 to 5 years) and computer equipment and software (3 to 5 years). Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the estimates above, or the lease term.

 

The Company evaluates the carrying value of its property and equipment if there are indicators of potential impairment. If there are indicators of potential impairment, the Company performs an analysis to determine the recoverability of the asset group carrying value by comparing the expected undiscounted future cash flows to the net book value of the asset group. If it is determined that the expected undiscounted future cash flows are less than the net book value of the asset group, the excess of the net book value over the estimated fair value is recorded in the Company’s consolidated statements of operations. Fair value is generally estimated using valuation techniques that consider the discounted cash flows of the asset group using discount and capitalization rates deemed reasonable for the type of assets, as well as prevailing market conditions, appraisals, recent similar transactions in the market and, if appropriate and available, current estimated net sales proceeds from pending offers.

 

Capitalized Internal-Use Software

 

The Company capitalizes certain costs incurred to develop software for internal use. Costs incurred in the preliminary stages of development are expensed as incurred.

 

Once software has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are recorded as part of property and equipment. Costs related to minor enhancements, maintenance and training are expensed as incurred.

 

Capitalized internal-use software costs are amortized on a straight-line basis over their three- to five-year estimated useful lives. The Company evaluates the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. During the nine months ended December 31, 2019 and 2018, the Company capitalized $2.0 million and $2.1 million of internal use software, respectively.

 

Goodwill

 

Goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The Company evaluates goodwill for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. The Company conducts its annual impairment analysis in the fourth quarter of each fiscal year. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. Estimations and assumptions regarding the number of reporting units, future performances, results of the Company’s operations and comparability of its market capitalization and net book value will be used. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is measured by the resulting amount. Because the Company has one reporting unit, as part of the Company’s qualitative assessment an entity-wide approach to assess goodwill for impairment is utilized. No impairment losses have been recorded in the three and nine months ended December 31, 2019 and 2018. 

 

Intangible Assets with Indefinite Useful Lives

 

The Company’s indefinite-lived intangible assets consist of trademarks and trade names. The Company evaluates indefinite-lived intangible assets for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. The Company conducts its annual impairment analysis in the fourth quarter of each fiscal year.

 

 

Intangible Assets with Finite Useful Lives

 

The Company has certain finite-lived intangible assets that were initially recorded at their fair value at the time of acquisition. These intangible assets consist of Trademarks/Trade Names, Intellectual Property, Customer Relationships, and Capitalized Software Development Costs resulting from business combinations. Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives, which are generally as follows: Intellectual Property (15 years), Customer Relationships (1.5-5 years), Domain Names (5 years), and Software (5 years).

 

The Company reviews all finite-lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, the Company recognizes an impairment loss for the excess carrying value over the fair value in its consolidated statements of operations. No impairment losses have been recorded in the three and nine months ended December 31, 2019 and 2018.

 

Deferred Revenue and Costs

 

Deferred revenue consists substantially of amounts received from customers in advance of the Company’s performance service period. Deferred revenue is recognized as revenue on a systematic basis that is proportionate to the period that the underlying services are rendered, which in certain arrangements is straight line over the remaining contractual term or estimated customer life of an agreement.

 

In the event the Company receives cash in advance of providing its music services and music streaming services, the Company will defer an amount of such future royalty and costs to 3rd party music labels, publishers and other providers on its balance sheets. Deferred costs are amortized to expense concurrent with the recognition of the related revenue and the expense is included in cost of sales.

 

Fair Value Measurements - Valuation Hierarchy

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (i.e., an exit price). The Company uses the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect the Company’s own assumptions about the data market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized below:

 

Level 1	Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2	Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
Level 3	Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

  

The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety. Proper classification of fair value measurements within the valuation hierarchy is considered each reporting period. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

 

 

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.

 

Adoption of New Accounting Pronouncements

  

In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU and all the related amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this guidance in the first quarter of fiscal 2020, the quarter ended June 30, 2019 using the optional transitional method afforded under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. Results for reporting periods beginning after the adoption date are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840 (see Note 11 - Leases).

 

The Company elected and applied the available transition practical expedients. By electing these practical expedients, the Company did:

 

a.

not reassess whether expired or existing contracts contain leases under the new definition of a lease;

 

b.

not reassess lease classification for expired or existing leases; and

 

c.

not reassess whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments in this ASU align the implementation date for nonpublic entities’ annual financial statements with the implementation date for their interim financial statements. In addition, the amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20; instead impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842: Leases. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments. The amendments in this ASU further clarify certain aspects of ASU No. 2016-13. For entities that have not yet adopted ASU No. 2016-13, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. The amendments in this ASU provide transition relief for ASU No. 2016-13 by providing an option to irrevocably elect the fair value option for certain financial assets measured at an amortized cost basis. For entities that have not yet adopted ASU No. 2016-13, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

 

 

In November 2019, the FASB issued ASU 2019-10 which amends the effective dates for the accounting standard, and ASU 2019-11 which clarifies narrow issues within the new credit losses standard.

 

The Company has evaluated the impact this ASU will have on its financial statements and related disclosures and determined that adoption of ASC 326 is not expected to have a material impact on the financial statements and disclosures of the Company.

 

In December 2019, the FASB issued ASU No. 2019-12. Simplifying the Accounting for Income Taxes. The amendments in this update affect entities within the scope of Topic 740, Income Taxes. The amendments in this update simplify the accounting for income taxes by removing the following exceptions: 1. Exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income) 2. Exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment 3. Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary 4. Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in this update also simplify the accounting for income taxes by doing the following: 1. Requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax. 2.Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction. 3. Specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority. 4. Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. 5. Making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The FASB decided that for public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact this ASU will have on its financial statements and related disclosures, as well as the timing of adoption and the application method.

 

In August 2018, the FASB issued ASU No. 2018-15. Intangibles - Goodwill and Other – Internal-Use Software, related to accounting for implementation costs incurred in hosted cloud computing service arrangements. Under the new guidance, implementation costs incurred in a hosting arrangement that is a service contract should be expensed or capitalized based on the nature of the costs and the project stage during which such costs are incurred. If the implementation costs qualify for capitalization, they must be amortized over the term of the hosting arrangement and assessed for impairment. Companies must disclose the nature of any hosted cloud computing service arrangements. This ASU also provides guidance for balance sheet and income statement presentation of capitalized implementation costs and statement of cash flows presentation for the related payments. This ASU will be effective beginning in the first quarter of our fiscal year 2021. Early adoption is permitted, including in an interim period. This guidance may be adopted either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact this ASU will have on its financial statements and related disclosures, as well as the timing of adoption and the application method.

 

 

In November 2018, the FASB issued ASU 2018-18 which clarified the interaction between Topic 808 and Topic 606, which makes targeted improvements for collaborative arrangements as follows: a) clarifies that certain transactions between collaborative arrangement participants are within the scope of ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. b) adds unit-of-account (i.e., distinct good or service) guidance to ASC 808 to align with the guidance in ASC 606 to determine whether the collaborative arrangement, or a part of the arrangement, is within the scope of ASC 606. And c) specifies that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, if the collaborative arrangement participant is not a customer, an entity is precluded from presenting the transaction together with revenue recognized under ASC 606. The ASU is effective for public business entities for fiscal years ending after December 15, 2019. For all other entities, the ASU is effective for annual reporting periods ending after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on its financial statements and related disclosures, as well as the timing of adoption and the application method.

 

In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies three specific issues within ASC 842, Leases. Issue 1: Determining the Fair Value of the Underlying Asset by Lessors That Are Not Manufacturers or Dealers provides an exception for lessors that are not manufacturers or dealers for determining fair value of an underlying asset. Specifically, those lessors will use their cost, reflecting any volume or trade discounts that may apply, as the fair value of the underlying asset. However, if significant time lapses between the acquisition of the underlying asset and lease commencement, those lessors will be required to apply the definition of fair value (exit price) in ASC 820. Issue 2: Presentation on the Statement of Cash Flows specifies that lessors that are depository and lending institutions within the scope of ASC 942 will present all “principal payments received under leases” within investing activities on the statement of cash flows. Other lessors will continue to apply the guidance in ASC 842 that requires presentation of all cash receipts from leases within operating activities. Issue 3: Transition Disclosures Related to Topic 250, Accounting Changes and Error Corrections provides an exception to the paragraph 250-10-50-3 interim disclosure requirements in the ASC 842 transition disclosure requirements. The ASU is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on its financial statements and related disclosures, as well as the timing of adoption and the application method.

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.  

 

Note 3 — Revenue

 

In May 2014, the FASB issued a comprehensive new revenue recognition standard that superseded nearly all existing revenue recognition guidance under GAAP. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The FASB also issued important guidance clarifying certain guidelines of the standard, including (1) reframing the indicators in the principal versus agent guidance to focus on evidence that a company is acting as a principal rather than an agent and (2) identifying performance obligations and licensing. The guidance should be applied retrospectively, either to each prior period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative-effect adjustment as of the date of adoption. The Company adopted this standard on April 1, 2018, applying it retrospectively to each prior period presented in the financial statements.

 

 

The following table represents a disaggregation of revenue from contracts with customers for the three and nine months ended December 31, 2019 and 2018 (in thousands):

 

		Three Months Ended December 31,								Nine months Ended December 31,
		2019				2018				2019				2018
Revenue
Subscription services		$	9,115			$	8,108			$	26,665			$	21,973
Advertising			540				772				1,814				2,300
Licensing			44				84				301				249
Total Revenue		$	9,699			$	8,964			$	28,780			$	24,522

 

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 optional exemption 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.

 

The following table summarizes the significant changes in contract liabilities balances during the nine months ended December 31, 2019 (in thousands):

 

		Contract Liabilities
Balance as of March 31, 2019		$	950
Revenue recognized that was included in the contract liability at beginning of period			(950	)
Increase due to cash received, excluding amounts recognized as revenue during the period			919
Balance as of December 31, 2019		$	919

 

Note 4 — Property and Equipment

 

The Company’s property and equipment at December 31, 2019 and March 31, 2019 was as follows (in thousands):

 

		December 31,				March 31,
		2019				2019
Property and equipment, net
Production equipment		$	54			$	54
Computer, machinery, and software equipment			477				573
Furniture and fixtures			23				23
Leasehold improvements			23				19
Capitalized internally developed software			5,132				3,070
Total property and equipment			5,709				3,739
Less accumulated depreciation and amortization			(2,427	)			(1,019	)
Total property and equipment, net		$	3,282			$	2,720

 

Depreciation expense was $0.6 million and $0.3 million for the three months ended December 31, 2019 and 2018, respectively, and was $1.7 million and $0.6 million for the nine months ended December 31, 2019 and 2018, respectively.

 

 

Note 5 — Goodwill and Intangible Assets

 

Goodwill

 

The Company currently has one reporting unit. The following table presents the changes in the carrying amount of goodwill for the nine months ended December 31, 2019 (in thousands):

 

		Goodwill
Balance as of March 31, 2019		$	9,672
Acquisitions			-
Balance as of December 31, 2019		$	9,672

 

Indefinite-Lived Intangible Assets

 

The following table presents the changes in the carrying amount of indefinite-lived intangible assets in the Company’s reportable segment for the nine months ended December 31, 2019 (in thousands):

 

		Tradenames
Balance as of March 31, 2019		$	4,637
Acquisitions			-
Impairment losses			-
Balance as of December 31, 2019		$	4,637

 

Finite-Lived Intangible Assets

 

The Company’s finite-lived intangible assets were as follows as of December 31, 2019 (in thousands):

 

		Gross Carrying Value				Accumulated Amortization				Net Carrying Value
Software		$	19,280			$	7,712			$	11,568
Intellectual property (patents)			5,366				715				4,651
Customer relationships			6,570				4,997				1,573
Domain names			29				11				18
Total		$	31,245			$	13,435			$	17,810

 

The Company’s finite-lived intangible assets were as follows as of March 31, 2019 (in thousands):

 

		Gross Carrying Value				Accumulated Amortization				Net Carrying Value
Software		$	19,280			$	4,819			$	14,461
Intellectual property (patents)			5,366				447				4,919
Customer relationships			6,570				3,665				2,905
Domain names			29				8				21
Total		$	31,245			$	8,939			$	22,306

 

The Company’s amortization expense on its finite-lived intangible assets was $1.4 million and $(0.1) million for the three months ended December 31, 2019 and 2018, respectively, and was $4.5 million and $4.7 million for the nine months ended December 31, 2019 and 2018, respectively.

 

 

The Company expects to record amortization of intangible assets for fiscal years ending March 31, 2020 and future fiscal years as follows (in thousands):

 

For Years Ending March 31,
2020 (remaining three months)		$	1,187
2021			4,744
2022			4,744
2023			3,648
2024			358
Thereafter			3,129
		$	17,810

 

Note 6 — Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities at December 31, 2019 and March 31, 2019 were as follows (in thousands):

 

		December 31,				March 31,
		2019				2019
Accounts payable		$	21,367			$	18,316
Accrued liabilities			3,162				2,519
Due to related parties			-				71
Lease liabilities, current			79				-
		$	24,608			$	20,906

 

Note 7 — Note Payable

 

On December 31, 2014, the Company converted accounts payable into a Senior Promissory Note (the “Note”) in the aggregate principal amount of $0.2 million. The Note bears interest at 6% per annum and interest is payable on a quarterly basis commencing March 31, 2015 or the Company may elect that the amount of such interest be added to the principal sum outstanding under this Note. The payables arose in connection with professional services rendered by attorneys for the Company prior to and through December 31, 2014, and the Note had an original maturity date of December 31, 2015, which was extended to September 30, 2016 or such later date as the lender may agree to in writing. In February 2018, the Note holder filed a claim for collection of the Note (see Note 13 – Commitments and Contingencies). In February 2019, as part of a settlement agreement, the parties agreed to the repayment of the Note on or before June 30, 2019. As of the date of this Quarterly Report on Form 10-Q (this “Quarterly Report”), the Note has not been extended and is currently past due. In addition, the holder of the Note obtained a judgement against the Company for nonpayment of the Note in the State of Delaware in August 2019 and a judgement and judgement lien against the Company in the State of California in the third fiscal quarter ended December 31, 2019. As of December 31, 2019 and March 31, 2019, the balance due under the Note was $0.3 million and $0.3 million, respectively, which includes $0.1 million and $0.1 million of accrued interest, respectively, outstanding under the Note. 

 

Note 8 — Senior Secured Convertible Debentures

 

On June 29, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”), with JGB Partners, LP, JGB Capital, LP and JGB (Cayman) Finlaggan Ltd. (each, a “Purchaser” and collectively, the “Purchasers”) pursuant to which the Company sold, in a private placement transaction (the “Financing”), for an aggregate cash purchase price of $10.0 million, $10.64 million in aggregate principal amount, of its 12.75% Original Issue Discount Senior Secured Convertible Debentures due June 29, 2021 (the “June 2018 Debentures”). In conjunction with the Financing, the Company (i) recorded issuance costs of $1.1 million against the liability and (ii) used $3.5 million of the proceeds to pay off 100% of the Company’s revolving line of credit. Issuance costs are being amortized to interest expense over the term of the June 2018 Debentures.

 

 

The June 2018 Debentures mature on June 29, 2021, accrue interest at 12.75% per year, and are convertible into shares of common stock of the Company at a conversion price of $10.00 per share at the holder’s option, subject to certain customary adjustments such as stock splits, stock dividends and stock combinations (the “Conversion Price”). Commencing with the calendar month of December 2018 (subject to the following sentence), the holders of the June 2018 Debentures will have the right, at their option, to require the Company to redeem an aggregate of up to $0.2 million of the outstanding principal amount of the Debentures per month. For the month of December 2018, the holders may not submit a redemption notice for such redemption prior to December 28, 2018. The Company will be required to promptly, but in any event no more than two trading days after a holder delivers a redemption notice to the Company, pay the applicable redemption amount in cash or, at the Company’s election and subject to certain conditions, in shares of common stock. At the Company’s election and subject to certain limitations, the Company may also pay interest in shares of its common stock. If the Company elects to pay the redemption amount or interest in shares of its common stock, then, subject to the next sentence, the shares will be delivered based on a price equal to the lesser of (a) a 10% discount to the average of the three lowest daily volume weighted average prices of the Company’s common stock over the prior 20 trading days, or (b) the Conversion Price, subject to a certain minimum price per share and if certain conditions are met. The Company will not have the right to, and will not, make any redemption or interest payment in shares of its common stock unless and until it has obtained the requisite consent of its stockholders under the rules of Nasdaq or if the issuance of shares as a result of such election would reduce the number of shares that the Company is permitted to issue under Nasdaq listing standards upon the conversion in full of the June 2018 Debentures.

 

Subject to the satisfaction of certain conditions, at any time after June 28, 2019, the Company may elect to prepay all, but not less than all, of the June 2018 Debentures for a prepayment amount equal to the outstanding principal balance of the June 2018 Debentures plus all accrued and unpaid interest thereon, together with a Prepayment Premium equal to the amount as discussed further below.

 

The Company’s obligations under the June 2018 Debentures can be accelerated upon the occurrence of certain customary events of default. In the event of default and acceleration of the Company’s obligations, the Company would be required to pay the applicable prepayment amount described above.

 

The Company’s obligations under the June 2018 Debentures have been guaranteed under a Subsidiary Guarantee (the “Subsidiary Guarantee”) by its wholly-owned subsidiaries, Slacker, LiveXLive, Corp. and LXL Studios, Inc. (the “Guarantors”). The Company’s obligations under the June 2018 Debentures and the Guarantors’ obligations under the Subsidiary Guarantee are secured under a Security Agreement by a lien on all of the Company’s and the Guarantors’ assets, subject to certain exceptions.

 

On February 11, 2019, the Company amended the SPA with the Purchasers to obtain additional financing, increasing the cash purchase price of the Debentures by $3.0 million, $3.2 million in aggregate principal amount, of its 12.75% Original Issue Discount Senior Secured Convertible Debentures due June 29, 2021 (the “February 2019 Debentures” and together with the June 2018 Debentures, the “Debentures”). In conjunction with the additional financing, the Company (i) recorded issuance costs of $0.1 million against the liability, (ii) modified certain financial liquidity covenants in the Debentures, (iii) modified the definition of “Monthly Allowance” by increasing it from $170,000 to $221,000, and (iv) amended the definition of “Prepayment Amount” to mean, with respect to any payment of the Debentures prior to the maturity date, the entire outstanding principal balance (including any original issue discount) of the Debenture, all accrued and unpaid interest thereon, together with a prepayment premium (the “Prepayment Premium”) equal to the following: (a) if the Debentures are prepaid on or after the original issuance date, but on or prior to December 31, 2019, all remaining regularly scheduled interest to be paid on the Debentures from the date of such payment of the Debentures to, but excluding, December 31, 2019, plus 10% of the entire outstanding principal balance of the Debentures, (b) if the Debentures are prepaid after December 31, 2019, but on or prior to June 30, 2020, 10% of the entire outstanding principal balance of the Debentures; (c) if the Debentures are prepaid after June 30, 2020, but on or prior to December 31, 2020, 8% of the entire outstanding principal balance of the Debentures; and (d) if the Debentures are prepaid on or after December 31, 2020, but prior to the maturity date, 6% of the entire outstanding principal balance of the Debentures. The terms of the February 2019 Debentures were otherwise the same as the June 2019 Debentures. The Company evaluated the amendment and the modification was not required to be accounted for as an extinguishment as the instruments are not considered substantially different under ASC 470-50, Debt – Modifications and Extinguishment. As a result of the modification, the change in fair value of the embedded conversion feature was recorded as an additional debt discount of $0.2 million with a corresponding increase to additional paid in capital. The outstanding principal balance of the Debentures at December 31, 2019 was $11.1 million, which included $0 of accrued interest and at March 31, 2019 was $13.2 million, which included $0.1 million of accrued interest.

 

 

The Debentures contain customary affirmative and restrictive covenants and representations and warranties, including limitations on indebtedness, liens, investments, dispositions of assets, organizational document amendments, issuance of disqualified stock, change of control transactions, stock repurchases, indebtedness repayments, dividends, the creation of subsidiaries, affiliate transactions, deposit accounts and certain other matters. The Company must also maintain a specified minimum cash balance, meet certain financial targets, and maintain minimum amounts of liquidity. As of December 31, 2019, the Company was not in compliance with one of these financial covenants, however, on January 31, 2020, the Company amended the Debentures which removed the previous breach (see Note 18 — Subsequent Events).

 

The Company has evaluated the Debentures and has identified two derivative instruments which are bifurcated from the underlying Debentures relating to provisions around an event of default and mandatory prepayments upon divestitures exceeding certain thresholds. The Company has performed a fair value analysis using a binomial lattice calculation on both of the derivative instruments using the following assumptions. Coupon Rate: 12.75%, Term: 3.0 years, Volatility: 18.3%, Market Rate: 13.0%, Probability of Divesture: 5.0% and Probability of Default: 7.74%. The Company determined that at issuance, the fair value of the instruments was $0.2 million. The Company has recorded the fair value of the derivatives and corresponding debt discount within June 2018 Debentures on the Company’s condensed consolidated balance sheet.

 

At December 31, 2019, the Company performed a fair value analysis using a binomial lattice calculation on both of the derivative instruments using the following assumptions: Coupon Rate: 12.75%, Term: 1.50 years, Volatility: 92.2%, Market Rate: 20.4% and Probability of Default: 37.52%. The Company determined that as of the assessment date, the fair value is $0.4 million. The change in fair value of $0.2 million is recorded in Other income (expense) on the Company’s condensed consolidated statements of operations for the nine months ended December 31, 2019.

 

At March 31, 2019, the Company performed a fair value analysis using a risk neutral model on the default event derivative instrument using the following assumptions: Coupon Rate: 12.75%, Term: 2.25 years, Discount Rate: 17.47 – 17.66%, Risk Free Rate: 2.26%, Recovery Rate: 53.99% and Probability of Default: 30.97%. The Company determined that as of the assessment date, the fair value was $0.6 million. The change in fair value of $0.3 million was recorded in Other income (expense) on the Company’s consolidated statements of operations at March 31, 2019.

 

As of the date of this Quarterly Report, the Debentures holders have sent monthly redemption notices for December 2018 through February 2020 (inclusive). The Company has repaid $0.3 million of principal in January 2019 and $0.2 million of principal in each month in February 2019, March 2019, April 2019, May 2019, June 2019, July 2019, August 2019, September 2019, October 2019, November 2019, December 2019, January 2020 and $0.4 in February 2020.

 

		December 31,				March 31,
		2019				2019
Senior Secured Convertible Debentures
Senior Secured Convertible Debentures		$	11,112			$	13,101
Accrued interest			-				142
Fair Value of Embedded Derivatives			397				586
Less: Discount			(1,087	)			(1,434	)
Net			10,422				12,395
Less: Senior Secured Convertible Debentures, current			3,047				2,111
Senior Secured Convertible Debentures, long-term		$	7,375			$	10,284

 

 

Note 9 — Unsecured Convertible Notes

 

The Company’s unsecured convertible notes payable at December 31, 2019 and March 31, 2019 were as follows (in thousands):

 

		December 31,				March 31,
		2019				2019
Unsecured Convertible Notes - Related Party
(A) 7.5% Unsecured Convertible Note - Due May 31, 2021		$	4,053			$	3,850
(B) 7.5% Unsecured Convertible Notes - Due May 31, 2021			1,018				967
Less: Discount			(50	)			(76	)
Net			5,021				4,741
Less: Unsecured Convertible Note Payable - Related Party, current			-				-
Unsecured Convertible Notes Payable - Related Party, long-term		$	5,021			$	4,741

 

Total principal maturities of the Company’s long-term borrowings, including the Debentures, unsecured convertible notes, and note payable are $0.3 million for the year ending March 31, 2020, $0 for the year ending March 31, 2021 and $16.2 million for the year ending March 31, 2022.

 

As of December 31, 2019 and March 31, 2019, the Company had outstanding 7.5% (effective as of April 1, 2018, previously 6%) unsecured convertible notes payable (the “Trinad Notes”) issued to Trinad Capital Master Fund Ltd. (“Trinad Capital”), a fund controlled by Mr. Ellin, the Company’s Chief Executive Officer, Chairman, director and principal stockholder as follows: 

 

(A) The first Trinad Note was issued on February 21, 2017, to convert aggregate principal and interest of $3.6 million under the first senior promissory note and second senior promissory note with Trinad Capital previously issued on December 31, 2014 and April 8, 2015, respectively. The first Trinad Note was due on March 31, 2018 and was extended to May 31, 2019 and further extended to May 31, 2021 (as discussed below). At December 31, 2019, the balance due of $4.1 million, which included $0.5 million of accrued interest, was outstanding under the first Trinad Note.  At March 31, 2019, the balance due of $3.8 million, which included $0.2 million of accrued interest, was outstanding under the first Trinad Note.

 

(B) Between October 27, 2017 and December 18, 2017, the Company issued six unsecured convertible notes payable to Trinad Capital for aggregate total principal amount of $0.9 million. The notes were due on various dates through December 31, 2018 and were extended to May 31, 2019 and further extended to May 31, 2021 (as discussed below). For the three months ended December 31, 2019, the Company amortized less than $0.1 million of discount to interest expense, and the unamortized discount as of December 31, 2019 was less than $0.1 million. As of December 31, 2019, $0.1 million of accrued interest was added to the principal balance. 

 

On March 30, 2018, the Company entered into an Amendment of Notes Agreement (the “Amendment Agreement”) with Trinad Capital pursuant to which the maturity date of all of the Company’s 6% unsecured convertible notes was extended to May 31, 2019. In consideration of the maturity date extension, the interest rate payable under the notes was increased from 6.0% to 7.5% beginning on April 1, 2018, and the aggregate amount of accrued interest due under all of the Trinad Notes as of March 31, 2018 of $0.3 million was paid. The Company evaluated the Amendment Agreement and the modification was not required to be accounted for as an extinguishment as the instruments are not considered substantially different under ASC 470-50, Debt – Modifications and Extinguishment.

 

On March 31, 2019, the Company entered into a further Amendment of Notes Agreement (the “Second Amendment Agreement”) with Trinad Capital in which the maturity dates of all of the Trinad Notes were all extended to May 31, 2021. The Company evaluated the Second Amendment Agreement and the modification was required to be accounted for as Troubled Debt Restructuring under ASC 470-50, Debt – Modifications and Extinguishment as it has been determined that there is substantial doubt about the Company’s ability to continue as a going concern (see Note 1 — Organization and Basis of Presentation) and Trinad Capital granted the Company a concession, as the effective interest rate of the amended Note is less than that of the original Trinad Notes.

 

The Company may not redeem the any of the Trinad Notes prior to May 31, 2021 without Trinad Capital’s consent. 

 

 

Note 10 — Related Party Transactions

 

As of December 31, 2019 and March 31, 2019, the amount due to related parties was $0 and less than $0.1 million in the aggregate, respectively, payable to Mr. Ellin, the Company’s Chief Executive Officer, Chairman, director and principal stockholder. This amount was provided to the Company for working capital as needed and is unsecured, noninterest bearing advance with no formal terms of repayment.

 

Note 11 — Leases

 

The Company leases a facility under a non-cancelable operating lease which expires in fiscal year 2022. Upon adoption of ASU 2016-02 and its related Updates, the Company recorded $0.2 million of right-of-use assets and operating lease liabilities. Operating lease cost for the three and nine months ended December 31, 2019 was less than $0.1 million.

 

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

 

Operating leases		December 31, 2019
Operating lease right-of-use assets		$	146
Total operating lease right-of-use assets			146
Operating lease liability, current		$	79
Operating lease liability, noncurrent			67
Total operating lease liabilities		$	146

  

Maturities of operating lease liabilities as of December 31, 2019 were as follows (in thousands):

 

For Years Ending March 31,
2020 (remaining three months)		$	23
2021			94
2022			47
Total lease payments			164
Less: imputed interest			(18	)
Present value of operating lease liabilities		$	146

 

Significant judgments

 

Discount rate – the Company’s lease is discounted using the Company’s incremental borrowing rate of 12.75% as the rate implicit in the lease is not readily determinable.

 

Options – the lease term is the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determined it is reasonably certain of exercising the option at inception or when a triggering event occurs.

 

 

Rental expense for operating leases classified under ASC 840 for each of the three and nine months ended December 31, 2018 was less than $0.1 million and was recorded within general and administrative expenses.

 

Beginning on August 1, 2017, the Company was given the right to occupy approximately 5,200 square feet of office space in West Hollywood, California. The space was provided to the Company by an unrelated third party and is fully furnished. The Company compensated the landlord in cash at the rate of approximately $38 thousand per month for months that the Company occupies the space. The Company or the third party had the right to terminate the arrangement at any time without prior notice, and the Company terminated this arrangement, effective April 30, 2019.

 

On May 1, 2019 the Company entered into a month to month agreement with a third party to lease office space in Los Angeles, California for $20 thousand per month. This agreement was subsequently amended on October 1, 2019 to $14 thousand per month with a termination date of December 31, 2019.

 

Slacker leases its San Diego premises under operating leases expiring on December 31, 2020. Rent expense for the operating lease totaled $0.3 million and $0.3 million for the nine months ended December 31, 2019 and 2018, respectively.

 

Note 12 — Long-Term Liabilities

 

 During the quarter ended September 30, 2019, Slacker entered into three amendments to existing agreements with certain licensors of music content (the “Music Partners”) which own and license rights to Slacker to certain sound recordings. Pursuant to these amendments, payment terms on $10.0 million of outstanding balances to the Music Partners were extended over periods between 11 and 24 months. As of December 31, 2019, there was $8.7 million due, of which $5.8 million is recorded as current liabilities and $2.9 million is recorded as other long-term liabilities.

 

In addition, the Company issued one of the Music Partners $0.4 million in restricted shares of the Company’s common stock, at a price of approximately $4.51 per share, as full payment of certain amounts due under such agreement.

 

The Company evaluated these agreements and the two of the amendments were required to be accounted for as a modification under ASC 470-50 Debt – Modifications and Extinguishment, and one of the agreements was required to be accounted for as troubled debt restructuring under ASC 470-60, Troubled Debt Restructurings by Debtors. There were no material adjustments required as a result. 

 

Note 13 — Commitments and Contingencies

 

Promotional Rights

 

Certain of the Company’s content acquisition agreements contain minimum guarantees and require that the Company makes upfront minimum guarantee payments. As of December 31, 2019, the Company has licenses, production and/or distribution agreements to pay future minimum guarantee commitments of $4.4 million, of which $0.6 million will be paid in the fiscal year ending March 31, 2020 and the remainder will be paid thereafter. These agreements also provide for a revenue share that ranges between 35% and 50% of net revenues. In addition, there are other licenses, production and/or distribution agreements that provide for revenue share of 50% of net revenues; however, without a requirement to make future minimum guarantee commitment payments irrespective to the execution and results of the planned events. As of December 31, 2019, the Company had prepaid minimum guarantees of $0.2 million in content acquisition costs related to minimum guarantees.

 

 

Contractual Obligations

 

As of December 31, 2019, the Company is obligated under agreements with certain content providers, such as festivals, clubs, events, concerts, artists, promoters, venues, music labels and publishers, and other contractual obligations to make guaranteed payments as follows: $0.7 million for the fiscal year ending March 31, 2020 and $1.7 million thereafter.

 

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 is the period of time 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, subscribers 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. 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, 2019, 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.

 

Legal Proceedings

   

On February 8, 2018, Wynn Las Vegas, LLC (“Wynn”) filed a claim in the District Court, Clark County, Nevada against LXL Tickets claiming total damages in excess of $0.6 million (the “Wynn Claim Amount”) as a result of alleged breach of contract, breach of covenant of good faith and fair dealing and unjust enrichment with respect to that certain Second Amendment and Extension of the Wantickets.com Presale Agreement entered into by and between Wantickets and Wynn on or about December 31, 2016 (the “Wantickets-Wynn Agreement”). In connection with this action, on June 21, 2017, Wynn filed suit in the Eighth Judicial District Court, Clark County, Nevada against RNG Tickets, LLC (d/b/a Wantickets) and Wantickets. That litigation is still pending and active. RNG Tickets has not filed a responsive pleading in the case and Wantickets RDM has defaulted. The Company believes that Wynn’s position is that LXL Tickets acquired Wantickets, including Wantickets’ obligations under the Wantickets-Wynn Agreement (and not just certain assets and liabilities of Wantickets), and as such LXL Tickets should be liable to Wynn for the Wynn Claim Amount pursuant to the Wantickets-Wynn Agreement. The Company further believes that this action against LXL Tickets is without merit and intends to vigorously defend itself against any obligations or liability to Wynn with respect to such claims. In October 2018, pursuant to the terms of the APA (as defined below), the Company submitted a formal demand to Wantickets, Mr. Schnaier and Danco to indemnify the Company, among other things, for its costs and expenses incurred in connection with this matter. In April 2019, the parties agreed to informally stay the proceeding for the time being and extend discovery deadlines. As of December 31, 2019, the potential range of loss related to this matter was not material.

 

In March 2018, Manatt Phelps & Phillips, LLP (“Manatt”) served the Company with a complaint filed on February 22, 2018 in the Supreme Court of the State of California County of Los Angeles against the Company. The complaint alleges, among other things, breach of contract and breach of promissory note. Plaintiff is seeking damages of $0.2 million, plus interest, attorneys’ fees and costs and other such relief as the court may award. On April 12, 2018, the Company filed an answer that generally denied all the claims in the complaint. On February 19, 2019, in connection with the settlement of the plaintiff’s Delaware action (as discussed below), the parties settled this matter agreeing that the Company would repay this note and accrued interest in full by June 30, 2019. Such settlement was approved by the court on March 4, 2019, and the plaintiff dismissed this action against the Company without prejudice. No additional consideration was paid by the Company to the plaintiff related to this settlement. At December 31, 2019 the promissory note has not been paid and is currently past due.

 

 

On October 11, 2018, Manatt filed a complaint in the Court of Chancery of the State of Delaware against the Company alleging that we have improperly refused to remove the restrictive legend from the shares of the Company’s common stock owned by the plaintiff (the “Manatt DE Action”). Plaintiff is seeking declaratory judgment that all of the statutory prerequisites for removal of the restrictive legend have been met and injunctive relief requiring us to remove such restrictive legend, plus damages and losses suffered by the plaintiff as a result of our alleged conduct, including interest, attorneys’ fees and costs and other such relief as the court may award. On February 19, 2019, the parties entered into a settlement agreement and agreed to release each other from all claims and damages relating to this matter, pending the repayment by the Company of the promissory note discussed above by June 30, 2019 and the sale of such shares by Manatt in compliance with such order. The parties further agreed that within three days after the later of (i) Manatt’s sale of all of their shares pursuant to the court’s order in compliance therewith, and (ii) the note repayment by such due date, Manatt would dismiss this Delaware action and the California action with prejudice. Such settlement was approved by the court on March 4, 2019. Other than the repayment of the note and accrued interest in full, no additional consideration was paid by the Company to the plaintiff related to this settlement. Pursuant to the terms of the settlement agreement, as a result of the note due to Manatt described above having not been paid as of June 30, 2019 and is currently being past due, in August, 2019, Manatt obtained a judgement in the Court of Chancery of the State of Delaware against the Company for the amount of $0.3 million, which represents principal and all accrued and unpaid interest on the note through July 5, 2019. The judgement amount will continue to accrue interest at the 6% applicable rate from July 6, 2019 through the date of the judgment’s satisfaction in full. In September 2019, Manatt obtained a related sister-state judgement in the Superior Court of California, County of Los Angeles against the Company for the same amount. In December 2019, Manatt filed a notice of judgement lien with the Secretary of State of California related to the California sister-state judgment obtained in September 2019. 

 

On April 10, 2018, Joseph Schnaier, Danco Enterprises, LLC (an entity solely owned by Mr. Schnaier, “Danco”), Wantmcs Holdings, LLC (Mr. Schnaier is the managing member) and Wantickets (Mr. Schnaier is the 90% beneficial owner) filed a complaint in the Supreme Court of the State of New York, County of New York against each of the Company, LXL Tickets, Robert S. Ellin, Alec Ellin, Blake Indursky and Computershare Trust Company, N.A. (“Computershare”). Plaintiffs subsequently voluntarily dismissed all claims against Alec Ellin and Blake Indursky. The complaint alleged multiple causes of action arising out of Schnaier’s investment (through Danco) of $1.25 million into the Company in 2016, the Company’s purchase of certain operating assets of Wantickets pursuant to the Asset Purchase Agreement, dated as of May 5, 2017, and Mr. Schnaier’s employment with LXL Tickets, including claims for fraudulent inducement, breach of contract, conversion, and defamation. Plaintiffs seek monetary damages and injunctive relief. Plaintiffs have also sued Computershare for negligence and for injunctive relief relating to the refusal to transfer certain restricted shares of the Company’s common stock owned by the plaintiffs. Plaintiffs are seeking injunctive relief, damages of approximately $26.7 million, plus interest, attorneys’ fees and costs and other such relief as the court may award. The Company has denied plaintiffs’ claims. The Company believes that the complaint is an intentional act by the plaintiffs to publicly tarnish the Company’s and its senior management’s reputations through the public domain in an effort to obtain by threat of litigation certain results for Mr. Schnaier’s self-serving and improper purposes. The Company is vigorously defending this lawsuit, and the Company believes that the allegations are without merit and that it has strong defenses. On June 26, 2018, the Company and LXL Tickets, filed counterclaims against the plaintiffs for breach of contract (including under the Asset Purchase Agreement), fraudulent inducement, and other causes of action, seeking injunctive relief, damages, attorneys’ fees and expenses and such other relief as the court may award. The parties are currently engaged in pre-trial proceedings, including discovery with the trial not expected to commence, if any, until the first quarter of the Company’s fiscal year ending March 31, 2021. In October 2018, pursuant to the terms of the APA, the Company submitted a formal demand to Wantickets, Mr. Schnaier and Danco to indemnify the Company, among other things, for its costs and expenses incurred in connection with this matter. Per the court order issued in May 2019, the parties agreed to allow Mr. Schnaier to sell his remaining shares of the Company’s common stock on an ongoing basis. Sales of such shares were completed during the second quarter ended September 30, 2019. The Company has and intends to continue to vigorously defend all defendants against any liability to the plaintiffs with respect to such claims. As of December 31, 2019, the outcome of this lawsuit is inherently uncertain and the potential range of loss could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

During each of the nine months ended December 31, 2019 and 2018, the Company recorded aggregate legal settlement expenses relating to potential claims arising in connection with litigation brought against the Company by certain third-parties of less than $0.1 million, respectively. During the nine months ended December 31, 2019 and 2018, the full amounts were expensed and included in general and administrative expenses.

 

 

While the resolution of the above matters cannot be predicted with certainty, other than as set forth above and in Note 13 — Commitments and Contingencies of the 2019 Form 10-K, the Company does not believe, based on current knowledge, that except as set forth above, the outcome of the currently pending claims or legal proceedings in which the Company is currently involved will have a material adverse effect on the Company’s financial statements.

 

From time to time, the Company may be involved in legal proceedings and other matters arising in connection with the conduct of its business activities. Many of these proceedings may be at preliminary stages and/or seek an indeterminate amount of damages. The Company regularly evaluates the status of its commitments and contingencies in which it is involved to (i) assess whether a material loss is probable or there is at least a reasonable possibility that a material loss or an additional material loss in excess of a recorded accrual may have been incurred and (ii) determine if financial accruals are required when appropriate. The Company records an expense accrual for any commitments and loss contingency when it determines that a loss is probable and the amount of the loss can be reasonably estimated. If an expense accrual is not appropriate, the Company further evaluates each matter to assess whether an estimate of possible loss or range of loss can be made and whether or not any such matter requires additional disclosure. There can be no assurance that any proceeding against the Company will be resolved in amounts that will not differ from the amounts of estimated exposures. Legal fees and other costs of defending litigation are expensed as incurred.

 

Non-Income Related Taxes

 

In general, the Company has not historically collected state or local sales, use or other similar taxes in any jurisdictions in which the Company does not have a tax nexus, in reliance on court decisions or applicable exemptions that restrict or preclude the imposition of obligations to collect such taxes with respect to online sales of its music subscription services. In addition, the Company has not historically collected state or local sales, use or other similar taxes in certain jurisdictions in which it has a physical presence, in reliance on applicable exemptions. On June 21, 2018, the U.S. Supreme Court decided, in South Dakota v. Wayfair, Inc., that state and local jurisdictions may, at least in certain circumstances, enforce a sales and use tax collection obligation on remote vendors that have no physical presence in such jurisdiction. A number of states have already begun, or have positioned themselves to begin, requiring sales and use tax collection by remote vendors and/or by online marketplaces. The details and effective dates of these collection requirements vary from state to state. The Company evaluated the new requirements and based upon its assessment determined that its sales tax exposure was not material to the financial results as of December 31, 2019.  The Company is in the process of determining how and when its collection practices will need to change in the relevant jurisdictions, including obtaining resale certificates from third party resellers of the Company’s music services, as necessary.

 

Note 14 — Employee Benefit Plan

 

Effective March 2019, the Company sponsors a 401(k) plan (the “401(k) Plan”) covering all employees. Prior to March 31, 2019, only Slacker employees were eligible to participate in the 401(k) Plan. Employees are eligible to participate in the 401(k) Plan the first day of the calendar month following their date of hire. The Company may make discretionary matching contributions to the 401(k) Plan on behalf of its employees up to a maximum of 100% of the participant’s elective deferral up to a maximum of 5% of the employees’ annual compensation. The Company made matching contributions of less than $0.1 million to the 401(k) Plan for each of the three and nine months ended December 31, 2019 and 2018.

 

 

Note 15 — Stockholders’ Equity

 

Issuance of Common Stock in the Public Offering

 

On July 25, 2019, in a registered direct public offering, the Company entered into securities purchase agreements with certain institutional investors pursuant to which the Company sold a total of 5,000,000 shares of the its common stock at a price per share of $2.10. The gross proceeds to the Company were $10.5 million. The net proceeds of the offering to the Company were $9.5 million, after deducting placement agent fees and other offering expenses totaling $1.0 million paid by the Company.

 

Issuance of Common Stock for Services to Consultants

 

During the nine months ended December 31, 2019, the Company issued 956,575 shares of its common stock valued at $3.5 million to certain Company consultants and vendors. Additionally, the Company has $0.6 million in Accounts Payable and accrued liabilities for stock earned by its consultants, but not yet issued. During the three and nine months ended December 31, 2019, the Company recorded $0.2 million and $0.6 million, respectively, of expense related to stock issuances to its consultants. The remaining unrecognized compensation cost of approximately $0.3 million is expected to be recorded over the next year as the shares vest.

 

During the nine months ended December 31, 2018, the Company issued 159,243 shares of its common stock valued at $0.7 million to certain Company consultants. During the three and nine months ended December 31, 2018, the Company recorded $0.2 million and $1.4 million, respectively, of expense related to stock issuances to consultants.

 

Issuance of Common Stock for Services to Employees

 

During the three and nine months ended December 31, 2019 the Company recorded $0 and less than $0.1 million, respectively, of expense related to prior stock issuances to employees. As of December 31, 2019, there was no remaining unrecognized compensation cost.

 

During the three and nine months ended December 31, 2018, the Company recorded $0.1 million and $0.4 million, respectively, of expense related to the stock issuances to employees.

 

Additional details of the Company’s issuances of its common stock to its employees during the nine months ended December 31, 2019 are as follows:

 

		Number of Shares				Weighted- Average Grant Date Fair Value per Share
Non-vested as of March 31, 2019			15,278			$	5.01
Granted			-				-
Vested			(15,278	)			5.01
Forfeited or expired			-				-
Non-vested as of December 31, 2019			-				-

 

 

Warrants

 

The table below summarizes the Company’s warrant activities during the nine months ended December 31, 2019:

 

		Number of Warrants				Weighted Average Exercise Price				Weighted- Average Remaining Contractual Term (in years)
Balance outstanding, March 31, 2019			167,363				4.01				1.94
Granted			-				-				-
Exercised			-				-				-
Forfeited/expired			-				-				-
Balance outstanding, December 31, 2019			167,363				4.01				1.44
Exercisable, December 31, 2019			167,363				4.01				1.44

 

At December 31, 2019, the intrinsic value of warrants outstanding and exercisable was $0.

 

Note 16 — Business Segment and Geographic Reporting

 

Management has determined that the Company has one operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments. 

 

Customers

 

The Company has one external customer that accounts for more than 10% of its revenue. Such original equipment manufacturer (the “OEM”) provides premium Slacker service in all of their new vehicles. In the three and nine months ended December 31, 2019 total revenue from the OEM was $6.0 million and $16.6 million, respectively. In the three and nine months ended December 31, 2018, total revenue from the OEM was $4.0 million and $9.1 million, respectively.

 

Geographic Information

 

The Company operates as an internet live music streaming platform 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.

 

 

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, 2019
		Fair				Hierarchy Level
		Value				Level 1				Level 2				Level 3
Liabilities:
Bifurcated embedded derivative on senior secured convertible debentures		$	397			$	-			$	-			$	397

 

		March 31, 2019
		Fair				Hierarchy Level
		Value				Level 1				Level 2				Level 3
Liabilities:
Bifurcated embedded derivative on senior secured convertible debentures		$	586			$	-			$	-			$	586

 

The following table presents a reconciliation of the Company’s derivative instruments (in thousands):

 

		Amount
Balance as of March 31, 2019		$	586
Total fair value adjustments reported in earnings			(189	)
Balance as of December 31, 2019		$	397

 

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, 2019
		Carrying				Hierarchy Level
		Value				Level 1				Level 2				Level 3
Assets:
Cash and cash equivalents		$	13,965			$	13,965			$	-			$	-
Restricted cash			235				235				-				-
Liabilities:
Note payable			327				-				-				327
Senior secured convertible debentures, net			10,025				-				-				10,286
Unsecured convertible notes payable, net			5,021				-				-				4,604

 

 

		March 31, 2019
		Carrying				Hierarchy Level
		Value				Level 1				Level 2				Level 3
Assets:
Cash and cash equivalents		$	13,704			$	13,704			$	-			$	-
Restricted cash			235				235				-				-
Liabilities:
Note payable			312				-				-				312
Senior secured convertible debentures, net			11,809				-				-				13,737
Unsecured convertible notes payable, net			4,741				-				-				8,844

 

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of December 31, 2019 and March 31, 2019. The Company’s estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values.

 

Cash equivalents and restricted cash equivalents primarily consisted of short-term interest-bearing money market funds with maturities of less than 90 days and time deposits. The estimated fair values were based on available market pricing information of similar financial instruments.

 

Due to their short maturity, the carrying amounts of the Company’s accounts receivable, accounts payable, accrued expenses and other long-term liabilities approximated their fair values as of December 31, 2019 and March 31, 2019.

 

The Company’s outstanding debt is carried at cost, adjusted for discounts. The Company’s Debentures, embedded derivatives and unsecured convertible notes payable with fixed rates are not publicly traded and the Company has estimated fair values using binomial lattice calculations and a risk neutral model and a yield model with a Black-Scholes-Merton option pricing model, respectively. The Company has recognized $0.2 million of income in the nine months ended December 31, 2019 related to the fair value of bifurcated derivatives through other income (expense). The Company’s note payable is not publicly traded and fair value is estimated to equal carrying value.

 

Note 18 — Subsequent Events

 

On January 31, 2020, the Company modified certain financial liquidity covenants in its Debentures. The amendment went effective retroactive to December 31, 2019 (see Note 8 — Senior Secured Convertible Debentures). In addition, the Company issued 400,000 shares of its common stock to the holders of Debentures in exchange for the Debentures in the principal amount of $10,000, originally issued by the Company on June 29, 2018, as sole consideration for the shares, sufficient to qualify for an exemption under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 3(a)(9) thereof and accompanying removal of applicable restrictions under the Securities Act pursuant to Rule 144. Any sale of such shares shall be subject to a percentage limitation of the daily trading volume.

 

Subsequent to the period end, on February 5, 2020, the Company acquired 100% of the membership interests of React Presents, LLC (“React”), and indirectly Spring Awakening, LLC, which is a wholly owned subsidiary of React.

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

As used herein, the “Company,” “we,” “our” or “us” and similar terms include LiveXLive Media, Inc. and its subsidiaries, unless the context indicates otherwise, unless the context indicates otherwise. The following discussion and analysis of our business and results of operations for the three months ended December 31, 2019, 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 ability to consummate announced acquisitions; our reliance on one key customer for a substantial percentage of our revenue; our ability to attract, maintain and increase the number of our users and paid subscribers; 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; the 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 LiveXLive 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 maturing or to repurchase the convertible nets upon a fundamental chance or at specific repurchase dates; the effect of the conditional conversion feature of the convertible notes; our compliance with the covenants in our credit agreement; 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 2019 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 24, 2019 (the “2019 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 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 chief operating decision maker regularly reviews our operating results, principally to make decisions about how we allocate our resources and to measure our segment and consolidated operating performance. We currently generate a majority of our revenue through subscription services from our streaming radio and music services, and to a lesser extent through advertising and licensing across our music platform. Beginning in the fourth quarter of our fiscal year ended March 31, 2020, we will begin generating ticketing, sponsorship, and promotion-related revenue from live music events through our February 2020 acquisition of React Presents, LLC (“RP”), a leading live entertainment and promoter of electronic dance music (“EDM”) festivals and events.

 

For the nine months ended December 31, 2019 and 2018, we reported revenue of $28.8 million and $24.5 million, respectively. For the nine months ended December 31, 2019, two customers accounted for 13% and 58% of our consolidated revenues, respectively. For the nine months ended December 31, 2018, one customer accounted for 37% of our consolidated revenues.

 

Key Corporate Developments for the Quarter Ended December 31, 2019

 

During the three months ended December 31, 2019, we successfully produced and livestreamed nine (9) major music festivals and events, including iHeartRadio Fiesta Latina and iHeartCountry Veteran’s Day, and featured leading artists including Brantley Gilbert, Judah and Lion, Lady Antebellum, Jason Aldean and SAINt JHN. In addition, we livestreamed the second weekend of Rock in Rio in Rio de Janeiro, Brazil.

 

We ended the December 31, 2019 quarter with approximately 820,000 paid subscribers on our music platform, up from approximately 643,000 at December 31, 2018, representing 28% annual growth. For the three months ended December 31, 2019, we generated over 13.6 million views, 35 artists livestreamed and 36 hours of live programming.

 

In February 2020, we acquired RP for $2.0 million in subordinated convertible debt. RP is a leading live entertainment and promoter of EDM festivals and events, including the Spring Awakening Festival and hundreds of club shows located in and around the city of Chicago, Illinois. The convertible debt bears annual interest of 8%, has a conversion price of $4.50 per share and is payable in two years from the acquisition date.

 

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

 

We derive the majority of our revenue through music subscription services, and secondarily from advertising and licensing. For the three months ended December 31, 2019, approximately 10% and 90% of our revenue was from advertising and paid customers’ subscriptions, respectively. Beginning in February 2020 and throughout 2021 fiscal years, we plan to diversify our revenue by adding a higher percentage of our revenue from live event ticket sales, sponsorship advertising revenue across our owned and third party live music events, and as a result we expect the overall percentage mix of our subscription revenue versus our consolidated revenue to decrease as early as-fiscal year ending March 31, 2021 when compared to fiscal year ending March 31, 2020 (“fiscal year 2020”). 

 

We believe there is substantial near and long-term value in our live music content. We also believe that the monetary value of broadcasting live music follows a similar evolution to 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 the 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. During the three months ended December 31, 2019, we livestreamed nine (9) live festivals and music events. As of December 31, 2019, we now access to over 1,000 festivals and live events under agreement with terms ranging in duration from 1 to 7 years. In the near term, we will continue aggregating our digital traffic across these festivals and monetizing the live broadcasting of these events through ticket sales, advertising, brand sponsorships and licensing of certain broadcasting rights within and outside of North America. Over the next eighteen months, we also plan to package, produce and broadcast our live music content initially on a weekly basis and longer term 24/7/365 across our music platform and grow our paid subscribers. The long-term economics of any future agreement involving festivals, programming, production, broadcasting, streaming, advertising, sponsorships, and licensing could positively or negatively impact our liquidity, growth, margins, relationships, and ability to deploy and grow our future services with current or future customers.

 

 

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 2020, the future revenue and operating growth across our music platform will rely heavily on our ability to grow our subscriber base, continue to develop quality 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 that there are opportunities to expand our services by adding more content in a greater variety of formats, extending our distribution to include pay television and social channels, deploying new services for our subscribers such as artist merchandise and live music event ticket sales, and licensing user data across our platform. Previously our Slacker audio and LiveXLive video services operated on separate platforms; however, in May 2019 we combined these services into a single platform, including offering a greater variety of exclusive and unique music content across our platform. Moreover and beginning in February 2020, we will be producing, promoting and monetizing our own music events, which we believe will have multiple revenue synergies including ability to cross sell on-premise sponsorship with digital sponsorship, increased opportunities for artist-led revenue events and combining event ticket sales with subscription services across our platform. 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 fiscal year 2020, 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.

 

For each of the three and nine months ended December 31, 2019 and 2018, a substantial amount of our revenue was derived from a single customer (Tesla) based in the United States. Either party may terminate our agreement with Tesla for convenience at any time. In addition, a significant amount of the subscription revenue we generate from Tesla is indirectly subsidized by Tesla to its customers, which Tesla is not committed to carry indefinitely. Should our relationship with Tesla change, our subscription revenue services no longer be subsidized and/or made available by Tesla to its customers, there can be no assurance that we will continue to receive the same level of revenue from Tesla and subscription service revenue in future periods may materially fluctuate accordingly.

 

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 our partners, music labels, publishers, artists and or festival owners, and the customers who use our services. Growth in our margins is heavily dependent on our ability to grow, coupled with the managing the costs associated with implementing and operating our services, including the costs of licensing music with the music labels, and producing, promoting live events, including the costs of procuring talent, streaming and distributing video and audio content. Our ability to attract and retain new and existing customers will be highly dependent on our abilities to implement and continually improve upon our technology and services on a timely basis and continually improve our network and operations as technology changes and as we experience increased network capacity constraints as we continue to grow.

 

For the majority of our agreements with festival owners, we acquire the global broadcast rights. Moreover, the digital rights we acquire principally include any format and screen, and future rights to VR and AR. For the years ended March 31, 2019 and 2018, all material amounts of our revenue was derived from customers located in the United States. While our revenue is primarily generated through music subscription services based in the United States today, we believe that there is a substantial opportunity in the longer term for us to significantly diversify our subscriber base and expand our operating segment’s service offerings to customers based in countries outside of the United States. Historically, we have sold certain licensing rights to stream live music in Latin America and China to third parties. In the long term, we plan to expand our business further 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.

 

 

Key Components of Consolidated Statements of Operations

 

The following briefly describes certain key components of revenue and expenses as presented in our consolidated statements of operations.

 

Revenue

 

We currently generate our revenue through advertising and paid subscriptions across our music platform, and secondarily through the licensing of non-U.S. broadcasting rights for our live events. Our advertising revenue is based upon the number of impressions or active listeners we deliver across our music platform. Our subscription revenue is driven by the number of paid subscribers across our music platform, which pay up to $9.99 per month for a premium music subscription. Licensing revenue is driven by certain broadcasting rights we own and license to third parties. Beginning in the fourth quarter of fiscal year 2020 and with the acquisition of RP, we expect to begin generating revenue from ticket sales and promotion of our live events.

 

Where we enter into revenue sharing arrangements with our customers, and we act as the principal, we report the underlying revenue on a gross basis in our consolidated statements of operations and record the revenue-sharing payments to our customers in costs of sales. In determining whether to report revenue gross for the amount of fees received from our customers, we assess whether we control the specified good or service before it is transferred to the customer. In making this assessment, we also consider whether we are primarily responsible for fulfillment and have latitude in establishing prices with our customers.

 

Operating Expenses

 

Operating expenses consist of cost of sales, sales and marketing, product development, general and administrative, and amortization of intangible assets. Included in our operating expenses are stock based compensation and depreciation expenses associated with our capital expenditures.

 

Cost of Sales

 

Cost of sales principally consist of the costs of licensing our services across our music platform, including producing audio and live music content; music licensing costs paid to labels such as Universal Music, Warner Music and Sony Music, publishers and digital rights organizations such as SoundExchange and BMI; programming, DJs, hosts and streaming costs; revenue recognized by us and shared with others as a result of our revenue-sharing arrangements; platform operating expenses, including depreciation of the systems and hardware used to build and operate our platform; personnel costs related to our network operations, customer service and information technology. Beginning in the fourth quarter of fiscal year 2020 and with the acquisition of RP, we expect to begin incurring costs to produce and promote our live events, which typically include costs to procure talent and venues, production and marketing. As we continue to grow and diversify our revenue base, build out our music services platform, promote our own live events and expand our coverage globally, we anticipate that our service costs will increase when compared to historical periods. Our services cost of sales is dependent on a number of factors, including the amount of premium music downloaded, live festivals we stream in a given period, the amount of content and programming required to operate our services and the number of partners we share our corresponding revenue with.

 

Sales and Marketing

 

Sales and marketing expenses consist primarily of sales and marketing personnel costs, sales support, public relations, advertising, marketing and general promotional expenditures. Fluctuations in our sales and marketing expenses are generally the result of our efforts to support the growth in our businesses, including expenses required to support the expansion of our direct sales force. We currently anticipate that our sales and marketing expenses will continue to increase throughout fiscal year 2020, and continue to fluctuate as a percent of revenue when compared to the fiscal year ended March 31, 2019 (“fiscal year 2019”), as we continue to grow our advertising and sponsorship base, invest in new subscriber growth initiatives and sales and marketing organizations and invest in marketing activities to support the growth of our businesses.

 

 

Product Development

 

Product development expenses consist primarily of expenses incurred in our software engineering, product development and app and web portal design activities and related personnel costs. Fluctuations in our product development expenses are generally the result of hiring personnel to support and develop our music platform, new music product offerings and network operations. With the addition of Slacker and current plans to expand our product applications, services, functionality and capabilities, we currently anticipate that our product development expenses will increase in the near term and more significantly over the next twelve months, as we also continue to hire more product development personnel and further develop our products and offerings to support the growth of our business. We expect our fiscal year 2020 product development expenses as a percentage of revenue to continue to fluctuate accordingly when compared to fiscal year 2019.

 

General and Administrative

 

General and administrative expenses consist primarily of personnel costs from our executive, legal, finance, human resources and information technology organizations and facilities related expenditures, as well as third party professional fees, insurance and bad debt expenses. Professional fees are largely comprised of outside legal, accounting, audit, information technology consulting and legal settlements. With the addition of new personnel to support our planned growth and new public company compliance initiatives in fiscal year 2019 and beyond, we anticipate general and administrative expenses to increase in fiscal year 2020 as compared to fiscal year 2019.

 

Amortization of Intangibles

 

We determine the appropriate useful life of intangible assets by performing an analysis of expected cash flows based on our historical experience of intangible assets of similar quality and value. Amortization as a percentage of revenue will depend upon a variety of factors, such as the amounts and mix of our identifiable intangible assets acquired in business combinations.

 

Stock-based Compensation

 

Included in our operating expenses are expenses associated with stock-based compensation, which are allocated and included in costs of sales, sales and marketing, product development and general and administrative expenses as necessary. Stock-based compensation expense is largely comprised of costs associated with stock options and restricted stock units granted to employees and certain non-employees including directors and consultants. We record the fair value of these equity-based awards and expense at their cost ratably over related vesting periods. In addition, stock-based compensation expense includes the cost of warrants to purchase our common stock issued to certain non-employees.

 

As of December 31, 2019, we had approximately $8.3 million of unrecognized stock-based compensation, which we expect to recognize over a weighted-average period of approximately 5.1 years. Stock-based compensation expense is expected to be relatively consistent in fiscal year 2020, as compared to fiscal year 2019 as a result of our existing unrecognized stock-based compensation, and as we issue additional stock-based awards to continue to attract and retain employees and non-employee directors.

 

Other Income (Expense)

 

Other income (expense) principally consists of changes in the fair value of our derivative financial instruments, interest on outstanding debt associated with our notes payable, late fees, convertible notes and loans, income or loss from our equity-method investments and certain unrealized transaction gains and losses on foreign currency denominated assets and liabilities. We typically invest our available cash balances in money market funds and short-term United States Treasury obligations.

 

 

Provision for Income Taxes

 

Since our inception, we have been subject to income taxes principally in the United States. We anticipate that as we continue to expand our operations outside the United States, we will become subject to taxation based on the foreign statutory rates and our effective tax rate could fluctuate accordingly.

 

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

As of December 31, 2019, we had approximately $97.4 million and $17.6 million of federal and state net operating losses, respectively. These operating loss carryforwards are available to offset future taxable income that expire in varying amounts beginning in 2024 if unused. We obtained $134.0 million of net operating loss carryforwards through the acquisition of Slacker in December 2017.  Utilization of these losses is limited by Section 382 of the Internal Revenue Code, as amended (the “IRC”), in fiscal year 2018 and each taxable year thereafter. We have estimated a limitation and revalued the losses at $22.0 million. It is possible that the utilization of these NOL carryforwards may be further limited by other changes in ownership due to Section 382 of the IRC. We are undertaking a study to determine the applicable limitations, if any. We currently believe that based on available information, it is not more likely than not that our deferred tax assets will be realized, and accordingly, we have recorded a valuation allowance against our federal, state and foreign deferred tax assets.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law, making significant changes to the taxation of U.S. business entities. The Tax Act reduced the U.S. corporate income tax rate from 35% to 21%, imposed a one-time transition tax in connection with the move from a worldwide tax system to a territorial tax system, provided for accelerated deductions for certain U.S. film production costs, imposed limitations on certain tax deductions such as executive compensation in future periods, and included numerous other provisions. As we have a March 31 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 31.5% for the fiscal year ended March 31, 2018, and 21% for the fiscal year ended March 31, 2019 and subsequent fiscal years. Since we are not in a current U.S. federal tax paying position, our U.S. tax provision consists primarily of deferred tax benefits calculated at the 21% tax rate.

 

Critical Accounting Policies and Estimates

 

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. A summary of our critical accounting policies is presented in Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates of our 2019 Form 10-K.

 

There were no material changes to our critical accounting policies and estimates during the three months ended December 31, 2019.

 

Recent Accounting Pronouncements

 

See Note 2 – Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of the recent accounting pronouncements.

 

Non-GAAP Measures

 

Reconciliation of Adjusted Operating Loss

 

Adjusted Operating Loss (“AOL”) is a non-GAAP financial measure that we define as operating 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-operating costs 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) any charges in the period pursuant to formal plans to shut down and abandon LXL Tickets, (f) depreciation and amortization (including goodwill impairment, if any), and (g) certain stock-based compensation expense. We use AOL to evaluate the performance of our operations. We believe that information about AOL 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. AOL is not calculated or presented in accordance with the accounting principles generally accepted in the Unites States (“GAAP”). A limitation of the use of AOL 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, AOL 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, AOL as presented herein may not be comparable to similarly titled measures of other companies.

 

 

The following table sets forth the reconciliation of AOL to Operating Income (loss), the most comparable GAAP financial measure (in thousands), for each of the three and nine-month periods ended December 31, 2019 and 2018:

 

		Contribution Margin				Operating Income (Loss) from Operations				Depreciation and Amortization				Stock-Based Compensation				Non- Recurring Acquisition and Realignment Costs				Other Non- Operating Costs				Adjusted Operating Loss
Three Months Ended December 31, 2019
Music Operations		$	2,061			$	(4,668	)		$	1,941			$	1,329			$	-			$	201			$	(1,197	)
Corporate			-				(3,244	)			1				1,606				-				702				(935	)
Total		$	2,061			$	(7,912	)		$	1,942			$	2,935			$	-			$	903			$	(2,132	)
Three Months Ended December 31, 2018
Music Operations		$	1,393			$	(2,424	)		$	149			$	950			$	-			$	54			$	(1,271	)
Corporate			-				(3,324	)			2				1,700				-				305				(1,317	)
Total		$	1,393			$	(5,748	)		$	151			$	2,650			$	-			$	359			$	(2,588	)

 

		Contribution Margin				Operating Income (Loss) from Operations				Depreciation and Amortization				Stock-Based Compensation				Non-Recurring Acquisition and Realignment Costs				Other Non- Operating Costs				Adjusted Operating Loss
Nine months Ended December 31, 2019
Music Operations		$	3,676			$	(17,753	)		$	6,154			$	4,470			$	-			$	246			$	(6,883	)
Corporate			-				(10,353	)			3				4,342				-				2,469				(3,539	)
Total		$	3,676			$	(28,106	)		$	6,157			$	8,812			$	-			$	2,715			$	(10,422	)
Nine months Ended December 31, 2018
Music Operations		$	380			$	(15,300	)		$	5,291			$	3,275			$	-			$	171			$	(6,563	)
Corporate			-				(10,067	)			4				5,437				-				485				(4,141	)
Total		$	380			$	(25,367	)		$	5,295			$	8,712			$	-			$	656			$	(10,704	)

 

 

Operating Results

 

Three Months Ended December 31, 2019, as compared to Three Months Ended December 31, 2018

 

Music Operations

 

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

 

		Three Months Ended December 31,
		2019				2018				% Change
Revenue		$	9,699			$	8,964				8	%
Cost of Sales			7,638				7,571				1	%
Sales & Marketing, Product Development and G&A			5,374				3,934				37	%
Intangible Asset Amortization			1,355				(117	)			-1,258	%
Operating Loss			(4,668	)			(2,424	)			93	%
Operating Margin			-48	%			-27	%			78	%
AOL*		$	(1,197	)		$	(1,271	)			-6	%
AOL Margin*			-12	%			-14	%			-13	%

 

*	See “—Non-GAAP Measures” above for the definition and reconciliation of AOL.

  

Revenue

 

Music Operations revenue increased $0.7 million, or 8%, during the three months ended December 31, 2019, as compared to the three months ended December 31, 2018, primarily due to subscriber growth compared to the prior period.

 

Operating Loss

 

Music Operations operating loss increased $2.3 million, or 93%, to ($4.7) million for the three months ended December 31, 2019, as compared to $(2.4) million for the three months ended December 31, 2018 as a result of a $2.3 million increase in non-cash depreciation, amortization, stock based compensation and non-recurring costs, and a $0.7 million increase in sales and marketing and product development costs to support our growth, offset by a $0.7 million improvement in contribution margins from music services during the three months ended December 31, 2019, as compared to the three months ended December 31, 2018.

 

Adjusted Operating Loss (“AOL”)

 

Music Operations AOL decreased ($0.1) million, or 6%, from a ($1.3) million AOL for the three months ended December 31, 2018, to a ($1.2) million AOL for the three months ended December 31, 2019. The decrease was largely due to $0.7 million higher sales and marketing and product development costs, offset by improved contribution margins of $0.7 million during the three months ended December 31, 2019, as compared to the three months ended December 31, 2018.

 

Adjusted Operating Loss Margin

 

Music Operations AOL Margin at December 31, 2019 improved to (12%) from (14%) for the three months ended December 31, 2018.

 

 

Corporate expense

 

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

 

		Three Months Ended December 31,
		2019				2018				% Change
G&A Expenses		$	3,244			$	3,324				-2	%
Intangible Asset Amortization			-				-				-
Operating Loss			(3,244	)			(3,324	)			-2	%
Operating Margin			-100	%			-100	%			-	%
AOL*		$	(935	)		$	(1,317	)			-29	%

 

*	See “—Non-GAAP Measures” above for the definition and reconciliation of AOL.

 

Operating Loss

 

 Operating loss was relatively flat as it decreased ($0.1) million, or 2%, from a ($3.3) million loss for the three months ended December 31, 2018, to a ($3.2) million loss for the three months ended December 31, 2019.

 

Adjusted Operating Loss

 

Corporate AOL decreased ($0.4) million, or 29%, from a ($1.3) million AOL for the three months ended December 31, 2018, to a ($0.9) million AOL for the three months ended December 31, 2019. The decrease was largely due to a decrease in recurring operating expenses such as professional fees and rent during the periods.

 

 

Nine Months Ended December 31, 2019 as compared to Nine Months Ended December 31, 2018

 

Music Operations

 

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

 

		Nine Months Ended December 31,
		2019				2018				% Change
Revenue		$	28,780			$	24,522				17	%
Cost of Sales			25,104				24,142				4	%
Sales & Marketing, Product Development and G&A			16,932				10,964				54	%
Intangible Asset Amortization			4,497				4,716				-5	%
Operating Loss		$	(17,753	)		$	(15,300	)			16	%
Operating Margin			-62	%			-62	%			-	%
AOL*		$	(6,883	)		$	(6,563	)			5	%
AOL Margin*			-24	%			-27	%			-11	%

  

*	See “—Non-GAAP Measures” above for the definition and reconciliation of AOL.

 

Revenue

 

Music Operations revenue increased to $28.8 million, or 17%, during the nine months ended December 31, 2019, as compared to $24.5 million during the nine months ended December 31, 2018, primarily due to subscriber growth compared to the prior period.

 

Operating Loss

 

Music Operations operating loss increased $2.5 million, or 16%, from a ($15.3) million operating loss for the nine months ended December 31, 2018, to a ($17.8) million operating loss for the nine months ended December 31, 2019. The increase was largely due to a $2.1 million net increase in non-cash depreciation, amortization, stock based compensation and non-recurring costs, and $3.7 million increase in sales & marketing and product development costs to support the growth of our Company, offset by a $3.3 million increase in contribution margin during the nine months ended December 31, 2019 versus the nine months ended December 31, 2018.

 

Adjusted Operating Loss

 

Music Operations Adjusted Operating Loss increased $0.3 million, or 5%, from a ($6.6) million AOL for the nine months ended December 31, 2018, to a ($6.9) million AOL for the nine months ended December 31, 2019. The increase was largely due to the above-discussed $3.7 million increase in operating expenses largely driven by higher sales and marketing and product development expenses, partially offset by an improved contribution margin of $3.3 million for the nine months ended December 31, 2019 compared to the same period in December 31, 2018.

 

Adjusted Operating Loss Margin

 

Music Operations AOL Margin improved for the nine months ended December 31, 2019 to (24%) from (27%) for the nine months ended December 31, 2018. The quarter over quarter improvement in AOL Margin was driven by the increase in revenue and related contribution margin for the nine months ended December 31, 2019, as compared to the nine months ended December 31, 2018 due to an increase in paid subscribers.

 

 

Corporate

 

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

 

		Nine Months Ended December 31,
		2019				2018				% Change
G&A Expenses		$	10,353			$	10,067				3	%
Operating Loss		$	(10,353	)		$	(10,067	)			3	%
Operating Margin			-100	%			-100	%			-	%
AOL*		$	(3,539	)		$	(4,141	)			-15	%

  

*	See “—Non-GAAP Measures” above for the definition and reconciliation of AOL.

 

Operating Loss

 

Operating loss increased $0.3 million, or 3%, from a ($10.1) million for the nine months ended December 31, 2018, to a ($10.4) million for the nine months ended December 31, 2019 largely due to a $1.2 million increase in non-recurring legal fees pertaining to higher defense costs incurred from a matter pertaining to a prior asset acquisition, offset by a $0.9 million decrease in non-cash stock based compensation

 

Adjusted Operating Loss

 

Corporate AOL decreased $0.6 million, or 15%, in the nine months ended December 31, 2019 to ($3.5) million as compared to the nine months ended December 31, 2018 of ($4.1) million. The decrease was largely due to a decrease in recurring operating expenses such as professional fees, travel and rent during the periods.

 

Consolidated Results of Operations

 

Three Months Ended December 31, 2019 as compared to Three Months Ended December 31, 2018

 

The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results (in thousands):

 

		Three Months Ended December 31,				Three Months Ended December 31,
		2019				2018
Revenue:		$	9,699			$	8,964
Operating expenses:
Cost of sales			7,638				7,571
Sales and marketing			1,391				963
Product development			2,754				1,825
General and administrative			4,473				4,470
Amortization of intangible assets			1,355				(117	)
Total operating expenses			17,611				14,712
Loss from operations			(7,912	)			(5,748	)
Other income (expense):
Interest expense, net			(890	)			(839	)
Other expense			(6	)			24
Total other income (expense)			(896	)			(815	)
Loss before provision for income taxes			(8,808	)			(6,563	)
Provision for income taxes			-				-
Net loss		$	(8,808	)		$	(6,563	)
Net loss per share – basic and diluted		$	(0.15	)		$	(0.13	)
Weighted average common shares – basic and diluted			57,927,217				51,984,790

 

 

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

 

		Three Months Ended December 31,
		2019				2018				% Change
Depreciation expense
Cost of sales		$	-			$	-				-
Sales and marketing			39				26				50	%
Product development			505				221				129	%
General and administrative			43				21				105	%
Total depreciation expense		$	587			$	268				119	%

 

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

 

		Three Months Ended December 31,
		2019				2018				% Change
Stock-based compensation expense
Cost of sales		$	16			$	44				-64	%
Sales and marketing			575				246				134	%
Product development			693				601				15	%
General and administrative			1,651				1,759				-6	%
Total stock-based compensation expense		$	2,935			$	2,650				11	%

 

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

 

		Three Months Ended December 31,
		2019				2018
Revenue			100	%			100	%
Operating expenses
Cost of sales			79	%			84	%
Sales and marketing			14	%			11	%
Product development			28	%			20	%
General and administrative			46	%			50	%
Amortization of intangible assets			14	%			-1	%
Total operating expenses			182	%			164	%
Loss from operations			-82	%			-64	%
Other income (expense)			-9	%			-9	%
Loss before income taxes			-91	%			-73	%
Income tax provision			-	%			-	%
Net loss			-91	%			-73	%

 

 

Revenue

 

Revenue was as follows (in thousands):  

 

		Three Months Ended December 31,
		2019				2018				% Change
Advertising and Licensing		$	584			$	856				-32	%
Subscription			9,115				8,108				12	%
Total Revenue		$	9,699			$	8,964				8	%

 

Advertising and Licensing Revenue

 

Advertising and licensing revenue decreased slightly to $0.6 million during the three months ended December 31, 2019 as compared to $0.9 million during the three months ended December 31, 2018, a decrease of $0.3 million or 32% largely due to less listening hours in the current period, therefore less opportunity to serve impressions.

 

Subscription Revenue

 

Subscription revenue increased $1.0 million from $8.1 million for the three months ended December 31, 2018 to $9.1 million for the three months ended December 31, 2019, due to the growth in the number of paid subscribers year over year.

 

Cost of Sales

 

Cost of sales was as follows (in thousands):

 

		Three Months Ended December 31,
		2019				2018				% Change
Production		$	1,281			$	1,747				-27	%
Subscription and Advertising			6,357				5,824				9	%
Total Cost of Sales		$	7,638			$	7,571				1	%

 

Production

 

Production cost of sales of $1.3 million for the three months ended December 31, 2019 decreased by $0.5 million, or 27%, when compared to the three months ended December 31, 2018, largely due to efforts to reduce our average costs per event during the three months ended December 31, 2019, as compared to the three months ended December 31, 2018.

 

Subscription and Advertising

 

Subscription and advertising cost of sales increased $0.6 million, or 9%, from $5.8 million for the three months ended December 31, 2018, to $6.4 million for the three months ended December 31, 2019. The increase was primarily due to the corresponding increase in subscription revenue in the same period.

 

 

Other Operating Expenses

 

Other operating expenses were as follows (in thousands):

 

		Three Months Ended December 31,
		2019				2018				% Change
Sales and marketing expenses		$	1,391			$	963				44	%
Product development			2,754				1,825				51	%
General and administrative			4,473				4,470				-	%
Amortization of intangible assets			1,355				(117	)			-1,258	%
Total Other Operating Expenses		$	9,973			$	7,141				40	%

 

Sales and Marketing Expenses

 

Sales and marketing expenses increased $0.4 million, or 44%, to $1.4 million for the three months ended December 31, 2019, as compared to $1.0 million for the three months ended December 31, 2018. The $0.4 million increase was largely driven by a $0.3 million increase in non-cash stock-based compensation expense, coupled with a $0.1 million increase in marketing to promote live events and campaigns during the three months ended December 31, 2019, as compared to the three months ended December 31, 2018.  

 

Product Development

 

Product development expenses increased $1.0 million, or 51%, to $2.8 million for the three months ended December 31, 2019, as compared to $1.8 million for the three months ended December 31, 2018 largely due to higher personnel costs to support new growth initiatives in the current period coupled with a $0.4 million increase in non-cash stock based compensation and depreciation expense.

 

General and Administrative

 

General and administrative expenses of $4.5 million for the three months ended December 31, 2019 remained generally flat when compared to the three months ended December 31, 2018.

 

Amortization of Intangible Assets

 

Amortization of intangible assets increased $1.5 million to $1.4 million for the three months ended December 31, 2019, as compared to $(0.1) million for the three months ended December 31, 2018. The increase was due to an adjustment to finalize the purchase price allocation of the Slacker, Inc. acquisition recorded during the quarter ended December 31, 2018, resulting in adjustments to the useful life with an effect of reducing monthly amortization.

 

Total Other Income (Expense)

 

Total other income (expense) was as follows (in thousands):

 

		Three Months Ended December 31,
		2019				2018				% Change
Total other income (expense), net		$	(896	)		$	(815	)			10	%

 

Total other income (expense) remained generally flat for the three months ended December 31, 2019 as compared to $0.8 million for the three months ended December 31, 2018. The balances primarily represent interest expense related to senior secured convertible debentures, non-secured convertible notes, amortization of debt discounts and late fees on outstanding payables.

 

 

Nine Months Ended December 31, 2019, as compared to Nine Months Ended December 31, 2018

 

The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results (in thousands):

 

		Nine Months Ended December 31,				Nine Months Ended December 31,
		2019				2018
Revenue:			28,780				24,522
Operating expenses:
Cost of sales			25,104				24,142
Sales and marketing			5,202				3,183
Product development			7,682				5,636
General and administrative			14,401				12,212
Amortization of intangible assets			4,497				4,716
Total operating expenses			56,886				49,889
Loss from operations			(28,106	)			(25,367	)
Other income (expense):
Interest expense, net			(2,700	)			(2,236	)
Other expense			413				(53	)
Total other income (expense)			(2,287	)			(2,289	)
Loss before provision for income taxes			(30,393	)			(27,656	)
Provision for income taxes			-				-
Net loss		$	(30,393	)		$	(27,656	)
Net loss per share – basic and diluted		$	(0.55	)		$	(0.53	)
Weighted average common shares – basic and diluted			55,390,589				51,821,782

 

 

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

 

		Nine Months Ended December 31,
		2019				2018				% Change
Depreciation expense
Cost of sales		$	-			$	-				-
Sales and marketing			134				57				135	%
Product development			1,393				478				191	%
General and administrative			133				44				202	%
Total depreciation expense		$	1,660			$	579				187	%

 

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

 

		Nine Months Ended December 31,
		2019				2018				% Change
Stock-based compensation expense
Cost of sales		$	59			$	168				-65	%
Sales and marketing			1,780				1,068				67	%
Product development			1,490				1,686				-12	%
General and administrative			5,483				5,790				-5	%
Total stock-based compensation expense		$	8,812			$	8,712				1	%

 

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

 

		Nine Months Ended December 31,
		2019				2018
Revenue			100	%			100	%
Operating expenses
Cost of sales			87	%			98	%
Sales and marketing			18	%			13	%
Product development			27	%			23	%
General and administrative			50	%			50	%
Amortization of intangible assets			16	%			19	%
Total operating expenses			198	%			203	%
Loss from operations			-98	%			-103	%
Other income (expense)			-8	%			-9	%
Loss before income taxes			-106	%			-112	%
Income tax provision			-	%			-	%
Net loss			-106	%			-112	%

 

 

Revenue

 

Revenue was as follows (in thousands):

 

		Nine Months Ended December 31,
		2019				2018				% Change
Advertising and Licensing		$	2,115			$	2,549				-17	%
Subscription			26,665				21,973				21	%
Total Revenue		$	28,780			$	24,522				17	%

 

Advertising and Licensing Revenue

 

Advertising and licensing revenue for the nine months ended December 31, 2019 decreased by $0.4 million or 17% to $2.1 million as compared to $2.5 million for the nine months ended December 31, 2018 largely due to less listening hours in the current period, therefore less opportunity to serve impressions. 

 

Subscription Revenue

 

Subscription revenue increased $4.7 million, or 21%, to $26.7 million for the nine months ended December 31, 2019, as compared to $22.0 million for the nine months ended December 31, 2018. The increase was due to the growth in the number of paid subscribers year-over-year.

 

Cost of Sales

 

Cost of sales was as follows (in thousands):

 

		Nine Months Ended December 31,
		2019				2018				% Change
Production		$	6,127			$	6,946				-12	%
Subscription and Advertising			18,977				17,196				10	%
Total Cost of Sales		$	25,104			$	24,142				4	%

 

Production

 

Production cost of sales decreased $0.8 million, or 12%, to $6.1 million for the nine months ended December 31, 2019, as compared to $6.9 million for the nine months ended December 31, 2018. The decrease was largely due to efforts to reduce the average costs per events produced during the nine months ended December 31, 2019 as compared to the nine months ended December 31, 2018.

 

Subscription and Advertising

 

Subscription and advertising cost of sales increased $1.8 million, or 10%, to $19.0 million for the nine months ended December 31, 2019, as compared to $17.2 million for the nine months ended December 31, 2018. The increase was primarily due to an increase in the corresponding subscription revenue in the same period. With total advertising and subscription revenue for the nine months ended December 31, 2019 increasing by 17% as compared to the same period in 2018, subscription and advertising cost of sales only increased 10%. This gross margin improvement is driven by the growth in a higher mix of customers in more favorable plans.

 

 

Other Operating Expenses

 

Other operating expenses were as follows (in thousands):

 

		Nine Months Ended December 31,
		2019				2018				% Change
Sales and marketing expenses		$	5,202			$	3,183				63	%
Product development			7,682				5,636				36	%
General and administrative			14,401				12,212				18	%
Amortization of intangible assets			4,497				4,716				-5	%
Total Other Operating Expenses		$	31,782			$	25,747				23	%

 

Sales and Marketing Expenses

 

Sales and marketing expenses increased $2.0 million, or 63%, to $5.2 million for the nine months ended December 31, 2019, as compared to $3.2 million for the nine months ended December 31, 2018. The $2.0 million increase was largely due to increased marketing spending to acquire paid subscribers and promote live events, coupled with $0.8 million increase in non-cash depreciation and stock-based compensation expense.

  

Product Development

 

Product development expenses increased $2.1 million, or 36%, to $7.7 million for the nine months ended December 31, 2019, as compared to $5.6 million for the nine months ended December 31, 2018. The increase of $2.1 million was largely due to $1.4 million in increased personnel-related and consulting expenses and $0.7 million in non-cash depreciation and stock-based compensation to the support growth initiatives during the nine months ended December 31, 2019 as compared to the nine months ended December 31, 2018.

 

General and Administrative

 

General and administrative expenses increased $2.2 million, or 18%, to $14.4 million for the nine months ended December 31, 2019, as compared to $12.2 million for the nine months ended December 31, 2018. The increase was primarily due to $1.2 million increase in non-recurring legal fees, the vast majority of which is to support legal defense costs related to a prior period asset acquisition, coupled with an increase in personnel-related costs of approximately $1.0 million due to the addition of corporate personal, including a new President appointed in fiscal year 2020, to support growth initiatives.

 

Amortization of Intangible Assets

 

Amortization of intangible assets decreased by $0.2 million, or 5%, to $4.5 million for the nine months ended December 31, 2019, as compared to $4.7 million for the nine months ended December 31, 2018. The decrease was due to the Slacker purchase price allocation being finalized in December of 2018, resulting in adjustments to the useful life with an effect of reducing monthly amortization. Furthermore, certain customer relationships were fully amortized in prior periods thus resulting in further reductions of quarterly amortization.

 

 

Total Other Income (Expense)

 

Total other income (expense) was as follows (in thousands):

 

		Nine months Ended December 31,
		2019				2018				% Change
Total other income (expense), net		$	(2,287	)		$	(2,289	)			-	%

 

Total other income (expense) was generally flat for the nine months ended December 31, 2019 at $(2.3) million, as compared to the nine months ended December 31, 2018. The balances primarily represent interest expense related to non-secured convertible notes, amortization of debt discounts and late fees on outstanding payables.

 

Liquidity and Capital Resources

 

Current Financial Condition

 

As of December 31, 2019, our principal sources of liquidity were our cash and cash equivalents in the amount of $14.0 million, which primarily are invested in cash in banking institutions in the U.S. In December 2017 and July 2019, we completed two registered public offerings of our common stock, selling an aggregate 10,500,000 shares of our common stock and raising net proceeds of approximately $28.0 million, including the overallotment of shares. In December 2017, we acquired Slacker for an aggregate of $50.1 million. In June 2018 and February 2019, we issued $10.6 million and $3.2 million, respectively of Debentures raising aggregate net proceeds of $12.5 million after issuance costs. The vast majority of our cash proceeds were received as a result of the issuance of our convertible notes since 2014, the public offerings, bank debt financing in fiscal year 2018 and the Debentures financing in June 2018 and February 2019. As of December 31, 2019, we had notes payable balance of $0.3 million, $11.1 million in aggregate principal amount of Debentures and unsecured convertible notes with aggregate principal balances of $5.1 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 $30.4 million and utilized cash of $5.4 million in operating activities for the nine months ended December 31, 2019, and had a working capital deficiency of $21.9 million as of December 31, 2019. 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.

 

 

In December 2017, we completed a public offering of shares of our common stock as a result of which we received net proceeds of $16.8 million, after deducting underwriting discount, fees and estimated offering expenses paid by us. In addition, we granted the underwriters the right to purchase up to an additional 750,000 shares of our common stock, which was partially exercised for 460,200 shares on January 23, 2018, resulting in additional net proceeds to us of $1.7 million, after deducting the underwriting discount and offering expenses paid by us. After giving effect to the full exercise of the over-allotment option, the total number of shares sold by us in the Public Offering increased to 5,460,200 shares, and net proceeds to us increased to $18.5 million, after deducting the underwriting discount and offering expenses paid by us.

 

In June 2018, we issued $10.6 million, 3-year June 2018 Debentures. Among other terms, the June 2018 Debentures bear annual interest at 12.75%, require us to meet certain financial covenants and are convertible into shares of our common stock at a conversion price of $10 per share (subject to adjustment). Net proceeds from the issuance of the June 2018 Debentures were $9.6 million after direct issuance costs, of which $3.5 million was used to pay off 100% of the legacy revolving line of credit with Silicon Valley Bank (assumed by us as part of the Slacker acquisition), resulting in a $3.5 million release of restricted cash collateral to us. The remaining proceeds will be used primarily for general working capital. As of the date of this Quarterly Report, the Debentures holders have sent redemption notices for the months of December 2018 through January 2020 (inclusive). We have repaid $0.3 million of principal in January 2019 and $0.2 million of principal for each of the months of February 2019 through January 2020 (inclusive). In February 2019, we issued $3.2 million in additional debentures, with net proceeds of approximately $3.0 million after direct issuance costs. The terms of the additional debentures were substantially the same as the June 2018 Debentures. The June 2018 Debentures and the additional debentures sold in February 2019 are referred to herein as the “Debentures.”

 

On July 25, 2019, we completed a registered offering with certain institutional investors pursuant to which we sold 5,000,000 shares of our common stock at a price per share of $2.10 to such investors (the “2019 Offering”). The gross proceeds of the 2019 Offering to us were $10.5 million. The net proceeds of the 2019 Offering to us were approximately $9.5 million, after deducting placement agent fees and other estimated offering expenses payable by us. We plan to use these proceeds for repayment of our Debentures, working capital needs and general corporate purposes, including without limitation future acquisitions, purchases of outstanding warrants and capital expenditures. The 2019 Offering was made pursuant to our existing shelf Registration Statement on Form S-3 (File No. 333-228909), which was filed with the SEC on December 19, 2018 and went effective on February 7, 2019, and a prospectus supplement relating to the 2019 Offering, which was filed with the SEC on July 26, 2019.

 

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, 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 subscribers that we add to our businesses.

 

As of December 31, 2019 and 2018, we had an outstanding note payable of $0.3 million and $0.3 million, respectively, issued in connection with certain professional services performed for us through March 2015, and outstanding unsecured convertible notes (the “Trinad Notes”) of $5.1 million and $4.7 million, respectively, in principal and accrued interest, issued to Trinad Capital Master Fund Ltd. (“Trinad Capital”), a fund controlled by Mr. Ellin, our Chief Executive Officer, Chairman, director and principal stockholder. As of December 31, 2019, none of the Trinad Notes were due in less than a year. In March 2018, we extended the maturity date of the Trinad Notes to May 2019, In March 2019, we extended the maturity date of the Trinad Notes to May 2021. As of December 31, 2019, the Trinad Notes outstanding were as summarized below.

 

The first Trinad Note was issued on February 21, 2017, to then extend and aggregate principal and interest of $3.6 million under the first senior promissory note and second senior promissory note with Trinad Capital previously issued on December 31, 2014 and April 8, 2015, respectively. The first Trinad Note then became due on March 31, 2018 and was subsequently extended to May 31, 2019 and later extended to May 31, 2021. At December 31, 2018, the balance due of $3.8 million included $0.2 million of accrued interest outstanding under the first Trinad Note.  At December 31, 2019, $4.1 million of principal, which included $0.5 million of accrued interest, was outstanding under the first Trinad Note.

 

 

Between October 27, 2017 and December 18, 2017, we issued six of the Trinad Notes to Trinad Capital for aggregate total principal amount of $0.9 million. The notes were due on various dates through December 31, 2018 and were extended to May 31, 2019 and subsequently with a further extension to May 31, 2021. For the three months ended December 31, 2019, we amortized less than $0.1 million of discount to interest expense, and the unamortized discount as of December 31, 2019 was less than $0.1 million. As of December 31, 2019, $0.1 million of accrued interest was added to the principal balance. 

 

On March 31, 2018, we entered into an Amendment of Notes Agreement (the “Amendment Agreement”) with Trinad Capital pursuant to which the maturity dates of all Trinad Notes were extended to May 31, 2019. In consideration of the maturity date extension, the interest rate payable under the notes was increased from 6.0% to 7.5% beginning on April 1, 2018, and the aggregate amount of accrued interest due under the Trinad Notes as of March 31, 2018 of $0.3 million was paid.

 

On March 31, 2019, we entered into an additional Amendment of Notes Agreement (the “Second Amendment Agreement”) with Trinad Capital pursuant to which the maturity date of all of our Trinad Notes was extended to May 31, 2021.

 

We may not redeem the Trinad Notes prior to May 31, 2021 without Trinad Capital’s consent.

 

During the quarter ended September 30, 2019, Slacker entered into several amendments to existing agreements with certain licensors of music content (the “Music Partners”) which own and license rights to Slacker to certain sound recordings. Pursuant to these amendments, payment terms on $10.0 million of outstanding balances to the Music Partners were extended over periods between 11 and 24 months. As of December 31, 2019, there was $8.7 million due, of which $5.8 million is recorded as current liabilities and $2.9 million is recorded as other long-term liabilities.

 

In addition, the Company issued one of the Music Partners $0.4 million in restricted shares of the Company’s common stock, at a price of approximately $4.51 per share, as full payment of certain amounts due under such agreement.

 

Immediately following our acquisition of Slacker, we assumed what was initially a $5.0 million revolving line of credit from Silicon Valley Bank (the “SVB A/R Line”) that was collateralized by certain assets of Slacker. During the fourth quarter of fiscal year 2018, we renegotiated the SVB A/R Line, decreasing the overall facility to $3.5 million with a maturity date of March 31, 2018. The SVB A/R Line, as amended, had no covenants, was 100% cash collateralized and bears an annual interest rate equal to prime rate as published in the Wall Street Journal plus 0.75%, which equaled 5.50% at March 31, 2018. On March 29, 2018, we further amended the SVB A/R Line, extending the maturity date to July 31, 2018. In June 2018, in conjunction with the issuance of the $10.6 million June 2018 Debentures, the SVB A/R Line was fully repaid and $3.5 million of cash collateral was returned to us.

 

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 February 2020, we acquired RP in exchange for $2.0 million in convertible debt. The convertible debt has a term of 2 years, bears interest at 8% per year and has a conversion price of $4.50 per share.

 

In the future, we may utilize additional commercial financings, bonds, 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 outstanding warrants and unsecured convertible notes, and pay down our Debentures, in part or in full, subject to repayment limitation set forth in the credit agreement. After the completion of the 2019 Public Offering, we expect that our existing cash and cash equivalents and our cash flows from operating activities will be sufficient to fund our operations for at least the next 12 months. However, we may need to raise additional funds through the issuance of equity, equity-related and/or debt securities and/or through additional credit facilities to fund our growing operations, invest in new business opportunities and make potential acquisitions. More recently we filed a universal shelf Registration Statement on Form S-3 allowing us to issue various types of securities, including common stock, preferred stock, warrants, debt securities, units, or any combination of such securities, up to an aggregate amount of $150 million, which became effective on February 7, 2019.

 

 

Sources and Uses of Cash

 

The following table provides information regarding our cash flows for the nine months ended December 31, 2019 and 2018 (in thousands):

 

		Nine Months Ended December 31,
		2019				2018
Net cash used in operating activities		$	(5,368	)		$	(3,818	)
Net cash used in investing activities			(1,755	)			(1,714	)
Net cash provided by financing activities			7,384				6,091
Net change in cash, cash equivalents and restricted cash		$	261			$	559

 

Cash Flows Provided By (Used In) Operating Activities

 

For the nine months ended December 31, 2019

 

Net cash used in our operating activities of ($5.4) million primarily resulted from our net loss during the period of ($30.4) million, which included non-cash charges of $15.7 million largely comprised of the accretion of our debt discount on our unsecured convertible notes, depreciation and amortization, interest paid in kind, change in fair value of embedded derivatives and stock-based compensation. The remainder of our sources of cash provided by operating activities of $9.3 million was from changes in our working capital, including $0.6 million from timing of accounts receivable, ($0.4) million in prepaid expenses and other assets and $9.1 million from timing of accounts payable, accrued expenses and other long-term liabilities

 

For the nine months ended December 31, 2018

 

Net cash used in our operating activities of ($3.8) million primarily resulted from our net loss during the period of ($27.7) million, which included non-cash charges of $1 million largely comprised of the accretion of our debt discount on our unsecured convertible notes, depreciation and amortization and stock-based compensation. The remainder of our sources of cash used by operating activities of $9.1 million was from changes in our working capital, including ($0.7) million from timing of accounts receivable, $0.5 million in prepaid expenses and other assets and $9.3 million from timing of accounts payable and accrued expenses.

 

Cash Flows (Used In) Investing Activities

 

For the nine months ended December 31, 2019

 

Net cash used in investing activities of ($1.8) million was principally due to the ($1.8) million cash used for the purchase of capitalized internally developed software costs during the quarter ended December 31, 2019.

 

For the nine months ended December 31, 2018

 

Net cash used in investing activities of ($1.7) million was principally due to the ($1.7) million cash used for the purchase of capitalized internally developed software costs during the quarter ended December 31, 2018.

 

 

Cash Flows Provided By (Used In) Financing Activities

 

For the nine months ended December 31, 2019

 

Net cash provided by financing activities of $7.4 million primarily due to net proceeds of $9.5 million from the registered public offering, partially offset by repayment of Debentures of $2.0 million and amendment costs of Debentures of $0.2 million.

 

For the nine months ended December 31, 2018

 

Net cash provided by financing activities of $6.1 million was primarily due to net proceeds of $9.6 million from the June 2018 Debentures financing, partially offset by repayment of bank debt of $3.5 million assumed as part of the Slacker acquisition.

 

Debt Covenants

 

Our Debentures contain a number of restrictions that, among other things, require us to satisfy a financial covenant and restrict our and our subsidiaries’ ability to incur additional debt, make certain investments and acquisitions, repurchase our stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, transfer and sell material assets, merge or consolidate, and pay dividends and make distributions (with the exception of subsidiary dividends or distributions to the parent company or other subsidiaries on at least a pro-rata basis with any noncontrolling interest partners). Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the Debentures becoming immediately due and payable. The Debentures have two covenants, measured quarterly, that relate to our EBITDA and revenues. Such covenants require us to maintain (i) EBITDA as at the end of each fiscal quarter that shall not be less than the “EBITDA Target” for such fiscal quarter (as set forth in the Debentures instrument), and (ii) revenue (as determined in accordance with GAAP) as at the end of each fiscal quarter that shall not be less than the “Revenue Target” for such fiscal quarter (as set forth in the Debentures instrument).

 

As of December 31, 2019, we were retroactively in full compliance with these covenants as a result of the amendment to the Debentures that we entered into on January 31, 2020.

 

Contractual Obligations and Commitments

 

During the nine months ended December 31, 2019, we have entered into new licenses, production and/or distribution agreements for digital broadcast rights across certain events. These new agreements have not added any future minimum commitments the fiscal year ending March 31, 2021, or for the fiscal year ending March 31, 2022.

 

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 the 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 2019 Form 10-K, the 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 2019 Form 10-K, to our internal control over financial reporting to remediate the material weaknesses as described in our 2019 Form 10-K.

 

There have been no changes in our internal control over financial reporting, during the quarter ended December 31, 2019 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 the 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.

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, 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. Other than as set forth below, we are not aware of any other pending material legal proceedings.

 

On February 8, 2018, Wynn Las Vegas, LLC (“Wynn”) filed a claim in the District Court, Clark County, Nevada against LXL Tickets claiming total damages in excess of $0.6 million (the “Wynn Claim Amount”) as a result of alleged breach of contract, breach of covenant of good faith and fair dealing and unjust enrichment with respect to that certain Second Amendment and Extension of the Wantickets.com Presale Agreement entered into by and between Wantickets and Wynn on or about September 30, 2016 (the “Wantickets-Wynn Agreement”). In connection with this action, on June 21, 2017, Wynn filed suit in the Eighth Judicial District Court, Clark County, Nevada against RNG Tickets, LLC (d/b/a Wantickets) and Wantickets. That litigation is still pending and active. RNG Tickets has not filed a responsive pleading in the case and Wantickets RDM has defaulted. The Company believes that Wynn’s position is that LXL Tickets acquired Wantickets, including Wantickets’ obligations under the Wantickets-Wynn Agreement (and not just certain assets and liabilities of Wantickets), and as such LXL Tickets should be liable to Wynn for the Wynn Claim Amount pursuant to the Wantickets-Wynn Agreement. The Company further believes that this action against LXL Tickets is without merit and intends to vigorously defend itself against any obligations or liability to Wynn with respect to such claims. In October 2018, pursuant to the terms of the APA (as defined below), the Company submitted a formal demand to Wantickets, Mr. Schnaier and Danco to indemnify the Company, among other things, for its costs and expenses incurred in connection with this matter. In April 2019, the parties agreed to informally stay the proceeding for the time being and extend discovery deadlines. As of December 31, 2019, the potential range of loss related to this matter was not material.

 

In March 2018, Manatt Phelps & Phillips, LLP (“Manatt”) served the Company with a complaint filed on February 22, 2018 in the Supreme Court of the State of California County of Los Angeles against the Company. The complaint alleges, among other things, breach of contract and breach of promissory note. Plaintiff is seeking damages of $0.2 million, plus interest, attorneys’ fees and costs and other such relief as the court may award. On April 12, 2018, the Company filed an answer that generally denied all the claims in the complaint. On February 19, 2019, in connection with the settlement of the plaintiff’s Delaware action (as discussed below), the parties settled this matter agreeing that the Company would repay this note and accrued interest in full by June 30, 2019. Such settlement was approved by the court on March 4, 2019, and the plaintiff dismissed this action against the Company without prejudice. No additional consideration was paid by the Company to the plaintiff related to this settlement. At December 31, 2019 the promissory note has not been paid and is currently past due.

 

On October 11, 2018, Manatt filed a complaint in the Court of Chancery of the State of Delaware against the Company alleging that we have improperly refused to remove the restrictive legend from the shares of the Company’s common stock owned by the plaintiff (the “Manatt DE Action”). Plaintiff is seeking declaratory judgment that all of the statutory prerequisites for removal of the restrictive legend have been met and injunctive relief requiring us to remove such restrictive legend, plus damages and losses suffered by the plaintiff as a result of our alleged conduct, including interest, attorneys’ fees and costs and other such relief as the court may award. On February 19, 2019, the parties entered into a settlement agreement and agreed to release each other from all claims and damages relating to this matter, pending the repayment by the Company of the promissory note discussed above by June 30, 2019 and the sale of such shares by Manatt in compliance with such order. The parties further agreed that within three days after the later of (i) Manatt’s sale of all of their shares pursuant to the court’s order in compliance therewith, and (ii) the promissory note repayment by such due date, Manatt would dismiss this Delaware action and the California action with prejudice. Such settlement was approved by the court on March 4, 2019. Other than the repayment of the note and accrued interest in full, no additional consideration was paid by the Company to the plaintiff related to this settlement. Pursuant to the terms of the settlement agreement, as a result of the promissory note due to Manatt described above having not been paid as of June 30, 2019 and is currently being past due, in August 2019 and September 2019, Manatt obtained a judgement in the Court of Chancery of the State of Delaware and in the Superior Court of California, County of Los Angeles, respectively, against the Company for the amount of $0.3 million, which represents principal and all accrued interest on the note through July 5, 2019. In December 2019, Manatt filed a judgement lien notice with the Secretary of the State of California related to the California sister-state judgement obtained in September 2019. The judgement amount will continue to accrue interest at the 6% applicable rate from July 6, 2019 through the date of the judgment’s satisfaction in full.

 

 

On April 10, 2018, Joseph Schnaier, Danco Enterprises, LLC (an entity solely owned by Mr. Schnaier, “Danco”), Wantmcs Holdings, LLC (Mr. Schnaier is the managing member) and Wantickets (Mr. Schnaier is the 90% beneficial owner) filed a complaint in the Supreme Court of the State of New York, County of New York against each of the Company, LXL Tickets, Robert S. Ellin, Alec Ellin, Blake Indursky and Computershare Trust Company, N.A. (“Computershare”). Plaintiffs subsequently voluntarily dismissed all claims against Alec Ellin and Blake Indursky. The complaint alleged multiple causes of action arising out of Schnaier’s investment (through Danco) of $1.25 million into the Company in 2016, the Company’s purchase of certain operating assets of Wantickets pursuant to the Asset Purchase Agreement, dated as of May 5, 2017, and Mr. Schnaier’s employment with LXL Tickets, including claims for fraudulent inducement, breach of contract, conversion, and defamation. Plaintiffs seek monetary damages and injunctive relief. Plaintiffs have also sued Computershare for negligence and for injunctive relief relating to the refusal to transfer certain restricted shares of the Company’s common stock owned by the plaintiffs. Plaintiffs are seeking injunctive relief, damages of approximately $26.7 million, plus interest, attorneys’ fees and costs and other such relief as the court may award. The Company has denied plaintiffs’ claims. The Company believes that the complaint is an intentional act by the plaintiffs to publicly tarnish the Company’s and its senior management’s reputations through the public domain in an effort to obtain by threat of litigation certain results for Mr. Schnaier’s self-serving and improper purposes. The Company is vigorously defending this lawsuit, and the Company believes that the allegations are without merit and that it has strong defenses. On June 26, 2018, the Company and LXL Tickets, filed counterclaims against the plaintiffs for breach of contract (including under the Asset Purchase Agreement), fraudulent inducement, and other causes of action, seeking injunctive relief, damages, attorneys’ fees and expenses and such other relief as the court may award. The parties are currently engaged in pre-trial proceedings, including discovery with the trial not expected to commence, if any, until the first quarter of the Company’s fiscal year ending March 31, 2021. In October 2018, pursuant to the terms of the APA, the Company submitted a formal demand to Wantickets, Mr. Schnaier and Danco to indemnify the Company, among other things, for its costs and expenses incurred in connection with this matter. Per the court order issued in May 2019, the parties agreed to allow Mr. Schnaier to sell his remaining shares of the Company’s common stock on an ongoing basis. Sales of such shares were completed during the second quarter ended September 30, 2019. The Company has and intends to continue to vigorously defend all defendants against any liability to the plaintiffs with respect to such claims. As of December 31, 2019, the outcome of this lawsuit is inherently uncertain and the potential range of loss could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

Item 1A.

Risk Factors.

 

We have set forth in Item 1A. Risk Factors in our 2019 Form 10-K, risk factors relating to our business and industry, our acquisition strategy, our company, Slacker’s business options, our technology and intellectual property, and our common stock. Readers of this Quarterly Report are referred to such Item 1A. Risk Factors in our 2019 Form 10-K for a more complete understanding of risks concerning us. There have been no material changes in our risk factors since those published in our 2019 Form 10-K other than as set forth below.

 

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 58% of our consolidated revenue for the nine months ended December 31, 2019, and 41% of our consolidated revenue for the year ended March 31, 2019. 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 subscription 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 subscription revenue services no longer be subsidized by and or made available by Tesla to its customers, there can be no assurance that we will continue to receive the same levels of subscription service revenue and future period subscription 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, subscription fees and other revenue streams will suffer.

 

 

We have incurred significant operating and net losses since our inception, have generated minimal revenues to date and anticipate that we will continue to incur significant losses for the foreseeable future.

 

As reflected in our condensed consolidated financial statements included elsewhere herein, we have a history of losses, incurred a net loss of $30.4 million and utilized cash of $5.4 million in operating activities for the nine months ended December 31, 2019, and had a working capital deficiency of $21.9 million as of December 31, 2019. As of December 31, 2019, we had an accumulated deficit of $119.6 million. We anticipate incurring additional losses until such time that we can generate significant increases to our revenues, and/or reduce our operating costs and losses. To date, we have financed our operations exclusively through the sale of equity and/or debt securities (including convertible securities). The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to significantly grow our business and increase our revenues. We expect to continue to incur substantial and increased expenses as we grow our business. We also expect a continued increase in our expenses associated with our operations as a publicly-traded company. We may incur significant losses in the future for a number of other reasons, including unsuccessful acquisitions, costs of integrating new businesses, expenses, difficulties, complications, delays and other unknown events. As a result of the foregoing, we expect to continue to incur significant losses for the foreseeable future and we may not be able to achieve or sustain profitability.

 

Our ability to meet our total liabilities of $56.9 million as of December 31, 2019, 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 substantial doubt as to our ability to continue as a going concern, 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.

  

Our quarterly operating results may be volatile and are difficult to predict in the future, and our stock price may decline if we fail to meet the expectations of securities analysts or investors.

 

As a result of our acquisition of RP in February 2020, and our entry into holding and promoting of our live events, our revenue, margins and other operating results could vary significantly in the future from quarter-to-quarter and year-to-year and may fail to match our past performance due to a variety of factors, including many factors that are outside of our control. Factors that may contribute to the variability of our operating results and cause the market price of our common stock to fluctuate include:

 

·

the entrance of new competitors or competitive products in our market, whether by established or new companies;

·

our ability to retain and grow the number of our active user base and increase engagement among new and existing users;

·

our ability to maintain effective pricing practices, in response to the competitive markets in which we operate or other macroeconomic factors, such as inflation or increased product taxes;

·

our revenue mix, which drives gross profit;

·

seasonal or other shifts in festival, event and advertising revenue;

·

the timing of the launch of our new or updated festivals, events, products, platforms, channels or features;

·

the addition or loss of popular content;

·

the popularity of EDM and EDM festivals, events, concerts and clubs; and

·

an increase in costs associated with protecting our intellectual property, defending against third-party intellectual property infringement allegations or procuring rights to third-party intellectual property.

 

Our gross margins are expected to vary across our business segments and offerings. Festival and event revenue has a lower gross margin compared to platform revenue derived through our arrangements with advertising, content distribution, billing and licensing activities. In addition, our gross margin and operating margin percentages, as well as overall profitability, may be adversely impacted as a result of a shift in music taste, geographic or sales mix, price competition, or the introduction of new technology and EDM festivals and events. We may in the future strategically reduce our Slacker gross margin in an effort to increase our active accounts and/or maintain our OEM relationships and agreements. As a result, our subscription revenue may not increase as consistently as it has historically, or at all, and, unless we are able to adequately increase our other revenues, including festival and event revenue through RP, and grow our active user base, we may be unable to maintain or grow our margins and revenues and our business will be harmed. If a reduction in margins does not result in an increase in our active user base and revenues, our financial results may suffer, and our business may be harmed.

 

If the consultants that we utilize are characterized as employees, we would be subject to employment and withholding liabilities. 

 

Although we believe that the consultants that we utilize in our business, as is customary to do so in our business, are properly characterized as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of independent contractors. We are aware of a number of judicial decisions and legislative proposals that could bring about major reforms in worker classification, including the California legislature’s recent passage of California Assembly Bill 5 (“AB 5”). AB 5 purports to codify a new test for determining worker classification that is widely viewed as expanding the scope of employee relationships and narrowing the scope of independent contractor relationships. Given AB 5’s recent passage, there is no guidance from the regulatory authorities charged with its enforcement, and there is a significant degree of uncertainty regarding its application. In addition, AB 5 has been the subject of widespread national discussion and it is possible that other jurisdictions, including New York, may enact similar laws. If such regulatory authorities or state, federal or foreign courts were to determine that our recording artists and songwriters are employees, and not independent contractors, we would be required to withhold income taxes, to withhold and pay Social Security, Medicare and similar taxes and to pay unemployment and other related payroll taxes. We would also be liable for unpaid past taxes and subject to penalties. As a result, any determination that our consultants are our employees could have a material adverse effect on our business, financial condition and results of operations.

 

Risks Related to Our Indebtedness

 

We may not have sufficient cash flow from our business operations to make payments on our indebtedness.

 

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt and/or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

 

We may incur substantially more debt or take other actions that would intensify the risks discussed above.

 

In addition to our current outstanding debt and notes, we and our subsidiaries may incur substantial additional debt, subject to restrictions contained in our existing and future debt instruments, some or all of which may be secured debt. In June 2018, we issued $10.6 million June 2018 Debentures. In February 2019, we issued $3.2 million in additional 12.75% Original Issue Discount Senior Secured Convertible Debentures due June 29, 2021. The Debentures contain certain restrictive covenants that limit our ability to merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements, incur additional indebtedness 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 the lender or terminate our existing debt agreements. Our debt agreements also contain certain financial covenants, including maintaining a minimum cash amount at all times and achieving certain financial covenants and are secured by substantially all of our assets. There is no guarantee that we will be able to generate sufficient cash flow or sales to meet the financial covenants or pay the principal and interest under our debt agreements or to satisfy all of the financial covenants.

 

 

We may not have the ability to repay the amounts then due under the Debentures and/or convertible notes at maturity or to raise the funds necessary to settle mandatory monthly redemptions of the Debentures. Payment of monthly redemptions of the Debentures in shares of our common 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.

 

At maturity, the entire outstanding principal amount of the Debentures and convertible notes will become due and payable by us. In addition, upon monthly redemption of the Debentures as may be required by the holders thereof, maturity of the Debentures or maturity of the convertible notes, unless we elect to deliver solely shares of our common stock to settle such monthly redemptions of the Debentures (subject to certain equity conditions, which may not be satisfied by us), we will be required to make cash payments in each such instance. However, we may not have sufficient funds or be able to obtain financing at the time we are required to repay the amounts then due under the Debentures or the convertible notes. Our failure to repay any outstanding amount of the Debentures or convertible notes would constitute a default under such indentures. A default would increase the interest rate to the default rate under the Debentures or the maximum rate permitted by applicable law until such amount is paid in full. A default under the Debentures or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Debentures or convertible notes or make cash payments thereon. Furthermore, upon the occurrence and during the continuation of any event of default, the agent, for the benefit of the holders of the Debentures, 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.

 

Commencing with the calendar month of December 2018 (subject to the following sentence), the holders of the Debentures have the right, at their option, to require us to redeem an aggregate of up to $0.2 million (as amended in February 2019) of the outstanding principal amount of the Debentures per month. We are required to promptly, but in any event no more than two trading day after the holder delivers a redemption notice to us, pay the applicable redemption amount in cash or, at our election and subject to certain conditions, in shares of our common stock. If we elect to pay the redemption amount in shares of our common stock, then the shares will be delivered based on a price equal to the lowest of (a) 90% of the average of the three lowest volume weighted-average prices of our common stock over the prior 20 trading days or (b) $10.00, subject to adjustment as provided in the Debentures; provided, however, that such price will in no event be less than $2.00 per share (proportionately adjusted for any stock split, stock dividend, stock combination or other similar transaction). Any repayments made through the issuance of our common stock will result in dilution to our existing stockholders. As of the date of this Quarterly Report, the Debentures holders have sent monthly redemption notices for December 2018 through February 2020 (inclusive). We have repaid $0.3 million of principal in January 2019, and $0.2 million of principal monthly in each of February 2019 through January 2020 (inclusive) and $0.4 million in February 2020.

 

In addition, subject to the satisfaction of certain conditions, at any time after June 28, 2019, we may elect to prepay all, but not less than all, of the Debentures for a prepayment amount equal to the outstanding principal balance of the Debentures plus all accrued and unpaid interest thereon, together with a prepayment premium equal to the following: (a) if the Debentures are prepaid on or after the original issuance date, but on or prior to December 31, 2019, all remaining regularly scheduled interest to be paid on the Debentures from the date of such payment of the Debentures to, but excluding, December 31, 2019, plus 10% of the entire outstanding principal balance of the Debentures, (b) if the Debentures are prepaid after December 31, 2019, but on or prior to June 30, 2020, 10% of the entire outstanding principal balance of the Debentures; (c) if the Debentures are prepaid on or after June 30, 2020, but on or prior to December 31, 2020, 8% of the entire outstanding principal balance of the Debentures; and (d) if the Debentures are prepaid on or after December 31, 2020, but prior to the maturity date, 6% of the entire outstanding principal balance of the Debentures. Subject to the satisfaction of certain conditions, we may elect to prepay all, but not less than all, of the Debentures in connection with a change of control transaction (as defined in the Debentures) for a prepayment amount equal to the prepayment amount described above.

 

 

The conditional conversion feature of our convertible notes or the Debentures or the optional monthly redemption features of the Debentures, if triggered, may adversely affect our financial condition and operating results, particularly our earnings per share.

 

In the event the conditional conversion feature of the Debentures or convertible notes is triggered, holders, as applicable, will be entitled to convert at any time during specified periods at their option. In addition, if one or more holders elect to require us to make the monthly redemption of their Debentures, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (subject to certain conditions), we would be required to settle a portion or all of our redemption obligation through the payment of cash, which could adversely affect our liquidity. As of the date of this Quarterly Report, the Debentures holders have sent monthly redemption notices for December 2018 through February 2020 (inclusive). We have repaid $0.3 million of principal in January 2019, and $0.2 million of principal monthly in each of February 2019 through February 2020 (inclusive). In addition, even if holders do not elect to convert the Debentures or convertible notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Debentures as a current rather than long-term liability, which may result in a material reduction of our net working capital and potential impact on our going concern status. Any conversion of the Debentures and/or convertible notes and/or any redemption of the Debentures in shares of our common stock may cause dilution to our stockholders and to our earnings per share.

 

The accounting method for convertible debt securities that may be settled in cash could have a material adverse effect on our reported financial results.

 

Under Financial Accounting Standards Board Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), we are required to separately account for the liability and equity components of our convertible notes because they may be settled entirely or partially in cash upon conversion in a manner that reflects our economic interest cost. The effect of ASC 470-20 on the accounting for our Debentures or convertible notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ deficit on our consolidated balance sheet, and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of our convertible notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of our convertible debt or notes to their face amount over the terms. We will report lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of our convertible notes.

 

In addition, because our Debentures and/or convertible notes may be settled entirely or partly in cash, under certain circumstances, these are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion are not included in the calculation of diluted earnings per share except to the extent that the conversion value exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of our Debentures and/or convertible notes, then our diluted earnings per share would be adversely affected.

 

 

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, 2019 was $15.8 million, net of fees and discounts. While we have certain restrictions and covenants with our current indebtedness, and we could in the future incur additional indebtedness beyond such amount. Our substantial debt combined with our other financial obligations and contractual commitments could have significant adverse consequences, including:

 

●

requiring us to dedicate a substantial portion of cash flow from operations to the payment of interest on, and principal of, our debt, which will reduce the amounts available to fund working capital, capital expenditures, product development efforts and other general corporate purposes;

 

●

increasing our vulnerability to adverse changes in general economic, industry and market conditions;

 

●

obligating us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;

 

●

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

 

●

placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.

 

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

 

If we do not comply with the provisions of the Debentures, our lenders may terminate their obligations to us and require us to repay all outstanding amounts owed thereunder.

 

The Debentures contain provisions that limit our operating and financing activities, including financial covenants relating to liquidity, indebtedness and Adjusted EBITDA (as defined in the indenture governing the Debentures). If an event of default occurs and is continuing, the lenders may among other things, terminate their obligations thereunder and require us to repay all amounts thereunder. As of December 31, 2019, the Company was not in compliance with one of these financial covenants, however, on January 31, 2020, the Company amended the Debentures and was in full compliance with such covenants.

 

Conversion of the Debentures and/or convertible notes 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.

 

The conversion of some or all of the Debentures and/or convertible notes and/or any redemption of the Debentures in shares of our common stock will dilute the ownership interests of our existing stockholders to the extent we deliver shares of our common stock upon conversion. Any sales in the public market of the shares of our common stock issuable upon such conversion or redemption and/or any anticipated conversion or redemption of the Debentures and convertible notes into shares of our common stock could adversely affect prevailing market prices of our common stock.

 

 

Risks Related to Our Company

 

Slacker depends upon third-party licenses for sound recordings and musical compositions and an adverse change to, loss of, or claim that Slacker does not hold any necessary licenses may materially adversely affect Slacker’s business, operating results and financial condition.

 

To secure the rights to stream sound recordings and the musical compositions embodied therein, Slacker enters into license agreements to obtain licenses from rights holders such as record labels, music publishers, performing rights organizations, collecting societies and other copyright owners or their agents, and pays substantial royalties to such parties or their agents around the world. Though Slacker works diligently in its 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 Slacker 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 Slacker is required to pay pursuant to them, may change as a result of changes in its bargaining power, changes in the industry, changes in the law, or for other reasons. Increases in royalty rates or changes to other terms of these licenses may materially impact Slacker’s business, operating results, and financial condition.

 

Slacker enters 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. If Slacker fails 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.

 

Slacker generally obtains 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 Slacker pays 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 subject to further change as part of future Copyright Royalty Board proceedings. Based on management’s estimates and forecasts for the next two fiscal years, we currently believe that the proposed rates will not materially impact Slacker’s 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, ASCAP and BMI are governed by consent decrees relating to decades-old litigations. Changes to the terms of or interpretation of these consent decrees could affect Slacker’s ability to obtain licenses from these PROs on favorable terms, which could harm its business, operating results, and financial condition. As of December 31, 2019, Slacker owed $1.9 million in aggregate royalty payments to such PROs.

 

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

 

 

There also is no guarantee that Slacker has all of the licenses it needs 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 aspiring rights holders, their agents, or legislative or regulatory bodies will create or attempt to create new rights that could require Slacker 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 Slacker is able to enter into license agreements with rights holders, it cannot guarantee that such agreements will continue to be renewed indefinitely. For example, from time to time, Slacker’s license agreements with certain rights holders and/or their agents may expire while Slacker negotiates their renewals and, per industry custom and practice, Slacker may enter into brief (for example, month-, week-, or even days-long) extensions of those agreements and/or continue to operate as if the license agreement had been extended, including by our continuing to make music available. During these periods, Slacker 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 Slacker’s 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

 

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plan and any acquisition agreement, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

 

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity and/or convertible securities, our stockholders may experience substantial dilution. We may sell or otherwise issue our common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell or issue our common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent issuances. These issuances may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders. We may pay for future acquisitions with additional issuances of shares of our common stock as well, which would result in further dilution for existing stockholders.

 

Pursuant to our 2016 Equity Incentive Plan (as amended, the “2016 Plan”), there are 12,600,000 shares of our common stock reserved for future issuance to our employees, directors and consultants, of which 408,433 shares have been issued, 3,900,697 restricted stock units have been granted, 24,675 restricted stock awards have been granted and options to purchase 4,640,001 shares of our common stock have been granted and are outstanding as of December 31, 2019. If our board of directors elects to issue additional shares of our common stock, stock options, restricted stock units and/or other equity-based awards under the 2016 Plan, as amended, our stockholders may experience additional dilution, which could cause our stock price to fall.

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

Issuance of Unregistered Securities

 

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

 

During the nine months ended December 31, 2019, we issued 956,575 shares of our common stock valued at $3.5 million to various consultants. We valued these shares at prices between $1.52 and $6.18 per share, the market price of our common stock on the date of issuance.

 

During the nine months ended December 31, 2019, we issued 2,523,306 restricted stock units to various employees and consultants. We valued these restricted stock units at prices between $1.60 and $4.11 per share, the market price of our common stock on the date of issuance.

 

During the nine months ended December 31, 2019, we issued 24,675 restricted stock awards to an employee. We valued these restricted stock units at $4.05 per share, the market price of our common stock on the date of issuance.

 

During the nine months ended December 31, 2019, we granted 180,000 options to purchase shares of our common stock, with exercise prices between $1.61 and $3.64 per share.

 

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

 

None.

 

Item 3.

Defaults Upon Senior Securities.

 

On December 31, 2014, we converted accounts payable into a senior promissory note (the “Note”) in the aggregate principal amount of $0.2 million. The Note bears interest at 6% per annum and interest is payable on a quarterly basis commencing March 31, 2015 or we may elect that the amount of such interest be added to the principal sum outstanding under this Note. The payables arose in connection with professional services rendered by our former attorneys for us prior to and through December 31, 2014, and the Note had an original maturity date of December 31, 2015, which was extended to December 31, 2016 or such later date as the lender may agree to in writing. As of the date of this Quarterly Report, the Note has not been extended and is in default. In addition, the holder of the Note obtained a judgement against us for nonpayment of the Note in the State of Delaware in August 2019 and in the State of California in September 2019, and filed a judgement lien in December 2019 with the Secretary of State of California related to the California judgement. As of December 31, 2019 and March 31, 2019, the balance due of $0.3 million and $0.3 million includes $0.1 million and $0.1 million of accrued interest, respectively, outstanding under the Note.

 

Item 4.

Mine Safety Disclosures.

 

Not applicable. 

 

Item 5.

Other Information.

 

None.

 

 

Item 6.

Exhibits.

 

Exhibit Number		Description
3.1		Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 8, 2017).
3.2		Certificate of Amendment to the Certificate of Incorporation of the Company, dated as of September 30, 2017 (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, Amendment No. 3, filed with the SEC on October 6, 2017).
3.3		Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the SEC on August 8, 2017).
4.1		Form of 12.75% Original Issue Discount Senior Secured Convertible Debentures due June 29, 2021 (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 3, 2018).
4.2		Form of Amendment to 12.75% Original Issue Discount Senior Secured Convertible Debentures due June 29, 2021, dated February 11, 2019 (Incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on February 13, 2019).
10.1†		Form of Director/Officer Indemnification Agreement (Incorporated by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K, filed with the SEC on April 30, 2014).
10.2†		The Company’s 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2016).
10.3†		Form of Director Option Agreement under 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2016).
10.4†		Form of Employee Option Agreement under 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2016).
10.5†		Employment Agreement, dated as of September 7, 2017, between the Company and Robert S. Ellin (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on September 8, 2017).
10.6†		Amended and Restated Employment Agreement, dated as of September 1, 2017, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on September 8, 2017).
10.7†		Employment Agreement, dated as of May 3, 2017, between the Company and Douglas Schaer (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 15, 2017).
10.8†		Employment Agreement, dated as of October 6, 2015, between the Company and Blake Indursky (Incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K, filed with the SEC on July 19, 2016).
10.9†		Amendment No. 1 to Employment Agreement, dated as of December 15, 2017, between the Company and Robert Ellin (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 15, 2017).
10.10†		Amendment No. 1 to Employment Agreement, dated as of December 15, 2017, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on December 15, 2017).
10.11†		Employment Agreement, dated as of April 13, 2018, between the Company and Michael Zemetra (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 19, 2018).
10.12†		Amendment No. 2 to Employment Agreement, dated as of April 27, 2018 and effective as of April 16, 2018, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 29, 2018).
10.13†		Amendment No. 3 to Employment Agreement, dated as of March 31, 2019, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 24, 2019).
10.14†		Amendment No. 4 to Employment Agreement, dated as of April 16, 2019, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 24, 2019).
10.15†		Amendment No. 1 to Employment Agreement, dated as of March 31, 2019, between the Company and Michael Zemetra (Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 24, 2019).

 

 

Exhibit Number		Description
10.16		Securities Purchase Agreement, dated as of June 29, 2018, among the Company and JGB Partners, LP, JGB Capital, LP and JGB (Cayman) Finlaggan Ltd. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 3, 2018).
10.17		Subsidiary Guarantee, dated as of June 29, 2018, made by each of the Guarantors, in favor of the Secured Parties (as defined therein) (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 3, 2018).
10.18		Security Agreement, dated as of June 29, 2018, among the Company, the Guarantors and JGB Collateral LLC (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on July 3, 2018).
10.19		Amendment Agreement, dated as of February 11, 2019, to the Securities Purchase Agreement, dated as of June 29, 2018, among the Company and JGB Partners, LP, JGB Capital, LP and JGB (Cayman) Finlaggan Ltd. (Incorporated by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on February 13, 2019).
10.20†		Amendment No. 1 to the LiveXLive Media, Inc. 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on February 13, 2019).
10.21†£		Employment Agreement, dated as of January 28, 2019, between the Company and Michael Bebel (Incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 24, 2019).
10.22†		Employment Agreement, dated as of July 15, 2019, between the Company and Dermot McCormack (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 19, 2019).
10.23		Amendment Agreement, dated as of July 25, 2019, to the Securities Purchase Agreement, dated as of June 29, 2018, as amended on February 11, 2019, among the Company and JGB Capital Partners, LP, JGB Capital, LP, JGB (Cayman) Finlaggan Ltd and JGB Collateral LLC (Incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on August 8, 2019).
10.24		Form of Securities Purchase Agreement, dated as of July 25, 2019, between the Company and certain investors (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 26, 2019).
10.25		Placement Agency Agreement, dated as of July 25, 2019, between the Company and A.G.P./Alliance Global Partners (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 26, 2019).
10.26£		Amendment, dated as of September 20, 2019, to the Interactive Radio Agreement between Slacker, Inc. and a certain licensor of music content (Incorporated by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 8, 2019).
10.27£		Amendment, dated as of September 27, 2019, to the Amended and Restated Interactive Radio and Music Services Agreement between Slacker, Inc. and a certain licensor of music content (Incorporated by reference to Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 8, 2019).
10.28†		Amendment No. 5 to Amended and Restated Employment Agreement, dated as of December 20, 2019, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 26, 2019).
10.29		Amendment Agreement, dated as of January 31, 2020, to the Securities Purchase Agreement, dated as of June 29, 2018, as amended on February 11, 2019 and January 31, 2020, among the Company and JGB Capital Partners, LP, JGB Capital, LP, JGB (Cayman) Finlaggan Ltd and JGB Collateral LLC (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 6, 2020).
31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1**		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

 

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

 

 

SIGNATURES

 

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	LIVEXLIVE MEDIA, INC.
Date: February 7, 2020	By:	/s/ Robert S. Ellin
		Robert S. Ellin
		Chief Executive Officer and Chairman
		(Principal Executive Officer)
Date: February 7, 2020	By:	/s/ Michael Zemetra
		Michael Zemetra
		Chief Financial Officer and Executive Vice President (Principal Financial Officer and Principal Accounting Officer)

 

 

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