LIVEONE, INC. Forward-Looking Statements
We make forward-looking statements in this Annual Report and the documents incorporated by reference herein within the meaning of the Securities Litigation Reform Act of 1995. 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," "will likely result," "should," "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "continue," "target" or similar expressions. These forward-looking statements are based on information available to us as of the date of this Annual Report and on our current expectations, forecasts and assumptions, and involve substantial risks and uncertainties. Actual results may vary materially from those expressed or implied by the forward-looking statements herein due to a variety of factors, including: our reliance on one key customer for a substantial percentage of its revenue; our ability to continue as a going concern; if and when required, our ability to obtain additional capital, including to fund our current debt obligations and to fund potential acquisitions and capital expenditures; the effects of the global Covid-19 pandemic; our ability to attract, maintain and increase the number of its users and paid subscribers; our ability to identify, acquire, secure and develop content; our ability to 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; our ability to maintain compliance with certain financial and other covenants; successfully implementing our growth strategy, including relating to our technology platforms and applications; our management's relationships with industry stakeholders; changes in economic conditions; competition; and other risks and uncertainties set forth in "Item 1A. Risk Factors" of this Annual Report. 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. The following discussion and analysis of our business and results of operations for the fiscal year endedMarch 31, 2021 , and our financial conditions at that date, should be read in conjunction with the financial statements and the notes thereto included elsewhere in this Annual Report. As used herein, "LiveXLive," "LXL," the "Company," "we," "our" or "us" and similar terms refer collectively toLiveXLive Media, Inc. and its subsidiaries, unless the context indicates
otherwise. Overview of the Company
We are a pioneer in the acquisition, distribution and monetization of live music, Internet radio, podcasting and music-related streaming and video content. Our principal operations and decision-making functions are located inNorth 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 previously generated 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. In the fourth quarter of our fiscal year endedMarch 31, 2020 , we began generating ticketing, sponsorship, and promotion-related revenue from live music events through ourFebruary 2020 acquisition of React Presents. InMay 2020 , we launched a new PPV offering enabling new forms of artist revenue including digital tickets, tipping, digital meet and greets, merchandise sales and sponsorship. InJuly 2020 , we entered the podcasting business with the acquisition of PodcastOne and inDecember 2020 , we entered the merchandising business with the acquisition of CPS. For the fiscal years endedMarch 31, 2021 and 2020, we reported revenue of$65.2 million and$38.7 million , respectively. For the years endedMarch 31, 2021 and 2020, one customer accounted for 36% and 60% of our consolidated revenues, respectively.
Fiscal 2021 Significant Transactions
Acquisition of PodcastOne
OnJuly 1, 2020 , we acquired 100% of the equity interests of PodcastOne for net consideration of$16.1 million consisting of 5,363,636 shares of our common stock with a fair value of$14.6 million net of a 24% discount for lack of marketability, contingent consideration with a fair value of$1.1 million and an additional 203,249 shares during the third quarter of fiscal 2021 valued at$0.4 million , net of a 24% discount for lack of marketability, that was issued as part of the final purchase price consideration. Share issuance to UMG
InJuly 2020 , the Company issued toUMG Recordings, Inc. ("UMGR") 2,415,459 shares of its common stock at a price of$3.28 per share, to satisfy the Company's payment obligation in the amount of$10.0 million owed to such music licensor (the "Threshold Amount"). In the event that the value of the Shares as ofSeptember 30, 2020 was less than the Threshold Amount, the Company agreed to make an additional cash payment to such music licensor in an amount equal to the difference between (i) the Threshold Amount and (ii) the sum of (x) the net proceeds of any sales of the Shares by the music licensor plus (y) the aggregate value of the Shares not sold by the music licensor as of such date. Due to the value of shares issued to UMGR under such agreement, together with the net proceeds of all sales of such shares by UMGR, being less than$10 million as ofMarch 31, 2021 , we recorded an accrued liability owed to UMGR in connection with such agreement. As ofMarch 31, 2021 , the Company accrued$1.8 million related to additional cash payment required. 73 Equity Offering InJuly 2020 , the Company issued directly to a certain institutional investor and another investor a total of 1,820,000 shares of the Company's common stock for net proceeds of approximately$7.3 million after offering costs at a price per share of$4.14 . The offering of the shares was made pursuant to the Registration Statement, and a prospectus supplement related to the offering filed with theSEC onJuly 23, 2020 .
Repaid senior secured convertible debentures
OnAugust 31, 2020 , we repaid in full our senior secured convertible debentures issued to our former senior lenders, JGB as provided in such debentures. In connection with such repayment, all of the agreements among us, our subsidiary guarantors and the senior lenders and their collateral agent were terminated, provided, that our indemnification obligations between us and the senior lenders shall survive on the terms therein.
Issued new senior secured convertible notes
Effective as ofSeptember 15, 2020 , we (i) completed the sale and issuance of our new senior secured convertible notes in the aggregate principal amount of$15.0 million to designees of a certain existing institutional investor for cash gross proceeds of$15.0 million and (ii) issued 800,000 shares of our common stock. The new senior secured convertible notes mature onSeptember 15, 2022 , accrue interest at 8.5% per year with interest is payable quarterly in cash in arrears, and are convertible into shares of our common stock at a conversion price of$4.50 per share at the holder's option, subject to certain customary adjustments such as stock splits, stock dividends and stock combinations. Acquisition of CPS OnDecember 22, 2020 , we acquired 100% of the equity interests of CPS for total consideration of 2,230,769 shares of the Company's restricted common stock with a fair value of$6.4 million net of a 25% discount for lack of marketability, an additional 577,000 shares of our restricted common stock if CPS reports GAAP revenue of$20.0 million and$1.0 million of EBITDA for its fiscal year endedDecember 31, 2020 , and an additional 110,000 shares of our restricted common stock to the extent CPS' final working capital as determined by the parties exceeds$4.0 million with a dollar-for-dollar reduction with respect to each such shortfall with no duplication. Basis of Presentation
The consolidated financial statements have been prepared on the same basis as the Company's audited consolidated financial statements for the fiscal year endedMarch 31, 2020 , and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company's consolidated financial statements for the year endedMarch 31, 2021 . The presented financial information for the fiscal year endedMarch 31, 2021 includes the financial information and activities of LiveXLive and React Presents for the full year and PodcastOne and CPS from the effective date of their acquisitions. 74
Opportunities, Challenges and Risks
For our fiscal year endedMarch 31, 2020 , we derived 93% of our revenue from paid customers' subscriptions and the remainder from advertising, ticketing, sponsorship and licensing. During fiscal year endedMarch 31, 2021 , we (i) acquired PodcastOne (effectiveJuly 1, 2020 ) and CPS (effectiveDecember 22, 2020 ), (ii) accelerated the number of live events digitally live streamed across our platform, (iii) increased our sponsorship revenue from live events when compared to prior fiscal years and (iv) successfully launched our Pay Per View ("PPV") platform, allowing us to charge customers directly to access and watch certain live events digitally on our music platform. As a result of these actions, our revenue for the fiscal year endedMarch 31, 2021 was comprised of 51% from paid customers' subscriptions, 32% from advertising (which includes PodcastOne), 8% from merchandise (which includes CPS) and 9% from ticketing and sponsorship and licensing. Conversely, the COVID-19 pandemic adversely impacted our on-premise live events, concerts and festivals through React Presents and our programmatic advertising as more fully discussed below. Until the impact of COVID-19 eases around the world and related government actions are relaxed in the markets in which we operate, we do not expect to produce on-premise live music events and generate revenue through co-promotion fees, sponsorships, food and beverage and ticket sales of on-premise live events in the near term. We believe there is substantial near and long-term value in our live music content. We believe the monetary value of broadcasting live music will follow a similar evolution to live sporting events such as theNational Football League , MajorLeague Baseball and theNational Basketball Association , whereby sports broadcasting rights became more valuable as the demand for live sporting events increased over the past 20 years. As a thought leader in live music, we plan to acquire the broadcasting rights to as many of the top live music events and festivals that are available to us. During the fiscal year endedMarch 31, 2021 , we livestreamed 146 major festivals and live music events compared to 42 in the prior fiscal year. With this acceleration in livestreamed events, we also experienced increases in monetization of these events from paid sponsorships and pay per view ticket purchases. In the near term, we will continue aggregating our digital traffic across these festivals and monetizing the live broadcasting of these events through advertising, brand sponsorships and licensing of certain broadcasting rights outside ofNorth America . The long-term economics of any future agreement involving festivals, programming, production, broadcasting, streaming, advertising, sponsorships, and licensing could positively or negatively impact our liquidity, growth, margins, relationships, and ability to deploy and grow our future services with current or future customers, and are heavily dependent upon the easing and elimination of the COVID-19 pandemic. With the acceleration of our live events, we have also begun to package, produce and broadcast our live music content on a 24/7/365 basis across our music platform and grow our paid subscribers. Recently, we have entered into distribution relationships with a variety of platforms, including Roku, Samsung, AppleTV, Amazon Fire, liner OTT platforms such as STIRR, Sling and XUMO. As we continue to have more distribution channels, rights and viewership and expand our original programming capabilities, we believe there is a substantial opportunity to increase our brand, advertising, viewership and subscription capabilities and corresponding revenue, domestically and globally. We believe our operating results and performance are, and will continue to be, driven by various factors that affect the music industry. Our ability to attract, grow and retain users to our platform is highly sensitive to rapidly changing public music preferences and technology and is dependent on our ability to maintain the attractiveness of our platform, content and reputation to our customers. Beyond fiscal year 2021, the future revenue and operating growth across our music platform will rely heavily on our ability to grow our subscriber base in a cost effective manner, continue to develop and deploy quality and innovative new music services, provide unique and attractive content to our customers, continue to grow the number of listeners on our platform and live music festivals we stream, grow and retain customers and secure sponsorships to facilitate future revenue growth from advertising and e-commerce across our platform. As our music platform continues to evolve, we believe there are opportunities to expand our services by adding more content in a greater variety of formats such as podcasts and vodcasts, extending our distribution to include pay television, OTT and social channels, deploying new services for our subscribers, artist merchandise and live music event ticket sales, and licensing user data across our platform. Our acquisitions of PodcastOne and CPS are reflective of our flywheel operating model. Conversely, the evolution of technology presents an inherent risk to our business. Today, we see large opportunities to expand our music services withinNorth America and other parts of the world where we will need to make substantial investments to improve our current service offerings. As a result, and during the fiscal year endingMarch 31, 2021 , 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. 75
As our platform matures, we also expect our contribution margins and AOL to improve in the near and long term, which are Non-GAAP measures as defined in section following below titled, "Non-GAAP Measures". Historically, our live events business has not generated enough direct revenue to cover the costs to produce such events, and as a result generated negative contribution margins* and operating losses. Beginning in lateMarch 2020 , the COVID-19 pandemic had an adverse impact on on-premise live music events and festivals. Historically, we produced and digitally distributed the live music performances of many of these large global music events to fans all around the world. With the elimination of any fan-attended music events, festivals and concerts, we shifted our operating model beginning inApril 2020 towards self-producing live music events that were 100% digital (e.g., artists not performing in front of live fans and solely for digital distribution). InApril 2020 , we also launched our first all-digital music festival, Music Lives, which aired continuously for over 48 straight hours, with nearly 100 artists and generated over 50 million livestreams and over 6.5 billion video views of the of hashtag #musiclives acrossTikTok . Music Lives was simulcast across our platform and onTikTok's platform, who also sponsored the event. InMarch 2021 , we held our second annual Music Lives festival, which featured 130 artists performing over 72 continuous hours generating nearly 28 million livestreams. Growth in our music services is also dependent upon the number of customers that use and pay for our services, the attractiveness of our music platform to sponsors and advertisers and our ability to negotiate favorable economic terms with music labels, publishers, artists and/or festival owners, and the number of consumers who use our services. Growth in our margins is heavily dependent on our ability to grow the subscriber base in a cost-efficient manner, coupled with the managing the costs associated with implementing and operating our services, including the costs of licensing music with the music labels, producing, streaming and distributing video and audio content and sourcing and distributing personalized products and gifts. Our ability to attract and retain new and existing customers will be highly dependent on our abilities to implement and continually improve upon our technology and services on a timely basis and continually improve our network and operations as technology changes and as we experience increased network capacity constraints as we continue to grow. For the majority of our agreements with festival owners, we acquire the global broadcast rights. Moreover, the digital rights we acquire principally include any format and screen, and future rights to VR and AR. For the years endedMarch 31, 2021 and 2020, all material amounts of our revenue were derived from customers located inthe United States and moreover, one of our customers accounted for 36% of our consolidated revenue. This significant concentration of revenue from one customer poses risks to our operating results, and any change in the means this customer utilizes our services beyondMarch 31, 2021 could cause our revenue to fluctuate significantly. Moreover, and with the addition of PodcastOne and CPS in July andDecember 2020 , respectively, the percentage of this customer revenue concentration decreased substantially and this trend is expected to continue in the future. In the long term, we plan to expand our business further internationally in places such asEurope ,Asia Pacific andLatin America , and as a result will continue to incur significant incremental upfront expenses associated with these growth opportunities. Effects of COVID-19 An outbreak of a novel strain of coronavirus, COVID-19 inDecember 2019 subsequently became a pandemic after spreading globally, includingthe United States . While the COVID-19 pandemic did not materially adversely affect our financial results and business operations during the fiscal year endedMarch 31, 2020 , it did adversely impact parts of our business during the fiscal year endedMarch 31, 2021 , namely our live events and programmatic advertising. Due to the global pandemic and government actions taking in response, sinceMarch 2020 , all in person festivals, concerts and events have either been canceled or suspended, and it is uncertain when they will be permitted to resume, and as a result, the COVID-19 pandemic had an adverse impact on on-premise live music festivals, concerts and events. Major global music festivals have been postponed until 2021 or indefinitely. With our acquisition of React Presents inFebruary 2020 , we were unable to produce and promote more than 200 forecasted live events in fiscal year endedMarch 31, 2021 , including our flagship live event Spring Awakening festival, which is typically annually produced in June. InJanuary 2021 , we announced our first-ever expansion of Spring Awakening music festival ("SAMF") outside ofChicago with its first edition of "Spring Awakening Excursions" Cancun Awakening music festival which is a live event held fromApril 28 to May 2, 2021 . However, further outbreaks of COVID-19 have caused the postponement of this event. Moreover, our programmatic advertising is presently adversely impacted as COVID-19 caused a subset of our legacy advertising mix and demand to decline and as a result, overall advertising cost per thousand impressions/rates across our platform were subsequently reduced. Further, as of the date of this Annual Report, we are not livestreaming any fan attended live festivals, concerts or other in-person live events on our platform or channels and it is unclear when streaming of fan attended live festivals, concerts or other in-person live events will again become regularly available to us. Conversely, while the economic and health conditions inthe United States and across the globe have changed rapidly since the end of our fiscal year endedMarch 31, 2020 , we are presently experiencing growth in certain parts of our core business, including (i) growth in the number of live music events produced digitally and livestreamed during fiscal year endedMarch 31, 2021 (146 live events) as compared to fiscal yearMarch 31, 2020 (42 live events), (ii) improvement in the monetization of these digital livestreams, which exceeded prior fiscal year by over 1,188% and (iii) new growth opportunities across our music platform, including podcasts, vodcasts, merchandising and PPV. In addition, the outbreak and any preventative or protective actions that governments, other third parties or we may take in respect of the coronavirus may result in a period of business disruption and reduced operations. For example, our largest customer was ordered to keep its mainU.S. factory closed for a substantial amount of time during the quarter endedJune 30, 2020 . 76 The extent to which COVID-19 impacts our results will depend on future developments, including new information which may emerge concerning the severity of the coronavirus and the actions taken by us and our partners to contain the coronavirus or treat its impact, among others. The impact of the suspension or cancellation of in-person live festivals, concerts or other live events, and any other continuing effects of COVID-19 on our business operations (such as general economic conditions and impacts on the advertising, sponsorship and ticketing marketplace and our partners), may result in a decrease in our revenues, and if the global COVID-19 epidemic continues for an extended period, our business, financial condition and results of operations could be materially adversely
affected. Non-GAAP Measures Contribution margin
Contribution Margin is a non-GAAP financial measure defined as Revenue less Cost of Sales.
Reconciliation of Adjusted Operating Loss
Adjusted Operating Income ("AOI") or 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-recurring expenses associated with legal settlements
or reserves for legal settlements in the period that pertain to historical
matters that existed at acquired companies prior to their purchase date, (e) any
charges in the period pursuant to formal plans to abandon events or product
offerings, (f) depreciation and amortization (including goodwill impairment, if
any), and (g) certain stock-based compensation expense. We use AOI/(AOL) to
evaluate the performance of our operating segment. We believe that information
about AOI/(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. AOI/(AOL) is not calculated or
presented in accordance with GAAP. A limitation of the use of AOI/(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,
AOI/(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, AOI/(AOL) as presented herein may not be comparable
to similarly titled measures of other companies.
77
The following table sets forth the reconciliation of AOI/(AOL) to Operating Income (loss) from Continuing Operations, the most comparable GAAP financial measure (in thousands):
Non-Recurring Adjusted
Contribution Operating Depreciation and Stock-Based Acquisition and Other Non- Operating
Margin Loss Amortization Compensation Realignment Costs Recurring Costs Loss
2021
Operations $ 16,243 $ (16,209 ) $ 8,756 $ 6,093 $ - $ 1,107 $ (253 )
Corporate - (13,161 ) 14 5,189 421 1,950 (5,587 )
Total $ 16,243 $ (29,370 ) $ 8,770 $ 11,282 $ 421 $ 3,057 $ (5,840 )
2020
Operations $ 5,873 $ (22,558 ) $ 8,017 $ 6,184 $ - $ 387 $ (7,970 )
Corporate - (13,437 ) 3 5,843 - 2,913 (4,678 )
Total $ 5,873 $ (35,995 ) $ 8,020 $ 12,027 $ - $ 3,300 $ (12,648 ) Consolidated Results of Operations
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):
Year Ended Year Ended
March 31, March 31,
2021 2020
Revenue: $ 65,230 $ 38,659
Operating expenses:
Cost of sales 48,987 32,786
Sales and marketing 9,517 6,255
Product development 9,680 10,767
General and administrative 20,831 19,120Amortization of intangible assets 5,585
5,726 Total operating expenses 94,600 74,654 Loss from operations (29,370 ) (35,995 ) Other income (expense): Interest expense, net (5,303 ) (3,738 )
Loss on extinguishment of debt (5,180 )
-
Other expense (2,312 ) 614
Total other expense, net (12,795 ) (3,124 )
Loss before income tax benefit (42,165 )
(39,119 ) Income tax benefit (345 ) (192 ) Net loss$ (41,820 ) $ (38,927 )
Net loss per share - basic and diluted$ (0.61 ) $
(0.69 )
Weighted average common shares - basic and diluted 69,040,055 56,206,107
78
The following table provides the depreciation expense included in the above line
items (in thousands):
% Change
Year Ended March 31, 2021 vs.
2021 2020 2020
Depreciation expense
Cost of sales $ 47 $ - -
Sales and marketing 200 185 8 %
Product development 2,188 1,925 14 %
General and administrative 750 184 308 %
Total depreciation expense $ 3,185 $ 2,294 39 %
The following table provides the stock-based compensation expense included in the above line items (in thousands):
% Change
Year Ended March 31, 2021 vs.
2021 2020 2020
Stock-based compensation expense:
Cost of sales $ 820 $ 106 674 %
Sales and marketing 2,358 2,127 11 %
Product development 2,135 2,568 -17 %
General and administrative 5,969 7,226 -17 %Total stock-based compensation expense$ 11,282 $ 12,027
-6 %
The following table provides our results of operations, as a percentage of revenue, for the periods presented:
Year Ended March 31,
2021 2020
Revenue 100 % 100 %
Operating expenses
Cost of sales 75 % 85 %
Sales and marketing 15 % 16 %
Product development 15 % 28 %
General and administrative 32 % 49 %
Amortization of intangible assets 9 % 15 %
Total operating expenses 145 % 193 %
Loss from operations -45 % -93 %
Other expense -20 % -8 %
Loss before income taxes -65 % -101 %
Income tax provision -1 % - %
Net loss -64 % -101 %
Revenue
Revenue was as follows (in thousands):
% Change
Year Ended March 31, 2021 vs.
2021 2020 2020
Subscription services $ 33,577 $ 35,904 -6 %
Advertising 20,779 2,167 859 %
Merchandising 5,168 - -
Sponsorship and licensing 3,878 301 1,188 %
Ticket/Event 1,828 287 537 %
Total Revenue $ 65,230 $ 38,659 69 %
79
Subscription Revenue
Subscription revenue decreased $2.3 million , or 6%, to $33.6 million for the
year ended March 31, 2021 , as compared to $35.9 million for the year ended March
31, 2020 . The decrease was primarily as a result of certain subscribers subject
to a contractual dispute with our largest customer. The Company is not
recognizing revenue related to these subscribers.
Advertising Revenue
Advertising revenue increased $18.6 million , or 859%, to $20.8 million during
the year ended March 31, 2021 , as compared to $2.2 million the year ended March
31, 2020 which is primarily attributable to the acquisition of PodcastOne.Merchandising Merchandising revenue increased to$5.2 million from$0 million for the year endedMarch 31, 2021 as compared to the year endedMarch 31, 2020 due to the acquisition of CPS. Sponsorship and Licensing Sponsorship and licensing revenue increased$3.6 million , or 1,188%, to$3.9 million from$0.3 million for the year endedMarch 31, 2021 as compared to the year endedMarch 31, 2020 . The increase was primarily due to the 146 events livestreamed by us during the year endedMarch 31, 2021 compared to 42 events livestreamed during the prior year comparable period, and by additional sponsorship deals associated with our digital livestream offerings. Ticket/Event Ticket/Event revenue increased$1.5 million , or 537%, to$1.8 million for the year endedMarch 31, 2021 , as compared to$0.3 million for the year endedMarch 31, 2020 , driven by the launch of our pay-per-view platform inMay 2020 . Cost of Sales
Cost of sales was as follows (in thousands):
% Change
Year Ended March 31, 2021 vs.
2021 2020 2020
Subscription $ 20,449 $ 23,189 -12 %
Advertising 17,146 2,016 750 %
Production 8,226 7,581 9 %
Merchandising 3,166 - -
Total Cost of Sales $ 48,987 $ 32,786 49 %
Subscription
Subscription cost of sales decreased $2.7 million , or 12 %, to $20.4 million for
the year ended March 31, 2021 , as compared to $23.2 million for the year ended
March 31, 2020 . The decrease was in line with the lower subscription revenues
noted above.
Advertising
Advertising cost of sales increased $15.1 million , or 750%, to $17.1 million for
the year ended March 31, 2021 , as compared to $2.0 million for the year ended
March 31, 2020 . The increase was primarily due to the acquisition of PodcastOne
which significantly increased our Advertising revenues and is in line with
our
increase in related costs.
80
Production
Production cost of sales increased$0.6 million , or 9%, to$8.2 million for the year endedMarch 31, 2021 , as compared to$7.6 million for the year endedMarch 31, 2020 . The increase was primarily due to the increase in events livestreamed noted above compared to the prior year period and our podcast production costs from PodcastOne. Merchandising
Merchandising cost of sales increased to
Other Operating Expenses
Other operating expenses were as follows (in thousands):
% Change
Year Ended March 31, 2021 vs.
2021 2020 2020Sales and marketing expenses$ 9,517 $ 6,255 52 % Product development 9,680 10,767 -10 % General and administrative 20,831 19,120 9 % Amortization of intangible assets 5,585 5,726 -2 % Total Other Operating Expenses$ 45,613 $ 41,868 9
%
Sales and Marketing Expenses
Sales and marketing expenses increased$3.3 million , or 52%, to$9.5 million for the year endedMarch 31, 2021 , as compared to$6.3 million for the year endedMarch 31, 2020 . The increase was largely due to an increase in personnel-related expenses and vendor related expenses of$3.5 million due to the acquisition
of PodcastOne and CPS. Product Development Product development expenses decreased$1.1 million , or 10%, to$9.7 million for the year endedMarch 31, 2021 , as compared to$10.8 million for the year endedMarch 31, 2020 . The decrease was largely due to a$1.4 million reduction in consulting expenses offset by an increase in personnel-related expenses of$0.5 million primarily as a result of the PodcastOne acquisition. General and Administrative
General and administrative expenses increased$1.7 million , or 9%, to$20.8 million for the year endedMarch 31, 2021 , as compared to$19.1 million for the year endedMarch 31, 2020 . The increase was primarily due to an increase in personnel-related costs of approximately$1.3 million due to the addition of corporate personnel.
Amortization of Intangible Assets
Amortization of intangible assets decreased by$0.1 million , to$5.6 million for the year endedMarch 31, 2021 , as compared to$5.7 million for the year endedMarch 31, 2020 . The decrease was due to certain customer relationships which were fully amortized in the prior year, offset by amortization in the current year related to intangible assets acquired with the acquisition of PodcastOne and CPS. 81 Total Other Income (Expense) % Change Year Ended March 31, 2021 vs. 2021 2020 2020 Total other expense, net$ (12,795 ) $ (3,124 ) 310 % Total other income (expense) increased$9.7 million , or 310%, to$12.8 million for the year endedMarch 31, 2021 , as compared to$3.1 million for the year endedMarch 31, 2020 . The increase was primarily due a loss on the extinguishment of debt of$5.2 million , an increase in contingent consideration of$1.3 million related to the acquisition of PodcastOne, and an increase in interest expense of$1.6 million . Business Segment Results Operations Our operating results were, and discussions of significant variances are, as follows (in thousands): % Change Year Ended March 31, 2021 vs. 2021 2020 2020 Revenue$ 65,230 $ 38,659 69 % Cost of Sales 48,987 32,786 49 %
Sales & Marketing, Product Development and G&A 26,867 22,705
18 %
Intangible Asset Amortization 5,585 5,726 -2 %
Operating Loss $ (16,209 ) $ (22,558 ) 28 %
Operating Margin -25 % -58 % 33 %
AOL* $ (253 ) $ (7,970 ) 97 %
AOL Margin* 0 % -21 % 21 %
* See "-Non-GAAP Measures" above for the definition and reconciliation of AOL
Fiscal Year 2021 Compared to Fiscal Year 2020
Revenue Revenue increased$26.6 million , or 69%, during the year endedMarch 31, 2021 , as compared to$38.7 million for the year endedMarch 31, 2020 , primarily due to the inclusion of PodcastOne advertising revenue which contributed$19.7 million , the inclusion of CPS merchandising revenue which contributed$5.2 million and an increase of$3.6 million in sponsorship and licensing revenue due to a higher number of livestreamed events in the current year period compared to the prior year. This increase was partially offset by a decrease in subscriber revenue of$2.3 million as a result of certain subscribers subject to a contractual dispute. Operating Loss Operating loss decreased$6.3 million , or 28%, to$16.2 million for the year endedMarch 31, 2021 as compared to$22.6 million for the year endedMarch 31, 2020 , as a result of the increase in contribution margins from operations of$10.4 million primarily due to the acquisitions of PodcastOne and CPS, partially offset by a$4.2 million increase in sales & marketing, product development
and
G&A expenses.
82
Adjusted Operating Loss
Operations Adjusted Operating Loss decreased by $7.7 million , or 97%, to $0.3
million for the year ended March 31, 2021 as compared to $8.0 million for the
year ended March 31, 2020 . This was largely due to the improved contribution
margin mentioned above of $10.4 million , partially offset a $4.2 million
increase in sales & marketing, product development, and G&A expenses for the
year ended March 31, 2021 compared to the same period in March 31, 2020 .
Corporate
Our Corporate operating results were, and discussions of significant variances are, as follows (in thousands):
%
Change
Year Ended March 31, 2020 vs.
2021 2020 2019
Sales & Marketing, Product Development, and G&A $ 13,161 $ 13,437 -2 %
Operating Loss $ (13,161 ) $ (13,437 ) -2 %
Operating Margin N/A N/A - %
AOL* $ (5,587 ) $ (4,678 ) 19 %
* See "-Non-GAAP Measures" above for the definition and reconciliation of AOL
Operating Loss
Operating loss decreased
Adjusted Operating Loss
Corporate AOL increased$0.9 million , or 19%, to$5.6 million for the year endedMarch 31, 2021 as compared to$4.7 million for the year endedMarch 31, 2020 . The increase was largely due to the addition of corporate personnel mentioned above.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these 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. We believe that the assumptions and estimates associated with our revenue recognition, allowance for doubtful accounts, the assigned value of acquired tangible and intangible assets and assumed and contingent liabilities associated with business combinations, provision for legal settlements, useful lives and impairment of property and equipment, intangible assets, goodwill and other assets, the fair value of our equity-based compensation awards and convertible debt instruments, and valuation of deferred income tax assets and liabilities, have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. Revenue Recognition
We account 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 we satisfy our obligation
by transferring control of the goods or services to our customers in an amount
that reflects the consideration to which the we expect to be entitled in
exchange for those goods or services. We use 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 we are entitled to and relate specifically to our efforts to
satisfy our 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.
83
We report revenue on a gross or net basis based on management's assessment of whether we act as a principal or agent in the transaction. To the extent we act as the principal, revenue is reported on a gross basis net of any sales tax from customers, when applicable. The determination of whether we act as a principal or an agent in a transaction is based on an evaluation of whether we control the good or service prior to transfer to the customer. Where applicable, we have determined that we act as the principal in all of its subscription service streams and may act as principal or agent for our advertising and licensing revenue streams.
Our revenue is principally derived from the following services:
Subscriptions 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. We defer the portion of monthly to annual recurring subscription fees collected in advance and recognize them in the period earned. Subscription revenue is recognized in the period of services rendered. Our 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, we have concluded that the best measure of progress toward the complete satisfaction of the performance obligation over time is a time-based measure. We recognize subscription revenue straight-line through the subscription period.
Subscription Services consist of:
Direct subscriber, mobile service provider and mobile app services
We generate 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 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. We report 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. Our 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
We generate 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 OEMs and resolved on a
monthly basis. Our payment terms with OEM are up to 30 days. The OEM does not
charge the car owners a fee for the Slacker service.
84
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 on a monthly basis.
Merchandise Revenue
Revenue is recognized upon the transfer of control to the customer. We recognize
revenue and measure the transaction price net of taxes collected from customers
and remitted to governmental authorities. Sales commissions are expensed as
incurred and are recorded in sales and marketing expenses in the consolidated
statements of operations. Our customer contracts do not have a significant
financing component due to their short durations, which are typically effective
for one year or less and have payment terms that are generally 30-60 days.
Wholesale revenue is generally recognized when products are shipped, depending
on the applicable contract terms. We record a refund liability for expected
returns based on prior returns history, recent trends, and projections for
returns on sales in the current period. The refund liability at March 31, 2021
was less than $0.1 million .
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 we satisfy our performance obligation by transferring
control of the goods or services to its customers in an amount that reflects the
consideration to which we expect 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. We report
our licensing revenue on a gross basis as we act as the principal in the
underlying transactions.
Ticket/Event Revenue
Ticket/Event revenue is primarily from the sale of tickets and promoter fees
earned from venues or other co-promoters under one of several formulas,
including a fixed guaranteed amount and/or a percentage of ticket sales orevent profits.
Revenue from the promotion or production of an event is recognized when the show occurs. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorship agreements, which is not related to a single event, is classified as deferred revenue and recognized over the term of the agreement or operating season as the benefits are provided to the sponsor.
Revenue from our ticketing operations primarily consists of service fees charged at the time a ticket for an event is sold. For tickets sold to our festival events the revenue for the tickets and associated ticket service charges collected in advance of the event is recorded as deferred revenue until the event occurs.
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 a straight-line basis. We use the Black-Scholes-Merton option pricing model to determine the grant date fair value of stock options. This model requires us 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. We use a predicted volatility of its stock price during the expected life of the options that is based on the historical performance of our stock price as well as including an estimate using guideline companies. Expected term is computed using the simplified method as the Company's best estimate given its lack of actual exercise history. We have selected a risk-free rate based on the implied yield available onU.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 and warrant grants. Forfeitures are recognized as incurred. 85
Stock option awards issued to non-employees are accounted for at the 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. We record the fair value of these equity-based awards and expense at their cost ratably over related
vesting periods. Business Combinations We account for business combinations using the purchase method of accounting where the cost is allocated to the underlying net tangible and intangible assets acquired, based on their respective fair values. The excess of the purchase price 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. Commitments and Contingencies From time to time, we are involved in legal proceedings and other matters arising in connection with the conduct of our business activities. Many of these proceedings may be at preliminary stages and/or seek an indeterminate amount of damages. We regularly evaluate the status of our commitments and contingencies in which we are 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. We record an expense accrual for any commitments and loss contingency when we determine that a loss is probable and the amount of the loss can be reasonably estimated. If an expense accrual is not appropriate, we further evaluate 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 us 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 Tax Contingencies We do not collect and remit sales and use or similar taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable or legally required. TheJune 2018 U.S. Supreme Court ruling inSouth Dakota v. Wayfair, Inc., No. 17-494, along with the application of existing, new or future rulings and laws, could have adverse effects on our business, prospects and operating results.
Long-lived Assets,
We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination, and allocate the purchase price of each acquired business to its respective net tangible and intangible assets. Acquired intangible assets principally comprise of customer relationships and technology. We determine the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits is expected to be consumed.Goodwill represents the excess of the purchase consideration of an acquired entity over the fair value of the acquired net assets.Goodwill is tested for impairment annually or when events or circumstances change that would indicate that goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends or significant under-performance relative to expected historical or projected future results of operations. 86 We evaluate the recoverability of our intangible assets, and other long-lived assets with finite useful lives for impairment when events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. These trigger events or changes in circumstances include, but are not limited to a significant decrease in the market price of a long-lived asset, a significant adverse change in the extent or manner in which a long-lived asset is being used, significant adverse changes in legal factors, including changes that could result from our inability to renew or replace material agreements with certain of our partners such asTesla Motors on favorable terms, significant adverse changes in the business climate including changes which may result from adverse shifts in technology in our industry and the impact of competition, a significant adverse deterioration in the amount of revenue or cash flows we expect to generate from an asset group, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of our long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. We perform impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. In making this determination, we consider the specific operating characteristics of the relevant long-lived assets, including (i) the nature of the direct and any indirect revenues generated by the assets; (ii) the interdependency of the revenues generated by the assets; and (iii) the nature and extent of any shared costs necessary to operate the assets in their intended use. An impairment test would be performed when the estimated undiscounted future cash flows expected to result from the use of the asset group is less than its carrying amount. Impairment is measured by assessing the usefulness of an asset by comparing its carrying value to its fair value. If an asset is considered impaired, the impairment loss is measured as the amount by which the carrying value of the asset group exceeds its estimated fair value. Fair value is determined based upon estimated discounted future cash flows. The key estimates applied when preparing cash flow projections relate to revenue, operating margins, economic lives of assets, overheads, taxation and discount rates. To date, we have not recognized any such impairment loss associated
with our long-lived assets.
Goodwill is tested for impairment at the reporting unit level, which is the same or one level below an operating segment. In any year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we perform a quantitative analysis. The quantitative analysis is used to identify both the existence of impairment and the amount of the impairment loss by comparing the estimated fair value of a reporting unit with its carrying value, including goodwill. The estimated fair value is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting units. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired; otherwise, an impairment loss is recognized within our consolidated statements of operations in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
Fair Value of Convertible Debt
As of the date of this Annual Report we have several debt instruments outstanding which are convertible into shares of our common stock that include embedded derivatives. Refer to Note 9 - Senior Secured Convertible Debentures, Note 10 - Unsecured Convertible Notes, and Note 11 - Senior Secured Convertible Notes, to our consolidated financial statements included elsewhere in this Annual Report. We measure the embedded derivatives associated with the convertible debt instruments at fair value, as described in the aforementioned notes to the consolidated financial statements. We have estimated the fair value of the convertible debt instruments to be equal to their carrying values and have not elected the fair value option for these instruments. The fair value of the embedded derivatives, which are carried at fair value, was estimated using a yield method, including assumptions of probabilities of default and recovery rates. The fair value of the convertible debt instruments, which are carried at amortized cost, was estimated using a binomial lattice model, including assumptions of volatility and risk-free rates. For further discussion see Note 20 - Fair Value Measurements to our consolidated financial statements included elsewhere in this Annual Report.
Liquidity and Capital Resources
Current Financial Condition
As ofMarch 31, 2021 , our principal sources of liquidity were our cash and cash equivalents, including restricted cash balances in the amount of$18.8 million , which primarily are invested in cash in banking institutions in theU.S. The vast majority of our cash proceeds were received as a result of operations, the issuance of convertible notes, public offerings of our common shares, and PPP loans. As ofMarch 31, 2021 , we had notes payable of$3.6 million , secured convertible notes with aggregate principal amount of$15.0 million and unsecured convertible notes with aggregate principal balances of$7.5 million . As reflected in our consolidated financial statements included elsewhere in this Annual Report, we have a history of losses and incurred a net loss of$41.8 million and utilized cash of$9.5 million in operating activities for the year endedMarch 31, 2021 and had a working capital deficiency of$15.7 million as ofMarch 31, 2021 . 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 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. 87
Our long-term ability to continue as a going concern is dependent upon our ability to increase revenue, reduce costs, achieve a satisfactory level of profitable operations, and obtain additional sources of suitable and adequate financing. Our ability to continue as a going concern is also dependent its ability to further develop and execute on our business plan. We may also have to reduce certain overhead costs through the reduction of salaries and other means and settle liabilities through negotiation. There can be no assurance that management's attempts at any or all of these endeavors will be successful.
Sources of Liquidity InApril 2020 , we received approximately$2.0 million pursuant to the PPP promulgated under the CARES Act (the "PPP Loan"). The PPP Loan matures onApril 13, 2022 and bears interest at a rate of 1% per annum. Commencing inNovember 2020 , we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by the maturity date the principal amount outstanding on the PPP Loan as of such date. All or a portion of the PPP Loan may be forgiven by theU.S. Small Business Administration ("SBA") upon our application and upon documentation of expenditures in accordance with the SBA requirements. OnApril 24, 2021 , the Company received confirmation that the entire balance of the loan was forgiven. InJune 2020 , we entered into a new two-year license agreement with a certain Music Partner which owns and license rights to Slacker to certain sound recordings. Pursuant to this agreement, we agreed to certain minimum yearly guarantee payments and issued 264,000 shares of our common stock so such Music Partner in consideration of all payments due to the Music Partner prior the
date of the agreement. OnJuly 1, 2020 , we acquired PodcastOne and the$0.8 million PPP loan originally obtained by PodcastOne is currently outstanding. Monthly payments including principle and interest begin 12 months from the date of the promissory noteApril 26, 2020 . The balance is payable 2 years from the date of the promissory note, and bears interest at a rate of 1% per annum. OnMay 11, 2021 , the Company received confirmation that the entire balance of the loan was forgiven. InJuly 2020 , we completed a registered offering with an existing institutional investor, another investor and a music partner pursuant to which we sold 1,820,000 shares of our common stock to the investors for net cash proceeds of$7.3 million and issued 2,415,459 shares of our common stock to partially satisfy a$10.0 million vendor payment obligation to such music partner, each at a price of$3.28 per share (the "July 2020 Offering"). TheJuly 2020 Offering was made pursuant to our existing shelf Registration Statement on Form S-3
(File No. 333-228909). OnAugust 31, 2020 , we fully repaid the senior secured convertible debentures. In connection with such repayment, all of the agreements among us, our subsidiary guarantors and the senior lenders and their collateral agent were terminated, provided, that our indemnification obligations in the Securities Purchase Agreement, dated as ofJune 20, 2018 , as amended, between us and the senior lenders survive on the terms therein. Additionally, a prepayment penalty of 8% was paid on repayment of the senior secured convertible debentures in the amount of$0.7 million as interest expense in the accompanying consolidated statement of operations. Effective as ofSeptember 15, 2020 , we completed the sale and issuance of our senior secured convertible notes in the aggregate principal amount of$15.0 million to designees of a certain existing institutional investor, for cash gross proceeds of$15.0 million . The senior secured convertible notes mature onSeptember 15, 2022 , accrue interest at 8.5% per year with interest is payable quarterly in cash in arrears, and are convertible into shares of our common stock at a conversion price of$4.50 per share at the holder's option, subject to certain customary adjustments such as stock splits, stock dividends and
stock combinations. OnDecember 22, 2020 , we acquired 100% of the equity interests of CPS for total consideration of 2,230,769 shares of the Company's restricted common stock with a fair value of$6.4 million net of a 25% discount for lack of marketability, an additional 577,000 shares of our restricted common stock if CPS reports GAAP revenue of$20.0 million and$1.0 million of EBITDA for its fiscal year endedDecember 31, 2020 , and an additional 110,000 shares of our restricted common stock to the extent CPS' final working capital as determined by the parties exceeds$4.0 million with a dollar-for-dollar reduction with respect to each such shortfall with no duplication. 88 OnJanuary 11, 2021 , we entered into an additional Amendment of Notes Agreement (the "Third Amendment Agreement") withTrinad Capital pursuant to which the maturity dates of all of the Trinad Notes were extended toMay 31, 2022 , and in consideration of such extension, the interest rate payable under such notes increased to 8.5%, and we agreed to issue toTrinad Capital 280,000 shares of our common stock. We may not redeem the any of the Trinad Notes prior toMay 31, 2022 withoutTrinad Capital's consent. InMarch 2021 , the Company obtained an additional PPP loan totaling$0.6 million through the Consolidated Appropriations Act ("CAA"). The terms of this loan is on comparable terms to the prior PPP loans obtained under the CARES Act. Our cash flows from operating activities are significantly affected by our cash-based investments in our operations, including acquiring live music events and festivals rights, our working capital, and corporate infrastructure to support our ability to generate revenue and conduct operations through cost of services, product development, sales and marketing and general and administrative activities. Cash used in investing activities has historically been, and is expected to be, impacted significantly by our investments in business combinations, our platform, and our infrastructure and equipment for our business offerings, and sale of our investments. We expect to make additional strategic acquisitions to further grow our business, which may require significant investments, capital raising and/or acquisition of additional debt in the near and long term. Over the next twelve to eighteen months, our net use of our working capital could be substantially higher or lower depending on the number and timing of new live festivals and paid subscribers that we add to our businesses. 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 unsecured convertible notes, and pay down our debt, in part or in full, subject to repayment limitation set forth in the credit agreement. Management plans to fund its operations over the next twelve months through the combination of improved operating results, spending rationalization, and the ability to access sources of capital such as through the issuance of equity and/or debt securities. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. We filed a universal shelf Registration Statement on Form S-3, effectiveFebruary 7, 2019 , 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 .
Credit Agreement and Other Debt
For additional information regarding our credit agreement and other debt, see "Contractual Obligations" in this Item 7 below and in the footnotes to the Consolidated Financial Statements (Notes 8, 9, 10, and 11).
Off-Balance Sheet Arrangements
As of
Sources and Uses of Cash
The following table provides information regarding our cash flows for the fiscal
years ended
Year Ended March 31,
2021 2020
Net cash used in operating activities
(791 ) (2,437 )
Net cash provided by financing activities 16,632 5,829
Net change in cash and cash equivalents
89
Cash Used In Operating Activities
Net cash used in our operating activities for 2021 of$9.5 million primarily resulted from our net loss during the period of$41.8 million , which included non-cash charges of$27.5 million largely comprised of depreciation and amortization, stock-based compensation, and the change in fair value of embedded derivatives. The remainder of our sources of cash provided by operating activities of$4.8 million was from changes in our working capital, including$3.4 million from timing of accounts receivable and$2.4 million from timing of accounts payable and accrued expenses.
Cash Flows Used In Investing Activities
Net cash used in investing activities for 2021 of$0.8 million was principally due to the$3.2 million cash used for the purchase of capitalized internally developed software costs during the year endedMarch 31, 2021 , net of cash acquired in the acquisitions of PodcastOne and CPS of$2.4 million .
Cash Flows Provided By Financing Activities
Net cash provided by financing activities for 2021 of
Contractual Obligations
The following table summarizes our contractual obligations that require us to make future cash payments as ofMarch 31, 2021 . The future contractual requirements include payments required for our operating leases and contractual purchase agreements (in thousands): Less than More than Total 1 year 1-3 years 3-5 years 5 years Contractual Obligations Operating lease obligations$ 1,167 $ 396 $ 771 $ - $ - Content and Festival Fees and Guarantees and Contractual Obligations (1) 19,756 7,567 6,533 5,656 - Deferred revenue arrangements (2) 1,262 1,262 - - - Long-term debt obligations (3) 25,180 4,735 19,861
584 -
Total $ 47,365 $ 13,960 $ 27,165 $ 6,240 $ -
(1) Amounts represent minimum guarantees and contractual obligations associated
with licensing, production and/or distribution agreements for digital
broadcast rights across certain events.
(2) Amounts represent obligations to provide service for which we have already
received in cash from our customers.
(3) Excludes amounts pertaining to the interest on unsecured convertible notes
and notes payable. See also Note 8 - Note Payable, Note 9 - Senior Secured
Convertible Debentures, Note 10 - Unsecured Convertible Notes, and Note 11 -
Senior Secured Convertible Notes included in our consolidated financial
statements included elsewhere in this Annual Report.
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