# LiveOne, Inc.: Form 10-Q for the period ended Jun 30, 2022

- Company: [LiveOne, Inc.](/companies/lvo.md) (CIK 1491419)
- Form: 10-Q
- Filed: 2022-08-15
- Accepted by EDGAR: Aug 15, 2022, 17:38 ET
- Period: 2022-06-30
- Accession: 0001213900-22-048169
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1491419/000121390022048169/f10q0622_liveoneinc.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1491419/000121390022048169/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-04-01 to 2022-06-30 | $23.2m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-04-01 to 2022-06-30 | $15.4m | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2022-04-01 to 2022-06-30 | $1.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-04-01 to 2022-06-30 | $237.0k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-04-01 to 2022-06-30 | −$3.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-04-01 to 2022-06-30 | $1.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-04-01 to 2022-06-30 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-04-01 to 2022-06-30 | $0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-04-01 to 2022-06-30 | 82,126,622 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-04-01 to 2022-06-30 | −$26.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-04-01 to 2022-06-30 | $773.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2022-04-01 to 2022-06-30 | $997.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-06-30 | $11.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-06-30 | $28.5m | us-gaap:AssetsCurrent |
| Total assets | at 2022-06-30 | $72.4m | us-gaap:Assets |
| Current liabilities | at 2022-06-30 | $54.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-06-30 | $82.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-06-30 | −$9.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 47,456 characters.

*As used herein, “LiveOne,” the “Company,” “we,” “our” or “us” and similar terms include LiveOne, Inc. and its subsidiaries, unless the context indicates otherwise. The following discussion and analysis of our business and results of operations for the three months ended June 30, 2022, and our financial conditions at that date, should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).*

### Forward-Looking Statements

Certain statements contained in this Quarterly Report that are not statements of historical fact constitute “forward-looking statements” within the meaning of the Securities Litigation Reform Act of 1995, notwithstanding that such statements are not specifically identified. These forward-looking statements relate to expectations or forecasts for future events, including without limitation our earnings, revenues, expenses or other future financial or business performance or strategies, or the impact of legal or regulatory matters on our business, results of operations or financial condition. These statements may be preceded by, followed by or include the words “may,” “might,” “will,” “would,” “could,” “should,” “will likely result,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “continue,” “target” or the negative or other variations thereof or comparable terminology. These forward-looking statements are not guarantees of future performance and are based on information available to us as of the date of this Quarterly Report and on our current expectations, forecasts and assumptions, and involve substantial risks and uncertainties. Actual results may vary materially from those expressed or implied by the forward-looking statements herein due to a variety of factors, including: our reliance on one key customer for a substantial percentage of our revenue; our ability to consummate any proposed financing, acquisition, spin-out, distribution or transaction, including the proposed spin-out of PodcastOne or its pay-per-view business, the timing of the closing of such proposed event, including the risks that a condition to closing would not be satisfied within the expected timeframe or at all or that the closing of any proposed financing, acquisition, spin-out, distribution or transaction, the timing of the closing of such proposed event will not occur; PodcastOne's ability to list on a national exchange; our ability to continue as a going concern; our reliance on one key customer for a substantial percentage of our revenue; if and when required, our ability to obtain additional capital, including to fund our current debt obligations and to fund potential acquisitions and capital expenditures; our ability to attract, maintain and increase the number of our users and paid members; our ability to identify, acquire, secure and develop content; our ability to successfully implement our growth strategy, our ability to acquire and integrate our acquired businesses, the ability of the combined business to grow, including through acquisitions which we are able to successfully integrate, and the ability of our executive officers to manage growth profitably; 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 the 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 maturity; the effect of the conditional conversion feature of the convertible notes; our compliance with the covenants in our credit agreement; the effects of the global COVID-19 pandemic; risks and uncertainties applicable to the businesses of our subsidiaries; and other risks and uncertainties set forth herein. Other factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those set forth below in Part II – Item 1A. Risk Factors of this Quarterly Report and in Part I – Item 1A. Risk Factors of our 2022 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 29, 2022 (the “2022 Form 10-K”), as well as other factors and matters described herein or in the annual, quarterly and other reports we file with the SEC. Except as required by law, we do not undertake any obligation to update forward-looking statements as a result of as a result of new information, future events or developments or otherwise.

### Overview of the Company

We are a pioneer in the acquisition, distribution and monetization of live music, Internet radio, podcasting and music-related streaming and video content. Our principal operations and decision-making functions are located in North America. We manage and report our businesses as a single operating segment. Our senior management regularly reviews our operating results, principally to make decisions about how we allocate our resources and to measure our segment and consolidated operating performance. In prior fiscal years we generated a majority of our revenue primarily through membership services from our streaming radio and music services, and to a lesser extent through advertising and licensing across our music platform. In the fourth quarter of our fiscal year ended March 31, 2020, we began generating ticketing, sponsorship, and promotion-related revenue from live music events through our February 2020 acquisition of React Presents. In May 2020, we launched a new pay-per-view (“PPV”) offering enabling new forms of artist revenue including digital tickets, tipping, digital meet and greets, merchandise sales and sponsorship. In July 2020, we entered the podcasting business with the acquisition of PodcastOne and in December 2020, we entered the merchandising business with the acquisition of CPS. In October 2021, we entered artist and brand development and music-related press relations business through our acquisition of Gramophone.

For the three months ended June 30, 2022 and 2021, we reported revenue of $23.2 million and $38.8 million, respectively. We have one and two external customers that accounted for more than 10% of its revenue during the three months ended June 30, 2022 and 2021. Such customers original equipment manufacturer (the “OEM”) who provides premium Slacker service in all of their new vehicles and a production customer in connection with the June 2021 Social Gloves event. In the three months ended June 30, 2022 and 2021, total revenue from the OEM was $10.0 million and $6.9 million, respectively. In the three months ended June 30, 2022 and 2021, total revenue from the production customer was none and $6.4 million, respectively.

### Key Corporate Developments for the Quarter Ended June 30, 2022

During the quarter ended June 30, 2022, we successfully livestreamed 20 live events with 35 artists livestreamed.

We ended the June 30, 2022 quarter with approximately 1,594,000 paid members on our music platform, up from approximately 1,162,000 at June 30, 2021, representing 37% annual growth.

### Basis of Presentation

The following discussion and analysis of our business and results of operations and our financial conditions is presented on a consolidated basis. In addition, a brief description is provided of significant transactions and events that have an impact on the comparability of the results being analyzed.

### Opportunities, Challenges and Risks

During our fiscal year ended March 31, 2022, we (i) acquired Gramophone (effective October 2021) (ii) accelerated the number of live events digitally live streamed across our platform, and (iii) increased our sponsorship revenue from live events when compared to prior fiscal years. As a result of these actions, our revenue for the three months ended June 30, 2022 was comprised of 52% from paid customers’ membership, 39% from advertising (which includes PodcastOne), 8% from merchandise (which includes CPS), 1% from ticketing and events, and 1% from sponsorship and licensing. As the impact of COVID-19 eases around the world and related government actions are relaxed in the markets in which we operate, we expect to gradually increase our production of 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 the National Football League, Major League Baseball and the National Basketball Association, whereby sports broadcasting rights became more valuable as the demand for live sporting events increased over the past 20 years. As a thought leader in live music, we plan to acquire the broadcasting rights to as many of the top live music events and festivals that are available to us. In the near term, we will continue aggregating our digital traffic across these festivals and monetizing the live broadcasting of these events through advertising, brand sponsorships and licensing of certain broadcasting rights outside of North America. 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 members. Recently, we have entered into distribution relationships with a variety of platforms, including Roku, AppleTV, Amazon Fire, linear OTT platforms such as STIRR and XUMO. As we continue to have more distribution channels, rights and viewership and expand our original programming capabilities, we believe there is a substantial opportunity to increase our brand, advertising, viewership and membership capabilities and corresponding revenue, domestically and globally.

We believe our operating results and performance are, and will continue to be, driven by various factors that affect the music industry. Our ability to attract, grow and retain users to our platform is highly sensitive to rapidly changing public music preferences and technology and is dependent on our ability to maintain the attractiveness of our platform, content and reputation to our customers. Beyond fiscal year 2023, the future revenue and operating growth across our music platform will rely heavily on our ability to grow our member base in a cost effective manner, continue to develop and deploy quality and innovative new music services, provide unique and attractive content to our customers, continue to grow the number of listeners on our platform and live music festivals we stream, grow and retain customers and secure sponsorships to facilitate future revenue growth from advertising and e-commerce across our platform.

As our music platform continues to evolve, we believe there are opportunities to expand our services by adding more content in a greater variety of formats such as podcasts and video podcasts (“vodcasts”), extending our distribution to include pay television, OTT and social channels, deploying new services for our members, artist merchandise and live music event ticket sales, and licensing user data across our platform. Our acquisitions of PodcastOne, CPS and Gramophone are reflective of our flywheel operating model. Conversely, the evolution of technology presents an inherent risk to our business. Today, we see large opportunities to expand our music services within North America and other parts of the world where we will need to make substantial investments to improve our current service offerings. As a result, and during the fiscal year ending March 31, 2023, we will continue to invest in product and engineering to further develop our future music apps and services, and we expect to continue making significant product development investments to our existing technology solutions over the next 12 to 24 months to address these opportunities.

As our platform matures, we also expect our Contribution Margins\*, adjusted earnings before income tax, depreciation and amortization (“Adjusted EBITDA”)\* and Adjusted EBITDA Margins\* to improve in the near and long term, which are non-GAAP measures as defined in section following below titled, “Non-GAAP Measures”. Historically, our live events business has not generated enough direct revenue to cover the costs to produce such events, and as a result generated negative Contribution Margins\*, Adjusted EBITDA\* Adjusted EBITDA Margins\* and operating losses. Beginning in late March 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 in April 2020 towards self-producing live music events that were 100% digital (e.g., artists not performing in front of live fans and solely for digital distribution).

Growth in our music services is also dependent upon the number of customers that use and pay for our services, the attractiveness of our music platform to sponsors and advertisers and our ability to negotiate favorable economic terms with music labels, publishers, artists and/or festival owners, and the number of consumers who use our services. Growth in our margins is heavily dependent on our ability to grow the membership base in a cost-efficient manner, coupled with the managing the costs associated with implementing and operating our services, including the costs of licensing music with the music labels, producing, streaming and distributing video and audio content and sourcing and distributing personalized products and gifts. Our ability to attract and retain new and existing customers will be highly dependent on our abilities to implement and continually improve upon our technology and services on a timely basis and continually improve our network and operations as technology changes and as we experience increased network capacity constraints as we continue to grow.

For the majority of our agreements with festival owners, we acquire the global broadcast rights. Moreover, the digital rights we acquire principally include any format and screen, and future rights to VR and AR. For the three months ended June 30, 2022 and 2021, all material amounts of our revenue were derived from customers located in the United States and moreover, one of our customers accounted for 43% and 18% 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 beyond June 30, 2022 could cause our revenue to fluctuate significantly.

Moreover, and with the addition of PodcastOne and CPS in July and December 2020, respectively, the percentage of this customer revenue concentration decreased and this trend is expected to continue in the future. In the long term, we plan to expand our business internationally in places such as Europe, Asia Pacific and Latin America, and as a result will continue to incur significant incremental upfront expenses associated with these growth opportunities.

#### Effects of COVID-19

An outbreak of a novel strain of coronavirus, COVID-19 in December 2019 subsequently became a pandemic after spreading globally, including the United States. The global impact of the COVID-19 pandemic has had a negative effect on the global economy, disrupting the financial markets creating increasing volatility and overall uncertainty. We began to experience modest adverse impacts of the COVID-19 pandemic in the fourth quarter of fiscal year ended March 31, 2020 and became more adverse throughout the fiscal year ended March 31, 2021 and up to the third quarter of fiscal year ended March 31, 2022. Although the impact has subsided, we expect to continue experiencing modest adverse impacts throughout the fiscal year ending March 31, 2023. Our event and programmatic advertising revenues were directly impacted throughout the 2021 fiscal year and mid-way through the 2022 fiscal year with all on-premise in-person live music festivals and events postponed and mixed demand from historical advertising partners. Further, one of our larger customers also experienced a temporary halt to its production as a result of COVID-19, which negatively impacted our near-term member growth in the 2021 fiscal year. During the fiscal year ended March 31, 2021, we enacted several initiatives to counteract these near-term challenges, including salary reductions, obtaining a Paycheck Protection Program loan and pivoting its live music production to 100% digital. The Company began producing, curating, and broadcasting digital music festivals and events across its platform which has resulted in the growth in the number of live events streamed, related sponsorship revenue and overall viewership. We also launched a new PPV offering in May 2020, enabling new forms of artist revenue including digital tickets, tipping, digital meet and greet and merchandise sales. However, there is uncertainty as to the duration and overall impact of the COVID-19 pandemic, which could result in an adverse material change in a future period to our results of operations, financial position and liquidity.

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.

### Consolidated Results of Operations

### Three Months Ended June 30, 2022, as compared to Three Months Ended June 30, 2021

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 June 30, 2022 | 2021 |
| --- | ---: | ---: |
| **Revenue:** | $23,222 | $38,767 |
| **Operating expenses:** |  |  |
| Cost of sales | 15,382 | 30,940 |
| Sales and marketing | 2,366 | 4,748 |
| Product development | 1,617 | 2,155 |
| General and administrative | 2,209 | 9,377 |
| Amortization of intangible assets | 1,411 | 1,506 |
| Total operating expenses | 22,985 | 48,726 |
| **Income (loss) from operations** | 237 | (9,959) |
| **Other income (expense):** |  |  |
| Interest expense, net | (997) | (1,060) |
| Forgiveness of PPP loans | - | 2,511 |
| Other income | 2,105 | 459 |
| Total other income (expense), net | 1,108 | 1,910 |
| **Income (loss) before income taxes** | 1,345 | (8,049) |
| (Benefit from) provision for income taxes | (3) | 2 |
| **Net income (loss)** | $1,348 | $(8,051) |
| **Net income (loss) per share - basic** | $0.02 | $(0.10) |
| **Net income (loss) per share – diluted** | $0.02 | $(0.10) |
| **Weighted average common shares – basic** | 82,072,822 | 76,982,057 |
| **Weighted average common shares – diluted** | 82,126,622 | 76,982,057 |

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

| Depreciation expense | Three Months Ended June 30, 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| Cost of sales | $25 | $11 | 136% |
| Sales and marketing | 47 | 32 | 44% |
| Product development | 705 | 599 | 18% |
| General and administrative | 127 | 231 | -45% |
| Total depreciation expense | $904 | $873 | 4% |

5

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

| Stock-based compensation expense | Three Months Ended June 30, 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| Cost of sales | $78 | $303 | -74% |
| Sales and marketing | 74 | 1,453 | -95% |
| Product development | 124 | 159 | -22% |
| General and administrative | 512 | 3,171 | -84% |
| Total stock-based compensation expense | $788 | $5,086 | -85% |

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

|  | Three Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Revenue | 100% | 100% |
| Operating expenses |  |  |
| Cost of sales | 60% | 80% |
| Sales and marketing | 10% | 12% |
| Product development | 7% | 6% |
| General and administrative | 10% | 24% |
| Amortization of intangible assets | 6% | 4% |
| Total operating expenses | 99% | 126% |
| Income (loss) from operations | 1% | -26% |
| Other income (expense), net | 5% | 5% |
| Income (loss) before income taxes | 6% | -21% |
| Income tax provision | 0% | 0% |
| Net income (loss) | 6% | -21% |

### Revenue

Revenue was as follows (in thousands):

|  | Three Months Ended June 30, 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| Membership services | $12,082 | $9,084 | 33% |
| Advertising | 8,942 | 7,937 | 13% |
| Merchandising | 1,848 | 3,660 | -49% |
| Sponsorship and licensing | 114 | 5,136 | -98% |
| Ticket/Event | 235 | 12,950 | -98% |
| Total Revenue | $23,222 | $38,767 | -40% |

#### Membership Revenue

Membership revenue increased $3.0 million, or 33%, to $12.1 million for the three months ended June 30, 2022, as compared to $9.1 million for the months ended June 30, 2021. The increase was primarily as a result of member growth with our largest OEM customer.

#### Advertising Revenue

Advertising revenue increased $1.0 million, or 13%, to $8.9 million for the three months ended June 30, 2022, as compared to $7.9 million for the three months ended June 30, 2021, which is primarily attributable to an increase in the number of advertising content sold.

#### Merchandising

Merchandising revenue decreased to $1.8 million, or 49%, for the three months ended June 30, 2022, as compared to $3.7 million the three months ended June 30, 2021 due to a reduction in marketing spending by retail partners, a significant partner being offline for the quarter and reduced customer demand.

#### Sponsorship and Licensing

Sponsorship and licensing revenue decreased by $5.0 million, or 98%, to $0.1 million for the three months ended June 30, 2022, as compared to $5.1 million for the three months ended June 30, 2021. The decrease was primarily due to the sponsorship and licensing revenues earned related to the Social Gloves event held during the three months ended June 30, 2021 with no comparable event held during the current year period.

#### Ticket/Event

Ticket/Event revenue decreased by $12.7 million, or 98%, to $0.2 million for the three months ended June 30, 2022, as compared to $13.0 million for the three months ended June 30, 2021, driven by PPV ticket fees and production revenues earned related to the Social Gloves event held during the three months ended June 30, 2021, with no comparable event held during the current year period.

### Cost of Sales

Cost of sales was as follows (in thousands):

|  | Three Months Ended June 30, 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| Membership | $7,155 | 6,456 | 11% |
| Advertising | 7,202 | 7,460 | -3% |
| Production and Ticketing | (255) | 14,510 | -102% |
| Merchandising | 1,280 | 2,514 | -49% |
| Total Cost of Sales | $15,382 | $30,940 | -50% |

#### Membership

Membership cost of sales increased by $0.7 million, or 11%, to $7.2 million for the three months ended June 30, 2022, as compared to $6.5 million for the three months ended June 30, 2021. The increase in costs during the current quarter due to a growth in membership.

#### Advertising

Advertising cost of sales decreased by $0.3 million, or 3%, to $7.2 million for the three months ended June 30, 2022, as compared to $7.5 million for the three months ended June 30, 2021. The decrease was primarily due to an improvement in revenue share agreements compared to the prior year period.

#### Production and Ticketing

Production cost of sales decreased by $14.8 million, or 102%, to a credit of $0.3 million for the three months ended June 30, 2022, as compared to $14.5 million for the three months ended June 30, 2021. The decrease was primarily due to production costs of approximately $12.3 million related to the Social Gloves event held during the prior year quarter. In addition, the Company was able to negotiate credits with some vendors on amounts previously owed during the three months ended June 30, 2022.

#### Merchandising

Merchandising cost of sales decreased by $1.2 million, or 49%, to $2.5 million for the three months ended June 30, 2022, as compared to $2.5 million for the three months ended June 30, 2021 due to a reduction in sales.

### Other Operating Expenses

#### Other operating expenses were as follows (in thousands):

|  | Three Months Ended June 30, 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| Sales and marketing expenses | $2,366 | $4,748 | -50% |
| Product development | 1,617 | 2,155 | -25% |
| General and administrative | 2,209 | 9,377 | -76% |
| Amortization of intangible assets | 1,411 | 1,506 | -6% |
| Total Other Operating Expenses | $7,603 | $17,786 | -57% |

#### Sales and Marketing Expenses

Sales and Marketing expenses decreased by $2.4 million, or 50%, to $2.4 million for the three months ended June 30, 2022, as compared to $4.7 million for the three months ended June 30, 2021, primarily driven by a decrease of $1.5 million in stock compensation expense and a reduction in advertising of $0.9 million.

#### Product Development

Product development expenses decreased by $0.5 million, or 25%, to $1.6 million for the three months ended June 30, 2022, as compared to $2.2 million for the three months ended June 30, 2021, which was driven by temporary salary reductions and a decrease in employees.

#### General and Administrative

General and administrative expenses decreased by $7.2 million, or 76%, to $2.2 million for the three months ended June 30, 2022, as compared to $8.4 million for the three months ended June 30, 2021, largely due to a decrease in share-based compensation of $2.8 million, legal fees of $1.9 million, salaries and benefits of $1.3 million and a $1.2 million reduction in overhead costs.

A*mortization of Intangible Assets*

Amortization of intangible assets decreased $0.1 million, or 6%, to $1.4 million for the three months ended June 30, 2022, as compared to $1.5 million for the three months ended June 30, 2021. There were no significant additions of intangibles during the three months ended June 30, 2022.

### Total Other Income (Expense)

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

|  | Three Months Ended June 30, 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| Total other income (expense), net | $1,128 | $1,910 | -41% |

Total other income (expense) decreased by $0.8 million, or 41%, to $1.1 million of income for the three months ended June 30, 2022, as compared to $1.9 million of income for the three months ended June 30, 2021. The decrease is primarily driven by the $2.5 million gain on forgiveness of our PPP loans during the quarter ended June 30, 2021 compared to a gain of $2.2 million attributed to the settlement of the PodcastOne contingent liability.

### Non-GAAP Measures

#### Contribution Margin

Contribution Margin is a non-GAAP financial measure defined as Revenue less Cost of Sales.

#### Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) before (a) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (b) legal, accounting and other professional fees directly attributable to acquisition activity, (c) employee severance payments and third party professional fees directly attributable to acquisition or corporate realignment activities, (d) certain non-recurring expenses associated with legal settlements or reserves for legal settlements in the period that pertain to historical matters that existed at acquired companies prior to their purchase date, (e) depreciation and amortization (including goodwill impairment, if any), and (f) certain stock-based compensation expense. We use Adjusted EBITDA to evaluate the performance of our operating segment. We believe that information about Adjusted EBITDA assists investors by allowing them to evaluate changes in the operating results of our business separate from non-operational factors that affect net income (loss), thus providing insights into both operations and the other factors that affect reported results. Adjusted EBITDA is not calculated or presented in accordance with GAAP. A limitation of the use of Adjusted EBITDA as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business. Accordingly, Adjusted EBITDA should be considered in addition to, and not as a substitute for, operating income (loss), net income (loss), and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, Adjusted EBITDA as presented herein may not be comparable to similarly titled measures of other companies.

#### Adjusted EBITDA Margin

Adjusted EBITDA Margin is a non-GAAP financial measure that we define as the ratio of Adjusted EBITDA to Revenue.

The following table sets forth the reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure for the three months ended June 30, 2022 (in thousands):

| Three Months Ended June 30, 2022 | Net Income (Loss) | Depreciation and Amortization | Stock-Based Compensation | Non- Recurring Acquisition and Realignment Costs | Other (Income) Expense | (Benefit) Provision for Taxes | Adjusted EBITDA |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Operations | $2,239 | $2,309 | $375 | $192 | $(1,915) | $- | $3,200 |
| Corporate | (891) | 6 | 413 | (1,563) | 807 | (3) | (1,231) |
| Total | $1,348 | $2,315 | $788 | $(1,371) | $(1,108) | $(3) | $1,969 |
| **Three Months Ended June 30, 2021** |  |  |  |  |  |  |  |
| Operations | $(3,013) | $2,371 | $2,144 | $237 | $(542) | $- | $1,197 |
| Corporate | (5,038) | 8 | 2,942 | 505 | (1,368) | 2 | (2,949) |
| Total | $(8,051) | $2,379 | $5,086 | $742 | $(1,910) | $2 | $(1,752) |

The following table sets forth the reconciliation of Contribution Margin to Revenue, the most comparable GAAP financial measure (in thousands):

|  | Three Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| **Revenue:** | $23,222 | $38,767 |
| Less: |  |  |
| Cost of sales | (15,382) | (30,940) |
| Amortization of developed technology | (777) | (772) |
| **Gross Profit** | **7,063** | **7,055** |
| **Add back amortization of developed technology:** | 777 | 772 |
| **Contribution Margin** | **$7,840** | **$7,827** |

9

### Business Segment Results

### Operations

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

|  | Three Months Ended June 30, 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| Revenue | $23,222 | $38,767 | -40% |
| Cost of Sales | 15,382 | 30,940 | -50% |
| Sales & Marketing, Product Development and G&A | 5,943 | 9,876 | -40% |
| Intangible Asset Amortization | 1,411 | 1,506 | -6% |
| Operating Income (Loss) | 486 | (3,555) | -114% |
| Operating Margin | 2% | -9% | 11% |
| Adjusted EBITDA\* | $3,200 | $1,197 | 167% |
| Adjusted EBITDA Margin\* | 14% | 3% | 11% |

\* See “—Non-GAAP Measures” above for the definition and reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin.

#### Revenue

Revenue decreased by $15.5 million, or 40%, $23.2 million during the three months ended June 30, 2022, as compared to $38.8 million for the three months ended June 30, 2021, primarily due to a decrease of $12.7 million in ticket and event revenue primarily due to PPV ticket fees and production revenues earned related to the Social Gloves event held during the prior year quarter which did not occur in the current quarter. In addition, sponsorship revenue decreased $5.0 million and merchandising decreased by $1.8 million due to the Social Gloves event not occurring in the current quarter and a decrease in demand for merchandise. The decrease was offset by an increase in membership revenue of $3.0 million and advertising revenue of $1.0 million due to growth in our PodcastOne sales.

#### Operating Income (Loss)

Operating income (loss) increased by $4.0 million, or 114%, to income of $0.4 million for the three months ended June 30, 2022, as compared to a loss of $3.6 million for the three months ended June 30, 2021, as a result of a decrease in stock compensation expense of $4.3 million, in addition to decreases in operating costs primarily driven by a $15.6 decrease in cost of sales. These decreases were offset by a decrease in revenue of $15.5 million.

#### Adjusted EBITDA

Adjusted EBITDA increased by $2.0 million, or 167%, to $3.2 million for the three months ended June 30, 2022, as compared to $1.2 million for the three months ended June 30, 2021. This was largely due to lower operating expenses, described above.

### Corporate expense

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

|  | Three Months Ended June 30, 2022 | 2021 | % Change |
| --- | ---: | ---: | ---: |
| Sales & Marketing, Product Development, and G&A | $83 | $6,404 | -99% |
| Operating Loss | $(83) | $(6,404) | 99% |
| Operating Margin | N/A | N/A | -% |
| Adjusted EBITDA\* | $(1,231) | $(2,949) | -58% |

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

#### Operating Loss

Operating loss decreased $6.1 million, or 99%, to $0.1 million for the three months ended June 30, 2022, as compared to $6.4 million for the three months ended June 30, 2021 due to cost reduction initiatives instituted during the quarter ended June 30, 2021 which were continued into the quarter ended June 30, 2022. In addition, the Company recorded $1.6 million in credits due to settling previous amounts owed with vendors.

#### Adjusted EBITDA

Corporate Adjusted EBITDA\* decreased $1.7 million, or 58%, to $(1.2) million for the three months ended June 30, 2022, as compared to $(2.9) million for three months ended June 30, 2021. The decrease was driven by the decrease in the net loss for the corporate segment along with settling amounts owed with vendors for an amount less than originally billed.

### Liquidity and Capital Resources

### Current Financial Condition

As of June 30, 2022, our principal sources of liquidity were our cash and cash equivalents, including restricted cash balances in the amount of $11.3 million, which primarily are invested in cash in banking institutions in the U.S. The vast majority of our cash proceeds were received as a result of the issuance of our convertible notes since 2014, public offerings, bank debt financing in fiscal year 2018 and the secured convertible debentures financing in June 2018 and February 2019. In June 2021 we entered into a Revolving Credit Facility (See Note 11 – Senior Secured Revolving Line of Credit to our condensed consolidated financial statements) and drew down aggregate advance amounts of $6.0 million. As of June 30, 2022, we had notes payable balance of $0.2 million, $5.9 million in aggregate principal amount of unsecured convertible notes, secured convertible notes with aggregate principal balances of $15.0 million, and a senior secured revolving credit facility with a principal balance of $7.0 million.

As reflected in our condensed consolidated financial statements included elsewhere in this Quarterly Report, we have an accumulated deficit of $212.5 million and cash used of $26,000 from operating activities for the three months ended June 30, 2022 and had a working capital deficiency of $25.7 million as of June 30, 2022. These factors, among others, raise substantial doubt about our ability to continue as a going concern within one year from the date that the financial statements are issued. Our condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to execute our strategy and on our ability to raise additional funds through the sale of equity and/or debt securities via public and/or private offerings.

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

### Sources of Liquidity

In July 2022, PodcastOne completed a private placement offering (the “Financing”) of its unsecured convertible notes with an original issue discount of 10% in the aggregate principal amount of $8,838,500 (the “Notes”) to certain accredited investors and institutional investors (collectively, the “Purchasers”), for gross proceeds of $8,035,000 pursuant to the Subscription Agreements entered into with the Purchasers (the “Subscription Agreements”). In connection with the sale of the Notes, the Purchasers received warrants (the “Warrants”) to purchase a number of shares (the “Warrant Shares”) of PodcastOne’s common stock, par value $0.00001 per share (See Note 20 – Subsequent Events). The Notes and the Warrants were issued as restricted securities in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). As part of the Financing, we purchased $3 million worth of Notes.

Our cash flows from operating activities are significantly affected by our cash-based investments in our operations, including acquiring live music events and festivals rights, our working capital, and corporate infrastructure to support our ability to generate revenue and conduct operations through cost of services, product development, sales and marketing and general and administrative activities. Cash used in investing activities has historically been, and is expected to be, impacted significantly by our investments in business combinations, our platform, and our infrastructure and equipment for our business offerings, and sale of our investments. We expect to make additional strategic acquisitions to further grow our business, which may require significant investments, capital raising and/or acquisition of additional debt in the near and long term. Over the next twelve to eighteen months, our net use of our working capital could be substantially higher or lower depending on the number and timing of new live festivals and paid members that we add to our businesses.

Subject to applicable limitations in the instruments governing our outstanding indebtedness, we may from time to time repurchase our debt, including the unsecured convertible notes, in the open market, through tender offers, through exchanges for debt or equity securities, in privately negotiated transactions or otherwise.

In the future, we may utilize additional commercial financings, bonds, debentures, lines of credit and term loans with a syndicate of commercial banks or other bank syndicates and/or issue equity securities (publicly or privately) for general corporate purposes, including acquisitions and investing in our intangible assets, music equipment, platform and technologies. We may also use our current cash and cash equivalents to repurchase some or all of our unsecured convertible notes, and pay down our debt, in part or in full, subject to repayment limitation set forth in the credit agreement. Management plans to fund its operations over the next twelve months through the combination of improved operating results, spending rationalization, and the ability to access sources of capital such as through the issuance of equity and/or debt securities. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. We filed a new universal shelf Registration Statement on Form S-3 (the “New Shelf S-3”) with the SEC, which was declared effective by the SEC on February 17, 2022. Under the New Shelf S-3, we have the ability to raise up to $150.0 million in cash from the sale of our equity, debt and/or other financial instruments.

### Sources and Uses of Cash

The following table provides information regarding our cash flows for the three months ended June 30, 2022 and 2021 (in thousands):

|  | Three Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash (used in) provided by operating activities | $(26) | $832 |
| Net cash used in investing activities | (785) | (1,103) |
| Net cash (used in) provided by financing activities | (997) | 6,210 |
| Net change in cash, cash equivalents and restricted cash | $(1,808) | $5,939 |

### Cash Flows Provided by Operating Activities

#### For the three months ended June 30, 2022

Net cash used in our operating activities of $26,000 primarily resulted from our net income during the period of $1.3 million, which included non-cash charges of $1.3 million largely comprised of depreciation and amortization, stock-based compensation, change in fair value of contingent consideration and amortization of debt discount. The remainder of our sources of cash used in operating activities of $(2.7) million was from changes in our working capital, primarily from timing of accounts receivable, accounts payable and accrued liabilities, accrued royalties, and deferred revenue.

#### For the three months ended June 30, 2021

Net cash provided by our operating activities of $0.8 million primarily resulted from our net loss during the period of ($8.1) million, which included non-cash charges of $4.9 million largely comprised of depreciation and amortization, stock-based compensation, and amortization of debt discount. In addition, our net loss during the period included non-cash income comprised of $(2.5) million comprised of a gain on forgiveness of PPP loans. The remainder of our sources of cash provided by operating activities of $4.0 million was from changes in our working capital, primarily from timing of accounts receivable, accounts payable, and deferred revenue.

### Cash Flows Used In Investing Activities

#### For the three months ended June 30, 2022

Net cash used in investing activities of $0.8 million was primarily due to the $0.8 million cash used for the purchase of capitalized internally developed software costs during the quarter ended June 30, 2022.

#### For the three months ended June 30, 2021

Net cash used in investing activities of $1.1 million was primarily due to the $1.0 million cash used for the purchase of capitalized internally developed software costs during the quarter ended June 30, 2021.

### Cash Flows Provided by Financing Activities

#### For the three months ended June 30, 2022

Net cash used in financing activities of $1.0 million was due to the repurchase of common stock under the Company’s share repurchase program of $1.0 million.

#### For the three months ended June 30, 2021

Net cash provided by financing activities of $6.2 million was primarily due to proceeds from the drawdown on the revolving line of credit of $6.0 million and proceeds from employee stock options of $0.3 million, partially offset by payments on capital lease liabilities of ($0.1) million.

### Debt Covenants

As of June 30, 2022, we were in full compliance with all covenants.

## Controls and procedures

As filed, 3,742 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Interim 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 Interim 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 2022 Form 10-K, our Chief Executive Officer and Interim 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 2022 Form 10-K, to our internal control over financial reporting to remediate the material weaknesses as described in our 2022 Form 10-K.

There have been no changes in our internal control over financial reporting, during the quarter ended June 30, 2022 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 Interim 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.

## Risk factors

As filed, 41,194 characters.

We have set forth in Item 1A. Risk Factors in our 2022 Form 10-K, risk factors relating to our business and industry, our acquisition strategy, our company, our subsidiaries, our technology and intellectual property, and our common stock. Readers of this Quarterly Report are referred to such Item 1A. Risk Factors in our 2022 Form 10-K for a more complete understanding of risks concerning us. Except as set forth below, there have been no material changes in our risk factors since those published in our 2022 Form 10-K.

### Risks Related to Our Business and Industry

***We rely on one key customer for a substantial percentage of our revenue. The loss of our largest customer or the significant reduction of business or growth of business from our largest customer could significantly adversely affect our business, financial condition and results of operations.***

Our business is dependent, and we believe that it will continue to depend, on our customer relationship with Tesla, which accounted for 43% of our consolidated revenue for the three months ended June 30, 2022, and 18% of our consolidated revenue for the three months ended June 30, 2021. 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 or if Tesla reclassifies or renegotiates with us the definition of a paid subscriber or demands credit for past subscribers that no longer meet such requirement, there can be no assurance that we will continue to maintain the same number of paid subscribers or receive the same levels of subscription service revenue and 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.

In addition, we have derived, and we believe that we will continue to derive, a substantial portion of our revenues from a limited number of other customers. Any revenue growth will depend on our success in growing our customers’ revenues on our platform and expanding our customer base to include additional customers. If we were to lose one or more of our key customers, there is no assurance that we would be able to replace such customers or lost business with new customers that generate comparable revenue, which would significantly adversely affect our business, financial condition and results of operations.

***We have incurred significant operating and net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.***

As reflected in our accompanying condensed consolidated financial statements included elsewhere herein, we have a history of losses, incurred significant operating and net losses in each year since our inception. As of June 30, 2022, we had an accumulated deficit of $212.5 million and a working capital deficiency of $25.7 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, as reported in the accompanying condensed consolidated balance sheets, and to continue as a going concern, is dependent on our ability to increase revenue, reduce costs, achieve a satisfactory level of profitable operations, obtain additional sources of suitable and adequate financing and further develop and execute on our business plan. We may never achieve profitability, and even if we do, we may not be able to sustain being profitable. As a result of the going concern uncertainty, there is an increased risk that you could lose the entire amount of your investment in our company, which assumes the realization of our assets and the satisfaction of our liabilities and commitments in the normal course of business.

### Risks Related to Our Indebtedness

***We may not have the ability to repay the amounts then due under the senior credit facility, Harvest Notes and/or convertible notes at maturity.***

At maturity, the entire outstanding principal amount of the senior secured notes, Harvest Notes and convertible notes will become due and payable by us. As of June 30, 2022, $26.9 million of our total indebtedness (excluding interest and unamortized debt discount and debt issuance costs) is due in fiscal 2025, and $0.1 million thereafter.

Our failure to repay any outstanding amount of the Harvest Notes or convertible notes would constitute a default under such indentures. A default would increase the interest rate to the default rate under the Harvest Notes or the maximum rate permitted by applicable law until such amount is paid in full. A default under the Harvest Notes 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 Harvest Notes 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 Harvest Notes, 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. We do not have the right to prepay the Harvest Notes prior to their maturity.

***Our debt agreements contain restrictive and financial covenants that may limit our operating flexibility, and our substantial indebtedness may limit cash flow available to invest in the ongoing needs of our business.***

We have a significant amount of indebtedness. Our total outstanding consolidated indebtedness as of June 30, 2022 was $27.1 million, net of fees and discounts. While we have certain restrictions and covenants with our current indebtedness, we could in the future incur additional indebtedness beyond such amount. Our existing debt agreements with senior facility lender and the holders of the Harvest Notes contain certain restrictive covenants that limit our ability to merge with other companies or consummate certain changes of control, make certain investments, pay dividends or repurchase shares of our common stock, transfer or dispose of assets, or enter into various specified transactions. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of the holders of the Harvest Notes 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 also incur significant additional indebtedness in the future.

Our substantial debt combined with our other financial obligations and contractual commitments could have other significant adverse consequences, including:

- 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 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 senior credit facility and the Harvest Notes, our lenders may terminate their obligations to us and require us to repay all outstanding amounts owed thereunder.***

The senior credit facility and the Harvest Notes contain provisions that limit our operating activities, including covenant relating to the requirement to maintain a certain amount cash (as provided in the senior credit facility loan agreement) and of Free Cash (as defined in the Harvest Notes). 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 June 30, 2022, we were in full compliance with these covenants.

### Risks Related to Our Company

***We depend upon third-party licenses for sound recordings and musical compositions and other content and an adverse change to, loss of, or claim that we does not hold any necessary licenses may materially adversely affect our business, operating results and financial condition.***

To secure the rights to stream sound recordings and the musical compositions embodied therein, we enter into license agreements to obtain licenses from rights holders such as record labels, aggregators, artists, music publishers, performing rights organizations, collecting societies and other copyright owners or their agents, and pay substantial royalties or other consideration to such parties or their agents around the world. Though we work diligently in our efforts to obtain all necessary licenses to stream sound recordings and the musical compositions embodied therein, there is no guarantee that the licenses available to us now will continue to be available in the future at rates and on terms that are favorable or commercially reasonable or at all. The terms of these licenses, including the royalty rates that we are required to pay pursuant to them, may change as a result of changes in our bargaining power, changes in the industry, changes in the laws and regulations, or for other reasons. Increases in royalty rates or changes to other terms of these licenses may materially impact our business, operating results, and financial condition.

We enter into license agreements to obtain rights to stream sound recordings, including from the major record labels that hold the rights to stream a significant number of sound recordings, such as Universal Music Group, Sony Music Entertainment, Warner Music Group and SoundExchange, as well as others. If we fail to obtain these licenses, the size and quality of its catalog may be materially impacted and its business, operating results and financial condition could be materially harmed.

We generally 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 we pay are, to a significant degree, a function of a ratemaking proceeding conducted by an administrative agency called the Copyright Royalty Board. The rates that the Copyright Royalty Board set apply both to compositions that we license under the compulsory license in Section 115 of the Copyright Act of 1976 (the “Copyright Act”), and to a number of direct licenses that we have with music publishers for U.S. rights, in which the applicable rate is generally pegged to the statutory rate set by the Copyright Royalty Board. The most recent proceeding before the Copyright Royalty Board (the “Phonorecords III Proceedings”) set the rates for the Section 115 compulsory license for calendar years 2018 to 2022. The Copyright Royalty Board issued its initial written determination on January 26, 2018. The rates set by the Copyright Royalty Board may still be modified if a party appeals the determination and are also subject to further change as part of future Copyright Royalty Board proceedings. If any such rate change increases, our sound recordings and musical compositions license costs may substantially increase and impact our ability to obtain content on pricing terms favorable to us, and it could negatively harm our business, operating results and financial condition and hinder our ability to provide interactive features in our services, or cause one or more of our services not to be economically viable. Based on management’s estimates and forecasts for the next two fiscal years, we currently believe that the proposed rates will not materially impact our business, operating results, and financial condition. However, the proposed rates are based on a variety of factors and inputs which are difficult to predict in the long-term. If Slacker’s business does not perform as expected or if the rates are modified to be higher than the proposed rates, its content acquisition costs could increase and impact its ability to obtain content on pricing terms favorable to us, which could negatively harm Slacker’s business, operating results and financial condition and hinder its ability to provide interactive features in its services, or cause one or more of Slacker’s services not to be economically viable.

In the United States, public performance rights are generally obtained through intermediaries known as performing rights organizations (“PROs”), which negotiate blanket licenses with copyright users for the public performance of compositions in their repertory, collect royalties under such licenses, and distribute those royalties to copyright owners. The royalty rates available to Slacker today may not be available to it in the future. Licenses provided by two of these PROs, the American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”), cover the majority of the music we stream and are governed by consent decrees relating to decades old litigations. In 2019, the U.S. Department of Justice indicated that it was formally reviewing the relevance and need of these consent decrees. Changes to the terms of or interpretation of these consent decrees up to and including the dissolution of the consent decrees, could affect our ability to obtain licenses from these PROs on reasonable terms, which could harm its business, operating results, and financial condition. In addition, an increase in the number of compositions that must be licensed from PROs that are not subject to the consent decrees, or from copyright owners that have withdrawn public performance rights from the PROs, could likewise impede Slacker’s ability to license public performance rights on favorable terms. As of June 30, 2022, we owed $16.9 million in aggregate royalty payments to such PROs.

In other parts of the world, including Europe, Asia, and Latin America, we obtain mechanical and performance licenses for musical compositions either through local collecting societies representing publishers or from publishers directly, or a combination thereof. We cannot guarantee that its licenses with collecting societies and its direct licenses with publishers provide full coverage for all of the musical compositions we make available to our users in such countries. In Asia and Latin America, we are seeing a trend of movement away from blanket licenses from copyright collectives, which is leading to a fragmented copyright licensing landscape. Publishers, songwriters, and other rights holders choosing not to be represented by collecting societies could adversely impact our ability to secure favorable licensing arrangements in connection with musical compositions that such rights holders own or control, including increasing the costs of licensing such musical compositions, or subjecting us to significant liability for copyright infringement.

With respect to podcasts and other non-music content, we produce or commission the content itself or obtain distribution rights directly from rights holders. In the former scenario, we employ various business models to create original content. In the latter scenario, we and/or PodcastOne negotiates license directly with individuals that enable creators to post content directly to our service after agreeing to comply with the applicable terms and conditions. We are dependent on those who provide content on our service complying with the terms and conditions of our license agreements as well as the PodcastOne Terms and Conditions of Use. However, we cannot guarantee that rights holders or content providers will comply with their obligations, and such failure to do so may materially impact our business, operating results, and financial condition.

There also is no guarantee that we have all of the licenses we need to stream content, as the process of obtaining such licenses involves many rights holders, some of whom are unknown, and myriad complex legal issues across many jurisdictions, including open questions of law as to when and whether particular licenses are needed. Additionally, there is a risk that rights holders, creators, performers, writers and their agents, or societies, unions, guilds, or legislative or regulatory bodies will create or attempt to create new rights that could require us to enter into license agreements with, and pay royalties to, newly defined groups of rights holders, some of which may be difficult or impossible to identify.

Even when we are able to enter into license agreements with rights holders, we cannot guarantee that such agreements will continue to be renewed indefinitely. For example, from time to time, our license agreements with certain rights holders and/or their agents may expire while we negotiate their renewals and, per industry custom and practice, we may enter into brief (for example, month-, week-, or even days-long) extensions of those agreements or provisional licenses and/or continue to operate on an at will basis as if the license agreement had been extended, including by our continuing to make music available. During these periods, we may not have assurance of long-term access to such rights holders’ content, which could have a material adverse effect on its business and could lead to potential copyright infringement claims.

It also is possible that such agreements will never be renewed at all. The lack of renewal, or termination, of one or more of our license agreements, or the renewal of a license agreement on less favorable terms, also could have a material adverse effect on its business, financial condition, and results of operations.

***The success of our business and operations depends, in part, on the integrity of our systems and infrastructures, as well as affiliate and third-party computer systems, Wi-Fi and other communication systems. System interruption and the lack of integration and redundancy in these systems and infrastructures may have an adverse impact on our business, financial condition and results of operations.***

System interruption and the lack of integration and redundancy in the information systems and infrastructures, both of our own systems and other computer systems and of affiliate and third-party software, Wi-Fi and other communications systems service providers on which we rely, may adversely affect our ability to operate websites, process and fulfill transactions, respond to listener inquiries and generally maintain cost-efficient operations. Such interruptions could occur by virtue of natural disaster, malicious actions such as hacking or acts of terrorism or war, or human error. In addition, the loss of some or all of certain key personnel could require us to expend additional resources to continue to maintain our software and systems and could subject us to systems interruptions.

Although we maintain up to date information technology systems and network infrastructures for the operation of our businesses, techniques used to gain unauthorized access to private networks are constantly evolving, and we may be unable to anticipate or prevent unauthorized access to our systems and data.

### Risks Related to Our PodcastOne Business

***Minimum guarantees required under certain of PodcastOne’s podcast license agreements may limit our operating flexibility and may adversely affect our business, operating results, and financial condition.***

Certain of PodcastOne’s podcast license agreements contain minimum guarantees and/or require that we make minimum guarantee payments. Such minimum guarantees related to our content acquisition costs are not always tied to our revenue and/or listener growth forecasts (e.g., number of listeners), or the number of podcasts used on our service. We may also be subject to minimum guarantees to rights holders with respect to certain strategic partnerships we enter into that may not produce all of the expected benefits. Accordingly, our ability to achieve and sustain profitability and operating leverage on our service in part depends on our ability to increase our revenue through increased sales of premium service and advertising sales on terms that maintain an adequate gross margin. The duration of our license agreements for podcast content that contain minimum guarantees is frequently between one and two years. If our forecasts of acquisition or retention of listeners consuming our podcast content do not meet our expectations or the number of our listeners consuming our podcast content decline significantly during the term of our license agreements, our expectations for return on minimum guarantees may not be met and/or our margins may be materially and adversely affected. To the extent we do not maintain or increase the number of listeners consuming our podcast content or advertising sales do not meet our expectations, our business, operating results, and financial condition could also be adversely affected as a result of such minimum guarantees. In addition, the fixed cost nature of these minimum guarantees may limit our flexibility in planning for, or reacting to, changes in our business and the market segments in which we operate.

We rely on estimates of the market share of streaming content owned by each content provider, as well as our own user growth and forecasted advertising revenue, to forecast whether such minimum guarantees could be recouped against our actual content acquisition costs incurred over the duration of the license agreement. To the extent that this revenue and/or market share estimates underperform relative to our expectations, leading to content acquisition costs that do not exceed such minimum guarantees, our margins may be materially and adversely affected.

***PodcastOne relies heavily on its Content Management System (“CMS”), and the failure of CMS to operate effectively could adversely affect its business.***

PodcastOne relies heavily on its CMS. PodcastOne utilizes a combination of its proprietary CMS technology and third-party technology. Its business substantially depends on its CMS which allows us to manage its podcasts and content offer listeners access to their favorite podcasts. We cannot be sure that PodcastOne’s CMS technology or any enhancements or other modifications it makes in the future to its or accompanying third-party technology or integration of such third-party technology will perform as intended. Future enhancements and modifications to its CMS technology could consume considerable resources. If PodcastOne is unable to successfully develop, maintain and enhance its CMS technology in a timely and efficient manner, its ability to attract and retain listeners may be impaired. In addition, if its CMS technology or that of third parties it utilizes in its operations fails or otherwise operates improperly, its ability to attract and retain listeners may be impaired. Any such inability or failure could have an adverse effect on our business, results of operations and financial condition.

***PodcastOne relies on key members of its management and the loss of their services or investor confidence in them could adversely affect its success, development and financial condition.***

PodcastOne’s success depends, to a large degree, upon certain key members of its management, particularly Kit Gray, its President, Aaron Sullivan, its interim Chief Financial Officer, and Sue McNamara, its Head of Sales. Mr. Gray has extensive knowledge about PodcastOne’s business and its operations, and the loss of Mr. Gray, Mr. Sullivan or Ms. McNamara or any other key member of its senior management may have a material adverse effect on its business and operations. PodcastOne does not currently maintain a key-person insurance policy for Mr. Gray or any other member of its management. PodcastOne’s executive team’s expertise and experience in acquiring, integrating and growing businesses, particularly those focused on podcasts and content providers, have been and will continue to be a significant factor in its growth and ability to execute its business strategy. The loss of any of its executive officers could slow the growth of its business or have a material adverse effect on its business, results of operations and financial condition.

***PodcastOne’s corporate culture has contributed to its success, and if it cannot successfully maintain its culture as it assimilates new employees, it could lose the innovation, creativity and teamwork fostered by its culture.***

PodcastOne is undergoing growth in its business, including in its employee headcount. A significant portion of its management team has been with PodcastOne since inception. We expect that significant additional hiring will be necessary to support its strategic plans. This rapid influx of new team members from different business backgrounds may make it difficult for us to maintain our corporate culture. We believe PodcastOne’s culture has contributed significantly to its ability to attract and retain talent, to acquire podcast content and to innovate and grow successfully. If its culture is negatively affected, its ability to support its growth and innovation may diminish.

***PodcastOne relies on integrations with advertising platforms, demand-side platforms (“DSPs”), proprietary platforms and ad servers, over which it exercise very little control.***

PodcastOne’s business depends on its ability to integrate its content with a variety of third-party advertising platforms, DSPs, proprietary platforms and ad services. PodcastOne is able to make its podcasts available on other popular podcasting platforms such as Apple, Amazon, Spotify and wherever podcasts are heard, allowing PodcastOne’s listeners to utilize such platforms to listen to its podcasts. PodcastOne has also formed partnerships with advertising platforms to integrate its podcasts with their software and product offerings, allowing its advertisers to utilize its solutions wherever they purchase or place an ad. For example, PodcastOne relies on integration with Apple and Spotify in order to provide its podcasts through their platforms. Apple or Spotify may determine to only host shows that are proprietary to them, which would have a significant effect on PodcastOne’s ability to offer its podcasts to larger group of listeners and would materially adversely affect its business, results of operations and financial condition. Some of these integration partners have significant market share in the segment in which they operate. To date, PodcastOne has relied on written contracts and other arrangements to govern its relationships with these partners. However, these are subject to change by such providers from time to time and in many instances the provider may choose to terminate these contracts without cause and with short notice periods. Many of these agreements are short term with automatic renewal provisions, and there can be no assurances that such providers will agree to renew their agreements with us. Moreover, such providers may choose to stop integrating with PodcastOne’s podcasts and may unilaterally stop providing PodcastOne us with data necessary to its business if they acquire a competitor which provides podcasting services similar to PodcastOne’s or if they begin to deliver podcasts similar to PodcastOne’s on their own. PodcastOne cannot assure you that its existing podcast partners and integration partners will continue to, or that potential new podcast partners or integration partners will agree to, integrate PodcastOne’s podcasts into their podcast offerings or services. Such integrations may not be replaceable, and so loss of any such integrations could materially impact our business and PodcastOne’s results of operations and we may lose listeners.

PodcastOne’s business and revenues could also be affected by social issues or disruptions. For example, if there is public disapproval or boycotting of a specific podcasting platform, such as Spotify or other podcasting platform, PodcastOne’s ability to optimize ad placement or to forecast listener metrics may be impacted based on unforeseen trends or events.

***PodcastOne’s revenue model depends in part on high impression volumes, the growth of which may not be sustained.***

PodcastOne generates revenue by charging a cost per thousand impressions (“CPM”) based on the volume of purchased digital ads that it measures on behalf of these customers. If the volume of impressions PodcastOne measures does not continue to grow or decreases for any reason, its business will suffer. For example, if digital ad spending remains constant and PodcastOne’s advertiser customers transition to higher CPM ad inventory, overall impression volumes may decrease, which may result in fewer impressions for PodcastOne to verify and a corresponding decline in its revenues. PodcastOne cannot assure you that growth in volume of impressions will be sustained. If PodcastOne’s customers adjust their buying patterns or alter their preference to higher CPM ad inventory, its business, financial condition, and results of operations may be harmed.

***PodcastOne’s advertising sales depend on how its listener data is collected and how advertisers select their ad listener targeting in the future.***

PodcastOne’s advertising sales depend on how its listener data is collected and how advertisers select their ad listener targeting in the future. Advertiser spending varies based on their desire to target certain categories of listeners and supporting listener data. If PodcastOne’s advertisers determine to target different listeners or shift their ad spending towards different listener categories, PodcastOne’s business, financial condition, and results of operations may be harmed.

### Risks Related to Our Intended Spin-Out of PodcastOne as a Separate Public Company

***We may be unable to complete the Spin-Out of PodcastOne as a Separate Public Company, and we may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Out.***

We believe that as a result of the intended spin-out of PodcastOne as an independent publicly-traded company (the “Spin-Out”), PodcastOne will be able to, among other things, better focus its financial and operational resources on its specific business, implement and maintain a capital structure designed to meet its specific needs, design and implement corporate strategies and policies that are targeted to its business, more effectively respond to industry dynamics and create effective incentives for its management and employees that are more closely tied to its business performance. We also believe that the Spin-Out will result in significant benefits to our Company and our stockholders as a result of unlocking the value we believe that PodcastOne has as a standalone publicly-traded company. However, we cannot assure you that we will be able to complete the Spin-Out due to many factors outside of our control.

In addition, by separating from LiveOne, PodcastOne may be more susceptible to market fluctuations and have less leverage with its talent, customers, vendors and other service providers, and PodcastOne may experience other adverse events. In addition, we may be unable to achieve some or all of the benefits that we expect PodcastOne to achieve as an independent company in the time we expect, if at all. The completion of the Spin-Out will also require significant amounts of our management’s time and effort, which may divert management’s attention from operating and growing our business.

***PodcastOne’s common stock may not be eligible for listing on any national securities exchange.***

PodcastOne’s common stock is not currently quoted or listed on any national securities exchange, marketplace or any other over-the-counter market, and may never be quoted or listed in the future. We intend to apply to have PodcastOne’s common stock on a national securities exchange as soon as we are eligible to do so following the preparation, filing and consummation of applicable steps and documents. However, we cannot assure you that PodcastOne will meet the initial listing standards of any other national securities exchange at any time in the future. In addition, even if PodcastOne does obtain such a listing, there can be no assurance that it will be able to maintain such listing in the future. As a result, PodcastOne’s investors may find it difficult to buy or sell or obtain accurate quotations for its common stock, and its shares may be less attractive for margin loans and for investment by larger financial institutions. These factors may have an adverse impact on the trading and price of our common stock.

***Our and PodcastOne’s debt agreements contain provisions requiring the consent of third parties and certain conditions to be satisfied in connection with the Spin-Out. If these consents are not obtained or such conditions are not satisfied, we may be in breach of such agreements and we may not be able to consummate the Spin-Out.***

Our and PodcastOne’s debt agreements contain provisions that require the consent of third parties and for certain conditions to be satisfied in connection to the Spin-Out. For example, we agreed not to effect any Qualified Financing or Qualified Event (each as defined in PodcastOne’s offering documents with respect to its completed private placement of its unsecured convertible notes), as applicable, unless (i) PodcastOne’s post-money valuation at the time of the Qualified Event is at least $150 million, and (ii) immediately following such event we own no less than 66% of PodcastOne’s equity, unless in either case otherwise permitted by the written consent of the holders of the majority in principal of such notes (excluding our Company) and our senior lenders, as applicable. Failure to obtain such consents on commercially reasonable and satisfactory terms, or at all, may cause us to be in breach of such agreements and we may not be able to consummate the Spin-Out.

**The risks described above do not necessarily comprise of all those associated with our intended Spin-Out.**

### 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 17,600,000 shares of our common stock reserved for future issuance to our employees, directors and consultants. 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.

Filed Aug 15, 2022.
Source: SEC EDGAR, the filing index for accession 0001213900-22-048169. Last ingested by Listed: Nov 4, 2026, 18:43 ET. No prices; not investment advice.