UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2021

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

For the transition period from __________________ to __________________

Commission File Number: 001-38249

LIVEONE, INC.

(Exact name of registrant as specified in its charter)

Delaware		98-0657263
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

269 S. Beverly Dr., Suite #1450 Beverly Hills, California		90212
(Address of principal executive offices)		(Zip Code)

(310) 601-2505

(Registrant’s telephone number, including area code)

n/a

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

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

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

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

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

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

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

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

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

As of February 10, 2022, there were 81,908,983 shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	22

PART II — OTHER INFORMATION		23

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	32

	Signatures	35

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

		Page
Condensed Consolidated Balance Sheets as of December 31, 2021 and March 31, 2021 (unaudited)		F-1

Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2021 and 2020 (unaudited)		F-2

Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the three and nine months ended December 31, 2021 and 2020 (unaudited)		F-3

Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2021 and 2020 (unaudited)		F-4

Notes to the Condensed Consolidated Financial Statements (unaudited)		F-5 – F-26

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

Condensed Consolidated Balance Sheets

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

	December 31,			March 31,
	2021			2021
Assets
Current Assets
Cash and cash equivalents	$	12,396		$	18,635
Restricted cash		260			135
Accounts receivable, net		17,868			10,567
Inventories		2,897			2,568
Prepaid expense and other assets		2,115			3,366
Total Current Assets		35,536			35,271
Property and equipment, net		4,752			4,367
Goodwill		23,380			22,619
Intangible assets, net		18,173			22,468
Other assets		802			1,044
Total Assets	$	82,643		$	85,769

Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities
Accounts payable and accrued liabilities	$	43,400		$	32,646
Accrued royalties		12,629			12,349
Notes payable, current portion		141			2,729
Deferred revenue		1,701			1,262
Unsecured convertible notes, net		-			1,976
Total Current Liabilities		57,871			50,962
Secured convertible notes, net		13,395			13,047
Unsecured convertible notes, net		5,786			5,501
Senior secured revolving line of credit		6,965			-
Notes payable, net		620			885
Lease liabilities, noncurrent		540			742
Due to Music Partner		-			3,937
Other long-term liabilities		174			2,422
Deferred income taxes		137			137
Total Liabilities		85,488			77,633

Commitments and Contingencies

Stockholders’ Equity (Deficit)
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding		-			-
Common stock, $0.001 par value; 500,000,000 shares authorized; 81,112,603 and 76,807,898 shares issued and outstanding, respectively		81			77
Additional paid in capital		202,093			178,000
Accumulated deficit		(205,019	)		(169,941	)
Total stockholders’ equity (deficit)		(2,845	)		8,136
Total Liabilities and Stockholders’ Equity (Deficit)	$	82,643		$	85,769

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

F-1

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

Condensed Consolidated Statements of Operations

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

	Three Months Ended December 31,						Nine Months Ended December 31,
	2021			2020			2021			2020

Revenue:	$	32,895		$	19,123		$	93,586		$	44,189

Operating expenses:
Cost of sales		27,666			14,564			74,654			32,524
Sales and marketing		3,466			3,059			10,814			6,481
Product development		1,657			2,534			5,990			6,908
General and administrative		8,550			5,162			27,173			14,762
Amortization of intangible assets		1,524			1,399			4,547			4,057
Total operating expenses		42,863			26,718			123,178			64,732
Loss from operations		(9,968	)		(7,595	)		(29,592	)		(20,543	)

Other income (expense):
Interest expense, net		(1,052	)		(998	)		(3,180	)		(4,097	)
Loss on extinguishment of debt		-			-			(4,321	)		(1,488	)
Forgiveness of PPP loans		-			-			2,511			-
Other income (expense)		(811	)		(138	)		(528	)		(320	)
Total other expense, net		(1,863	)		(1,136	)		(5,518	)		(5,905	)

Loss before provision for income taxes		(11,831	)		(8,731	)		(35,110	)		(26,448	)

Provision for (benefit from) income taxes		(40	)		-			(32	)		4
Net loss	$	(11,791	)	$	(8,731	)	$	(35,078	)	$	(26,452	)

Net loss per share – basic and diluted	$	(0.15	)	$	(0.12	)	$	(0.45	)	$	(0.40	)
Weighted average common shares – basic and diluted		78,188,050			72,356,093			77,670,598			66,880,417

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

F-2

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)

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

	Common Stock				Additional Paid in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity/(Deficit)
Balance as of September 30, 2021		79,001,821	$	79	$	195,769	$	(193,228	)	$	2,620
Stock-based compensation		-		-		2,919		-			2,919
Vested employee restricted stock units		711,274		1		-		-			1
Exercise of employee stock options		165,000		-		272		-			272
Shares issued for Gramophone acquisition		79,365		-		89		-			89
Shares issued on amendment of unsecured convertible notes		1,155,143		1		3,044		-			3,045
Net loss		-		-		-		(11,791	)		(11,791	)
Balance as of December 31, 2021		81,112,603	$	81	$	202,093	$	(205,019	)	$	(2,845	)

	Common Stock				Additional Paid in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity/(Deficit)
Balance as of March 31, 2021		76,807,898	$	77	$	178,000	$	(169,941	)	$	8,136
Stock-based compensation		536,770		1		13,288		-			13,289
Vested employee restricted stock units		1,247,915		1		-		-			1
Interest paid in kind		-		-		35		-			35
Exercise of employee stock options		400,460		-		872		-			872
Shares issued for CPS acquisition		791,398		1		1,825		-			1,826
Shares issued for Gramophone acquisition		79,365		-		89		-			89
Purchase price adjustment in connection with CPS acquisition		-		-		301		-			301
Unsecured convertible note premium		-		-		4,199		-			4,199
Shares issued on amendment of unsecured and secured convertible notes		1,248,797		1		3,484		-			3,485
Net loss		-		-		-		(35,078	)		(35,078	)
Balance as of December 31, 2021		81,112,603	$	81	$	202,093	$	(205,019	)	$	(2,845	)

	Common Stock				Additional Paid in			Accumulated			Total Stockholders’
	Shares		Amount		Capital			Deficit			Equity
Balance as of September 30, 2020		71,689,101	$	72	$	158,968		$	(145,842	)	$	13,198
Shares issued for services to consultants and vendors		436,629		-		998			-			998
Stock-based compensation		-		-		1,568			-			1,568
Vested employee restricted stock units		706,222		1		(1	)		-			-
Shares issued in the public offering, net of cost		-		-		198			-			198
Additional shares issued for PodcastOne acquisition		203,249		-		439			-			439
Shares issued for CPS acquisition		2,230,769		2		6,389			-			6,391
Shares to be issued for CPS acquisition		-		-		1,365			-			1,365
Net loss		-		-		-			(8,731	)		(8,731	)
Balance as of December 31, 2020		75,265,970	$	75	$	169,924		$	(154,573	)	$	15,426

	Common Stock				Additional Paid in			Accumulated			Total Stockholders’
	Shares		Amount		Capital			Deficit			Equity/(Deficit)
Balance as of March 31, 2020		58,984,382	$	59	$	120,932		$	(128,121	)	$	(7,130	)
Shares issued for services to consultants and vendors		3,780,659		4		11,457			-			11,461
Stock-based compensation		-		-		5,120			-			5,120
Vested employee restricted stock units		1,963,274		2		(2	)		-			-
Interest paid in kind		-		-		9						9
Exercise of employee stock options		120,001		-		481			-			481
Shares issued in the public offering, net of cost		1,820,000		2		7,327			-			7,329
Shares issued for PodcastOne acquisition		5,566,885		5		14,986			-			14,991
Shares issued for CPS acquisition		2,230,769		2		6,389			-			6,391
Shares to be issued for CPS acquisition		-		-		1,365			-			1,365
Shares issued in connection with Senior Secured Convertible Notes		800,000		1		1,860			-			1,861
Net loss		-		-		-			(26,452	)		(26,452	)
Balance as of December 31, 2020		75,265,970	$	75	$	169,924		$	(154,573	)	$	15,426

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

F-3

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	Nine Months Ended December 31,
	2021			2020
Cash Flows from Operating Activities:
Net loss	$	(35,078	)	$	(26,452	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		7,230			6,368
Interest paid in kind		35			453
Stock-based compensation		12,059			8,033
Amortization of debt discount		986			1,025
Change in fair value of bifurcated embedded derivatives		(110	)		(827	)
Change in fair value of contingent consideration liability		(173	)		(39	)
Forgiveness of PPP Loans		(2,511	)		-
Loss on extinguishment of debt		4,321			1,488
Debt conversion expense		756			-
Deferred income taxes		(41	)		-
Changes in operating assets and liabilities:
Accounts receivable		(7,297	)		(2,218	)
Prepaid expenses and other current assets		921			(1,044	)
Inventories		(328	)		5
Other assets		255			-
Deferred revenue		387			428
Accounts payable and accrued liabilities		8,536			4,087
Other liabilities		(174	)		(407	)
Net cash used in operating activities		(10,226	)		(9,100	)

Cash Flows from Investing Activities:
Increase in cash from the acquisition of CPS		-			2,418
Acquisition of Gramophone		(150	)
Purchases of property and equipment		(2,888	)		(2,229	)
Purchases of intangible assets		(84	)		-
Net cash provided by (used in) investing activities		(3,122	)		189

Cash Flows from Financing Activities:
Repayment of secured convertible debentures		-			(10,823	)
Repayment of note payable		(351	)		-
Proceeds from secured convertible notes		-			13,139
Debt issuance costs		-			(190	)
Proceeds from issuance of shares of common stock, net		-			9,395
Payments on capital lease liability		(252	)		(85	)
Proceeds from exercise of stock options		872			481
Proceeds from drawdown on senior secured revolving line of credit		6,965			-
Proceeds from notes payable		-			2,145
Net cash provided by financing activities		7,234			14,062

Net change in cash, cash equivalents and restricted cash		(6,114	)		5,151
Cash, cash equivalents and restricted cash, beginning of period		18,770			12,437
Cash, cash equivalents and restricted cash, end of period	$	12,656		$	17,588

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	8		$	-
Cash paid for interest	$	1,081		$	651

Supplemental disclosure of non-cash investing and financing activities:
Fair value of options issued to employees, capitalized as internally-developed software	$	148		$	212
Fair value of 5,566,885 shares of the Company’s common stock issued in connection with the PodcastOne acquisition		-			14,991
Fair value of 60,000 shares of common stock issued in connection with Secured Convertible Notes	$	320			-
Fair value of 33,654 shares of common stock issued in connection with Related Party Unsecured Convertible Notes		122			-
Fair value of 1,155,143 shares of common stock issued upon conversion of Unsecured Convertible Notes		3,045
Forgiveness of PPP loan	$	2,511			-
Fair value of 2,679,459 shares of common stock issued upon settlement of accounts payable	$	-		$	8,657
Fair value of shares issued in connection with CPS acquisition	$	2,127			6,391
Fair value of unsecured convertible note premium	$	4,199		$	-
Non-cash settlement for issuable or prepaid shares	$	-		$	494
Fair value of 79,365 shares of common stock issued in connection with the Gramophone acquisition		89			-

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

F-4

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended December 31, 2021 and 2020

Note 1 — Organization and Basis of Presentation

Organization

LiveOne, Inc. (formerly LiveXLive Media, Inc.) (“LiveOne”) together with its subsidiaries (“we,” “us,” “our” or the “Company”) is a Delaware corporation headquartered in Beverly Hills, California. The Company is a creator-first, music, entertainment and technology platform focused on delivering premium experiences and content worldwide through memberships, subscriptions and live and virtual events.

On December 29, 2017, LiveOne acquired Slacker, Inc. (“Slacker”), an Internet music and radio streaming service incorporated in the state of Delaware, and it became a wholly owned subsidiary of LiveOne. On February 5, 2020, the Company acquired (i) React Presents, LLC a Delaware limited liability company (“React Presents”), and it became a wholly owned subsidiary of LiveXLive Events, LLC, a wholly owned subsidiary and (ii) indirectly Spring Awakening, LLC, which is a wholly owned subsidiary of React Presents, a producer, promoter and manager of in person live music festivals and events. On July 1, 2020, the Company through its wholly owned subsidiary, LiveXLive PodcastOne, Inc., acquired 100% of the issued and outstanding equity interests of Courtside Group, Inc. (dba PodcastOne) (“PodcastOne”) (see Note 4 – Business Combinations). On December 22, 2020, the Company through its wholly owned subsidiary LiveXLive Merchandising, Inc., acquired 100% of the issued and outstanding equity interests of Custom Personalization Solutions, Inc. (“CPS”) (see Note 4 – Business Combinations). On October 17, 2021, the Company through its wholly owned subsidiary LiveXLive PR, Inc., acquired 100% of the issued and outstanding equity interests of Gramophone Media, Inc. (“Gramophone”) (see Note 4 – Business Combinations).

Basis of Presentation

The presented financial information includes the financial information and activities of PodcastOne for the three and nine months ended December 31, 2021 (91 days and 274 days, respectively) and for the three months and nine months ended December 31, 2020 (91 days and 184 days, respectively). The presented financial information includes the financial information and activities of CPS for the three and nine months ended December 31, 2021 (91 days and 274 days, respectively) and for the three and nine months ended December 31, 2020 (10 days and 10 days, respectively). The presented financial information includes the financial information and activities of Gramophone for the three and nine months ended December 31, 2021 (75 days and 75 days, respectively) and December 31, 2020 (0 days).

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2021, and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s interim unaudited condensed consolidated financial statements for the three and nine months ended December 31, 2021. The results for the three and nine months ended December 31, 2021 are not necessarily indicative of the results expected for the full fiscal year ending March 31, 2022 (“fiscal 2022”). The condensed consolidated balance sheet as of March 31, 2021 has been derived from the Company’s audited balance sheet included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on July 14, 2021 (the “2021 Form 10-K”).

The interim unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete audited financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the 2021 Form 10-K.

Going Concern and Liquidity

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

The Company’s principal sources of liquidity have historically been its debt and equity issuances and its cash and cash equivalents (which cash, cash equivalents and restricted cash amounted to $12.7 million as of December 31, 2021). As reflected in its condensed consolidated financial statements included elsewhere herein, the Company has a history of losses, and incurred a net loss of $11.8 million during the quarter ended December 31, 2021 and had a working capital deficiency of $22.3 million as of December 31, 2021. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date that these financial statements are filed. The Company’s condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

F-5

The Company’s ability to continue as a going concern is dependent on its ability to execute its growth strategy and on its ability to raise additional funds. The Company filed a universal shelf Registration Statement on Form S-3 which became effective in February 2019 pursuant to which as of the date of this Quarterly Report the Company has the ability to raise up to $150.0 million in cash from the sale of equity, debt and/or other financial instruments, of which $121.5 million during the period equal to the shorter of (i) 6 months from February 7, 2022 and (ii) the date when the New Shelf S-3 is declared effective by the SEC. The Company also filed a replacement universal shelf Registration Statement on Form S-3 (the “New Shelf S-3”) with the SEC on February 4, 2022, pursuant to which, if declared effective by the SEC, the Company will have the ability to raise up to $150.0 million in cash from the sale of its equity, debt and/or other financial instruments. The continued spread of COVID-19 and uncertain market conditions may limit the Company’s ability to access capital, may reduce demand for its services and may negatively impact its ability to retain key personnel. During the quarter ended June 30, 2021, the Company entered into a $7.0 million senior secured revolving credit facility (see Note 11 – Senior Secured Revolving Line of Credit ). Management may seek additional funds, primarily through the issuance of equity and/or debt securities for cash to operate the Company’s business. No assurance can be given that any future financing will be available or, if available, that the Company will be on terms that are satisfactory to it. Even if the Company is able to obtain additional financing, it may contain terms that result in undue restrictions on its operations, in the case of debt financing or cause substantial dilution for its stockholders, in case of equity and/or convertible debt financing. If the Company is unable to obtain sufficient financing when needed, the Company may also have to reduce certain overhead costs through the reduction of salaries and other means and settle liabilities through negotiation. There can be no assurance that management’s attempts at any or all of these endeavors will be successful.

Principles of Consolidation

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

Reclassifications

Certain amounts in the Company’s previously issued financial statements have been reclassified to conform to the current year presentation.

Note 2 — Summary of Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the consolidated financial statements included in the 2021 Form 10-K, other than those included below.

COVID-19

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) as a pandemic. The global impact of the COVID-19 pandemic has had a negative effect on the global economy, disrupting the financial markets creating increasing volatility and overall uncertainty. The Company began to experience modest adverse impacts of the COVID-19 pandemic in the fourth quarter of fiscal year ended March 31, 2020 and became more adverse throughout the fiscal year ended March 31, 2021. Although the impact has subsided, the Company expects to continue experiencing modest adverse impacts throughout the fiscal year ending March 31, 2022. The Company’s event and programmatic advertising revenues were directly impacted throughout the 2021 fiscal year with all on-premise in-person live music festivals and events postponed and mixed demand from historical advertising partners. Further, one of the Company’s larger customers also experienced a temporary halt to its production as a result of COVID-19, which negatively impacted the Company’s near-term subscriber growth in the 2021 fiscal year. During the fiscal year ended March 31, 2021, the Company enacted several initiatives to counteract these near-term challenges, including salary reductions, obtaining a Paycheck Protection Program loan (see Note 8 - Notes Payable) and pivoting its live music production to 100% digital. The Company began producing, curating, and broadcasting digital music festivals and events across its platform which has resulted in the growth in the number of live events streamed, related sponsorship revenue and overall viewership. The Company also launched a new pay-per-view (“PPV) offering in May 2020, enabling new forms of artist revenue including digital tickets, tipping, digital meet and greet and merchandise sales. 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 the Company’s results of operations, financial position and liquidity.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the United States. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company evaluated the provisions of the CARES Act and determined it is eligible for Employee Retention Credits related to payroll taxes paid within the quarter ended September 30, 2021. In accordance with ASC 105-10-05-02, the Company analogized to International Financial Reporting Standards (“IFRS”), specifically International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosures of Government Assistance, and determined that the payroll tax credit will be recognized as a reduction to the payroll tax expense when it is reasonably assured that the credit will be received. As of September 30, 2021, the Company determined that it is reasonably assured that the credit will be received and recognized the credit of $1.2 million as a reduction of payroll tax expense for the quarter ended September 30, 2021. The Company does not anticipate the associated impacts of the other provisions, if any, will have a material effect on its provision for income taxes.

F-6

On December 29, 2020 the Consolidated Appropriations Act (“CAA”) was enacted in the United States. The CAA provides numerous tax provisions and most notably for the Company changes the tax treatment of those expenses paid for with a PPP loan from non-deductible to deductible. The Company is in the process of evaluating the provisions of the CAA including second draw Paycheck Protection Program loans and potential eligibility for Employee Retention Credits and does not anticipate the other provisions included will have a material impact on its provision for income taxes.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue, allowance for doubtful accounts, inventory calculations and reserves, the assigned value of acquired assets and assumed and contingent liabilities associated with business combinations and the related purchase price allocation, useful lives and impairment of property and equipment, intangible assets, goodwill and other assets, the fair value of the Company’s equity-based compensation awards and convertible debt and debenture instruments, fair values of derivatives, and contingencies. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. Given the overall uncertainty surrounding the COVID-19 pandemic, there is a reasonable possibility that actual results could differ from those estimates and such differences could be material to the financial position and results of operations, specifically in assessing when the collectability of revenue related consideration is probable, and the impairment assessment of goodwill, indefinite lived assets or long-lived assets that are depreciated or amortized.

Net Income (Loss) Per Share

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

At December 31, 2021 and 2020, the Company had 3,438,624 and 4,423,334 options outstanding, respectively, 3,970,118 and 3,943,095 restricted stock units outstanding, respectively, 0 and 167,363 warrants outstanding, respectively, and 5,403,693 and 5,613,374 shares of common stock issuable, respectively, underlying the Company’s convertible debt.

Business Combinations

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

F-7

Cash and Cash Equivalents

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

The following table provides amounts included in cash, cash equivalents and restricted cash presented in the Company’s condensed consolidated statements of cash flows for the nine months ended December 31, 2021 and 2020 (in thousands):

	2021		2020
Cash and cash equivalents	$	12,396	$	17,353
Restricted cash		260		235
Total cash and cash equivalents and restricted cash	$	12,656	$	17,588

Restricted Cash and Cash Equivalents

The Company maintains certain letters of credit agreements with its banking provider, which are secured by the Company’s cash for periods of less than one year. As of December 31, 2021 and March 31, 2021, the Company had restricted cash of $0.3 million and $0.1 million, respectively.

Allowance for Doubtful Accounts

The Company evaluates the collectability of its accounts receivable based on a combination of factors. Generally, it records specific reserves to reduce the amounts recorded to what it believes will be collected when a customer’s account ages beyond typical collection patterns, or the Company becomes aware of a customer’s inability to meet its financial obligations.

The Company believes that the credit risk with respect to trade receivables is limited due to the large and established nature of its largest customers and the nature of its subscription receivables. At December 31, 2021, the Company had two customers that made up 17% and 15%, respectively, of the total accounts receivable balance. At March 31, 2021, the Company had two customers that made up 21% and 15%, respectively, of the total accounts receivable balance.

The Company’s accounts receivable at December 31, 2021 and March 31, 2021 is as follows (in thousands):

	December 31,		March 31,
	2021		2021
Accounts receivable, gross	$	18,382	$	10,679
Less: Allowance for doubtful accounts		514		112
Accounts receivable, net	$	17,868	$	10,567

Inventories

Inventories, principally raw materials awaiting final customization process, are stated at the lower of cost or net realizable value. Inventories are relieved on a first-in, first-out basis.

The carrying value of inventories is reduced for any excess and obsolete inventory. Excess and obsolete reductions are determined based on currently available information, including the likely method of disposition, such as through sales to individual customers and liquidations, and the age of inventory.

Notes Payable – Paycheck Protection Program (“PPP”) Loans

In response to the COVID-19 pandemic, the PPP was established under the CARES Act and administered by the U.S. Small Business Administration (“SBA”). Companies who met the eligibility requirements set forth by the PPP could qualify for PPP loans provided by local lenders, which supports payroll, rent and utility expenses (“qualified expenses”). If the loan proceeds are fully utilized to pay qualified expenses over the covered period, as further defined by the PPP, the full principal amount of the PPP loan may qualify for loan forgiveness, subject to potential reduction based on the level of full-time employees maintained by the organization during the covered period as compared to a baseline period. During the quarter ended June 30, 2021, the Company received confirmation from the SBA that $2.5 million in PPP loans (see Note 8 – Notes Payable) were forgiven.

As the loans were forgiven and we were released from being the primary obligor, we recognized income in the amount forgiven in accordance with ASC 470-20. The Company recognized a gain on forgiveness of the PPP loans during the quarter ended June 30, 2021 and is included in Other income (expense) in the accompanying condensed consolidated Statement of Operations for the nine months ended December 31, 2021.

F-8

Adoption of New Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-15. Intangibles - Goodwill and Other – Internal-Use Software, related to accounting for implementation costs incurred in hosted cloud computing service arrangements. Under the new guidance, implementation costs incurred in a hosting arrangement that is a service contract should be expensed or capitalized based on the nature of the costs and the project stage during which such costs are incurred. If the implementation costs qualify for capitalization, they must be amortized over the term of the hosting arrangement and assessed for impairment. Companies must disclose the nature of any hosted cloud computing service arrangements. This ASU also provides guidance for balance sheet and income statement presentation of capitalized implementation costs and statement of cash flows presentation for the related payments. This ASU was effective beginning in the first quarter of the Company’s fiscal year 2021. The Company prospectively adopted this guidance in the first quarter of fiscal year 2021. The adoption of this standard did not have, and is not expected to have, a material impact to the condensed consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18 which clarified the interaction between Topic 808 and Topic 606, which makes targeted improvements for collaborative arrangements as follows: (a) clarifies that certain transactions between collaborative arrangement participants are within the scope of ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. (b) adds unit-of-account (i.e., distinct good or service) guidance to ASC 808 to align with the guidance in ASC 606 to determine whether the collaborative arrangement, or a part of the arrangement, is within the scope of ASC 606, and c) specifies that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, if the collaborative arrangement participant is not a customer, an entity is precluded from presenting the transaction together with revenue recognized under ASC 606. The ASU was effective for public business entities for fiscal years ending after December 15, 2019. For all other entities, the ASU was effective for annual reporting periods ending after December 15, 2020. The Company adopted this guidance in the first quarter of fiscal year 2021. The adoption of this standard did not have, and is not expected to have, a material impact to the condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this ASU in the first quarter of fiscal 2022 and has identified no material effect on its financial statements or disclosures.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides additional guidance on measuring revenue contracts with customers acquired in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Topic 606, at fair value on the acquisition date. The amendments in this update require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments in this update improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amendments in this ASU are effective and applied prospectively for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company prospectively adopted this guidance in the current quarter. The adoption of this standard did not have a material impact to the condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in more timely recognition of credit losses. The guidance is effective for fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, and interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements.

F-9

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). The FASB issued this ASU to address issues identified as a result of the complexity associated with GAAP for certain financial instruments with characteristics of liabilities and equity. Complexity associated with the accounting is a significant contributing factor to numerous financial statement restatements and results in complexity for users attempting to understand the results of applying the current guidance. In addressing the complexity, the FASB focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for contracts in an entity’s own equity. For convertible instruments, the FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The FASB concluded that eliminating certain accounting models simplifies the accounting for convertible instruments, reduces complexity for preparers and practitioners, and improves the decision usefulness and relevance of the information provided to financial statement users. In addition to eliminating certain accounting models, the FASB also decided to enhance information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance on the basis of feedback from financial statement users. The FASB decided to amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The FASB observed that the application of the derivatives scope exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity. The FASB also decided to improve and amend the related EPS guidance. The amendments in this ASU are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The FASB decided to allow entities to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact this ASU will have on its financial statements and related disclosures, as well as the timing of adoption and the application method.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), to increase the transparency of government assistance for accounting for transactions with governments by applying a grant or contribution model by analogy to other accounting guidance (for example, a grant model within IAS 20, Accounting for Government Grants and Disclosure of Government Assistance), including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. Diversity currently exists in the recognition, measurement, presentation, and disclosure of government assistance received by business entities because of the lack of specific authoritative guidance in GAAP. The amendments in this ASU will provide comparable and transparent information to financial statement users. The amendments in this ASU are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

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

Note 3 — Revenue

The following table represents a disaggregation of revenue from contracts with customers for the three and nine months ended December 31, 2021 and 2020 (in thousands):

	Three Months Ended December 31,			Nine Months Ended December 31,
	2021		2020	2021	2020
Revenue
Subscription Services	$	10,698	$

SEC Form 10-Q filed by LiveOne Inc.