| Summary of Significant Accounting Policies | Note 2 — Summary of Significant Accounting Policies
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 this impact is expected to
become more adverse and to continue throughout at least the first half of the fiscal year ending March 31, 2021, and possibly
longer. The Company's event and programmatic advertising revenues were directly impacted in the first quarter of 2021
with all on-premise in-person live music festivals and events postponed and mixed demand from historical programmatic
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 in turn could adversely impact the Company's near-term subscriber growth in
2021. During the quarter ended June 30, 2020, the Company enacted several initiatives to counteract these near-term
challenges, including salary reductions, obtaining a Paycheck Protection Program loan (see Note 7 - 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. 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. Use of Estimates The preparation of
the Company's condensed consolidated financial statements in conformity with the United States of America ("US")
generally accepted accounting principles ("GAAP") requires the Company's management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject
to such estimates and assumptions include revenue, allowance for doubtful accounts, the assigned value of acquired assets and
assumed and contingent liabilities associated with business combinations and the related purchase price allocation, useful lives
and impairment of property and equipment, intangible assets, goodwill and other assets, the fair value of the Company's
equity-based compensation awards and convertible debt and debenture instruments, fair values of derivatives, and contingencies.
Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates its estimates compared
to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.
Given the overall uncertainty surrounding the COVID-19 pandemic, there is a reasonable possibility that actual results could differ
from those estimates and such differences could be material to the financial position and results of operations, specifically
in assessing when the collectability of revenue related consideration is probable, and the impairment assessment of goodwill,
indefinite lived assets or long-lived assets that are depreciated or amortized. Revenue Recognition Policy The Company accounts
for a contract with a customer when an approved contract exists, the rights of the parties are identified, payment terms are identified,
the contract has commercial substance and the collectability of substantially all of the consideration is probable. Revenue is
recognized when the Company satisfies its obligation by transferring control of the goods or services to its customers in an amount
that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company
uses the expected value method to estimate the value of variable consideration on advertising and with original equipment manufacturer
contracts to include in the transaction price and reflect changes to such estimates in periods in which they occur. Variable consideration
for these services is allocated to and recognized over the related time period such advertising and subscription services are
rendered as the amounts reflect the consideration the Company is entitled to and relate specifically to the Company's efforts
to satisfy its performance obligation. The amount of variable consideration included in revenue is limited to the extent that
it is probable that the amount will not be subject to significant reversal when the uncertainty associated with the variable consideration
is subsequently resolved. Practical Expedients The Company elected
the practical expedient and did not restate contracts that began and were completed within the same annual reporting period. The Company elected
the practical expedient and recognized the incremental costs of obtaining a contract, if any, as an expense when incurred if the
amortization period of the asset that would have been recognized is one year or less. Gross Versus Net Revenue Recognition The Company reports
revenue on a gross or net basis based on management's assessment of whether the Company acts as a principal or agent in
the transaction. To the extent the Company acts as the principal, revenue is reported on a gross basis net of any sales tax from
customers, when applicable. The determination of whether the Company acts as a principal or an agent in a transaction is based
on an evaluation of whether the Company controls the good or service prior to transfer to the customer. Where applicable, the
Company has determined that it acts as the principal in all of its subscription service streams and may act as principal or agent
for its ticketing/live events, advertising and licensing revenue streams. The Company's revenue is principally derived
from the following services: Subscription Services Subscription services
revenue substantially consist of monthly to annual recurring subscription fees, which are primarily paid in advance by credit
card or through direct billings arrangements. The Company defers the portions of monthly to annual recurring subscription fees
collected in advance and recognizes them in the period earned. Subscription revenue is recognized in the period of services rendered.
The Company's subscription revenue consists of performance obligations that are satisfied over time. This has been determined
based on the fact that the nature of services offered are subscription based where the customer simultaneously receives and consumes
the benefit of the services provided regardless of whether the customer uses the services or not. As a result, the Company has
concluded that the best measure of progress toward the complete satisfaction of the performance obligation over time is a time-based
measure. The Company recognizes subscription revenue straight-line through the subscription period. Subscription Services
consist of: Direct subscriber,
mobile service provider and mobile app services The Company generates
revenue for subscription services on both a direct basis and through subscriptions sold through certain third-party mobile service
providers and mobile app services (collectively the "Mobile Providers"). For subscriptions sold through the Mobile
Providers, the subscriber executes an on-line agreement with Slacker outlining the terms and conditions between Slacker and the
subscriber upon purchase of the subscription. The Mobile Providers promote the Slacker app through their e-store, process payments
for subscriptions, and retain a percentage of revenue as a fee. The Company reports this revenue gross of the fee retained by
the Mobile Providers, as the subscriber is Slacker's customer in the contract and Slacker controls the service prior to
the transfer to the subscriber. Subscription revenues from monthly subscriptions sold directly through Mobile Providers are subject
to such Mobile Providers' refund or cancellation terms. Revenues from Mobile Providers are recognized net of any such adjustments
for variable consideration, including refunds and other fees. The Company's payment terms vary based on whether the subscription
is sold on a direct basis or through Mobile Providers. Subscriptions sold on a direct basis require payment before the services
are delivered to the customer. The payment terms for subscriptions sold through Mobile Providers vary, but are generally payable
within 30 days. Third-Party
Original Equipment Manufacturers The Company generates
revenue for subscription services through subscriptions sold through a third-party Original Equipment Manufacturer (the "OEM").
For subscriptions sold through the OEM, the OEM executes an agreement with Slacker outlining the terms and conditions between
Slacker and the OEM upon purchase of the subscription. The OEM installs the Slacker app in their equipment and provides the Slacker
service to the OEM's customers. The monthly fee charged to the OEM is based upon a fixed rate per vehicle, multiplied by
the variable number of total vehicles which have the Slacker application installed. The number of customers, or the variable consideration,
is reported by OEMs and resolved on a monthly basis. The Company's payment terms with OEM are up to 30 days. Advertising Revenue Advertising revenue
primarily consist of revenues generated from the sale of audio, video, and display advertising space to third-party advertising
exchanges. Revenues are recognized based on delivery of impressions over the contract period to the third-party exchanges, either
when an ad is placed for listening or viewing by a visitor or when the visitor "clicks through" on the advertisement.
The advertising exchange companies report the variable advertising revenue performed on a monthly basis which represents the Company's
efforts to satisfy the performance obligation. Licensing Revenue Licensing revenue
primarily consists of sales of licensing rights to digitally stream its live music services in certain geographies (e.g. China).
Licensing revenue is recognized when the Company satisfies its performance obligation by transferring control of the goods or
services to its customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange
for those goods or services, which is typically when the live event has aired. Any license fees collected in advance of an event
are deferred until the event airs. The Company reports licensing revenue on a gross basis as the Company acts as the principal
in the underlying transactions. Sponsorship Revenue Sponsorship revenue primarily
consists of sales of sponsorship programs that provide sponsors with opportunities to reach our customers. Sponsorship revenue
is recognized when the Company satisfies its performance obligation by transferring control of the goods or services to its customers
in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services,
over the term of the agreement, which is typically as the event airs. Any sponsorship fees collected in advance of
the contract term (typically an event) are deferred until the event airs. The Company reports sponsorship revenue on a gross basis
as the Company acts as the principal in the underlying transactions. Ticket/Event Revenue Ticket/Event revenue
is primarily from the sale of tickets and promoter fees earned from venues or other co-promoters under one of several formulas,
including a fixed guaranteed amount and/or a percentage of ticket sales or event profits. Revenue from the promotion
or production of an event is recognized at a point in time when the show occurs. Revenue collected in advance of the event is
recorded as deferred revenue until the event occurs. Revenue collected from sponsorship agreements, which is not related to a
single event, is classified as deferred revenue and recognized over the term of the agreement or operating season as the benefits
are provided to the sponsor. Revenue from the Company's ticketing operations primarily
consists of service fees charged at the time a ticket for an event is sold in either the primary or secondary markets, including
both online pay-per-view ("PPV") ticket sales as well as tickets physically purchased through a ticket sale vendor.
For primary tickets sold to the Company's PPV and festival events the revenue for the associated ticket charges collected
in advance of the event is recorded as deferred revenue until the event occurs. Cost of Sales Cost of Sales principally consist of royalties paid for the right
to stream video, music and non-music content to the Company's customers and the cost of securing the rights to produce and
stream live events from venues and promoters. Royalties are calculated using negotiated and regulatory rates documented in content
license agreements and are based on usage measures or revenue earned. Music royalties to record labels, professional rights organizations
and music publishers relate to the consumption of music listened to on Slacker's radio services. As of June 30, 2020 and
2019, the Company accrued $12.6 million and $10.2 million of royalties, respectively, due to artists from use of Slacker's
radio services. Sales and Marketing Sales and Marketing
include the direct and indirect costs related to the Company's product and event advertising and marketing. Product Development Product development
costs primarily are expenses for research and development, product and content development activities, including internal software
development and improvement costs which have not been capitalized by the Company. Stock-Based Compensation Stock-based compensation
cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service
period, which is the vesting period, on an accelerated basis. The Company accounts for awards with graded vesting as if each vesting
tranche is valued as a separate award. The Company uses the Black-Scholes-Merton option pricing model to determine the grant date
fair value of stock options. This model requires the Company to estimate the expected volatility and the expected term of the
stock options which are highly complex and subjective variables. The variables take into consideration, among other things, actual
and projected employee stock option exercise behavior. The Company uses a predicted volatility of its stock price during the expected
life of the options that is based on the historical performance of the Company's stock price as well as including an estimate
using guideline companies. The expected term is computed using the simplified method as the Company's best estimate given
its lack of actual exercise history. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury
securities with a maturity equivalent to the expected term of the stock. Stock-based awards are comprised principally of stock
options, restricted stock, restricted stock units ("RSUs"), restricted stock awards ("RSAs") and warrant
grants. Forfeitures are recognized as incurred. Stock option awards
issued to non-employees are accounted for at grant date fair value determined using the Black-Scholes-Merton option pricing model.
Management believes that the fair value of the stock options is more reliably measured than the fair value of the services received.
The Company records the fair value of these equity-based awards and expense at their cost ratably over related vesting periods.
Income Taxes The Company accounts
for income taxes using the asset and liability method, which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced
by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the Company's Statements of Operations in the period that includes the enactment date. Net Income (Loss) Per Share Basic earnings (loss)
per share 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 June 30, 2020 and 2019, the Company had 167,363 warrants outstanding,
4,383,334 and 5,031,668 options outstanding, respectively, 5,685,697 and 1,613,814 restricted stock units outstanding, respectively,
0 restricted stock awards outstanding and 3,995,241 and 2,949,425 shares of common stock issuable, respectively, underlying the
Company's convertible notes and convertible debentures. Business Combinations The Company accounts
for its business combinations using the acquisition method of accounting where the purchase consideration is allocated to the
underlying net tangible and intangible assets acquired, based on their respective fair values. The excess of the purchase consideration
over the estimated fair values of the net assets acquired is recorded as goodwill. Identifiable assets acquired, liabilities assumed
and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Additionally,
any contingent consideration is recorded at fair value on the acquisition date and classified as a liability. Goodwill is recognized
to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling
interest in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining
the fair value of assets acquired, liabilities assumed and noncontrolling interests requires management's judgment and often
involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation
methodology, projected revenue, expenses and cash flows, weighted average cost of capital, discount rates, estimates of customer
turnover rates and estimates of terminal values. Cash and Cash Equivalents Cash and cash equivalents
include all highly liquid investments with original maturities, when purchased, of three months or less. The following table provides amounts included in cash, cash equivalents
and restricted cash presented in the Company's condensed consolidated statements of cash flows for the three months ended
June 30, 2020 and 2019 (in thousands):
2020 2019
Cash and cash equivalents $ 10,391 $ 10,015
Restricted cash 6,735 235
Total cash and cash equivalents and restricted cash $ 17,126 $ 10,250 Restricted Cash and Cash Equivalents The Company maintains certain letters of credit agreements with
its banking provider, which are secured by cash for periods of less than one year, as well as an account control agreement associated
with the Company's senior secured convertible debentures whereby the Company is required to have a minimum cash on hand of
$6.5 million. As of each of June 30, 2020 and March 31, 2020, the Company had restricted cash of $6.7 million. Allowance for Doubtful Accounts The Company evaluates
the collectability of its accounts receivable based on a combination of factors. Generally, it records specific reserves to reduce
the amounts recorded to what it believes will be collected when a customer's account ages beyond typical collection patterns,
or the Company becomes aware of a customer's inability to meet its financial obligations. There were no impairment losses
recorded on receivables for the three months ended June 30, 2020 and 2019. 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 June 30, 2020, the Company had two customers that made up 22% and 61% of the
total gross accounts receivable balance. At March 31, 2020, the Company had two customers that made up 22% and 57% of the total
gross accounts receivable balance. The Company's
accounts receivable at June 30, 2020 and March 31, 2020 is as follows (in thousands):
June 30, March 31,
2020 2020
Accounts receivable, gross $ 3,755 $ 4,109
Less: Allowance for doubtful accounts (10 ) (220 )
Accounts receivable, net $ 3,745 $ 3,889 Property and Equipment Property and equipment
are recorded at cost. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized
costs are depreciated over their estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred. Depreciation is recorded
using the straight-line method over the assets' estimated useful lives, which are generally as follows: buildings and improvements
(5 years), furniture and equipment (3 to 5 years) and computer equipment and software (3 to 5 years). Leasehold improvements are
depreciated over the shorter of the estimated useful life, based on the estimates above, or the lease term. The Company evaluates
the carrying value of its property and equipment if there are indicators of potential impairment. The Company performs an analysis
to determine the recoverability of the asset group carrying value by comparing the expected undiscounted future cash flows to
the net book value of the asset group. If it is determined that the expected undiscounted future cash flows are less than the
net book value of the asset group, the excess of the net book value over the estimated fair value is recorded in the Company's
consolidated statements of operations. Fair value is generally estimated using valuation techniques that consider the discounted
cash flows of the asset group using discount and capitalization rates deemed reasonable for the type of assets, as well as prevailing
market conditions, appraisals, recent similar transactions in the market and, if appropriate and available, current estimated
net sales proceeds from pending offers. Capitalized Internal-Use Software The Company capitalizes
certain costs incurred to develop software for internal use. Costs incurred in the preliminary stages of development are expensed
as incurred. Once software has reached the development stage, internal and external costs, if direct and incremental, are capitalized
until the software is substantially complete and ready for its intended use. The Company also capitalizes costs related to specific
upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are
recorded as part of property and equipment. Costs related to minor enhancements, maintenance and training are expensed as incurred. Capitalized internal-use
software costs are amortized on a straight-line basis over their two- to five-year estimated useful lives. The Company evaluates
the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the
recoverability of these assets. During the three months ended June 30, 2020 and 2019, the Company capitalized $0.8 million and
$0.7 million of internal use software, respectively. Goodwill Goodwill represents
the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in
a business combination. The Company evaluates goodwill for impairment on an annual basis or whenever events and changes in circumstances
suggest that the carrying amount may not be recoverable. The Company conducts its annual impairment analysis in the fourth quarter
of each fiscal year. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit's carrying
amount, including goodwill, to the fair value of the reporting unit. Estimations and assumptions regarding the number of reporting
units, future performances, results of the Company's operations and comparability of its market capitalization and net book
value will be used. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and an
impairment loss is measured by the resulting amount. Because the Company has one reporting unit, as part of the Company's
qualitative assessment an entity-wide approach to assess goodwill for impairment is utilized. In the Company's assessment
for potential impairment the Company identified triggering events due to the events resulting from the global COVID-19 pandemic.
No impairment losses have been recorded in the three months ended June 30, 2020 and 2019. The Company's reporting unit is
the same as its operating segment and reporting segment as described in Note 15 - Business Segment and Geographic Reporting. Intangible Assets with Indefinite Useful Lives The
Company's indefinite-lived intangible assets consist of trademarks and trade names. The Company evaluates
indefinite-lived intangible assets for impairment on an annual basis or whenever events and changes in circumstances suggest
that the carrying amount may not be recoverable. The Company conducts its annual impairment analysis in the fourth quarter of
each fiscal year. In our assessment for potential impairment as of June 30, 2020, we identified triggering events due to the
events resulting from the global COVID-19 pandemic which caused the temporary halting of car production of our OEM partner as
well as overall advertising spend decrease from our advertising partners. No impairment losses have been recorded in the
three months ended June 30, 2020 and 2019. The outbreak could have a continued adverse impact on economic and market
conditions and trigger a period of global economic slowdown, which may impair the Company's asset values, including
intangible assets. Intangible Assets with Finite Useful Lives The Company has certain
finite lived intangible assets that were initially recorded at their fair value at the time of acquisition. These intangible assets
consist of Non-Compete, Fan Database, Brands, Intellectual Property, Customer Relationships, and Capitalized Software Development
Costs resulting from business combinations. Intangible assets with finite useful lives are amortized using the straight-line method
over their respective estimated useful lives, which are generally as follows: Non-Compete (3 years), Fan Database (3 years), Brands
(15-16 years), Intellectual Property (15 years), Customer Relationships (1.5-5 years), Domain Names (5 years), and Software (5
years). The Company reviews
all finite-lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable.
If the carrying value of an asset group is not recoverable, the Company recognizes an impairment loss for the excess carrying
value over the fair value in its consolidated statements of operations. No impairment losses have been recorded in the three months
ended June 30, 2020 and 2019. Deferred Revenue and Costs Deferred revenue consists
substantially of amounts received from customers in advance of the Company's performance service period. Deferred revenue
is recognized as revenue on a systematic basis that is proportionate to the period that the underlying services are rendered,
which in certain arrangements is straight line over the remaining contractual term or estimated customer life of an agreement. In the event the Company
receives cash in advance of providing its music services, the Company will also defer an amount of such future royalty and costs
to 3rd party music labels, publishers and other providers on its balance sheets. Deferred costs are amortized to expense concurrent
with the recognition of the related revenue and the expense is included in cost of sales. Fair Value Measurements - Valuation Hierarchy Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants on the measurement date (i.e., an exit price). The Company uses the three-level valuation hierarchy for classification
of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability
as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or
liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants
would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs
are inputs that reflect the Company's own assumptions about the data market participants would use in pricing the asset
or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized
below:
Level 1 Valuation is based upon quoted prices (unadjusted) for identical
assets or liabilities in active markets.
Level 2 Valuation is based upon quoted prices for similar assets and
liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the instrument.
Level 3 Valuation is based upon other unobservable inputs that are significant
to the fair value measurement. The classification
of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair
value measurement in its entirety. Proper classification of fair value measurements within the valuation hierarchy is considered
each reporting period. The use of different market assumptions or estimation methods may have a material effect on the estimated
fair value amounts. Concentration of Credit Risk The
Company maintains cash balances at commercial banks. Cash balances commonly exceed the $250,000 amount insured by the Federal
Deposit Insurance Corporation. The Company has not experienced any losses in such accounts, and management believes that the Company
is not exposed to any significant credit risk with respect to such cash and cash equivalents. Adoption of New Accounting pronouncements In August 2018,
the FASB issued ASU No. 2018-15. Intangibles - Goodwill and Other – Internal-Use Software, 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 per |
