| 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 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 which became more adverse throughout the fiscal year
ended March 31, 2021 and up to the third quarter of fiscal year ended March 31, 2022. The impact has subsided during the fiscal year ended
March 31, 2023. Use of Estimates The preparation of the Company’s condensed
consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates
and assumptions include revenue, allowance for doubtful accounts, the assigned value of acquired assets and assumed and contingent liabilities
associated with business combinations and the related purchase price allocation, 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 debt 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 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 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
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. Allocation of Costs The Company’s consolidated
financial statements include an allocation of costs that have been incurred by LiveOne on the Company’s behalf. Such expenses incurred
include, but are not limited to, salaries, benefits, share-based compensation expense, insurance, accounting, tax, legal and technology
services. Such expenses were allocated to the Company based upon certain assumptions and estimates that were made in order to allocate
a reasonable share of such expenses to the Company, so that the Company’s consolidated financial statements reflect substantially
all costs of doing business. The authoritative guidance to allocate such costs is set forth in Staff Accounting Bulletin, or SAB Topic
1-B “ Allocations of Expenses and Related Disclosures in Financial Statements of Subsidiaries, Divisions or Lesser Business Components
of Another Entity Had the Company been
operating on a stand-alone basis, the cost allocated would not be materially different for the three months ended June 30, 2023 and 2022,
respectively. 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. The
Company earns advertising revenues primarily for fees earned from advertisement placement purchased by the customer during the time the
podcast is delivered to the viewing audience, under the terms and conditions as set forth in the applicable podcasting agreement calculated
using impressions. From time to time the Company enters into barter
transactions involving advertising provided in exchange for goods and services. Revenue from barter transactions is recognized based on
delivery of impressions and in the same manner as described above. Services received are charged to expense when received or utilized.
If services are received prior to the delivery of impressions, a liability is recorded. If delivery of impressions has occurred before
the receipt of goods or services, a receivable is recorded. Barter revenue for the three months ended June 30, 2023 and 2022 was $4.1
million and $1.3 million, respectively. Cost of Sales Cost of sales consists of direct costs comprised
of revenue sharing expenses owed to content creators and commissions. Sales and Marketing Sales and Marketing include the direct and indirect
costs related to the Company’s event advertising and marketing. Additionally, sales and marketing include merchandising advertising
and royalty costs. Advertising expenses to promote the Company’s services are expensed as incurred. Advertising expenses included
in sales and marketing expense were $0.1 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively. Product Development Product development costs not capitalized are
primarily 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
is allocated to the Company from its parent LiveOne based on the amount of stock-based compensation granted to employees of the Company
in the form of stock-based compensation of LiveOne in accordance with SAB Topic 1-B “ Allocations of Expenses and Related
Disclosures in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity LiveOne measures stock-based compensation cost
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. LiveOne accounts for awards with graded vesting as if each vesting tranche is valued as a separate award.
LiveOne uses the Black-Scholes-Merton option pricing model to determine the grant date fair value of stock options. This model requires
LiveOne 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. LiveOne uses
a predicted volatility of its stock price during the expected life of the options that is based on the historical performance of LiveOne’s
stock price as well as including an estimate using guideline companies. The expected term is computed using the simplified method as LiveOne’s
best estimate given its lack of actual exercise history. LiveOne 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 option. Management believes that the fair value of the
stock options is more reliably measured than the fair value of the services received. Compensation expense resulting from granted restricted
stock units and restricted stock awards is measured at fair value on the date of grant and is recognized as share-based compensation expense
over the applicable vesting period. Stock-based awards are comprised principally of stock options, restricted stock, restricted stock
units (“RSUs”), and restricted stock awards (“RSAs”). Forfeitures are recognized as incurred. LiveOne 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 consolidated statements
of operations in the period that includes the enactment date. Earnings (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
consisting of stock options issued to employees, directors, vendors and consultants, restricted stock units, and convertible notes would
be excluded from the diluted earnings per share calculation because their effect is anti-dilutive. Basic earnings per share is calculated using our
weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares
including the dilutive effect of stock awards as determined under the treasury stock method. The dilutive effect of the convertible debt
would be adjusted by the interest expense for the period. In periods when we have a net loss, stock awards and convertible debt are excluded
from our calculation of earnings per share as their inclusion would have an antidilutive effect. 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. 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 and cash equivalents presented in the Company’s condensed consolidated statements of cash flows for the three months ended
June 30, 2023 and 2022 (in thousands):
June 30, June 30,
Total cash and cash equivalents $ 468 $ 1,917 Accounts Receivable 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 membership
receivables. The Company’s accounts receivable at June
30, 2023 and March 31, 2023 are as follows (in thousands):
June 30, March 31,
2023 2023
Accounts receivable, gross $ 9,028 $ 7,062
Less: Allowance for credit losses (234 ) (186 )
Accounts receivable, net $ 8,794 $ 6,876 Related Party Receivable and Payables LiveOne has historically maintained a lending relationship with the
Company in order to supplement the Company’s working capital needs. As of June 30, 2023 and March 31, 2023, the net receivable was
$0.9 million and $1.5 million, respectively, as a result of cash being transferred to LiveOne as a result of the $8.8 million Bridge Loan
proceeds. LiveOne and the Company do not charge interest on these borrowings. 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. The Company capitalizes certain
costs related to the development of its platform and other software applications for internal use. In accordance with authoritative guidance,
the Company begins to capitalize its costs to develop software when preliminary development efforts are successfully completed, management
has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as
intended. The Company stops capitalizing these costs when the software is substantially complete and ready for its intended use, including
the completion of all significant testing. These costs are amortized on a straight-line basis over the estimated useful life of the related
asset, generally estimated to be three years. The Company also capitalizes costs related to specific upgrades and enhancements when it
is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor upgrades and
enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as
incurred and recorded within product development expenses in the Company’s consolidated statements of operations. Depreciation is recorded using the straight-line
method over the assets’ estimated useful lives, which are generally as follows: computer, machinery, and software equipment (3
to 5 years), furniture and fixtures (3 to 5 years), leasehold improvements are depreciated over the shorter of the estimated useful life
or the lease term and capitalized software (3 years). The Company evaluates the carrying value of its
property and equipment if there are indicators of potential impairment. If there are indicators of potential impairment, the Company
performs an analysis to determine the recoverability of the asset group carrying value by comparing the expected undiscounted future
cash flows to the net book value of the asset group. If it is determined that the expected undiscounted future cash flows are less than
the net book value of the asset group, the excess of the net book value over the estimated fair value is recorded in the Company’s
consolidated statements of operations. Fair value is generally estimated using valuation techniques that consider the discounted cash
flows of the asset group using discount and capitalization rates deemed reasonable for the type of assets, as well as prevailing market
conditions, appraisals, recent similar transactions in the market and, if appropriate and available, current estimated net sales proceeds
from pending offers. Goodwill and Indefinite-Lived Assets 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 and is carried
at cost. Acquired trademarks and trade names are assessed as indefinite lived assets if there are no foreseeable limits on the periods
of time over which they are expected to contribute cash flows. Goodwill and indefinite-lived assets are not amortized, but are subject
to an annual impairment testing, as well as between annual tests when events or circumstances indicate that the carrying value may not
be recoverable. The Company performs its annual impairment testing at January 1 of each year. The Company’s annual goodwill impairment
test is performed at the reporting unit level. The Company generally tests goodwill for possible impairment by first performing a qualitative
assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If
a qualitative assessment is not used, or if the qualitative assessment is not conclusive, a quantitative impairment test is performed.
If a quantitative test is performed, the Company determines the fair value of the related reporting unit and compare this value to the
recorded net assets of the reporting unit, including goodwill. The fair value of the Company’s reporting unit is determined using
a market approach based on quoted prices in active markets. In the event the recorded net assets of the reporting unit exceed the estimated
fair value of such assets, an impairment charge is recorded. Based on the Company’s annual impairment assessment, no impairments
of goodwill were identified during the three months ended June 30, 2023 and 2022, respectively. Estimations and assumptions regarding future
performance, results of the Company’s operations and comparability of its market capitalization and net book value will be used. 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 Intellectual Property
and Content Creator Relationships 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: Brand and Trade Names (10 years),
Customer, Content Creator (2 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. In our assessment for potential impairment we identified triggering events due to the events resulting from
the global COVID-19 pandemic which caused an overall advertising spend decrease from our advertising partners. No impairment losses have
been recorded in the three months ended June 30, 2023 and 2022. 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. 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. Financial assets and liabilities
measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The derivative liabilities
are recognized at fair value on a recurring basis at June 30, 2023, and are Level 3 measurements. There have been no transfers between
levels. 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. Debt with Warrants In accordance with ASC Topic 470-20-25, when
the Company issues debt with warrants, the Company treats the fair value of the warrants as a debt discount, recorded as a contra-liability
against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated
statements of operations using the straight-line method. The offset to the contra-liability is recorded as either equity or liability
in the Company’s consolidated balance sheets depending on the accounting treatment of the warrants. If the debt is retired early,
the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of
operations. Convertible Debt – Derivative Treatment When the Company issues debt with a conversion
feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: (a) one
or more underlyings, typically the price of our common stock; (b) one or more notional amounts or payment provisions or both, generally
the number of shares upon conversion; (c) no initial net investment, which typically excludes the amount borrowed; and (d) net settlement
provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An
embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if
the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies
if the contract is both (a) indexed to its own stock; and (b) classified in stockholders’ equity in its balance sheet. If the conversion feature within convertible
debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using a Monte
Carlo simulation model upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value
of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt
derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the
debt. The derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the
statement of operations. The debt discount is amortized through interest expense over the life of the debt using the straight-line method. Recently Adopted 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 Recently Issued Accounting Pronouncements In October 2021, the FASB issued ASU 2021-08,
Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08
requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance
with ASC 606, Revenue from Contracts with Customers. Considerations to determine the amount of contract assets and contract liabilities
to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance
obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone
selling price basis as of contract inception. ASU 2021-08 is effective for the Company beginning in the first quarter of 2023. ASU 2021-08
should be applied prospectively for acquisitions occurring on or after the effective date of the amendments. Early adoption of the proposed
amendments would be permitted, including adoption in an interim period. The Company is currently assessing the impact this standard will
have on the Company’s 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. |
