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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x                Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2015,

or

o                   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-36119

SFX ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

902 Broadway, Fifteenth Floor

New York, NY 10010

(Address of principal executive offices, including zip code)

(646) 561-6400

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x Yes  o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 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). o Yes  x No

As of May 8, 2015, the registrant had outstanding 93,309,305 shares of common stock.

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INDEX

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SFX Entertainment, Inc.

Consolidated Balance Sheets

(in thousands except share data)

Unaudited

See accompanying notes to the unaudited consolidated financial statements

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SFX Entertainment, Inc.

Consolidated Statements of Operations

(in thousands except per share data)

Unaudited

See accompanying notes to the unaudited consolidated financial statements

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SFX Entertainment, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

Unaudited

See accompanying notes to the unaudited consolidated financial statements

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SFX Entertainment, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

(in thousands except share data)

Unaudited

See accompanying notes to the unaudited consolidated financial statements

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SFX Entertainment, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Unaudited

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SFX Entertainment, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Unaudited

See accompanying notes to the unaudited consolidated financial statements

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Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

1.              PREPARATION OF THE INTERIM FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim consolidated financial statements and accompanying footnotes should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2014 of SFX Entertainment, Inc. (“SFX” or the “Company”). In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair presentation of the results of operations and financial condition for the interim periods shown including normal recurring accruals and other items.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under US GAAP. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective for annual and interim periods beginning after December 15, 2016, and early adoption of the standard is not permitted. The guidance should be applied retrospectively, either to each prior period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative-effect adjustment as of the date of adoption. The Company will adopt this standard on January 1, 2017 and it is currently assessing which implementation method it will apply and the impact its adoption will have on its financial position and results of operations.

In June 2014, the FASB issued guidance that requires a performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period be accounted for as a performance condition. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within that year, and early adoption is permitted. The guidance should be applied on a prospective basis to awards that are granted or modified on or after the effective date. The guidance may be applied on a modified retrospective basis for performance targets outstanding on or after the beginning of the first annual period presented as of the date of adoption. The Company has not granted these type of awards, but will adopt this guidance on January 1, 2016 and will apply it prospectively to any awards granted on or after January 1, 2016 that include these terms.

In August 2014, the FASB issued final guidance that requires management of all entities to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures in certain circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company will adopt this standard on December 31, 2016.

In February 2015, the FASB issued new guidance for evaluating whether a reporting organization should consolidate certain legal entities. This guidance is effective for annual and interim periods beginning after December 15. 2015, and early adoption is permitted. The guidance should be applied either using a modified retrospective approach or retrospectively. The Company will adopt this standard on January 1, 2016, and is currently assessing the implementation method and the impact its adoption will have on the Company’s financial position and results of operations.

In April 2015, the FASB issued new guidance to simplify presentation of debt issuance costs which would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. This guidance is effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted for financial statements that have not been previously issued. The Company does not plan to early adopt.

2.              RETROSPECTIVE ADJUSTMENTS

During 2014, the Company finalized the valuation studies for a) the 2013 related acquisitions and b) certain 2014 related acquisitions. In addition, during the three months ended March 31, 2015, the valuation study was finalized for the equity investment in Rock World S.A. Accordingly, the Consolidated Balance Sheet as of December 31, 2014, the Consolidated Statement of Operations for the three months ended March 31, 2014 and the Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2014 has been retrospectively adjusted to include the effect of the measurement period adjustments as required under Accounting Standards Codification (“ASC”) 805. The aforementioned adjustments resulted in a retrospective adjustment to the Consolidated Balance Sheet as of December 31, 2014, with an increase in equity investment by non-consolidated affiliates by $4,301, an increase in accumulated other comprehensive loss by $637 and a decrease to accumulated deficit by $4,942. The Consolidated Statement of Operations for the three months ended March 31, 2014 includes a decrease to (i) amortization expense by $7,220, (ii) other expense by $283, (iii) equity in loss of non-consolidated affiliates by $1,047, and a (iv) income tax benefit by $1,019. The Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2014 include an increase to foreign currency adjustments by $4,842.

As a result of these adjustments, the net loss and loss per share for the three months ended March 31, 2014 were decreased from the amounts previously reported by $7,531 and $0.09 per share, respectively.

3.              INTANGIBLE ASSETS

Intangible assets consist of the following:

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Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

4.              GOODWILL

The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments for the three months ended March 31, 2015:

5.              NOTES PAYABLE

The Company’s notes payable at March 31, 2015 and December 31, 2014 were comprised as follows:

Credit Facility Second Amendment

On March 16, 2015, the Company entered into Amendment No. 2 (the “Second Amendment”) to the credit agreement dated February 7, 2014, with the lenders party thereto and Barclays Bank PLC, as administrative agent, letter of credit issuer and swingline lender (the “Credit Agreement”), by removing the maximum total leverage ratio and minimum interest coverage ratio financial covenants and eliminating the incurrence tests to which certain exceptions to the negative covenants were subject. Furthermore, the applicable margin for any base rate loan and Eurodollar loan under the Credit Agreement is now 3.00% per annum and 4.00% per annum, respectively. Additionally, the Company will not be able to borrow loans or request letters of credit under the Credit Agreement unless an amount equal to 105% of the amount of the loan or letter of credit, as applicable, is deposited into a deposit account of Sillerman Investment Company III LLC (“Sillerman Investment”), an entity controlled by Robert F.X. Sillerman, the Company’s Chairman and Chief Executive Officer, that is subject to a first priority lien in favor of the administrative agent under the Credit Agreement.

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Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

In connection with the Second Amendment, on March 16, 2015, the Company entered into a commitment letter with Sillerman Investment, pursuant to which and subject to the terms and conditions set forth therein, Sillerman Investment committed to cash collateralize any credit extensions under the Company’s credit facility in an aggregate amount of up to $31,500 for a period of one year, provided that Sillerman Investment, may in its sole discretion, extend such period under certain circumstances. Pursuant to the commitment letter, among other things, on March 16, 2015, the Company paid Sillerman Investment a commitment fee of $630. In addition, the Company will pay Sillerman Investment a fee at a rate of 12% per annum on the amount of cash collateral actually posted, payable quarterly in arrears. The Company is also required to pay interest quarterly to Sillerman Investment on any outstanding cash collateral that is foreclosed upon, together with accrued interest thereon, in arrears at a rate of 13% per annum, with such interest rate to be increased by 2% with respect to each 360 day period thereafter. The Company has also agreed to pay the reasonable costs and expenses, including reasonable legal fees, of Sillerman Investment and Mr. Sillerman in connection with the negotiation and documentation of the cash collateral arrangement and related agreements. The commitment letter was approved by a special committee of independent directors. For the three months ended March 31, 2015, Sillerman Investment contributed cash collateral of $14,700 into the specified collateral account. As of March 31, 2015, the Company has drawn $6,000 under the terms of the Credit Agreement. For the three months ended March 31, 2015, the Company has paid $74 to Sillerman Investment.

6.              OTHER INFORMATION

Equity investments in non-consolidated affiliates

Included in equity investments in non-consolidated affiliates as of March 31, 2015 and December 31, 2014, is the Company’s 50% investment in Rock City S.A. of $43,038 and $52,353, respectively. For the three months ended March 31, 2015 and 2014, the Company recognized a loss of $(134) and $(793), respectively, relating to the Company’s proportionate share of the equity of Rock City S.A.

In addition, included as of March 31, 2015 and December 31, 2014 is the Company’s 50% investment in ID&T BVBA of $12,072 and $13,523, respectively.  For the three months ended March 31, 2015 and 2014, the Company recognized a loss of $0 and $(312), respectively.

Further, included as of March 31, 2015 and December 31, 2014 is the Company’s 50% investment in ALDA of $15,925 and $18,126, respectively.  For the three months ended March 31, 2015, the Company recognized loss of $(104).

Other assets and liabilities

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Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

Accumulated other comprehensive loss

The following table discloses the components of “Accumulated other comprehensive loss” net of tax as of March 31, 2015 and December 31, 2014, respectively:

7.              CAPITAL STOCK AND COMMON STOCK WARRANTS

Common stock

As of March 31, 2015, the Company has issued and outstanding 93,309,305 shares of its $.001 par value common stock, of which 2,905,846 shares are classified as temporary equity as a result of certain repurchase rights related to these shares.

During the three months ended March 31, 2015, the Company issued 708,474 shares of common stock.

Temporary Equity - Redeemable non-controlling interest

The following table presents the changes in the carrying amounts and activity for redeemable non-controlling interest and common stock for the three months ended March 31, 2015:

MMG Nightlife Exercised Put Right

Nightlife Holdings LLC is the 20% non-controlling interest holder in SFX-Nightlife Operating LLC (“MMG”), a subsidiary of the Company. On January 16, 2015, Nightlife Holdings LLC exercised its put right to require the Company to acquire its 20% non-dilutable interest in MMG. On January 30, 2015, the Company made an advance payment of $1,250 to Nightlife Holdings LLC following their exercise of such put right.

8.              STOCK-BASED COMPENSATION

The Company recorded $8,633 and $10,085 of stock-based compensation expense for the three months ended March 31, 2015 and 2014, respectively. Stock-based compensation expense is recorded as part of selling, general and administrative expenses.

As of March 31, 2015, there was $44,645 of total unrecognized compensation cost related to stock-based compensation arrangements for stock options and restricted share awards. This cost is expected to be recognized over a weighted-average period of 1.8 years.

9.              LOSS PER SHARE OF COMMON STOCK

Basic net loss per share of common stock is computed as net loss attributable to the Company divided by the weighted-average number of shares of common stock outstanding during the period.

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Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

Diluted net loss per share of common stock reflects the potential dilution that could occur if equity securities or other contracts to issue common stock were exercised or converted into common stock. However, since the Company had a net loss for the three months ended March 31, 2015 and 2014, diluted loss per share of common stock is the same as basic loss per share of common stock, as any potentially dilutive securities would reduce the loss per share. The following table shows securities excluded from the calculation of diluted loss per share because such securities are anti-dilutive:

10.       FAIR VALUE MEASUREMENT

The Company has certain contingent consideration obligations and guarantees related to acquisitions, which are measured at fair value using Level 3 inputs as defined by the FASB as unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data. The amount due for the contingent consideration is based on the achievement of a financial performance metric, EBITDA, in future periods. The Company recorded these liabilities at the time of acquisition at fair value. Subsequent to the date of acquisition, the Company updates the original valuation to reflect current projections of future results of the acquired companies, the passage of time, changes in the value of the Company’s common stock, and the change in exchange rates between the Euro and U.S. Dollar. Accretion of and changes in the valuations are recognized in the results of the Company’s earnings.

The Company recognized $(828) in other (income) due to the change in fair value for the three months ended March 31, 2015 and recognized $2,104 in other expenses due to the change in fair value for the three months ended March 31, 2014.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Due to their short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses revolver and notes payable, and other short-term liabilities approximate their fair values at March 31, 2015 and December 31, 2014.

11.       INCOME TAXES

The income tax benefit for continuing operations for the three months ended March 31, 2015 and 2014 was $292 and $2,262, respectively. The Company is required to calculate its interim tax provision using the estimated annual effective tax rate (“EAETR”) method prescribed by ASC 740-270, and as such, excludes losses in jurisdictions where the Company cannot benefit from those losses or where no tax is imposed on earned income in deriving its worldwide EAETR. A separate ETR is

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Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

computed and applied to ordinary loss in the loss jurisdiction (US) as required by ASC 740-270-30-36 (a). The Company’s full year estimated income taxes are primarily related to foreign operations and deferred taxes related to the tax amortization of goodwill.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that either some portion or the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, tax-planning strategies, and available carry-back capacity in making this assessment, therefore, the Company has recorded a valuation allowance on its net domestic deferred tax assets, excluding deferred tax liabilities that are not expected to serve as a source of income for the recognition of deferred tax assets due to their indefinite reversal period (tax amortization of goodwill).

As of March 31, 2015, the Company did not record any tax liabilities for uncertain income tax positions and concluded that all of its tax positions are either certain or are not material to the Company’s financial statements. The Company is currently not under audit in any jurisdiction in which it conducts business.

12.       RELATED PARTIES

Robert Sillerman

The Company’s chief executive officer and chairman, Mr. Sillerman, is a significant shareholder and owns shares, in the aggregate, representing approximately 37.4% of the Company’s outstanding capital stock as of March 31, 2015.

In addition, on September 24, 2014, the Company issued in a private placement $10,000 aggregate principal amount of the Company’s 9.625% second lien senior secured notes due 2019 (the “Sillerman Notes”) to Sillerman Investment, an entity controlled by Mr. Sillerman. The Sillerman Notes constituted an additional issuance of and were issued under the same indenture as the Company’s existing 9.625% second lien senior secured notes due 2019 issued on February 4, 2014 and September 24, 2014.

On March 16, 2015, the Company entered into Amendment No. 2 (the “Second Amendment”) to the Credit Agreement. Refer to footnote 5 for further details.

MJX, LLC

In prior periods, MJX, LLC (“MJX”), a company owned 100% by Mr. Sillerman, funded certain expenses incurred by the Company’s consultants and employees who were assisting in meeting with potential acquisition targets. In addition, in the three months ended March 31, 2015 and 2014, certain employees of the Company provided services to MJX, primarily tax and administrative in nature. Total expenses incurred by the Company for services provided by MJX for the three months ended March 31, 2015 and 2014 were $4 and $0, respectively. Total income recorded by the Company for the three months ended March 31, 2015 and 2014 were $27 and $0, respectively. The balance due from MJX was $185 and due to MJX was $4 as of March 31, 2015.

Viggle, Inc.

The Company has a shared services agreement with Viggle, Inc. (“Viggle”), a company whose chief executive officer and controlling shareholder is Mr. Sillerman. Costs incurred by the Company under the agreement during the three months ended March 31, 2015 and 2014 were $320 and $171, respectively. Total revenue recorded by the Company for the three months ended March 31, 2015 and 2014 were $18 and $0, respectively. The Company owes $350 to Viggle as of March 31, 2015.

On March 10, 2014, the Company entered into a software license and service agreement with Viggle. Under the terms of the agreement, the Company paid $5,000 for a ten-year non-exclusive, fully paid license to exploit certain audio recognition software owned by Viggle to be used in the Company’s business. Viggle is required to pay the Company a royalty equal to 50% of the net revenue paid to Viggle by third parties who license the audio recognition software.

On January 22, 2015, the Company entered into a sales agency agreement (the “Sales Agency Agreement”) with Viggle. Pursuant to the Sales Agency Agreement, the Company offered employment to approximately twenty-five Viggle employees to serve in the Company’s brand partnership group. Such employees will sell the Company’s services and will also be the exclusive agent for the sale of Viggle services worldwide. The Company will receive a sales commission equal to 25% of the net revenues arising from such sales, pursuant to the terms and conditions of the Sales Agency Agreement. For the three months ended March 31, 2015, the Company recorded revenue of $131 for services provided under the Sales Agency Agreement. As of March 31, 2015, Viggle owed the Company $131.

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Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

Donnie Estopinal

The Company is indebted to the former owner of Disco Productions, Inc. (“Disco”), Donnie Estopinal, who is an employee of the Company, in the amount of $620 as of March 31, 2015, for certain final working capital adjustments related to the sale by Mr. Estopinal of Disco to SFX. For the three months ended March 31, 2015 and 2014, the Company recorded an expense of $0 and $150, respectively. On April 15, 2015, the Company remitted the final working capital adjustment to Mr. Estopinal and settled all balances related to the acquisition of Disco.

White Oak Securities LLC

On February 13, 2015, the Company entered into an investment banking agreement with White Oak Securities LLC (“White Oak”) pursuant to which White Oak will assist the Company for a two-year period as its non-exclusive agent in connection with debt capital market transactions. Pursuant to this agreement, the Company will pay White Oak a fixed fee of $825. The Company paid $515 of this amount in the three months ended March 31, 2015 and will pay the balance by making three payments of $103 on each of July 31, 2015, January 29, 2016 and July 29, 2016. White Oak is controlled by its managing member, Timothy J. Crowhurst, who has served as an executive officer of the Company since June 2013 and currently serves as the President and Head of Strategic Development. For the three months ended March 31, 2015, the Company recorded $69 of expense.

Former owners of acquired entities

The Company has certain balances due to and from former owners of companies that the Company acquired during 2014 and 2013. These balances primarily relate to payments made to or received on behalf of the Company in connection with rent, advances, insurance and event proceeds. As of March 31, 2015, the Company recorded a receivable of $631 and a payable of $527 to these former owners collectively. For the three months ended March 31, 2015 and 2014, the Company recorded an expense of $55 and $80, respectively. For the three months ended March 31, 2015 and 2014, the Company recorded income of $3 and $4, respectively.

Non-consolidated affiliates

The Company regularly engages in business activities with its non-consolidated affiliates in the production and operation of events. At March 31, 2015, the total balance due to the Company from these non-consolidated affiliates was $771, and the total balance payable to these affiliates was $1,549. For the three months ended March 31, 2015 and 2014, the Company recorded an expense of $42 and $78, respectively. For the three months ended March 31, 2015 and 2014, the Company recorded revenues of $69 and $2, respectively.

Other

In March 2015, the Company entered into a master services agreement with CrowdRX, Inc. (“CrowdRX”) for the provision of comprehensive medical and consulting services. The term of the agreement is one year, unless terminated earlier. Andrew N. Bazos is the principal and founder of CrowdRX and is also a director of the Company and serves as Chairman of the Company’s Medical Procedure & Safety Committee. Under this agreement, CrowdRX provides baseline services, for a fixed fee and additional services at agreed upon prices. For the three months ended March 31, 2015, the Company incurred expenses of $50. As of March 31, 2015, the total balance owed to CrowdRX was $50.

13.       COMMITMENTS AND CONTINGENCIES

Legal matters

During the normal course of business, the Company is occasionally involved with various claims and litigation. Reserves are established in connection with such matters when a loss is probable and the amount of such loss can be reasonably estimated. As of March 31, 2015, no material reserves were recorded. No reserves are established for losses that are only reasonably possible. The determination of probability and the estimation of the actual amount of any such loss is inherently unpredictable, and it is therefore possible that the eventual outcome of such claims and litigation could exceed the estimated reserves, if any. Based upon the Company’s experience, current information and applicable law, the Company does not believe it is reasonably possible that any proceedings or possible related claims will have a material effect on its financial statements.

Pferdmenges

On June 12, 2012, a lawsuit was commenced against Made, Mike Bindra, Laura De Palma, and Sala Corporation by Henri Pferdmenges and NRW, Inc., in the Circuit Court of the Eleventh Judicial Circuit in and for Miami Dade County, Florida. The lawsuit, as amended on September 17, 2012, alleged claims of (i) breach of joint venture agreement, (ii) breach of fiduciary duty, (iii) declaratory action regarding certain rights related to the 2011, 2012 and future editions of the Electric Zoo Festival

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Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

and certain rights to intellectual property associated with the Electric Zoo Festival, (iv) unjust enrichment, (v) promissory estoppel, (vi) contract implied in fact and (vii) fraud in the inducement with respect to the ownership of the Electric Zoo Festival. The Company has adequate contractual indemnification rights from the sellers of Made for any losses resulting from this litigation. On July 11, 2013, after removal to the United States District Court for the Southern District and transfer to the United States District Court for the Southern District of New York, the Court granted the defendants’ motion to dismiss plaintiff’s Second Amended Complaint in full, and the Court dismissed all of the plaintiff’s claims against all of the defendants. However, on August 29, 2013, the Court permitted the plaintiff to file a Third Amended Complaint regarding its breach of contract, alter ego and fraudulent transfer claims. Plaintiff filed its Third Amended Complaint alleging the foregoing causes of action on September 27, 2015. The Third Amended Complaint sought monetary damages of $10,000, plus ownership interests, costs and an accounting of the festival for the years 2009 through 2013 and the sale of Made to SFX. On September 10, 2014, the Court granted in part and denied in part the defendants’ motion to dismiss. Subsequently, the plaintiff made a motion for leave to again amend its complaint to re-plead similar causes of action against the defendants and to add claims of declaratory judgment that plaintiff is an equity owner in the festival and that NRW is entitled to 50% of the proceeds from the sale, that it is entitled to 50% of the profits from the 2009-2013 festivals and that it is entitled to 50% of the value of the trademark and associated intellectual property rights of the festival, fraud in the inducement, and unjust enrichment against the defendants. Plaintiff’s proposed Fifth Amended Complaint seeks ownership, future rights to profits and other declaratory rights and relief and to increase its damage award on its proposed breach of contract, alter ego, fraudulent transfer, fraudulent inducement and unjust enrichment claims to no less than $28,000, plus an accounting, interest, costs and attorneys’ fees. Plaintiff’s motion for leave to amend has yet to be decided. The Company is confident of the defendants’ defense and believes that it will not suffer any significant losses as a result of this litigation.

Moreno

On February 5, 2014, Paolo Moreno, Lawrence Vavra and Gabriel Moreno filed suit against SFX, and, in their individual capacities, Mr. Sillerman and Mr. Finkel, in the United States District Court for the Central District of California. The complaint alleged, among other things, causes of action for breach of joint venture/partnership agreement, breach of implied joint venture/partnership agreement, breach of fiduciary duty owed to joint ventures/partners, constructive fraud, breach of contract, breach of implied contract, promissory estoppel, fraudulent inducement, promissory fraud, unfair competition, quantum meruit, breach of fiduciary duty owed to principals and interference with prospective economic advantage. The plaintiffs seek over $100,000 in damages, as well as compensatory and punitive damages, and equitable relief. The Company believes this lawsuit is without merit and intend to vigorously defend against it. Mr. Finkel has since been dismissed from the case. Plaintiffs’ claims for breach of fiduciary duty owed to principals and interference with prospective economic advantage have also been dismissed. The parties have completed the discovery phase of this litigation, and a trial date is set for July 21, 2015. On April 7, 2015, the defendants filed a motion for summary judgment to dismiss all claims. Because the Court has not yet ruled on this motion, the Company cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.

Lease commitments

The Company leases its office and warehouse facilities under non-cancellable operating lease agreements. Future minimum rent commitment amounts for the Company’s foreign subsidiaries were translated from the foreign subsidiaries’ functional currency to the U.S. Dollar reporting currency using the foreign exchange rate as of March 31, 2015.

14.       SEGMENT REPORTING

The Company has determined that it has two operating segments: i) Live Events, which is the production and promotion of the Company’s live events and includes revenue from ticket sales, concessions of food, beverages and merchandise, ticketing fees and commissions, promoter and management fees, event-specific sponsorships and advertising and ii) Platform, which is the

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Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

Company’s 365-day per year engagement with the Company’s fans outside of live events, and currently includes the sale of professional-quality audio files, merchandise and certain marketing and digital activities.

In 2014, the Company assessed its business units in consideration of its acquisitions and determined that the Company’s ticketing operations should be moved from Platform to the Live Events segment based upon how the Company’s chief operating decision maker reviews and makes decisions related to the operations and financial results of these businesses. The Company has restated the segment disclosures for the three months ended March 31, 2014 to reflect this change.

Corporate expenses, including stock-based compensation, and all line items below operating loss are managed on a total Company basis. The Company eliminates inter-segment activity within “Corporate and Eliminations,” and the chief operating decision maker manages assets on a consolidated basis. Accordingly, segment assets are not reported to or used to allocate resources or assess performance of the segments, and therefore, total segment assets have not been disclosed.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”). In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Statements containing words such as “may,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “project,” “projections,” “business outlook,” “estimate,” or similar expressions constitute forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions that are made only as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties. Given these uncertainties, you should read this Quarterly Report on Form 10-Q completely with the understanding that our actual future results may be materially different from what we expect. Unless otherwise stated, or the context otherwise requires, references to “SFX,” “the Company,” “we,”“us,”“our” refer to SFX Entertainment, Inc. together with our consolidated subsidiaries.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Additional information regarding the risks associated with forward-looking statements can be found in our Form 10-K.

OVERVIEW

We believe we are the largest global producer of live events and digital entertainment content focused exclusively on the electronic music culture (“EMC”) and other world-class festivals. We view EMC as a global generational movement driven by a rapidly developing community of avid electronic music followers among the millennial generation. Our mission is to enable this movement by providing our fans with the best possible live experiences, music discovery and digital content. Our strategy remains to leverage our unique portfolio of assets to reach EMC fans through the live concert experience and engage them 365 days a year by way of our online offerings, allowing fans to connect to influencers and other fans, discover and stream music, and access exclusive news and content, among other things. As we bring our events to new markets, we also grow ticket sales and enhance our sponsorship, marketing and similar streams of revenue. We believe that we are well-positioned to fulfill our mission to EMC fans, and we remain optimistic about our long-term potential as we continue to implement our strategy and optimize our acquired companies and brands.

We present leading EMC festivals and events, many of which have more than a decade of history, passionate followers and vibrant social communities. Our live events and leading brands include Tomorrowland, TomorrowWorld, Mysteryland, Sensation, Disco Donnie Presents, Life in Color, Stereosonic, Decibel, Nature One, Ruhr-in-Love, Electric Zoo, React Presents, Awakenings, Q-Dance, Beatport, Paylogic, Flavorus and many others. In addition, we own a 40% interest in the popular Rock in Rio festival brand and a 50% interest in ALDA, a European concept developer and producer for some of the industry’s leading DJ tours and festivals. We have significant and growing scale with our global live events.

We believe the broad appeal of EMC beyond festival attendance is demonstrated by the deep engagement of our fans, which is evidenced by the time they devote to EMC-related social media and digital activities. We are addressing the demand from the growing EMC community for music, engaging content and social connectivity between and around our live events. A key component of this initiative is our subsidiary Beatport, LLC (“Beatport”), which is the principal source of music for EMC DJs and enthusiasts.

Our History

SFX Entertainment, Inc. was incorporated in the State of Delaware on June 5, 2012. Between June 5, 2012 and February 13, 2013, we were named SFX Holding Corporation. We started our business on July 7, 2011 as SFX EDM Holdings Corporation (f/k/a SFX Entertainment Inc.), which is now our wholly owned subsidiary.

On October 15, 2013, we completed our initial public offering and became a publicly traded company on The Nasdaq Global Select Market, trading under the symbol “SFXE.” Our founder Robert F.X. Sillerman and our senior management team have extensive global experience in entertainment, consumer Internet and music-related businesses, including experience working with creative talent, producing and promoting live events and acquiring and integrating companies. Our team also includes a new generation of promoters, producers and executives who are innovators and leaders in the EMC community with established businesses and experience in creating spectacular events that host tens of thousands of people. These team

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members are generally managers or former owners of our acquired companies who received equity in our company as consideration when we acquired their businesses.

In 2014, we continued to grow our Company both organically and through nine material acquisitions, as well as several smaller ones. We focused our energies on bolstering our live events segment, refining our ticketing and digital businesses and reinvigorating our Beatport platform as the hub of global EMC connectivity.

FIRST QUARTER 2015 EVENTS

Sillerman Proposal

On February 24, 2015, we received a proposal from Robert F.X. Sillerman, our Chairman and Chief Executive Officer, to negotiate with us a transaction whereby Mr. Sillerman would acquire all the outstanding shares of SFX that he does not already own at a price of $4.75 per share in cash. Our board of directors has established a special committee of independent directors to review the nonbinding offer, as well as consider other alternatives to the proposed transaction that may enhance shareholder value.

Credit Facility Second Amendment

On March 16, 2015, we entered into Amendment No. 2 (the “Second Amendment”) to our credit agreement dated February 7, 2014, with the lenders party thereto and Barclays Bank PLC, as administrative agent, letter of credit issuer and swingline lender (the “Credit Agreement”). Among other things, the Second Amendment modifies the Credit Agreement, as previously amended, by removing the maximum total leverage ratio and minimum interest coverage ratio financial covenants and eliminating the incurrence tests to which certain exceptions to the negative covenants were subject. Furthermore, the applicable margin for any base rate loan and Eurodollar loan under the Credit Agreement is now 3.00% per annum and 4.00% per annum, respectively. Additionally, we will not be able to borrow loans or request letters of credit under the Credit Agreement unless an amount equal to 105% of the amount of the loan or letter of credit, as applicable, is deposited into a deposit account of Sillerman Investment Company III LLC (“Sillerman Investment”), an entity controlled by Mr. Sillerman, that is subject to a first priority lien in favor of the administrative agent under the Credit Agreement.

Segment Overview

We have two reportable segments: i) Live Events, which consists of the production of our live events and includes revenue from ticket sales, concessions of food, beverages and merchandise, ticketing fees and commission, promoter and management fees, event-specific sponsorships and advertising and ii) Platform, which is our 365-day per year engagement with our fans outside of live events and currently includes the sale of professional-quality audio files, merchandise and certain marketing and digital activities.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

We currently generate revenue from sales of services and sales of products. Service revenue includes ticket sales, concessions fees related to the sale of food, beverages and merchandise, license and management fees, ticketing commissions from our ticketing platform, sponsorships and marketing partnership related revenue. Sales of products primarily relate to the sale of professional-quality audio files, merchandise and food and beverage sales, including those from live events.

Service costs consist primarily of musical talent costs and event production costs. Musical talent costs are fees paid to artists performing at festivals and venues. Production costs consist of costs incurred to produce events, including crew and material costs associated with staging and construction, and the costs of venue, promotions and transportation. Sales of product costs mostly consist of Beatport’s royalty payments and other digital music sales-related expenses and also include the cost of merchandise and food and beverages sold.

As we continue to integrate the businesses we have acquired, we anticipate meaningful growth in our service revenue, primarily due to the growing number of large festivals we offer around the world and increasing the total number of attendees at such festivals and other events. For example, we exported the Tomorrowland brand outside of Belgium for the first time with the TomorrowWorld festivals held outside of Atlanta in September 2013 and 2014, and we debuted Tomorrowland in Brazil in May 2015. We also have brought and will continue to bring our other highly successful brands to new international locations, including Mysteryland in Bethel Woods, New York, in May 2014 and 2015, Electric Zoo in Mexico City in May 2014 and in Japan in May 2015, and Sensation in Dubai in 2014 for its first ever outdoor edition, which is planned to return in 2015. We will also unveil several new events and festivals in 2015, such as ALDA’s sold-out The Flying Dutch festival in the Netherlands in May and One Tribe camping festival set to take place outside of Los Angeles this September.

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We also plan to increase revenue streams around these events, including concessions, sponsorships and marketing partnership related revenue. Any revenue growth related to establishing our brands in new countries and locations for the first time may be offset by losses resulting from the initial productions of the applicable festival or event. We expect the gross margin for our service revenue to increase in the near and medium term as festivals become more established.

The majority of our product revenues are derived from the sale of professional-quality audio files via Beatport, which DJs require to produce and perform electronic music tracks. In addition, we have generated sponsorship and merchandise revenue. We believe that in the near and medium term, revenue from our online platform properties, including Beatport, will experience growth as we introduce new content, products and offerings. In the first quarter of 2015, Beatport launched a new streaming music service with a catalogue of over 2.0 million tracks, which is just one of the many innovative functionalities of the revamped Beatport interface. Users, which include both EMC fans and professionals, will also be able to buy merchandise, discover new music, connect with other EMC fans, explore local events and DJ lineups, access finely curated media content, and continue to purchase the high-quality audio tracks that have made Beatport an industry favorite.

We continue to pursue the sale of global and local sponsorships and marketing and similar partnerships, both domestically and internationally. Our goal is to continue to drive growth in this area, both by engaging new partners and by expanding our arrangements and offerings with our current partners. In 2015 and beyond, we plan to utilize our relationships with current and future marketing partners and sponsors in order to introduce new ways for fans of EMC to enjoy the music they love 365 days a year. Such future arrangements, in some cases, will replace historical event-level arrangements to enable a broader involvement with our fans. During this transition process, we have foregone and may continue to forgo short-term event-level sponsorship revenue to facilitate broader arrangements. We have attracted multiple, well-known corporate brand partners for multi-event and repeat sponsorships and have entered into marketing and similar partnerships with other partners. In 2015 and beyond, we believe that we have a unique opportunity to engage in additional partnerships and expand upon current partnerships, in particular in connection with the revamped Beatport platform, to increase our revenue and to provide our fans with more memorable experiences and further integrate into the EMC community. Following are a few examples:

·                  a global strategic alliance and multi-year joint venture agreement with MasterCard that establishes MasterCard as our exclusive global sponsor in the financial services category;

·                  our sponsorship and marketing partnership with viagogo AG in which viagogo serves as our exclusive authorized secondary ticket marketplace for 80 SFX events and festivals taking place across the globe over a five-year period;

·                  our multi-faceted marketing and partnership arrangement with Anheuser-Busch InBev and its affiliate companies, pursuant to which we organized and continue to organize two separate series of bespoke beach-themed dance music events in 2014 and throughout 2015 focusing on the Corona brand and Skol brand, respectively, and which arrangement also includes sponsoring an international DJ contest competition through Beatport and sponsorship of several of our biggest events;

·                  our partnership with Clear Channel (now iHeartMedia) through which we (a) will produce a national music talent contest promoted on select Clear Channel stations nationwide in 2015, (b) launched in August 2014 a weekly EMC radio show featuring our Beatport brand airing in approximately 90 markets and (c) will host one or more new EMC festivals near Halloween in 2015; and

·                  our sponsorship and promotional agreements with T-Mobile, which include T-Mobile’s sponsorship of certain SFX festivals and events; charter partnership, alignment and integration benefits with Beatport, including its online platform, mobile apps, and live events offerings; media placement by T-Mobile on certain of our properties; and execution by us of on-site activations at certain SFX festivals and events.

Our results of operations, and in particular the revenue we generate from a given activity, vary substantially from quarter to quarter. We expect most of our largest festivals to occur outdoors, primarily in warmer months. For example, our North American and European brands stage most of their festivals and events in late summer and early fall, while in the Southern Hemisphere most of our festivals take place in September, November and December. As such, we expect our revenues from these festivals to be higher during the third and fourth quarters, and lower in the first and second quarters. Further, because we expect to conduct a limited number of large festivals and other events, small variations in this number from quarter to quarter can cause our revenue and net income to vary significantly for reasons that may be unrelated to the performance of our core business. Other portions of our business, such as our club and artist management businesses, are generally not subject to seasonal fluctuation or experience much lower seasonal fluctuation.

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In the future, we expect these fluctuations to change and perhaps become less pronounced as we grow our business and stage more festivals and events in the Southern Hemisphere. We believe our cash needs will vary significantly from quarter to quarter, depending on among other things, the timing of festivals and events, cancellations, ticket on-sales, capital expenditures, seasonal and other fluctuations in our business activity, the timing of guaranteed payments under our sponsor and marketing partnerships and receipt of ticket sales and fees, financing activities, acquisitions and investments.

RESULTS OF OPERATIONS

Substantial portions of our business assets were acquired in the (i) fourth quarter of 2013 following our initial public offering and (ii) the second and third quarters of 2014. As such, we have not provided a comparative discussion of our results of operations for the three months ended March 31, 2015 and 2014, because such a comparison would not be meaningful.