SFX Entertainment, INC - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - SFX Entertainment, INC	a15-17864_1ex31d1.htm
EX-10.9 - EX-10.9 - SFX Entertainment, INC	a15-17864_1ex10d9.htm
EX-10.12 - EX-10.12 - SFX Entertainment, INC	a15-17864_1ex10d12.htm
EX-2.2 - EX-2.2 - SFX Entertainment, INC	a15-17864_1ex2d2.htm
EX-32.2 - EX-32.2 - SFX Entertainment, INC	a15-17864_1ex32d2.htm
EX-32.1 - EX-32.1 - SFX Entertainment, INC	a15-17864_1ex32d1.htm
EX-31.2 - EX-31.2 - SFX Entertainment, INC	a15-17864_1ex31d2.htm
EX-10.10 - EX-10.10 - SFX Entertainment, INC	a15-17864_1ex10d10.htm
EX-10.11 - EX-10.11 - SFX Entertainment, INC	a15-17864_1ex10d11.htm

Table of Contents

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 September 30, 2015,

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)

Delaware		90-0860047
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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:

Large Accelerated Filer o		Accelerated filer x
Non-accelerated Filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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 November 6, 2015, the registrant had outstanding 98,892,359 shares of common stock.

Table of Contents

INDEX

		Page

PART I	FINANCIAL INFORMATION

Item 1.	Consolidated Balance Sheets (unaudited) as of September 30, 2015 and December 31, 2014	3

	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2015 and 2014	4

	Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2015 and 2014	5

	Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the nine months ended September 30, 2015	6

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2015 and 2014	7

	Notes to the Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	43

Item 4.	Controls and Procedures	44

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosure	48

Item 5.	Other Information	48

Item 6.	Exhibits	48

	Signatures	51

Table of Contents

SFX Entertainment, Inc.

Consolidated Balance Sheets

(in thousands except share data)

Unaudited

	September 30, 2015			December 31, 2014
				(See Note 1 and 2)
Assets:
Cash and cash equivalents	$	59,788		$	63,270
Restricted cash	3,020			849
Accounts receivable - net of allowance of $1,041, and $1,955, as of September 30, 2015 and December 31, 2014, respectively	33,911			12,859
Prepaid expenses	13,441			9,656
Due from related parties	2,634			1,635
Other current assets	13,352			10,486
Total current assets	126,146			98,755
Property, plant and equipment, net	23,904			16,268
Goodwill	247,424			265,794
Intangible assets, net	185,315			219,732
Equity investments in non-consolidated affiliates	68,679			89,262
Other assets	10,146			12,678
Total assets	$	661,614		$	702,489

Liabilities:
Accounts payable and accrued expenses	$	71,638		$	57,678
Notes payable, current	207			404
Label and royalty payables	9,056			12,571
Deferred revenue	34,752			26,600
Due to related parties	9,001			3,694
Other current liabilities	34,800			28,704
Total current liabilities	159,454			129,651
Deferred tax liabilities	5,759			6,956
Revolver, notes payable, long-term, including $10,000 to Sillerman in 2014	312,404			283,173
Acquisition related contingencies	9,511			13,173
Mandatorily redeemable non-controlling interest	43			43
Other long-term liabilities	3,065			3,351
Total liabilities	490,236			436,347

Commitments and contingencies:
Preferred stock - Series A, $0.001 par value, 540 and 0 shares authorized and 150 and 0 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively	14,814			—
Preferred stock - Series B, $0.001 par value, 30,000 and 0 shares authorized, issued and outstanding at September 30, 2015 and December 31, 2014, respectively	29,814			—
Redeemable common stock, $0.001 par value, 2,905,846 shares outstanding at September 30, 2015 and December 31, 2014	27,247			27,247
Redeemable non-controlling interest	—			4,322

Stockholders’ equity:
Common stock, $0.001 par value, 300,000,000 shares authorized, 95,261,872 and 89,694,985 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively	95			89
Undesignated Preferred Stock, $0.001 par value, 99,969,460 and 100,000,000 shares authorized and 0 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively	—			—
Additional paid-in capital	558,075			515,542
Accumulated other comprehensive loss	(62,006		)	(28,650		)
Accumulated deficit	(397,249		)	(253,209		)
Total SFX stockholders’ equity	98,915			233,772
Non-controlling interest in subsidiaries	588			801
Total stockholders’ equity	99,503			234,573
Total liabilities and stockholders’ equity	$	661,614		$	702,489

See accompanying notes to the unaudited consolidated financial statements

Table of Contents

SFX Entertainment, Inc.

Consolidated Statements of Operations

(in thousands except per share data)

Unaudited

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
				(See Note 2)						(See Note 2)
Revenue:
Service revenue	$	111,249		$	114,740		$	248,681		$	196,731
Sale of products	21,983			28,812			57,792			61,769
Total revenue	133,232			143,552			306,473			258,500
Direct costs:
Cost of services	102,222			93,773			213,556			157,363
Cost of products sold	15,536			16,276			37,435			37,043
Total direct costs	117,758			110,049			250,991			194,406
Gross profit	15,474			33,503			55,482			64,094
Operating expenses:
Selling, general and administrative expenses	38,581			44,798			118,587			123,345
Loss on disposal of non-core assets	9,112			—			9,112			—
Depreciation	2,090			2,083			4,493			3,568
Amortization	7,196			7,474			22,485			21,789
Operating loss	(41,505		)	(20,852		)	(99,195		)	(84,608		)
Interest expense, net	(9,181		)	(6,158		)	(25,478		)	(18,445		)
Other (expense)/income, net	(7,312		)	14,683			(17,374		)	6,819
Equity in income/(loss) of non-consolidated affiliates	3,672			2,345			(1,724		)	1,347
Loss before income taxes	(54,326		)	(9,982		)	(143,771		)	(94,887		)
Income tax benefit	84			15,060			47			8,770
Net income/(loss)	(54,242		)	5,078			(143,724		)	(86,117		)
Less: Net income attributable to non-controlling interest	229			142			316			254
Net income/(loss) attributable to SFX Entertainment, Inc.	$	(54,471	)	$	4,936		$	(144,040	)	$	(86,371	)

Income/(loss) per share - basic	$	(0.57	)	$	0.06		$	(1.55	)	$	(0.99	)
Income/(loss) per share - diluted	$	(0.57	)	$	0.05		$	(1.55	)	$	(0.99	)

Weighted average shares outstanding - basic (in thousands)	95,681			87,717			92,861			87,368
Weighted average shares outstanding - diluted (in thousands)	95,681			96,561			92,861			87,368

See accompanying notes to the unaudited consolidated financial statements

Table of Contents

SFX Entertainment, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

Unaudited

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
				(See Note 2)						(See Note 2)
Net income/(loss)	$	(54,242	)	$	5,078		$	(143,724	)	$	(86,117	)
Other comprehensive loss
Foreign currency translation adjustments	(9,837		)	(19,910		)	(33,356		)	(12,721		)
Comprehensive loss	(64,079		)	(14,832		)	(177,080		)	(98,838		)
Comprehensive income attributable to non-controlling interest, net of tax	229			142			316			254
Comprehensive loss attributable to common stockholders of SFX Entertainment, Inc., net of tax	$	(64,308	)	$	(14,974	)	$	(177,396	)	$	(99,092	)

See accompanying notes to the unaudited consolidated financial statements

Table of Contents

SFX Entertainment, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

(in thousands except share data)

Unaudited

	Common Stock			Additional paid			Accumulated			Accumulated other comprehensive			Non- controlling			Total stockholders’
	Shares	Amount		in capital			deficit			loss			interest			equity
Balance at December 31, 2014 (See Note 2)	89,694,985	$	89	$	515,542		$	(253,209	)	$	(28,650	)	$	801		$	234,573

Net (loss)/income	—	—		—			(144,040		)	—			316			(143,724		)
Share-based payments	1,274,125	2		4,876			—			—			—			4,878
Non-cash stock-based compensation	950,207	—		22,915			—			—			—			22,915
Proceeds from sale of common stock	3,342,555	4		14,996			—			—			—			15,000
Preferred stock dividends	—	—		(254		)	—			—			—			(254		)
Distribution to non-controlling interest	—	—		—			—			—			(59		)	(59		)
Foreign currency translation adjustment	—	—		—			—			(33,356		)	(470		)	(33,826		)

Balance at September 30, 2015	95,261,872	$	95	$	558,075		$	(397,249	)	$	(62,006	)	$	588		$	99,503

See accompanying notes to the unaudited consolidated financial statements

Table of Contents

SFX Entertainment, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Unaudited

	Nine months ended
	September 30,
	2015			2014
				(See Note 2)

Cash flow from operating activities:
Net loss	$	(143,724	)	$	(86,117	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	4,493			3,568
Amortization	22,485			21,789
Stock-based compensation expense	22,915			30,281
Non-cash interest expense	2,317			3,669
Fair value remeasurement for contingent consideration	(3,348		)	(21,322		)
Provision for doubtful accounts	137			222
Deferred income tax benefit	(47		)	(9,240		)
Loss on extinguishment of debt	988			16,240
Loss on sale of non-core assets	9,112			—
Equity loss and dividends received in non-consolidated affiliates	1,724			1,347
Foreign currency transactions and other	12,755			4,112

Changes in operating assets and liabilities, net of acquisitions:
Restricted cash	(2,171		)	—
Accounts receivable	(22,387		)	(16,155		)
Due from related parties	(1,401		)	224
Prepaid expenses	(7,493		)	4,193
Other current assets	(2,385		)	(3,688		)
Other assets	11,435			(6,945		)
Accounts payable and accrued expenses	18,716			15,346
Label and royalty payables	(2,777		)	(237		)
Deferred revenue	11,554			18,857
Due to related parties	5,538			3,551
Other current liabilities	21,616			(2,083		)
Other liabilities	(11,510		)	(4,235		)
Deferred tax liabilities	(458		)	(203		)
Net cash used in operating activities	(51,916		)	(26,826		)

Cash flow from investing activities:
Purchases of property, plant and equipment	(13,914		)	(4,705		)
Purchases of software and other intangibles	(3,549		)	(3,594		)
Acquisition of businesses and equity investments, net of cash acquired	(7,716		)	(135,181		)
Insurance proceeds, net of disposed assets	—			91
Dividends received from non-consolidated affiliates	—			32
Net cash used in investing activities	(25,179		)	(143,357		)

Cash flow from financing activities:
Proceeds from borrowings, net of fees	51,068			300,218
Proceeds from common stock transactions	15,000			30
Proceeds from preferred stock transactions, net of fees	44,628			—
Restricted cash	—			16,056
Payment of borrowings and notes	(24,245		)	(109,523		)
Payments and contingent considerations related to acquisitions	(9,844		)	(1,341		)
Distribution to non-controlling interest shareholders	(389		)	(602		)
Repurchase of common stock	—			(1,704		)
Net cash provided by financing activities	76,218			203,134

Effect of exchange rate changes on cash	(2,605		)	(2,021		)

Net (decrease)/increase in cash and cash equivalents	(3,482		)	30,930
Cash and cash equivalents, beginning of period	63,270			52,654
Cash and cash equivalents, end of period	$	59,788		$	83,584

Supplemental non-cash disclosures (investing and financing activities):
Issuance of common stock in connection of acquisitions	$	5,228		$	15,315
Issuance of warrants in connection of acquisitions	$	—		$	411
Series A Preferred Stock, dividends paid in kind	$	158		$	—

See accompanying notes to the unaudited consolidated financial statements

Table of Contents

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 (“US GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with US 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.

Cash, Cash Equivalents and Restricted Cash

The Company considers cash deposits in all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company’s cash deposits are held at multiple high credit quality financial institutions. The Company’s cash deposits at these institutions often exceed the federally insured limits. Restricted cash represents cash not available for immediate and general use by the Company. As of September 30, 2015, included in cash, cash equivalents and restricted cash is $3,551 of cash proceeds held on behalf of third party ticketing clients.

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. In July 2015, the FASB deferred the guidance effective date by one year, but will allow early adoption as of the original adoption date. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Company will adopt this standard on January 1, 2018, 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.

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

In April 2015, the FASB issued new guidance to simplify of presentation 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 evaluated this new guidance and began early adoption beginning with the annual period ended December 31, 2015. As a result of early adoption, the Company deducted $2,471 of deferred debt issuance cost against the carrying amount of the Company’s Revolver loan as of September 30, 2015. In addition, as of September 30, 2015 and December, 31, 2014, the Company deducted $10,266 and $12,147 of deferred debt issuance cost against the carrying amount of the Notes payable, long term, of $295,000 and $295,000, respectively.

In September 2015, the FASB issued new guidance intended to simplify the accounting for adjustments made to provisional amounts recognized in business combinations. The guidance requires the acquirer to recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustments are determined, and to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed as of the acquisition date. The guidance also includes additional disclosures required for the amounts recorded in current period earnings arising from such adjustments. The guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance should be applied prospectively for adjustments to provisional amounts after the effective date, with earlier application permitted for financial statements that have not been issued. Upon adoption of the new guidance, the Company recognized a measurement period adjustment decrease in amortization expense of $385 included in the Consolidated Statement of Operations for the three and nine months ended September 30, 2015.

2. RETROSPECTIVE ADJUSTMENTS

During 2014, the Company finalized the valuation studies of certain acquisitions that closed in 2013 and 2014. In addition, during the nine months ended September 30, 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 and nine months ended September 30, 2014, and the Consolidated Statement of Comprehensive Loss for the three and nine months ended September 30, 2014 have 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 $4,305, an increase in accumulated other comprehensive loss by $637 and a decrease to accumulated deficit of $4,942. The Consolidated Statement of Operations for the three and nine months ended September 30, 2014 includes a decrease to (i) service revenue of $0 and $336, respectively, (ii) amortization expense of $809 and $16,409, respectively, (iii) other expense of $0 and $283, respectively, (iv) equity in loss of non-consolidated affiliates of $1,564 and $4,204, respectively, and a (v) income tax benefit of $109 and $2,351, respectively. The Consolidated Statement of Comprehensive Loss for the three and nine months ended September 30, 2014 includes an (decrease)/increase to foreign currency adjustments of $(6,863) and $276, respectively.

As a result of these adjustments, the net income and income per share - basic and diluted, for the three months ended September 30, 2014 increased from the amounts previously reported by $2,264 and $0.03 per basic share and $0.02 per diluted share. The net loss and loss per share - basic and diluted, for the nine months ended September 30, 2014 decreased from the amounts previously reported by $18,209 and $0.21 per basic share and $0.21 per diluted share.

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

3. INTANGIBLE ASSETS

Intangible assets consist of the following:

	September 30, 2015							December 31, 2014
	Intangibles,		Accumulated			Intangibles,		Intangibles,		Accumulated			Intangibles,
	Gross		Amortization			Net		Gross		Amortization			Net
Fan database	$	2,300	$	(2,300	)	$	—	$	2,300	$	(1,895	)	$	405
Supplier and label relationship	21,742		(3,970		)	17,772		23,969		(2,973		)	20,996
Trademarks	181,842		(41,071		)	140,771		191,478		(28,026		)	163,452
Management agreements	17,160		(7,898		)	9,262		17,160		(5,968		)	11,192
Non-compete agreements	4,814		(2,349		)	2,465		6,496		(1,772		)	4,724
Other intellectual property	23,762		(8,717		)	15,045		25,202		(6,239		)	18,963
Total	$	251,620	$	(66,305	)	$	185,315	$	266,605	$	(46,873	)	$	219,732

4. GOODWILL

The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments for the nine months ended September 30, 2015:

	Live Events			Platform			Total
Balance as of December 31, 2014	$	235,544		$	30,250		$	265,794
Acquisitions, prior period	$	3,994		$	—		$	3,994
Foreign exchange	$	(14,741	)	$	—		$	(14,741	)
Disposal	$	(679	)	$	(6,944	)	$	(7,623	)
Balance as of September 30, 2015	$	224,118		$	23,306		$	247,424

5. NOTES PAYABLE

The Company’s notes payable at September 30, 2015 and December 31, 2014 were comprised as follows:

	September 30,		December 31,
	2015		2014
Second Lien Senior Secured Notes, net of deferred financing cost	$	284,734	$	282,853
Revolving credit facility, net of deferred financing cost	27,529			—
Other long term debt	141		320
	$	312,404	$	283,173
Other short term note	207		404
Total notes payable and revolver	$	312,611	$	283,577

Credit Facility

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 was set at 3.00% per annum and 4.00% per annum, respectively. Additionally, the Company was not permitted to borrow 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, was 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.

Table of Contents

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, the Company paid Sillerman Investment a commitment fee of $630. In addition, the Company was required to 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 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. During the nine months ended September 30, 2015, Sillerman Investment contributed cash collateral of $28,650 into the specified collateral account. For the three and nine months ended September 30, 2015, the Company has paid $1,146 and $1,220, respectively, to Sillerman Investment. In connection with the Revolver Restatement (as defined below) on September 17, 2015, the cash collateral was released and the commitment letter was terminated.

On September 17, 2015, the Company and certain of its subsidiary guarantors entered into an Amendment and Restatement Agreement (the “Revolver Restatement”) with Barclays Bank PLC, as administrative agent, and the lenders party thereto, in respect of the Credit Agreement. Among other things, the Revolver Restatement modifies the Credit Agreement by (i) reinstating a maximum total leverage ratio and a minimum interest coverage ratio financial covenant, (ii) increasing the applicable margins for base rate loans and Eurodollar loans to 9.00% per annum and 10.00% per annum, respectively, and instituting a 1.00% LIBOR floor, (iii) eliminating or restricting certain exceptions to the negative covenants and (iv) extending the maturity date of the Credit Agreement from February 7, 2017 to September 17, 2017. Pursuant to the Revolver Restatement, prepayments of loans automatically reduce the commitments under the Credit Agreement. As of September 30, 2015, the Company has drawn $30,000 under the the Credit Agreement.

6. OTHER INFORMATION

Equity investments in non-consolidated affiliates

Included in equity investments in non-consolidated affiliates as of September 30, 2015 and December 31, 2014, is the Company’s 50% investment in Rock World S.A. of $35,225 and $52,353, respectively. For the three and nine months ended September 30, 2015 and 2014 the Company recognized a gain/(loss) of $3,092 and $(2,612), respectively, and a loss of $(723) and $(2,786), respectively.

In addition, included as of September 30, 2015 and December 31, 2014 is the Company’s 50% investment in ID&T BVBA of $12,509 and $13,523, respectively. For the three and nine months ended September 30, 2015 and 2014, the Company recognized $0 and $0, respectively, and a gain of $3,916 and $3,291, respectively.

Further, included as of September 30, 2015 and December 31, 2014 is the Company’s 50% investment in ALDA of $16,154 and $18,126, respectively. For the three and nine months ended September 30, 2015, the Company recognized a loss of $533 and $533, respectively.

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

Other assets and liabilities

	As of September		As of December
	30, 2015		31, 2014

Other current assets consists of the following:
Merchants cash advance receivable	$	6,608	$	2,042
Accrued service revenue	1,017		1,727
VAT receivables	2,319		177
Inventory	920		1,051
Other	2,488		5,489
Total other current assets	$	13,352	$	10,486

Accounts payable and accrued expenses consists of the following:
Accounts payable	$	37,185	$	27,860
Accrued expenses	34,453		29,818
Total accounts payable and accrued expenses	$	71,638	$	57,678

Other current liabilities consists of the following:
Deferred purchase price related liabilities	$	9,355	$	22,534
Content advances	10,000		—
Other	15,445		$	6,170
Total other current liabilities	$	34,800	$	28,704

Accumulated other comprehensive loss

The following table discloses the components of accumulated other comprehensive loss net of tax as of September 30, 2015 and December 31, 2014, respectively:

	As of September 30,			As of December 31,
	2015			2014
Cumulative currency translation adjustment, net of tax of $78 and $78, respectively	$	(62,006	)	$	(28,650	)
Total accumulated other comprehensive loss	$	(62,006	)	$	(28,650	)

Postlight Agreement

On August 27, 2015, the Company entered into an independent contractor agreement with Postlight LLC (“Postlight”), pursuant to which the Company will outsource certain platform, technology and product development support services to Postlight for an eighteen month term beginning on October 1, 2015, unless earlier terminated. The Company will pay Postlight variable monthly fees for the services rendered based on the scope of work and deliverables. Postlight was founded by a former employee of Arc90, Inc. (“Arc90”), which was acquired by the Company in November 2013. In connection with the Postlight agreement, as of September 30, 2015, the Company released approximately twenty-five of its product and technology employees, including former Arc90 personnel, who were then hired by Postlight. The Company also licensed to Postlight a portion of the Company’s leased office space through January 2017 for a fixed monthly fee of $35 plus certain operating costs. In connection with the Postlight transaction, the Company wrote off goodwill and certain intangible assets associated with Arc90 totaling $9,112. Such amount has been included in Loss on sale of non-core assets in the Consolidated Statements of Operations for the three and nine months ended September 30, 2015.

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

7. CAPITAL STOCK AND COMMON STOCK WARRANTS

Common stock

As of September 30, 2015, the Company has issued and outstanding 98,167,718 shares of its $0.001 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 and nine months ended September 30, 2015, the Company issued 544,024 and 5,566,887 shares of common stock, respectively.

Temporary Equity

Preferred stock Series A Subscription Agreement; Series A Preferred Stock

On September 17, 2015, the Company entered into a Subscription Agreement with Sillerman Investment (the “Series A Subscription Agreement”) pursuant to which Sillerman Investment agreed to purchase from the Company an aggregate of 300 shares of the Company’s new Series A Preferred Stock for an aggregate purchase price of $30,000. Pursuant to the Series A Subscription Agreement, Sillerman Investment purchased $15,000 of Series A Preferred Stock on September 17, 2015 and is obligated to purchase an additional $15,000 within 30 days of the initial closing. Refer to Note 15 for further details.

Dividends. Dividends on the Series A Preferred Stock accrue at the rate of 29.5% per annum on the sum of the liquidation value (the “Liquidation Value”), plus accrued and accumulated dividends, until the aggregate Liquidation Value of and accrued and accumulated dividends on the outstanding shares of Series A Preferred Stock is equal to $53,000. Thereafter, dividends on the Series A Preferred Stock accrue at the rate of 9.0% per annum and are payable in cash or, with the consent of the holders of a majority of the outstanding shares of Series A Preferred Stock, in shares of the Company’s common stock, subject to certain limitations set forth in the Certificate of Designations, Rights and Preferences of the Series A Preferred Stock (the “Series A Certificate of Designation”). As of September 30, 2015 the Company recorded a dividends payable of $158.

Voting Rights. The holders of the Series A Preferred Stock have no voting rights other than voting rights prescribed by law.

Liquidation Preference. In connection with a liquidation event (as further described in the Series A Certificate of Designation), any payment due on the Series A Preferred Stock must be made payable prior to, and in preference of, any junior securities of the Company, including the common stock.

Change of Control. The Company may not enter into, consummate, approve or recommend any proposed transaction (or any agreement with respect thereto) that results or would result in a Change of Control (as defined in the Series A Certificate of Designation) unless (i) either (x) such transaction is approved by a vote, or by consent, of the holders of a majority of the outstanding shares of Series A Preferred Stock, or (y) the acquiror in such Change of Control agrees to purchase each share of Series A Preferred Stock then outstanding for cash at the Liquidation Value of each such share of Series A Preferred Stock, plus all unpaid accrued and accumulated dividends on such share (whether or not declared) and (ii) any such Change of Control is conditioned upon the consummation of such purchase by such acquiror and such purchase must occur simultaneously with the consummation of the Change of Control transaction.

Ranking. With respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, all shares of the Series A Preferred Stock rank senior to all junior securities, including common stock, and junior to the Series B Preferred Stock (as defined below).

As of September 30, 2015, the Company has issued and outstanding 150 shares of Series A Preferred Stock.

Series B Purchase Agreement; Series B Convertible Preferred Stock

On September 17, 2015 (the “Series B Issuance Date”), the Company entered into a Securities Purchase Agreement (the “Series B Purchase Agreement”) with funds managed by Allianz Global Investors U.S. LLC (the “Series B Purchasers”) pursuant to which the Series B Purchasers purchased from the Company an aggregate of 30,000 shares (the “Series B Preferred Shares” of new Series B Preferred Stock for an aggregate purchase price of $30,000 (the “Series B Original Issue Price”).

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

September and December of each calendar year (each such date, a “Dividend Payment Date”), all accrued dividends on any share shall accumulate and compound on the applicable Dividend Payment Date whether or not declared by the Board and shall remain accumulated, compounding dividends until paid or converted in accordance with the terms of the Series B Certificate of Designation; provided further that the first Dividend Payment Date will commence on December 31, 2015. All accrued and accumulated dividends on the shares of Series B Preferred Stock shall be prior and in preference to any dividend on any securities junior to the Series B Preferred Stock (the “Junior Securities”), including the common stock and the Series A Preferred Stock, and shall be fully declared and paid before any dividends are declared and paid, or any other distributions, repurchases or redemptions are made, on any Junior Securities, subject to certain exceptions set forth in the Series B Certificate of Designation. Pursuant to the Series B Certificate of Designation, the Company may not issue any shares of common stock as dividends to holders of the Series B Preferred Stock to the extent that, upon giving effect to such issuance, the aggregate number of shares of common stock beneficially owned by such holder and its affiliates, including any shares of common stock issued upon conversion of shares of Series B Preferred Stock in accordance with the Series B Certificate of Designation, exceeds 19.99% of the common stock or 19.99% of the voting power of the Company (calculated in accordance with the applicable NASDAQ rules and regulations) (the “Issuance Limitation”), unless the Company obtains the requisite shareholder approval under applicable NASDAQ rules. The Series B Certificate of Designation also provides that in addition to the dividends accruing on the Series B Preferred Stock, if the Company declares or pays a dividend or distribution on the common stock, the Company will simultaneously declare and pay a dividend on the Series B Preferred Stock as set forth therein. As of September 30, 2015 the Company recorded a dividends payable of $96.

Voting Rights. The holders of the Series B Preferred Stock have no voting rights with respect to the Series B Preferred Stock other than voting rights prescribed by law.

Certain Restrictions. The terms of the Series B Certificate of Designation impose certain restrictions on the Company, including, among others, a restriction that, subject to certain exceptions, the Company may not, when dividends payable on the Series B Preferred Stock are in arrears, declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any Junior Securities.

Liquidation; Change of Control; Sillerman Transaction. In the event of a Liquidation (as defined in the Series B Certificate of Designation), holders of the Series B Preferred Stock will be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment is made to holders of any Junior Securities, an amount in cash equal to the aggregate Liquidation Value (as defined in the Series B Certificate of Designation) of all shares of Series B Preferred Stock held by such holder.

Upon the consummation of a Change of Control (as defined in the Series B Certificate of Designation) transaction, the Series B Preferred Stock holders will, in consideration for cancellation of their shares, be entitled to the same rights such holders are entitled to upon the occurrence of a Liquidation, plus the then present value at such time of all required dividend payments due pursuant to the Series B Certificate of Designation through the date that is 18 months prior to the Initial Conversion Date (as defined below), computed using a discount rate equal to the Treasury Rate (as defined in the Series B Certificate of Designation) plus 50 basis points.

In addition, pursuant to the Series B Certificate of Designation, if a transaction occurs pursuant to which Mr. Sillerman and his affiliates become beneficial owners of the Company’s securities representing more than 50% of the voting power of the then outstanding securities of the Company (“Sillerman Transaction”), to the extent the lowest price paid for a share of common stock in such Sillerman Transaction is less than the Conversion Price (as defined below) in effect immediately prior to such Sillerman Transaction, the Conversion Price then in effect shall be reduced to such lowest price paid. Subject to the terms of the indenture governing the Company’s second lien secured notes due 2019 (the “Indenture”), upon any conversion of the Series B Preferred Stock by a holder as of or following the closing of a Sillerman Transaction, such holder shall be entitled to be paid in cash, for each share of Series B Preferred Stock then converted, the then present value at such time of all required dividend payments due on such share of Series B Convertible Preferred Stock pursuant to the Series B Certificate of Designation through the date that is 18 months prior to the Initial Conversion Date, computed using a discount rate equal to the Treasury Rate plus 50 basis points; provided, however, that the holders of the Series B Preferred Stock will not be entitled to such present value with respect to shares of Series B Preferred Stock that have not been converted. If the cash amount required by the preceding sentence is not made as a result of a limitation in the Indenture, the Company is required to immediately issue to the relevant holder a number of shares of common stock with a value equal to the cash amount that has not been paid subject to the Issuance Limitation and certain other limitations set forth in the Series B Certificate of Designation, provided that the Company shall issue any shares not issued as a result of such limitations as soon as practicable when such limitations no longer would prohibit such issuance.

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

Optional and Automatic Conversion into Common Stock. At any time after the Series B Issuance Date, any holder of Series B Preferred Stock has the right to convert all or any portion of the outstanding shares of Series B Preferred Stock held by such holder along with the aggregate accrued or accumulated and unpaid dividends thereon into an aggregate number of shares of common stock as is determined by (i) multiplying the number of shares of Series B Preferred Stock to be converted by the Series B Original Issue Price (ii) adding to the result all accrued and accumulated or declared and unpaid dividends on such shares to be converted, and then (iii) dividing the result by the conversion price in effect immediately prior to such conversion. The initial conversion price per share (the “Conversion Price”) is $1.75, subject to various anti-dilution adjustments as set forth in the Series B Certificate of Designation.

In addition, on the date that is 36 months from the Series B Issuance Date (the “Initial Conversion Date”) and on the date that is three, six, nine and twelve months following the Initial Conversion Date (each, an “Automatic Conversion Date”), 20% of the outstanding shares of Series B Preferred Stock held by each holder automatically converts (with all remaining outstanding shares of Series B Preferred Stock converting on the final Automatic Conversion Date) along with the aggregate accrued or accumulated and unpaid dividends on such shares to be converted into an aggregate number of shares of common stock as is determined by (i) multiplying the number of shares of Series B Preferred Stock to be converted by the Series B Original Issue Price, (ii) adding to the result all accrued and accumulated and unpaid dividends on such shares to be converted, and then (ii) dividing the result by the applicable Conversion Price then in effect.

Pursuant to the Series B Certificate of Designation, the Company shall not effect any conversion of Series B Preferred Stock (whether optional or automatic) and a holder of Series B Preferred Stock shall not have the right to convert any shares of Series B Preferred Stock to the extent that, upon giving effect to such conversion, the aggregate number of shares of common stock beneficially owned by a holder and its affiliates, including any shares issued as a dividend pursuant to the Series B Certificate of Designation, exceeds the Issuance Limitation, unless the Company obtains the requisite shareholder approval under applicable NASDAQ rules.

Ranking. With respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the Series B Preferred Stock ranks senior to the Junior Securities.

Breaches of Obligations. The Series B Certificate of Designation provides for certain consequences upon the occurrence of a Series B Convertible Preferred Stock Breach (as defined in the Series B Certificate of Designation and includes, among other things, the failure of the Company (i) to pay dividends when due and (ii) make any liquidation payment when due). If a Series B Convertible Preferred Stock Breach has occurred and is continuing, the dividend rate on the Series B Preferred Stock will increase immediately by an increment of 1.5% per annum, and thereafter will automatically increase further at the end of each succeeding 90-day period following the date of the initial Series B Convertible Preferred Stock Breach by an additional increment of 1% per annum, until no Series B Convertible Preferred Stock Breach exists; provided however that in no event shall the aggregate dividend rate accruing pursuant to the Series B Certificate of Designation exceed 15% per annum. In addition, if a Series B Convertible Preferred Stock Breach has occurred and is continuing for a period of ten days, the then current Conversion Price of the Series B Preferred Stock will be reduced immediately to 90% of the Conversion Price in effect immediately prior to such reduction.

As of September 30, 2015, the Company has issued and outstanding 30,000 shares of Series B Preferred Stock.

Redeemable non-controlling interest

The following table presents the changes in the carrying amounts and activity for redeemable interest and common stock for the nine months ended September 30, 2015:

	Redeemable
	Non-controlling			Common stock
	interest			shares	Common stock
Balance at December 31, 2014	$	4,322		2,905,846	$	27,247
Distribution to non-controlling interest holder	(53		)	—	—
Reclassification of MMG non-controlling interest	(4,269		)	—	—
Balance at September 30, 2015	$	—		2,905,846	$	27,247

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

Acquisition of 20% Non-Controlling Interest in Subsidiary

Nightlife Holdings LLC was 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 purchase its 20% non-dilutable interest in MMG. The Company’s acquisition of the 20% interest was consummated on August 31, 2015. As of September 30, 2015, the Company made payments of $3,613 and $903 in shares of the Company to Nightlife Holdings LLC in connection with its exercise of such put right, with deferred payments of $4,500 remaining. The $4,500 is recorded in other expense for the three and nine months ended September 30, 2015.

8. STOCK-BASED COMPENSATION

The Company recorded $7,076 and $22,915 of stock-based compensation expense for the three and nine months ended September 30, 2015, respectively. The Company recorded $10,568 and $30,281 of stock-based compensation expense for the three and nine months ended September 30, 2014, respectively. Stock-based compensation expense is recorded as part of selling, general and administrative expenses.

As of September 30, 2015, there was $23,917 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 1.4 years.

9. NET INCOME/(LOSS) PER SHARE OF COMMON STOCK

Basic net income/(loss) per share of common stock is computed as net income/(loss) attributable to SFX divided by the weighted-average number of shares of common stock outstanding for the period.

Diluted net income/(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. The Company had net loss for the three and nine months ended September 30, 2015, respectively, and net income and net loss for the three and nine months ended September 30, 2014. For the three months ended September 30, 2014, the calculation of diluted net income includes the effects of securities and other contracts that are potentially dilutive if exercised or converted to common stock.

	Three months ended					Nine months ended
	September 30,					September 30,
	2015			2014		2015			2014
	(in thousands, except per share data)
Basic net income/(loss) per share calculation:
Numerator:
Basic net income/(loss)	$	(54,471	)	$	4,936	$	(144,040	)	$	(86,371	)

Denominator:
Weighted average shares outstanding	95,681			87,717		92,861			87,368
Basic net income/(loss) per share	$	(0.57	)	$	0.06	$	(1.55	)	$	(0.99	)

Diluted income/(loss) per share calculation:
Numerator:
Dilutive net income/(loss)	$	(54,471	)	$	4,936	$	(144,040	)	$	(86,371	)

Denominator:
Weighted average shares outstanding	95,681			87,717		92,861			87,368
Dilutive shares, primarily related to stock options	—			8,844		—			—
Diluted weighted average shares outstanding	95,681			96,561		92,861			87,368

Diluted net income/(loss) per share	$	(0.57	)	$	0.05	$	(1.55	)	$	(0.99	)

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

The following table shows securities excluded from the calculation of diluted loss per share because such securities are anti- dilutive:

	As of September 30,
	2015	2014
	(shares in thousands)
Options to purchase shares of common stock	25,130	26,753
Restricted stock awards - non-vested	2,320	1,715
Warrants	439	600

Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding	27,889	29,068

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 $2,609 and $3,348 in other income due to the change in fair value of these obligations for the three and nine months ended September 30, 2015, respectively, and recognized $13,646 and $21,322 in other income due to the change in fair value for the three and nine months ended September 30, 2014, respectively.

	September 30,		December 31,
	2015		2014
Liabilities:
Contingent consideration - non-current	$	9,511	$	13,173
Total	$	9,511	$	13,173

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Earn-out and
	Guarantee
As of December 31, 2014	$	13,173
Gains on revaluation	(3,348		)
Included in other comprehensive income/loss	(314		)
As of September 30, 2015	$	9,511

Due to their short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses, and other short-term liabilities approximate their fair values at September 30, 2015 and December 31, 2014.

11. INCOME TAXES

The income tax benefit for continuing operations for the three and nine months ended September 30, 2015 was $84 and $47, respectively. The income tax benefit for continuing operations for the three and nine months ended September 30, 2014 was $15,060 and $8,770, 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 effective tax rate (“ETR”) is computed and applied to ordinary loss in the loss jurisdiction (US) as required by ASC 740-270-30-36 (a). Our annual effective tax rate is significantly impacted by the mix of earnings in the United States and foreign jurisdictions. Our future effective tax rate may be affected by such factors as changes in tax laws, changes in our business, regulations, or tax rates, changing interpretation of existing laws or regulations, the impact of accounting for stock-

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

based compensation, as well as the impact of accounting for business combinations and shifts in the amount of earnings in the U.S. compared with other regions in the world. The Company’s full year estimated income taxes are primarily related to foreign operations and deferred taxes related to the tax amortization of goodwill. Additionally, during the third quarter of 2015 the Company recorded true-up adjustments related to income tax returns filed in Australia and Germany.

As a result of retrospective adjustments (see Note 2) the benefit for income tax for the three and nine months ended September 30, 2014 were decreased from the amounts previously reported by $109 and $2,351, respectively.

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 September 30, 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, beneficially owns shares representing approximately 37.8% of the Company’s outstanding capital stock as of September 30, 2015.

On June 17, 2015, the Company entered into a securities purchase agreement with Sillerman Investment, an entity controlled by Mr. Sillerman, and two additional purchasers unaffiliated with the Company, pursuant to which the Company agreed to sell 1,037,345 shares of common stock to Sillerman Investment and 2,305,210 shares of common stock to the unaffiliated purchasers for aggregate consideration of $15,000. As a condition precedent to the unaffiliated purchasers’ entry into the purchase agreement, Mr. Sillerman entered into a letter agreement granting each unaffiliated purchaser a right to sell to him some or all of the shares issued under the purchase agreement at a price of $5.25 per share, subject to certain terms and conditions set forth in the letter agreement.

In June 2015, Sillerman Investment made two payments on behalf of the Company in connection with certain of the Company’s financial obligations to third-parties. On June 4, 2015, Sillerman Investment paid $1,000 to the sellers of React Presents, Inc., as an advance of the earnout payments owed to them by the Company under the applicable acquisition agreement. On June 5, 2015, Sillerman Investment paid $1,000 to ID&T BVBA to cover certain expenses of the Tomorrowland and TomorrowWorld festivals, which the Company is obligated to fund under its agreement with its partners in these festivals. Additionally, in September 2015, Sillerman Investment made two payments on behalf of the Company in connection with additional earnout obligations of the Company. On September 1, Sillerman Investment paid $1,365 to the sellers of MMG under the applicable acquisition agreement. On September 3, 2015, Sillerman Investment paid $2,000 to the sellers of React Presents, Inc. under the applicable acquisition agreement. These payments made by Sillerman Investment were approved by a special committee of independent directors.

On July 31, 2015, in connection with the formation of ESFX LLC (“ESFX”), a new investment company of which Mr. Sillerman is the manager, Sillerman Investment contributed all of the 1,037,345 shares acquired on June 18, 2015 to ESFX as a capital contribution. Also on July 31, 2015, ESFX acquired 1,152,605 shares from one of the unaffiliated purchasers for $5,000 and the put right held by such unaffiliated purchaser with respect to such shares was canceled.

On September 17, 2015, the Company entered into a subscription agreement with Sillerman Investment pursuant to which Sillerman Investment purchased from the Company 150 shares of Series A Preferred Stock. Refer to Note 7 for further details.

On September 24, 2014, the Company issued in a private placement an aggregate principal amount of $10,000 of the Company’s 9.625% notes due in 2019 (the “Sillerman Notes”) to Sillerman Investment. The Sillerman Notes were issued under the same indenture as the Company’s existing 9.625% notes due in 2019 that were issued on February 4, 2014 and September 24, 2014.

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

On March 16, 2015, the Company entered into the Second Amendment to the Credit Agreement and a commitment letter with Sillerman Investment. Refer to Note 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 and nine months ended September 30, 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 September 30, 2015 and 2014 were $0 and $1, respectively, and for the nine months ended September 30, 2015, and 2014 were $7 and $0, respectively. Total expense reimbursements recorded by the Company for the three months ended September 30, 2015, and 2014 were $31 and $0, respectively, and for the nine months ended September 30, 2015 and 2014 were $86 and $0, respectively. The balance due from MJX was $236 and due to MJX was $7 as of September 30, 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 September 30, 2015 and 2014 were $216 and $187, respectively. Costs incurred by the Company under the agreement during the nine months ended September 30, 2015 and 2014 were $810 and $562, respectively. Total revenue recorded by the Company for the three months ended September 30, 2015 and 2014 were $18 and $19, respectively. Total revenue recorded by the Company for the nine months ended September 30, 2015 and 2014 were $59 and $47, respectively. As of September 30, 2015, the balance due to and due from Viggle was $818 and $646, respectively.

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 were engaged to sell the Company’s services and to be the exclusive agent for the sale of Viggle services worldwide. The Company receives 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 and nine months ended September 30, 2015, the Company recorded revenue of $180 and $608, respectively, for services provided under the Sales Agency Agreement. As of September 30, 2015, Viggle owed the Company $606 under the Sales Agency Agreement. The Sales Agency Agreement was terminated on September 22, 2015.

Donnie Estopinal

On April 15, 2015, the Company settled in cash the final working capital adjustment of $620 which was paid to the former owner of Disco Productions, Inc., Donnie Estopinal, who is an employee of the Company.

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 White Oak $0 and $515 in the three and nine months ended September 30, 2015, respectively, and will pay the balance by making three payments totaling $310 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 served as an executive officer of the Company from June 2013 through June 2015. For the three and nine months ended September 30, 2015, the Company recorded an expense of $103 and $275, respectively.

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. At September 30, 2015 and 2014, the Company recorded a receivable of $166 and $398, respectively, and a payable of $311 and $131, respectively, to these former owners collectively. For the three months ended September 30, 2015 and 2014, the Company recorded an expense of $317 and $221, respectively, and revenues of $8 and $3, respectively. For the nine months ended September 30, 2015 and 2014, the Company recorded an expense of $107 and $430, respectively, and revenue of $1,163 and $10, respectively.

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)
(Unaudited)

Non-consolidated affiliates

The Company regularly engages in business activities with its non-consolidated affiliates in the production and operation of events. At September 30, 2015 and 2014, the total balance due to the Company from these non-consolidated affiliates was $1,427 and $205, respectively, and the total balance payable to these affiliates was $2,968 and $6,113, respectively. For the three months ended September 30, 2015 and 2014, the Company recorded an expense of $2,973 and $6,060, respectively, and revenues of $193 and $37, respectively. For the nine months ended September 30, 2015 and 2014, the Company recorded an expense of $4,040 and $6,610, respectively, and revenues of $877 and $40, 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 at its festivals and events. The term of the agreement is one year. 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, similar to those previously provided by Sports & Entertainment Physicians, for a fixed fee and additional services at agreed upon prices. For the three and nine months ended September 30, 2015 the Company incurred expenses of $264 and of $364, respectively. At September 30, 2015, the balance owed to CrowdRX was $231.

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 September 30, 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 other than as provided in the litigations summary below.

Pferdmenges

On June 12, 2012, a lawsuit was commenced against our subsidiary Made Event, LLC (“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 alleges 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 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. The 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 the Company. The Third Amended Complaint was subsequently amended by virtue of the filing of the Fourth Amended Complaint, which was only allowed to allege facts to properly invoke diversity jurisdiction, and otherwise alleged the same causes of action and relief as set forth in the Third Amended Complaint. 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 the following 50% of the proceeds from the sale, 50% of the profits from the 2009 through 2013 festivals and 50% of the value of the trademark and associated intellectual property rights of the festival; and further alleged fraud in the inducement, and unjust enrichment against the defendants. Plaintiff’s proposed Fifth Amended Complaint also sought ownership, future rights to profits and other declaratory rights and relief, and attempted 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. On June 16, 2015, the Court denied plaintiff’s request to file its Fifth Amended Complaint and held that the operative pleading remains the claims from the Fourth Amended Complaint that survived the Court’s September 10 Opinion. The Court has ordered that the parties complete expert

Table of Contents

Notes to the Consolidated Financial Statements

(in thousands except share data)

(Unaudited)

discovery, submit pre-motion conference letters by December 2, 2015, and that the parties appear for a post-discovery conference on December 15, 2015. The Company is confident of the defendants’ defense, its indemnification protections, 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 the Company, and, in their individual capacities, Mr. Sillerman and Mr. Sheldon 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 merit, 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. Mr. Finkel has since been dismissed and 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 December 8, 2015. On April 7, 2015, the defendants filed a motion for summary judgment to dismiss all claims and the court denied this motion on July 29, 2015. The Company believes this lawsuit is without merit and intends to vigorously defend against it. At this time, the Company cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any, but based upon expected insurance recoveries and potential contributions from the non-Company defendant, the Company does not believe it is reasonably probable that the claims will have a material effect on its financial statements.

Merger litigation

The Company has been named as a defendant in multiple putative stockholder class action complaints challenging the proposal by Mr. Sillerman and his affiliates to acquire all of the outstanding shares of our common stock not presently held, directly or indirectly, by Mr. Sillerman and his affiliates in a merger with the Company. All of the lawsuits were filed in the Court of Chancery of the State of Delaware and have been consolidated into a single proceeding as In re SFX Entertainment, Inc. Stockholders Litigation on July 9, 2015. The defendants named in the consolidated complaint are the Company, SFXE Acquisition LLC, SFXE Merger Sub, Inc., Sillerman Investment Company III LLC, and the directors of the Company. The lawsuit was premised on allegations that the price offered in the proposed merger is inadequate and that the defendants have breached their fiduciary duties to the Company’s stockholders in connection with the proposed merger. The plaintiffs seek, among other things, preliminary and permanent injunctive relief enjoining the merger and payment of damages and costs that would be incurred as a result of the proposed merger. The outcome of the lawsuit is uncertain. An adverse judgment for monetary damages could have an adverse effect on the operations and liquidity of the Company. The defendants believe that the claims asserted against them in the lawsuits are without merit.

The Company has also been named as a defendant in a securities class action complaint filed in the United States District Court for the Southern District of New York on September 11, 2015 pursuant to §§10(b), and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 of that Act and under the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The defendants named in the complaint are the Company, Mr. Sillerman and three independent directors of the Company. The three named directors constituted the special committee of independent directors appointed to review Mr. Sillerman’s offer to acquire all of the outstanding shares of common stock not presently held, directly or indirectly, by Mr. Sillerman and his affiliates. The complaint alleges that the defendants made false and misleading statements and engaged in a fraudulent course of conduct designed to artificially inflate the Company’s stock price during 2015 in order to maintain the Company as an attractive acquisition candidate for a third party purchaser at a time when the Company’s financial condition was declining. The plaintiffs seek compensatory damages for all losses and damages suffered as a result of the defendants’ alleged wrongdoing, together with all fees and expenses incurred by the class, including attorneys’ fees and expenses. Pursuant to the PSLRA, other plaintiffs have 60 days from the date of filing of the complaint to join the lawsuit. Thus, there have been no further proceedings to date and the defendants have not yet responded to the complaint. The outcome of the lawsuit is uncertain. An adverse judgment for monetary damages could have an adverse effect on the operations and liquidity of the Company. The defendants believe that the claims asserted in the lawsuit are without merit and they intend to defend the case vigorously.

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 September 30, 2015.

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)

(Unaudited)

Future minimum rent commitments as follows:
Remainder of 2015	$	4,691
2016	10,698
2017	9,530
2018	8,292
2019	8,428
2020	5,613
Total	$	47,252

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 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 and nine months ended September 30, 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.

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)

(Unaudited)

							Corporate and
	Live Events			Platform			Eliminations			Consolidated
Three months ended September 30, 2015
Revenue	$	115,515		$	18,320		$	(603	)	$	133,232
Direct costs	103,451			14,741			(434		)	117,758
Gross profit	12,064			3,579			(169		)	15,474
Selling, general and administrative	14,775			8,044			15,762			38,581
Loss on disposal of non-core assets	—			9,112			—			9,112
Depreciation	1,651			51			388			2,090
Amortization	4,810			2,195			191			7,196
Operating loss	$	(9,172	)	$	(15,823	)	$	(16,510	)	$	(41,505	)
Three months ended September 30, 2014 (See Note 2)
Revenue	$	120,223		$	25,427		$	(2,098	)	$	143,552
Direct costs	92,891			19,241			(2,083		)	110,049
Gross profit	27,332			6,186			(15		)	33,503
Selling, general and administrative	17,251			7,151			20,396			44,798
Loss on disposal of non-core assets	—			—			—			—
Depreciation	1,868			172			43			2,083
Amortization	5,567			1,875			32			7,474
Operating income/(loss)	$	2,646		$	(3,012	)	$	(20,486	)	$	(20,852	)
Nine months ended September 30, 2015
Revenue	$	263,440		$	44,699		$	(1,666	)	$	306,473
Direct costs	220,509			31,612			(1,130		)	250,991
Gross profit	42,931			13,087			(536		)	55,482
Selling, general and administrative	45,281			25,139			48,167			118,587
Loss on disposal of non-core assets	—			9,112			—			9,112
Depreciation	3,516			196			781			4,493
Amortization	15,697			6,260			528			22,485
Operating loss	$	(21,563	)	$	(27,620	)	$	(50,012	)	$	(99,195	)
Nine months ended September 30, 2014 (See Note 2)
Revenue	$	208,796		$	52,014		$	(2,310	)	$	258,500
Direct costs	160,097			36,450			(2,141		)	194,406
Gross profit	48,699			15,564			(169		)	64,094
Selling, general and administrative	46,636			15,941			60,768			123,345
Loss on disposal of non-core assets	—			—			—			—
Depreciation	2,822			653			93			3,568
Amortization	16,052			5,644			93			21,789
Operating loss	$	(16,811	)	$	(6,674	)	$	(61,123	)	$	(84,608	)

Table of Contents

Notes to the Consolidated Financial Statements
(in thousands except share data)

(Unaudited)

15. SUBSEQUENT EVENTS

Arrix Separation

Effective October 1, 2015, Kevin Arrix resigned from his position as Executive Vice President of Global Brand Partnerships of the Company and his employment with the Company was terminated. In connection with Mr. Arrix’s departure, the Company and Mr. Arrix entered into a separation agreement, dated as of September 29, 2015 (the “Separation Agreement”). Pursuant to the terms of the Separation Agreement, the Company agreed to pay to Mr. Arrix a lump sum payment of $44, in lieu of any severance payment or other consideration which may have become due or payable under Mr. Arrix’s employment agreement as a result of his departure. As described in the Separation Agreement, Mr. Arrix has agreed to provide certain transition services to the Company, at the request of the Company until December 31, 2015. As consideration for the transition services, Mr. Arrix will be paid $44, which payment will be made in two installments of $22, the first of which was paid on October 31, 2015, and the second of which will be paid on December 31, 2015, contingent upon the satisfactory provision of the transition services. The Separation Agreement provides that of the 200,000 unvested restricted shares previously granted to Mr. Arrix under the terms of his employment agreement, 125,000 shares vested as of the termination date and the remaining 75,000 shares were deemed forfeited. In addition, the 75,000 unvested options previously granted to Mr. Arrix under the terms of his employment agreement were forfeited.

Series A Preferred Stock Financing

On November 2, 2015, the Company delivered notice to Sillerman Investment that its failure to purchase the additional $15,000 of Series A Preferred Stock by October 19, 2015 was a breach under the Series A Subscription Agreement. The Company demanded payment of the $15,000 and is evaluating all legal remedies available to enforce the Company’s rights.

Table of Contents

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

Table of Contents

THIRD QUARTER 2015 EVENTS

Sales Process and Merger Agreement Termination

On May 26, 2015, we entered into an Agreement and Plan of Merger (as subsequently amended on July 10, 2015, the “Merger Agreement”) with SFXE Acquisition LLC, a Delaware limited liability company (“Purchaser”) and SFXE Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Purchaser (“Merger Sub” and, together with Purchaser, the “Purchaser Parties”), providing for the merger of Merger Sub with and into us (the “Merger”), with the Company as the surviving corporation and each holder of our shares of common stock to receive $5.25 in cash. Purchaser and Merger Sub are affiliates of Sillerman Investment Company III LLC (“Sillerman Investment”), an entity controlled by Robert F.X. Sillerman, the Chairman and Chief Executive Officer of the Company.

Our special committee delivered a notice to the Purchaser Parties pursuant to the Merger Agreement that required Purchaser by 10:00 a.m. on August 13, 2015 to deliver to the special committee fully executed commitment letters describing the terms and conditions for the financing of 100% of the aggregate amount of the cash merger consideration.

On August 17, 2015, we terminated the Merger Agreement by delivering a notice of termination to Purchaser following the Purchaser’s failure to provide the required financing commitment letters. Pursuant to the terms of the Merger Agreement, Purchaser is obligated to pay the Company a fee of $7.8 million as a result of such termination. To date, the special committee has deferred payment of the Purchaser termination fee pending greater certainty regarding the resolution of the sales process.

Additional information about the Merger Agreement is set forth in our current reports on Form 8-K filed with the SEC on May 27, 2015, July 13, 2015, July 27, 2015, July 30, 2015, and August 17, 2015.

In addition, our board of directors received a non-binding offer on October 14, 2015 from Mr. Sillerman with respect to a potential acquisition by him or an affiliate of all of the outstanding shares of our common stock not already beneficially owned by him or his affiliates. Our special committee has determined that it will not consider or take any other action on the proposal until Sillerman Investment purchases the additional $15.0 million of Series A Preferred Stock (as defined below) as required under the Series A Subscription Agreement (as defined below).

September 2015 Financing

On September 17, 2015, we entered into a series of transactions designed to secure capital for new initiatives and operating and working capital needs, including (i) the assignment of its existing $30 million revolving credit facility to affiliates of GoldenTree Asset Management LP, and the entry into certain amendments to the related credit agreement, (ii) the sale of $30 million of new Series A Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), to an affiliate of Robert F.X. Sillerman, the Company’s Chairman and Chief Executive Officer, and (iii) the issuance of $30 million of new Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), to an institutional investor, in each case as summarized in greater detail below.

Amendment and Restatement Agreement

On September 17, 2015, we and certain of our subsidiary guarantors entered into an Amendment and Restatement Agreement (the “Revolver Restatement”) with Barclays Bank PLC, as administrative agent, and the lenders party thereto, in respect of the Company’s Credit Agreement, dated February 7, 2014, as amended (the “Credit Agreement”). Among other things, the Revolver Restatement modifies the Credit Agreement by (i) reinstating a maximum total leverage ratio and a minimum interest coverage ratio financial covenant, (ii) increasing the applicable margins for base rate loans and Eurodollar loans to 9.00% per annum and 10.00% per annum, respectively, and instituting a 1.00% LIBOR floor, (iii) eliminating or restricting certain exceptions to the negative covenants and (iv) extending the maturity date of the Credit Agreement from February 7, 2017 to September 17, 2017. Pursuant to the Revolver Restatement, prepayments of loans automatically reduce the commitments under the Credit Agreement.

Series A Subscription Agreement; Series A Preferred Stock

On September 17, 2015, we entered into a Subscription Agreement with Sillerman Investment (the “Series A Subscription Agreement”) pursuant to which Sillerman Investment agreed to purchase from the Company an aggregate of 300 shares of the Company’s new Series A Preferred Stock for an aggregate purchase price of $30.0 million, at a price of $100,000 per share. Pursuant to the Series A Subscription Agreement, Sillerman Investment purchased $15.0 million of Series A Preferred Stock on September 17, 2015 and is obligated to purchase an additional $2.5 million of Series A Preferred Stock on six subsequent closings to be held every fifth day following the initial closing. On November 2, 2015, the Company delivered notice to Sillerman Investment that its failure to purchase the additional $15.0 million of Series A Preferred Stock by October 19, 2015 was a breach under the Series A Subscription Agreement. The Company demanded payment of the $15.0 million and is evaluating all legal remedies available to it to enforce its rights.

Table of Contents

Dividends. Dividends on the Series A Preferred Stock accrue at the rate of 29.5% per annum on the sum of the liquidation value, which is $100,000 per share of Series A Preferred Stock (the “Liquidation Value”), plus accrued and accumulated dividends, until the aggregate Liquidation Value of and accrued and accumulated dividends on the outstanding shares of Series A Preferred Stock is equal to $53.0 million. Thereafter, dividends on the Series A Preferred Stock accrue at the rate of 9.0% per annum and are payable in cash or, with the consent of the holders of a majority of the outstanding shares of Series A Preferred Stock, in shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), subject to certain limitations set forth in the Certificate of Designations, Rights and Preferences of the Series A Preferred Stock (the “Series A Certificate of Designation”).

Voting Rights. The holders of the Series A Preferred Stock have no voting rights other than voting rights prescribed by law.

Change of Control. The Company may not enter into, consummate, approve or recommend any proposed transaction (or any agreement with respect thereto) that results or would result in a Change of Control (as defined in the Series A Certificate of Designation) unless (i) either (x) such transaction is approved by a vote, or by consent, of the holders of a majority of the outstanding shares of Series A Preferred Stock, or (y) the acquiror in such Change of Control agrees to purchase each share of Series A Preferred Stock then outstanding for cash at the Liquidation Value of each such share of Series A Preferred Stock, plus all unpaid accrued and accumulated dividends on such share (whether or not declared) and (ii) any such Change of Control is conditioned upon the consummation of such purchase by such acquiror and such purchase must occur simultaneously with the consummation of the Change of Control transaction.

Ranking. With respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, all shares of the Series A Preferred Stock rank senior to all junior securities, including Common Stock, and junior to the Series B Preferred Stock (as defined below).

Series B Purchase Agreement; Series B Convertible Preferred Stock

On September 17, 2015 (the “Series B Issuance Date”), we entered into a Securities Purchase Agreement (the “Series B Purchase Agreement”) with funds managed by Allianz Global Investors U.S. LLC (the “Series B Purchasers”) pursuant to which the Series B Purchasers purchased from the Company an aggregate of 30,000 shares (the “Series B Preferred Shares” and, together with the Series A Preferred Shares, the “Preferred Shares”) of new Series B Convertible Preferred Stock, par value $0.001, for an aggregate purchase price of $30.0 million, at a price of $1,000 per share (the “Series B Original Issue Price”). Pursuant to the Series B Purchase Agreement, among other things, the Company agreed to file with the Securities and Exchange Commission (the “SEC”) a registration statement covering the resale of the Series B Preferred Shares no later than 90 days after the Series B Issuance Date and to use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC not later than 150 days after the Series B Issuance Date, subject to certain exceptions set forth therein.

Dividends. Cumulative dividends on the Series B Preferred Stock accrue, whether or not declared by the Board and whether or not there are funds legally available for the payment of dividends, at the rate of 9% per annum on the sum of the Series B Original Issue Price thereof plus all unpaid accrued and accumulated dividends thereon. All accrued dividends on any share of Series B Preferred Stock will be paid in cash out of funds legally available, or, with the consent of the holders of a majority of the Series B Preferred Stock, in shares of Common Stock with a value equal to the dividends then due thereon or upon a liquidation of the Series B Preferred Stock in accordance with the provisions of the certificate of designation for the Series B Preferred Stock (the “Series B Certificate of Designation”); provided that to the extent not paid on the last day of March, June, September and December of each calendar year (each such date, a “Dividend Payment Date”), all accrued dividends on any share shall accumulate and compound on the applicable Dividend Payment Date whether or not declared by the Board and shall remain accumulated, compounding dividends until paid or converted in accordance with the terms of the Series B Certificate of Designation; provided further that the first Dividend Payment Date will commence on December 31, 2015. All accrued and accumulated dividends on the shares of Series B Preferred Stock shall be prior and in preference to any dividend on any securities junior to the Series B Preferred Stock (the “Junior Securities”), including the Common Stock and the Series A Preferred Stock, and shall be fully declared and paid before any dividends are declared and paid, or any other distributions, repurchases or redemptions are made, on any Junior Securities, subject to certain exceptions set forth in the Series B Certificate

Table of Contents

of Designation. Pursuant to the Series B Certificate of Designation, the Company may not issue any shares of Common Stock as dividends to holders of the Series B Preferred Stock to the extent that, upon giving effect to such issuance, the aggregate number of shares of Common Stock beneficially owned by such holder and its affiliates, including any shares of Common Stock issued upon conversion of shares of Series B Preferred Stock in accordance with the Series B Certificate of Designation, exceeds 19.99% of the Common Stock or 19.99% of the voting power of the Company (calculated in accordance with the applicable NASDAQ rules and regulations) (the “Issuance Limitation”), unless the Company obtains the requisite shareholder approval under applicable NASDAQ rules. The Series B Certificate of Designation also provides that in addition to the dividends accruing on the Series B Preferred Stock, if the Company declares or pays a dividend or distribution on the Common Stock, the Company will simultaneously declare and pay a dividend on the Series B Preferred Stock as set forth therein.

Voting Rights. The holders of the Series B Preferred Stock have no voting rights with respect to the Series B Preferred Stock other than voting rights prescribed by law.

In addition, pursuant to the Series B Certificate of Designation, if a transaction occurs pursuant to which Mr. Sillerman and his affiliates become beneficial owners of the Company’s securities representing more than 50% of the voting power of the then outstanding securities of the Company (“Sillerman Transaction”), to the extent the lowest price paid for a share of Common Stock in such Sillerman Transaction is less than the Conversion Price (as defined below) in effect immediately prior to such Sillerman Transaction, the Conversion Price then in effect shall be reduced to such lowest price paid. Subject to the terms of the indenture governing the Company’s second lien secured notes due 2019 (the “Indenture”), upon any conversion of the Series B Preferred Stock by a holder as of or following the closing of a Sillerman Transaction, such holder shall be entitled to be paid in cash, for each share of Series B Preferred Stock then converted, the then present value at such time of all required dividend payments due on such share of Series B Convertible Preferred Stock pursuant to the Series B Certificate of Designation through the date that is 18 months prior to the Initial Conversion Date, computed using a discount rate equal to the Treasury Rate plus 50 basis points; provided, however, that the holders of the Series B Preferred Stock will not be entitled to such present value with respect to shares of Series B Preferred Stock that have not been converted. If the cash amount required by the preceding sentence is not made as a result of a limitation in the Indenture, the Company is required to immediately issue to the relevant holder a number of shares of Common Stock with a value equal to the cash amount that has not been paid subject to the Issuance Limitation and certain other limitations set forth in the Series B Certificate of Designation, provided that the Company shall issue any shares not issued as a result of such limitations as soon as practicable when such limitations no longer would prohibit such issuance.

Optional and Automatic Conversion into Common Stock. At any time after the Series B Issuance Date, any holder of Series B Preferred Stock has the right to convert all or any portion of the outstanding shares of Series B Preferred Stock held by such holder along with the aggregate accrued or accumulated and unpaid dividends thereon into an aggregate number of shares of Common Stock as is determined by (i) multiplying the number of shares of Series B Preferred Stock to be converted by the Series B Original Issue Price (ii) adding to the result all accrued and accumulated or declared and unpaid dividends on such shares to be converted, and then (iii) dividing the result by the conversion price in effect immediately prior to such conversion. The initial conversion price per share (the “Conversion Price”) is $1.75, subject to various anti-dilution adjustments as set forth in the Series B Certificate of Designation.

Table of Contents

In addition, on the date that is 36 months from the Series B Issuance Date (the “Initial Conversion Date”) and on the date that is three, six, nine and twelve months following the Initial Conversion Date (each, an “Automatic Conversion Date”), 20% of the outstanding shares of Series B Preferred Stock held by each holder automatically converts (with all remaining outstanding shares of Series B Preferred Stock converting on the final Automatic Conversion Date) along with the aggregate accrued or accumulated and unpaid dividends on such shares to be converted into an aggregate number of shares of Common Stock as is determined by (i) multiplying the number of shares of Series B Preferred Stock to be converted by the Series B Original Issue Price, (ii) adding to the result all accrued and accumulated and unpaid dividends on such shares to be converted, and then (ii) dividing the result by the applicable Conversion Price then in effect.

Pursuant to the Series B Certificate of Designation, the Company shall not effect any conversion of Series B Preferred Stock (whether optional or automatic) and a holder of Series B Preferred Stock shall not have the right to convert any shares of Series B Preferred Stock to the extent that, upon giving effect to such conversion, the aggregate number of shares of Common Stock beneficially owned by a holder and its affiliates, including any shares issued as a dividend pursuant to the Series B Certificate of Designation, exceeds the Issuance Limitation, unless the Company obtains the requisite shareholder approval under applicable NASDAQ rules.

Marketing Partner Update

As previously disclosed, the Company has entered into a term sheet with a new business entity that will, among other things, provide certain technology and payment services to the Company in connection with the Company’s global strategic alliance with MasterCard, in exchange for certain marketing and exclusivity rights. The arrangement continues to remain subject to further negotiation of key terms and the execution of definitive documentation acceptable to all parties. The Company anticipates it will enter into definitive agreements by December 31, 2015, but the Company can make no assurances that it will be able to successfully enter into definitive documentation with this counterparty or that such definitive documentation will provide for up to $25 million in annual payments thereunder. Mr. Sillerman is a non-controlling equity owner in the counterparty to this proposed arrangement.

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 including, without limitation, exploitation of audiovisual content and music streaming.

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 and streaming-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 attempting to increase 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, 2014 and 2015, 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 Japan in May 2015, Sensation in Dubai in 2014 for its first ever outdoor edition, which returned in October 2015, and Sensation’s first event in Japan in October 2015. We have also unveiled new events and festivals in 2015, including ALDA’s sold-out The Flying Dutch festival in the Netherlands in May.

Table of Contents

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. For instance, in the first quarter of 2015, Beatport launched a comprehensive new interface with multiple new and innovative functionalities, including a streaming music service with a catalogue of over 2.0 million tracks. Also, in July 2015 we entered into a content distribution arrangement with Spotify AB, one of the leading streaming services, providing for the distribution of music and video content from Beatport and other SFX brands through Spotify.

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 organize two series of bespoke beach-themed dance music beginning in 2014 through 2016 focusing on the Corona and Skol brands, respectively, and which arrangement also includes sponsoring an international DJ contest competition through Beatport and sponsorship of several of our largest events including Tomorrowland and TomorrowWorld for multiple editions;

· our partnership with iHeartMedia through which we have produced and aired since August 2014 a weekly EMC radio show featuring our Beatport brand airing in approximately 90 markets; and

· our sponsorship and promotional agreements with T-Mobile, which include T-Mobile’s sponsorship of certain SFX festivals and events; media placement by T- Mobile on certain of our properties; execution by us of on-site activations at certain SFX festivals and events; and charter partnership, alignment and integration benefits with Beatport, including sponsorship of our streaming initiatives (both via the Beatport online platform and Beatportmobile app), and presenting sponsorship of live event streams.

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.

Table of Contents

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.

In the third and fourth quarters of 2015, as a result of adverse weather conditions we were required to cancel a larger number of festivals than we have in prior years, including a partial cancellation of the third day of our three-day TomorrowWorld festival, the entire two-day Welcome to the Future event, one day of Something Wonderful and both days of Something Wicked. Consequently, we have experienced substantial additional costs and have issued refunds to ticketholders, resulting in an adverse impact on our business and earnings for the relevant periods. We have cancellation insurance policies in place to cover all or a portion of our insured losses and payment could be delayed into subsequent periods. Such insurance recoveries are recognized in the period in which they become known and received. Further, the impact of extraordinary conditions at a festival, such as the partial cancellation of the third day of TomorrowWorld and interrelated transportation issues occurring on other days of the event, may make it more difficult to stage the events at the same locations in the future and result in increased insurance cost in future periods, all which may have an adverse impact on our business.

RESULTS OF OPERATIONS

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2015			2014			2015			2014
Revenue:
Service revenue	$	111,249		$	114,740		$	248,681		$	196,731
Sale of products	21,983			28,812			57,792			61,769
Total revenue	133,232			143,552			306,473			258,500
Direct costs:
Cost of services	102,222			93,773			213,556			157,363
Cost of products sold	15,536			16,276			37,435			37,043
Total direct costs	117,758			110,049			250,991			194,406
Gross profit	15,474			33,503			55,482			64,094
Operating expenses:
Selling, general and administrative expenses	38,581			44,798			118,587			123,345
Loss on disposal of non-core assets	9,112			—			9,112			—
Depreciation	2,090			2,083			4,493			3,568
Amortization	7,196			7,474			22,485			21,789
Operating loss	(41,505		)	(20,852		)	(99,195		)	(84,608		)
Interest expense, net	(9,181		)	(6,158		)	(25,478		)	(18,445		)
Other (expense)/income, net	(7,312		)	14,683			(17,374		)	6,819
Equity in income/(loss) of non-consolidated affiliates	3,672			2,345			(1,724		)	1,347
Loss before income taxes	(54,326		)	(9,982		)	(143,771		)	(94,887		)
Income tax benefit	84			15,060			47			8,770
Net income/(loss)	(54,242		)	5,078			(143,724		)	(86,117		)
Less: Net income attributable to non-controlling interest	229			142			316			254
Net income/(loss) attributable to SFX Entertainment, Inc.	$	(54,471	)	$	4,936		$	(144,040	)	$	(86,371	)

During 2014, we finalized the valuation studies for certain 2013 and 2014 acquisitions. In addition, during the three months ended March 31, 2015, the Company finalized the valuation studies for the equity investment in Rock World S.A. Accordingly, the Consolidated Statement of Operations for the three and nine months ended September 30, 2014 has been retrospectively adjusted to include the effect of the measurement period adjustments as required under Accounting Standards Codification (“ASC”) 805.

Revenue

Service revenue includes revenue from festival and live events that were produced, promoted, licensed or managed by us and sponsorship related activities. Sales of products revenue is predominantly from the sale of professional-quality audio files by Beatport as well as our merchandise and food and beverage sales.

Table of Contents

Revenue decreased by $10.3 million, or 7%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. Excluding the impact of changes in foreign exchange rates, revenue decreased by $0.5 million, or less than 1%. In addition, revenue was adversely affected by lost revenue of approximately $4.0 million from the cancellation and partial cancellation of several of our events in the current quarter and a reduction in the volume of digital music downloads. We produced and promoted a total of 286 live events, including 31 festivals with single-day capacities of over 10,000 attendees (excluding artist tours), attracting a total of over 1,946,000 attendees as compared to 267 live events, including 27 festivals with single-day capacities of over 10,000 attendees (excluding artist tours), attracting a total attendance of over 1,559,000 attendees during the same period in the prior year.

Revenue increased by $48.0 million, or 19%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. This increase was primarily due to the introduction of the Tomorrowland Brazil and Bestival festivals, which we debuted in May 2015 and June 2015, respectively, the inclusion of Awakenings revenue in the current year as a result of our September 2014 acquisition of Monumental Productions (“Monumental”), incremental revenue associated with a full three day Electric Zoo, New York City festival in the current year and higher attendance at festivals that we produced in both of the nine month periods. The increase was partially offset by a decrease related to lost revenue for the aforementioned cancellations and partial cancellations in the current quarter (which we anticipate will be partially recovered from insurance proceeds) and a reduction in the volume of digital music downloads. Excluding the impact of changes in foreign exchange rates, revenue increased by $88.3 million, or 34%. We produced and promoted a total of 804 live events, including 72 festivals with single-day capacities of over 10,000 attendees (excluding artist tours), attracting a total of over 4,082,000 attendees as compared to 623 live events, including 53 festivals of greater than 10,000 with single-day capacities of over 10,000 attendees (excluding artist tours), attracting a total attendance of over 2,985,000 attendees during the same period in the prior year.

Total consolidated sponsorship and marketing service revenue was $17.7 million and $44.7 million for the three and nine months ended September 30, 2015, respectively. On a consolidated basis our sponsorship and marketing service revenue increased by $0.3 million for the three months ended September 30, 2015 and increased by $22.0 million for the nine months ended September 30, 2015 compared to the three and nine months ended September 30, 2014, respectively.

Direct costs

Costs of services includes event production costs, artist fees, marketing expenses and licensing and ticketing fees. Cost of products sold is primarily attributable to merchandise, food and beverage, royalty and other digital music sales-related expenses.

Direct costs increased by $7.8 million, or 7%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase in direct costs was primarily attributable to increased production costs as well as higher artist fees for events that we produced in both periods, partially offset by a decrease in digital music sales-related expenses. Excluding the impact of foreign exchange, direct costs increased by $16.4 million, or 15%.

Direct costs increased by $56.6 million, or 29%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase was primarily attributable to incremental production and artist costs for festivals that we debuted in the current year and the inclusion of Awakenings festival production costs in the current year as a result of our September 2014 acquisition of Monumental. The increase was also due to increased festival production costs and artist fees for festivals that we produced in both periods, partially offset by a decrease in digital music sales-related expenses. Excluding the impact of foreign exchange, direct costs increased by $89.0 million, or 46%.

Direct costs for the three and nine months ended September 30, 2015 include costs associated with producing partially canceled and fully canceled events, which we anticipate to partially recover from insurance proceeds in future periods.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $6.2 million, or 14%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The decrease was primarily attributable to decreases in non-cash stock-based compensation of $3.5 million and marketing charges of $1.7 million.

Selling, general and administrative expenses decreased by $4.8 million, or 4%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The decrease was primarily attributable to decreases in non-cash stock-based compensation of $7.4 million and marketing charges of $3.0 million. The decreases were partially offset by increases in salaries and wages related to employees of $4.4 million, administrative charges of $1.4 million and facilities- related expenses of $1.2 million as a result of our various fiscal year 2014 acquisitions.

Table of Contents

Loss on sale of non-core assets

Loss on sale of non-core assets totaled $9.1 million for the three and nine months ended September 30, 2015. This charge was directly attributable to the write-off of goodwill and intangibles in connection with the sale of non-core assets.

Depreciation and amortization

Depreciation expense is associated with property, plant and equipment additions with depreciable lives ranging from three to seven years. Amortization expense represents the amortization of intangible assets from the date of acquisition.

Depreciation and amortization decreased by $0.3 million, or 3%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014 predominantly related to final measurement period adjustments for purchased intangible assets for certain fiscal 2013 and 2014 acquisitions, partially offset by the impact of foreign exchange of $1.8 million.

For the nine months ended September 30, 2015, depreciation and amortization increased by $1.6 million, or 6%, as compared to the nine months ended September 30, 2014 primarily due to our various acquisitions and capital expenditures, partially offset by the impact of foreign exchange.

Interest expense, net

Interest expense, net for the three and nine months ended September 30, 2015 totaled $9.2 million and $25.5 million, respectively, and $6.2 million and $18.4 million, net for the three and nine months ended September 30, 2014, respectively. These expenses are primarily related to the 9.625% Notes issued in February 2014 and September 2014 and our Revolver.

Other (expense)/income, net

Other expense, net was $7.3 million and $17.4 million for the three and nine months ended September 30, 2015, respectively. The expense is predominantly attributable to net foreign exchange losses and a net loss related to the fair value remeasurement of our acquisition-related contingent payments. Additionally, other expense, net for the nine months ended September 30, 2015 includes the disposal of certain non-core businesses.

Other income, net was $14.7 million and $6.8 million for the three and nine months ended September 30, 2014, respectively. The income was primarily attributable to the gain on the fair value remeasurement of our acquisition-related contingent payments and the retirement of foreign mechanical liabilities. On a nine month basis this income is partially offset by the extinguishment of our prior term loan facility.

Equity in income of non-consolidated affiliates

Equity in income of non-consolidated affiliates increased by $1.3 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. Equity in loss of non-consolidated affiliates decreased by $3.1 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. These results were mainly attributable to our equity investment in Rock World S.A. and our equity investment in ID&T BVBA.

Benefit for income taxes

Benefit for income taxes was $0.1 million and $0.0 million for the three and nine months ended September 30, 2015, respectively and $15.9 million and $8.8 million for the three and nine months ended September 30, 2014, respectively. The benefit in each period is primarily attributable to the application of the annualized effective tax rate to a year-to-date loss before income taxes.

SEGMENT OVERVIEW

Operating segments include components of the enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. Our chief operating decision maker is our Chief Executive Officer. We have determined that we have two operating and reportable segments, which are (i) Live Events, consisting of the production of our live events and includes revenue from ticket sales, ticketing fees and commissions, food, beverages and merchandise, license 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.

Certain corporate expenses, including stock-based compensation, and all line items below operating loss are managed on a consolidated basis. We eliminate inter-segment activity within “Corporate and Eliminations,” additionally, we manage our assets and working capital on a consolidated basis. Accordingly, segment assets are not reported to, or used by, our management to allocate resources or assess performance of the segments; and therefore, we have not disclosed total segment assets.

Table of Contents

Live Events results of operations

Our Live Events segment operating results for the three and nine months ended September 30, 2015 and 2014, respectively, were as follows:

	Three months ended					Nine months ended
	September 30,					September 30,
(in thousands)	2015			2014		2015			2014
Revenue	$	115,515		$	120,223	$	263,440		$	208,796
Direct costs	103,451			92,891		220,509			160,097
Gross profit	12,064			27,332		42,931			48,699
Selling, general and administrative expenses	14,775			17,251		45,281			46,636
Depreciation and amortization	6,461			7,435		19,213			18,874
Operating loss	$	(9,172	)	$	2,646	$	(21,563	)	$	(16,811	)

Revenue

Revenue from our Live Events segment decreased by $4.7 million for the three months ended September 30, 2015 compared to the same period in the prior year. The decrease was primarily attributable to lost revenue of approximately $4.0 million from the cancellation and partial cancellation of several of our events in the current quarter and the unfavorable impact of foreign exchange transaction. For the three months ended September 30, 2015, we produced and promoted a total of 286 live events, including 31 festivals with single-day capacities of over 10,000 attendees (excluding artist tours), attracting a total of over 1,946,000 attendees as compared to 267 live events, including 27 festivals with single-day capacities of over 10,000 attendees (excluding artist tours), attracting a total attendance of over 1,559,000 attendees for the three months ended September 30, 2014. Our Live Events segment had a gross profit margin of 10.4% for the three months ended September 30, 2015 compared to 22.7% for the same period in the prior year.

Revenue from our Live Events segment increased by $54.6 million for the nine months ended September 30, 2015 as compared to the same period in the prior year. This increase was primarily due to the introduction of the Tomorrowland Brazil and Bestival festivals, which we debuted in May 2015 and June 2015, respectively, the inclusion of Awakenings revenue in the current year as a result of our September 2014 acquisition of Monumental, incremental revenue associated with a full three day Electric Zoo, New York City festival in the current year and higher attendance at festivals that we produced in both of the nine month periods. These increases were partially offset by a decrease related to lost revenue for the aforementioned cancellations and partial cancellations in the current quarter (which we anticipate will be partially recovered from insurance proceeds). For the nine months ended September 30, 2015, we produced and promoted a total of 804 live events, including 72 festivals with single-day capacities of over 10,000 attendees (excluding artist tours), attracting a total of over 4,082,000 attendees as compared to 623 live events, including 53 festivals of greater than 10,000 with single-day capacities of over 10,000 attendees (excluding artist tours), attracting a total attendance of over 2,900,000 attendees for the nine months ended September 30, 2014. Our Live Events segment had a gross profit margin of 16.3% for the period compared to 23.3% for the same period in the prior year.

Direct costs

Direct costs associated with live events that we produced, promoted or managed increased by $10.6 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2015. The increase in direct costs was primarily attributable to increased production costs as well as higher artist fees for events that we produced in both periods.

Direct costs increased by $60.4 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2015. The increase was primarily attributable to incremental production and artist costs for festivals that we debuted in the current year and the inclusion of Awakenings festival production costs in the current year as a result of our September 2014 acquisition of Monumental. The increase was also due to increased festival production costs and artist fees for festivals that we produced in both periods.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $2.5 million for the three months ended September 30, 2015 compared to the same period in the prior year. The decrease was primarily attributable to a decrease in marketing charges of $1.5 million and salaries and wages related to employees of $0.8 million.

Table of Contents

Selling, general and administrative expenses decreased by $1.4 million for the nine months ended September 30, 2015 compared to the same period in the prior year. The decrease was primarily due to a decrease in marketing charges of $3.1 million, partially offset by an increase in administrative expenses of $1.0 million and salaries and wages related to employees of $0.6 million for advertising and sales support in connection with the expansion of our streaming platform business.

Depreciation and amortization

Depreciation and amortization for the Live Events segment decreased by $1.0 million for the three months ended September 30, 2015 compared to the same period in the prior year. The decrease was predominantly due to final purchase accounting adjustments of intangible assets acquired during fiscal 2013 and 2014, partially offset by the impact of foreign exchange.

Depreciation and amortization for the Live Events segment increased by $0.3 million for the nine months ended September 30, 2015 compared to the same period in the prior year due to our various acquisitions and capital expenditures, partially offset by the impact of foreign exchange.

Platform results of operations

Our Platform segment is primarily composed of Beatport, sponsorship and marketing activities. In 2014, we moved our ticketing business from the Platform segment to the Live Events segment. This change has been retrospectively applied in the segment discussion and disclosures. Our Platform segment operating results for the three and nine months ended September 30, 2015 and 2014, respectively, were as follows:

	Three months ended September 30.						Nine months ended September 30,
(in thousands)	2015			2014			2015			2014
Revenue	$	18,320		$	25,427		$	44,699		$	52,014
Direct costs	14,741			19,241			31,612			36,450
Gross profit	3,579			6,186			13,087			15,564
Selling, general and administrative expenses	8,044			7,151			25,139			15,941
Loss on disposal of non-core assets	9,112			—			9,112			—
Depreciation and amortization	2,246			2,047			6,456			6,297
Operating loss	$	(15,823	)	$	(3,012	)	$	(27,620	)	$	(6,674	)

Revenue

Revenue from our platform segment decreased by $7.1 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The decrease is primarily attributable to the allocation of certain sponsorship revenue to the Live Event segment in the current year and a reduction in the volume of digital music download sales as we launched our new free streaming service in the United States. Our platform segment had a gross profit margin of 19.5% compared to 24.3% in the three months ended September 30, 2015 and 2014, respectively.

Revenue from our platform segment decreased by $7.3 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The decrease is primarily attributable to a reduction in the volume of digital music download sales as we launched our new free streaming service in the United States. Our platform segment had a gross profit margin of 29.3% compared to 29.9% in the nine months ended September 30, 2015 and 2014, respectively.

Direct costs

Direct costs associated with the platform segment decreased by $4.5 million for the three months ended September 30, 2015 as compared with the same period in the prior year, primarily attributable to the allocation of certain sponsorship expenses to the Live Event segment in the current year and reduced digital music sales-related expenses.

Direct costs associated with the platform segment decreased by $4.8 million for the nine months ended September 30, 2015 as compared with the same period in the prior year, primarily due to reduced digital music sales-related expenses.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $0.9 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014, primarily attributable to an increase in salaries and wages related to employees of $0.4 million as a result of our various fiscal year 2014 acquisitions.

Table of Contents

Selling, general and administrative expenses increased by $9.2 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily attributable to an increase in salaries and wages of $4.9 million as a result of our various fiscal year 2014 acquisitions.

Loss on sale of non-core assets

Depreciation and amortization

Depreciation and amortization for the Platform segment increased by $0.2 million for the three and nine months ended September 30, 2015 compared to the same periods in the prior year, primarily attributable to the launch of our streaming platform in the current year.

Table of Contents

Reconciliation of segment results

							Corporate and
(in thousands)	Live Events			Platform			Eliminations			Consolidated
Three months ended September 30, 2015
Revenue	$	115,515		$	18,320		$	(603	)	$	133,232
Direct costs	103,451			14,741			(434		)	117,758
Gross profit	12,064			3,579			(169		)	15,474
Selling, general and administrative	14,775			8,044			15,762			38,581
Loss on disposal of non-core assets	—			9,112			—			9,112
Depreciation	1,651			51			388			2,090
Amortization	4,810			2,195			191			7,196
Operating loss	$	(9,172	)	$	(15,823	)	$	(16,510	)	$	(41,505	)
Three months ended September 30, 2014
Revenue	$	120,223		$	25,427		$	(2,098	)	$	143,552
Direct costs	92,891			19,241			(2,083		)	110,049
Gross profit	27,332			6,186			(15		)	33,503
Selling, general and administrative	17,251			7,151			20,396			44,798
Loss on disposal of assets	—			—			—			—
Depreciation	1,868			172			43			2,083
Amortization	5,567			1,875			32			7,474
Operating loss	$	2,646		$	(3,012	)	$	(20,486	)	$	(20,852	)
Nine months ended September 30, 2015
Revenue	$	263,440		$	44,699		$	(1,666	)	$	306,473
Direct costs	220,509			31,612			(1,130		)	250,991
Gross profit	42,931			13,087			(536		)	55,482
Selling, general and administrative	45,281			25,139			48,167			118,587
Loss on disposal of non-core assets	—			9,112			—			9,112
Depreciation	3,516			196			781			4,493
Amortization	15,697			6,260			528			22,485
Operating loss	$	(21,563	)	$	(27,620	)	$	(50,012	)	$	(99,195	)
Nine months ended September 30, 2014
Revenue	$	208,796		$	52,014		$	(2,310	)	$	258,500
Direct costs	160,097			36,450			(2,141		)	194,406
Gross profit	48,699			15,564			(169		)	64,094
Selling, general and administrative	46,636			15,941			60,768			123,345
Loss on disposal of assets	—			—			—			—
Depreciation	2,822			653			93			3,568
Amortization	16,052			5,644			93			21,789
Operating loss	$	(16,811	)	$	(6,674	)	$	(61,123	)	$	(84,608	)

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations from inception through September 30, 2015, including our acquisitions, through operations and net proceeds raised from the issuance of equity and the incurrence of debt. For the three month period ended September 30, 2015, we closed a private placement transaction in which we issued shares of preferred stock resulting in gross proceeds of $45.0 million. For further information regarding the preferred stock please see the section above entitled “September 2015 Financing”.

Table of Contents

We have experienced net losses and negative cash flow from operations since inception, and as of September 30, 2015, had an accumulated deficit of $397.2 million.

As of September 30, 2015, we had cash and cash equivalents totaling $59.8 million. Included in cash and cash equivalents and restricted cash is $3.6 million of cash proceeds held on behalf of third party ticketing clients.

During the course of 2015 the sellers of certain of our acquired businesses agreed to extend the terms of certain earnouts and similar payments they are entitled to receive from us pursuant to the terms of applicable agreements.

In connection with our acquisition of Monumental Productions B.V. in September 2014, we agreed to pay to the seller an earnout of cash and stock based on the performance of the acquired business during fiscal year 2014. On June 4, 2015, we and the seller agreed to amend the earnout payment terms such that the cash portion of the earnout would be payable in three installments. The three installments of €2.0 million and €1.35 million were paid on June 11, 2015 and July 15, 2015 and the last payment of €1.35 million was paid on October 5, 2015.

In connection with our acquisition of the assets of React Presents, Inc. and Clubtix Inc. in April 2014, we agreed to pay to the sellers an earnout of cash and stock based on the performance of the acquired businesses during fiscal year 2014. On June 4, 2015, $1.0 million of the cash portion of the earnout was advanced to sellers. On July 7, 2015, we and sellers agreed to amend certain earnout payment terms such that the remaining cash portion of the earnout would be payable in five installments. We paid (i) $1.0 million on July 14, 2015 and (ii) $2.0 million on September 1, 2015. We also owe $2.0 million on December 1, 2015, $3.0 million on or before January 4, 2016 and the balance of approximately $2.8 million on or before March 1, 2016. We issued the sellers a promissory note evidencing our obligation to pay the cash portion of the earnout. Further, up to $7.8 million of our obligation under the aforementioned note was personally guaranteed by Mr. Sillerman.

In connection with our acquisition of the assets of Nightlife Holdings LLC and its subsidiaries in December 2012, the sellers were granted the right to put their 20% non-controlling interest in SFX-Nightlife Operating LLC to us, which right was exercised on January 16, 2015. We made advance cash payments to the sellers of $1.25 million and $1.0 million on January 30, 2015 and June 19, 2015, respectively. On August 7, 2015, we and the sellers agreed that the remaining cash portion of the put right consideration will be payable as follows: (i) $1.36 million, which we paid on August 31, 2015); (ii) $0.75 million which we paid on October 15, 2015; (iii) $0.75 million on or before January 15, 2016; (iv) $0.75 million on or before April 15, 2016; (v) $0.75 million on or before July 15, 2016; (vi) $0.75 million on or before October 17, 2016; and (vii) $0.75 million on or before January 16, 2017.

In connection with our acquisition of the assets of Totem OneLove Group Pty Ltd and Totem Industries Pty Ltd. in October 2013, the sellers were granted the right to put to us all of the 1,105,846 shares of common stock issued to them upon the closing of the acquisition for a total price of AUS $15.0 million. On October 29, 2015, we and the sellers agreed to amend certain terms relating to the put right such that, among other changes, the put price will be payable in installments as follows: (i) US $3.0 million on or before November 16, 2015; (ii) US $2.5 million on or before June 1, 2016; and (iii) the balance of the put price on or before March 1, 2017; provided that the sellers are also entitled to receive an amount equal to thirty percent (30%) of the EBITDA of SFX-Totem Operating Pty Ltd. our wholly owned subsidiary, with respect to the 2015 calendar year, if any, payable by April 29, 2016, and which amount shall be applied against the then unpaid amount of the put price.

We believe we will be required to make earnout, redemption or similar payments of up to $29.4 million in cash during the fourth quarter of 2015 and the first two quarters of 2016 pursuant to the terms of applicable agreements. $2.2 million of this amount has been paid as of November 9, 2015. To the extent we do not have available cash on hand on the payment date for each payment, we will be required to negotiate for extensions or other modifications of the payment terms.

Borrowings

9.625% Second Lien Senior Secured Notes due 2019

On February 4, 2014, we issued $220.0 million aggregate principal amount of 9.625% second lien senior secured notes due 2019 (the “Notes”). In connection with the issuance of the Notes, we, certain of our subsidiaries and U.S. Bank National Association, as trustee (in such capacity, the “Trustee”) and collateral agent, entered into an indenture, which governs the Notes (the “Indenture”). The Notes are second-priority lien senior secured obligations of the Company and are fully and unconditionally guaranteed by the Company’s present and future wholly-owned domestic subsidiaries (collectively, the “Guarantors”) that guarantee the indebtedness under the 2015 Revolver (as defined below). The Notes and the guarantees thereof are secured by a second-priority lien on substantially all of our and the Guarantors’ present and future assets, subject to certain exceptions and permitted liens. The Notes will mature on February 1, 2019 and accrue interest at a rate of 9.625% per annum, which is payable semi-annually in arrears on February 1 and August 1 of each year.

Table of Contents

On September 24, 2014, we issued $65.0 million aggregate principal amount of Notes (the “New Notes”) in a private offering exempt from registration under the Securities Act of 1933, as amended. We used the net proceeds from the issuance of the New Notes for working capital and general corporate purposes, including repaying all borrowings under our revolving credit facility and funding acquisitions, and to pay related fees and expenses. The New Notes constitute an additional issuance of Notes under the Indenture and are part of the same series as the Notes issued on February 4, 2014. In addition, on September 24, 2014, we issued $10.0 million aggregate principal amount of Notes in a private placement to Sillerman Investment (the “Sillerman Notes”), an entity controlled by Mr. Sillerman. The Sillerman Notes constitute an additional issuance of Notes under the Indenture. Except as to certain issuance-related matters, the New Notes and the Sillerman Notes have identical terms to the Notes issued on February 4, 2014.

Unless the context requires otherwise, for the remainder of this section the capitalized term “Notes” shall include the Notes issued on February 4, 2014, the New Notes and the Sillerman Notes.

Optional Redemption and Mandatory Offer to Purchase. At any time on or after February 1, 2016, we may redeem all or any portion of the Notes at the redemption prices set forth in the Indenture. Prior to February 1, 2016, we may redeem the Notes, in whole or in part, at a price equal to 100% of the principal amount thereof plus any accrued or unpaid interest thereon and a “make-whole” premium. In addition, at any time before February 1, 2016, we may redeem up to 35% of the original aggregate principal amount of the Notes with the net proceeds of certain equity offerings, subject to certain conditions, at a redemption price of 109.625% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to the date of redemption.

The holders of the Notes have the ability to require that we repurchase all or any part of the Notes if the Company experiences specific kinds of changes in control or engages in certain asset sales, in each case at the repurchase prices and subject to the terms and conditions set forth in the Indenture.

Covenants. The Indenture contains certain covenants that are customary with respect to non-investment grade debt securities, including limitations on our and our restricted subsidiaries’ ability to incur additional indebtedness or issue certain preferred shares, pay dividends, make any distribution in respect of, redeem or repurchase stock, make certain investments or other restricted payments, enter into certain types of transactions with affiliates, incur liens, apply proceeds from certain asset sales or events of loss, and consolidate or merge with or into other entities or otherwise dispose of all or substantially all of our assets. These covenants are subject to a number of important limitations and exceptions.

Events of Default. The Indenture provides for customary events of default, including cross payment defaults to other specified debt of ours and certain of our subsidiaries. In the case of an event of default arising from specified events of bankruptcy, insolvency or reorganization with respect to us, then the principal, premium, if any, and accrued and unpaid interest, if any, with respect to all of the Notes will become due and payable without any declaration or act on the part of the Trustee or any holder of the Notes. If any other event of default occurs and is continuing, the Trustee or holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare the principal, premium, if any, and accrued and unpaid interest, if any, of all the Notes due and payable. In the case of a declaration of the acceleration of the Notes because an event of default has occurred, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes may rescind and annul such declaration and its consequences if, among other conditions set forth in the Indenture, we have paid or deposited with the Trustee a sum sufficient to pay all sums paid or advanced by the Trustee under the Indenture and all overdue interest on all the Notes, and all events of default (other than the non-payment of principal of the Notes that has become due solely by such declaration of acceleration) have been cured or waived.

Credit Facility

Original Credit Agreement. On February 7, 2014, we entered into a credit agreement with the lenders party thereto and Barclays Bank PLC, as administrative agent, letter of credit issuer and swingline lender (the “Credit Agreement”), which provided for a $30.0 million revolving credit facility. On August 15, 2014, we entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement. Among other things, the Amendment modified the Credit Agreement by amending the definition of “Consolidated EBITDA” to allow our Consolidated EBITDA for purposes of the Credit Agreement to be increased by incremental contributions to Consolidated EBITDA that we reasonably believe in good faith could have been realized or achieved from the guaranteed payments provided under one or more Qualified Marketing Agreements (as defined

Table of Contents

in the Credit Agreement) entered into after the period for which Consolidated EBITDA is being calculated and before the relevant date of determination had such Qualified Marketing Agreements been effective as of the beginning of such period. On March 16, 2015, we entered into Amendment No. 2 (the “Second Amendment”) to the Credit Agreement. Among other things, the Second Amendment modified the Credit Agreement, as previously amended, by prohibiting us from borrowing loans or requesting 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, was deposited into a deposit account of Sillerman Investment that was subject to a first priority lien in favor of the administrative agent under the Credit Agreement.

In connection with the Second Amendment, on March 16, 2015, we 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 our credit facility in an aggregate amount of up to $31.5 million 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, we paid Sillerman Investment a commitment fee of $0.63 million. In addition, we were obligated to pay Sillerman Investment a fee at a rate of 12% per annum on the amount of cash collateral actually posted, payable quarterly in arrears.

In connection with the Revolver Restatement (as defined below) on September 17, 2015, the cash collateral was released and the commitment letter was terminated.

Revolver Restatement. On September 17, 2015, the Company and certain of its subsidiary guarantors entered into an Amendment and Restatement Agreement (the “2015 Revolver” or the “Revolver Restatement”) with Barclays Bank PLC, as administrative agent, and the lenders party thereto, in respect of the Credit Agreement, as amended. Among other things, the Revolver Restatement modifies the Credit Agreement, as amended, by, among other things, (i) modifying certain of the financial definitions, (ii) eliminating the ability of the Company to increase the commitments under the 2015 Revolver, (iii) eliminating the ability of the Company to obtain loans denominated in currencies other than U.S. dollars or swingline loans letters of credit under the 2015 Revolver, (iv) eliminating or restricting certain exceptions to the negative covenants and (v) extending the maturity date of the Credit Agreement from February 7, 2017 to September 17, 2017. In connection with the Revolver Restatement, the loans and commitments under the 2015 Revolver were assigned to affiliates of GoldenTree Asset Management LP. The following describes key terms and conditions of the 2015 Revolver:

Interest Rates and Fees. Interest under the 2015 Revolver is payable, at the option of the Company, either at a base rate plus a margin equal to 9.00% per annum or a Eurodollar-based rate plus a margin equal to 10.00% per annum. Interest is payable, in the case of loans bearing interest based on the Eurodollar-based rate, in arrears at the end of the applicable interest period (and, for interest periods longer than three months, every three months) and, in the case of loans bearing interest based on the base rate, quarterly in arrears. The base rate for any date is the per annum rate equal to the highest of (x) a prime rate, (y) the Federal funds effective rate plus 0.50% and (z) an adjusted Eurodollar rate for a one-month term plus 1.00%. The Eurodollar- based rate is subject to a floor of 1.00% per annum. In addition, the Company is required to pay a per annum commitment fee on the average daily unused portion of the 2015 Revolver, which is 0.50%, calculated on a 360-day basis and payable quarterly in arrears.

Security/Guarantors. The 2015 Revolver is guaranteed by the Guarantors. The 2015 Revolver is secured, subject to certain exceptions, by a first-priority security interest in substantially all of the assets and property of ours and the Guarantors. If we or any of the Guarantors provide additional guarantees or collateral to support all notes issued under the Indenture, the same guarantees or collateral must be provided to support the obligations owing under the 2015 Revolver.

Prepayments. On any date on which the aggregate principal amount of the total borrowings under the 2015 Revolver exceeds the aggregate commitments by the lenders under the 2015 Revolver, we must immediately pay to the administrative agent an amount equal to such excess. In addition, the Company is required to apply the proceeds of certain asset sales or property loss events received by the Company or any of its restricted subsidiaries to prepay loans under the 2015 Revolver. The 2015 Revolver is not permitted to be voluntarily prepaid prior to the first anniversary of the Revolver Restatement. Pursuant to the Revolver Restatement, mandatory and voluntary prepayments of loans under the 2015 Revolver automatically reduce the commitments thereunder.

Covenants. The 2015 Revolver contains customary affirmative covenants including covenants related to financial statements and other information, collateral reporting, notices of material events, conduct of the business, payment of obligations, maintenance of properties and insurance, submission to certain inspections, compliance with laws and agreements, use of proceeds and letters of credit, subsidiary guarantees, cash management, and additional collateral and further assurances. The 2015 Revolver also contains customary negative covenants that, subject to certain exceptions, qualifications and “baskets,”

Table of Contents

generally limit the ability to incur debt, create liens, make restricted payments, make certain investments, prepay or redeem certain debt, enter into certain transactions with affiliates, change fiscal year, enter into restrictions on distributions from subsidiaries, and enter into certain merger or asset sale transactions. The 2015 Revolver also contains financial covenants to comply with a maximum secured net leverage ratio and a minimum interest coverage ratio on a quarterly basis. Such financial covenants will not be applicable to the Company until March 31, 2016.

Events of Default. The 2015 Revolver contains customary events of default for an agreement of this type. In addition, pursuant to the 2015 Revolver an event of default could be triggered if the additional $15.0 million of Series A Preferred Stock to be sold under the Series A Subscription Agreement is not purchased by Sillerman Investment. If an event of default under the 2015 Revolver occurs and is continuing, the administrative agent may, and at the request of lenders holding more than 50.0% of the sum of the outstanding amounts and unused commitments under the 2015 Revolver, will take any or all of the following actions: (i) declare all outstanding obligations under the 2015 Revolver to be immediately due and payable, (ii) terminate all commitments under the 2015 Revolver or (iii) exercise the rights and remedies available under the 2015 Revolver and any related loan documents. In addition, if, among other things, we or any of our restricted subsidiaries, as defined in the 2015 Revolver, do not pay our material debts as such debts become due or any bankruptcy, insolvency, liquidation or similar proceeding is instituted by or against any such party, then any outstanding obligations under the 2015 Revolver will automatically become immediately due and payable without any further act by the administrative agent or any lender. The repayment of loans under the 2015 Revolver in connection with an event of default arising from a change of control of the Company is required to be accompanied by a 1% prepayment premium.

As of September 30, 2015, we had $30.0 million outstanding of borrowings under the 2015 Revolver.

CASH FLOWS

	For the nine months ended September 30,
(in thousands)	2015			2014
Cash (used in)/provided by
Operating activities	$	(51,916	)	$	(26,826	)
Investing activities	(25,179		)	(143,357		)
Financing activities	76,218			203,134
Effect of exchange rate changes on cash	(2,605		)	(2,021		)
Net (decrease)/increase in cash and cash equivalents	$	(3,482	)	$	30,930

Cash flows from operating activities

Cash used in operating activities totaled $51.9 million for the nine months ended September 30, 2015, and was primarily attributable to our net loss of $143.7 million, partially offset by non-cash depreciation and amortization expenses of $27.0 million, non-cash stock compensation expense of $22.9 million, an increase in working capital of $19.5 million, write down and disposal of certain non-core businesses of $12.5 million and foreign currency transactions of $9.6 million.

Cash used in operating activities totaled $26.8 million for the nine months ended September 30, 2014 and was principally attributable to our net loss of $86.1 million, partially offset by non-cash depreciation and amortization expense of $22.4 million, $30.3 million in non-cash stock compensation expense, $16.2 million from the loss of the extinguishment of debt and an increase in working capital of $8.2 million.

Cash flows from investing activities

Cash used in investing activities totaled $25.2 million for the nine months ended September 30, 2015 and was primarily attributable to additions of capital assets of $13.9 million and cash totaling $7.7 million used to fund the purchase of certain acquisitions.

Cash used in investing activities totaled $143.4 million for the nine months ended September 30, 2014 and was primarily attributable to cash paid in acquisitions. Cash totaling $135.5 million, net of cash acquired, was used to fund the purchase of Rock World and B2S along with certain other acquisitions.

Cash flows from financing activities

Cash provided by financing activities totaled $76.2 million for the nine months ended September 30, 2015, and was primarily attributable to the net proceeds received from the issuance of common stock of $15.0 million, the issuance of preferred stock of $44.6 and the borrowings, net of fees, under the Revolver of $51.1 million offset by the payment of the Revolver of $24.2 million, $9.8 million related to earnout payments from prior acquisitions and $0.3 million of distributions paid to non- controlling interest shareholders.

Table of Contents

Cash provided by financing activities for the nine months ended September 30, 2014 totaled $203.1 million and was primarily attributable to the net proceeds received from Notes of $300.8 million offset by the repayment of the then existing first lien term loan facility of $75.0 million.

Capital expenditures

Our capital expenditures for the nine months ended September 30, 2015 and 2014 were $13.9 million and $4.7 million, respectively.

Future capital requirements

Based on our current business plan, our existing working capital and internally generated cash flows may not be sufficient to fund our planned operating and working capital requirements, including our payment of debt-related requirements for the next twelve months without additional sources of cash and/or the deferral, reduction or elimination of significant planned expenditures. However, we believe our access to existing financing sources and established relationships with our investment banks will enable us to continue to meet our obligations and fund ongoing operations. If we raise additional funds by selling additional shares of our capital stock, or securities convertible into shares of our capital stock, the ownership interest of our existing shareholders may be diluted. We cannot be certain that additional funds will be available to us on favorable terms when required, or at all.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K.

There have been no changes to our critical accounting policies as described in our Form 10-K during the nine months ended September 30, 2015.

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices.

Foreign Currency Risk

As we have foreign operations, foreign currency exchange risk also arises as a normal part of our business. In particular, we are currently subject to fluctuations due to changes in foreign exchange rates in the Euro, Australian Dollar and Brazilian Real. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations. We reduce this risk by transacting our international business in local currencies. In this manner, assets and liabilities are matched in the local currency, which reduces the need for currency conversions. To manage the currency exchange risk, we may enter into forward or option contracts, but have not done so as of September 30, 2015. Currently, we do not operate in any hyper-inflationary countries. Our foreign operations reported operating income of $0.4 million and $2.2 million for the three and nine months ended September 30, 2015, respectively. We estimate that a 10% change in the value of the United States Dollar relative to foreign currencies would change our operating income for the three and nine months ended September 30, 2015 by $0.04 million and $0.2 million, respectively. As of September 30, 2015, our primary foreign exchange exposure included the Euro, Australian Dollar and Brazilian Real.

Interest Rate Risk

We did not incur interest rate risk in the nine months ended September 30, 2015. The notes issued in February and September 2014 will mature on February 1, 2019 and accrue interest at a rate of 9.625% per annum, which is payable semi- annually in arrears on February 1 and August 1 of each year, that commenced on August 1, 2014. Interest under the 2015 Revolver is payable, at the option of the Company, either at a base rate plus a margin equal to 9.00% per annum or a Eurodollar-based rate plus a margin equal to 10.00% per annum.

There have been no material changes to our market risk exposure since December 31, 2014.

Table of Contents

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2015. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2015, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2015, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II

ITEM 1. LEGAL PROCEEDINGS

We are currently and may in the future, from time to time, be involved in a variety of claims, lawsuits and other disputes arising in the ordinary course of business, none of which management currently believes are, or will be, material to our business. There have been no material changes to our legal proceedings previously disclosed except as set forth below.

Moreno

On February 5, 2014, Paolo Moreno, Lawrence Vavra and Gabriel Moreno filed suit against us, and, in their individual capacities, Mr. Sillerman and Mr. Sheldon 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 million in damages, as well as compensatory and punitive damages, and equitable relief. Mr. Finkel has since been dismissed and 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 December 8, 2015. On April 7, 2015, the defendants filed a motion for summary judgment to dismiss all claims and the court denied this motion on July 29, 2015. We believe this lawsuit is without merit and intend to vigorously defend against it. At this time, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any, but based upon expected insurance recoveries and potential contributions from the non-Company defendant, we do not believe it is reasonably probable that the claims will have a material effect on our financial statements.

Merger litigations

We have been named as a defendant in multiple putative stockholder class action complaints challenging the proposal by Mr. Sillerman and his affiliates to acquire all of the outstanding shares of our common stock not presently held, directly or indirectly, by Mr. Sillerman and his affiliates in a merger with us. All of the lawsuits were filed in the Court of Chancery of the State of Delaware and have been consolidated into a single proceeding as In re SFX Entertainment, Inc. Stockholders Litigation on July 9, 2015. The defendants named in the consolidated complaint are the Company, SFXE Acquisition LLC, SFXE Merger Sub, Inc., Sillerman Investment Company III LLC, and the directors of the Company. The lawsuit was premised on allegations that the price offered in the proposed merger is inadequate and that the defendants have breached their fiduciary duties to the Company’s stockholders in connection with the proposed merger. The plaintiffs seek, among other things, preliminary and permanent injunctive relief enjoining the merger and payment of damages and costs that would be incurred as a result of the merger. The outcome of the lawsuit is uncertain. An adverse judgment for monetary damages could have an adverse effect on the operations and liquidity of the Company. A preliminary injunction could delay or jeopardize the completion of the proposed merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the proposed merger. The defendants believe that the claims asserted against them in the lawsuits are without merit.

We have also been named as a defendant in a securities class action complaint filed in the United States District Court for the Southern District of New York on September 11, 2015 pursuant to §§10(b), and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 of that Act and under the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The defendants named in the complaint are the Company, Mr. Sillerman and three independent directors of the Company. The three named directors constituted the special committee of independent directors appointed to review Mr. Sillerman’s offer to acquire all of the outstanding shares of our common stock not presently held, directly or indirectly, by Mr. Sillerman and his affiliates. The complaint alleges that the defendants made false and misleading statements and engaged in a fraudulent course of conduct designed to artificially inflate the Company’s stock price during 2015 in order to maintain the Company as an attractive acquisition candidate for a third party purchaser at a time when the Company’s financial condition was declining. The plaintiffs seek compensatory damages for all losses and damages suffered as a result of the defendants’ alleged wrongdoing, together with all fees and expenses incurred by the class, including attorneys’ fees and expenses. Pursuant to the PSLRA, other plaintiffs have 60 days from the date of filing of the complaint to join the lawsuit. Thus, there have been no further proceedings to date and the defendants have not yet responded to the complaint. The outcome of the lawsuit is uncertain. An adverse judgment for monetary damages could have an adverse effect on the operations and liquidity of the Company. The defendants believe that the claims asserted in the lawsuit are without merit and they intend to defend the case vigorously.

Table of Contents

ITEM 1A. RISK FACTORS

There have been no material changes to our Risk Factors as previously disclosed in our Form 10-K other than as set forth below.

The holders of our Series B Preferred Stock are entitled to rights and preferences that are significantly greater than the rights and preferences of the holders of our common stock, including preferential payments upon a liquidation, as well as dividend rights associated with their shares, and our obligations under the Series B Certificate of Designation could materially adversely affect our liquidity and financial condition.

On September 17, 2015, we issued 30,000 shares of newly designated Series B Convertible Preferred Stock, $0.001 par value per share, or Series B Preferred Stock, for an aggregate purchase price of $30 million. Holders of our Series B Preferred Stock are entitled to a number of rights and preferences which holders of our outstanding common stock do not and will not have. Pursuant to the certificate of designation governing our Series B Preferred Stock, or the Series B Certificate of Designation, the shares of our Series B Preferred Stock rank senior to our common stock with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Company. In the event of a liquidation event, including certain change of control transactions as set forth in the Series B Certificate of Designation, the holders of Series B Preferred Stock will be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment is made to holders of our common stock, an amount in cash equal to the greater of (i) $1,000 per share of Series B Preferred Stock, or the Series B Original Issue Price, plus any dividends accrued and accumulated or declared but unpaid thereon and (ii) such amount per share as would have been payable had all shares of Series B Preferred Stock been converted into common stock pursuant to the terms of the Series B Certificate of Designation. In addition, upon the consummation of certain change of control transactions, the holders of Series B Preferred Stock will be entitled to the same rights such holders are entitled to upon the occurrence of a liquidation, plus the then present value at such time of all required dividend payments due pursuant to the Series B Certificate of Designation, through the date that is 18 months prior to the initial conversion date as set forth in the Series B Certificate of Designation, computed using a discount rate equal to the treasury rate plus 50 basis points. As a result, only the sale or liquidation proceeds in excess of the liquidation preference of the Series B Preferred Stock (and the Series A Preferred Stock as set forth below) would be available for distribution to holders of our common stock upon the occurrence of such events.

Cumulative dividends on the Series B Preferred Stock accrue at a rate of 9% per annum on the sum of the Series B Original Issue Price plus all unpaid accrued and accumulated dividends thereon. All accrued dividends on any share of Series B Preferred Stock will be paid in cash out of funds legally available, provided that to the extent not paid on the last day of March, June, September and December of each calendar year, all accrued dividends on any share shall accumulate and compound on the applicable dividend payment date whether or not declared by our board of directors and shall remain accumulated, compounding dividends until paid or converted in accordance with the Series B Certificate of Designation; provided further that the first dividend payment date will commence on December 31, 2015. We may not have sufficient cash to pay dividends on the Series B Preferred Stock. Our ability to pay dividends may be impaired if any of the risks described herein or in our Annual Report on Form 10-K for the year ended December 31, 2014 were to occur. We cannot make any assurances that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to make distributions on our Series B Preferred Stock. In addition, the 2015 Revolver and the Indenture contain certain limitations on our ability to make such cash dividend payments. If we fail to pay such dividends when due, the dividend rate on the Series B Preferred Stock will increase immediately by an increment of 1.5% per annum, and thereafter will automatically increase further at the end of each succeeding 90-day period following the date of the initial failure to pay such dividends by an additional increment of 1% per annum, until we have paid such dividends, subject to a maximum aggregate dividend rate of 15% per annum. In addition, under certain circumstances, upon a failure to pay dividends, the conversion price of the Series B Preferred Stock will be reduced immediately to 90% of the conversion price in effect immediately prior to such reduction. The payment of dividends on the Series B Preferred Stock could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series B Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition.

Furthermore, pursuant to the Series B Certificate of Designation, if a transaction occurs pursuant to which Mr. Sillerman and his affiliates become beneficial owners of the Company’s securities representing more than 50% of the voting power of the then outstanding securities of the Company, or a Sillerman Transaction, to the extent the lowest price paid for a share of common stock in such Sillerman Transaction, or the Sillerman Transaction Price, is less than the conversion price of the Series B Preferred Stock in effect immediately prior to such Sillerman Transaction, the conversion price then in effect shall be reduced to such lowest price paid. Upon any conversion of the Series B Preferred Stock by a holder as of or following the

Table of Contents

closing of a Sillerman Transaction, such holder shall be entitled to be paid in cash, for each share of Series B Preferred Stock then converted, the then present value at such time of all required dividend payments due on such share of Series B Preferred Stock through the date that is 18 months prior to the initial conversion date as set forth in the Series B Certificate of Designation, computed using a discount rate equal to the treasury rate plus 50 basis points. If the cash amount required by the preceding sentence is not made as a result of a limitation in the Indenture, we are required to immediately issue to the relevant holder a number of shares of common stock with a value equal to the cash amount that has not been paid subject to certain limitations set forth in the Series B Certificate of Designation. The payments due upon a Sillerman Transaction could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series B Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition.

Conversion of the Series B Preferred Stock may significantly dilute the ownership interest of the holders of our common stock and may adversely affect the market price of our common stock.

Holders of Series B Preferred Stock have the right to convert all or any portion of their shares of Series B Preferred Stock along with the aggregate accrued or accumulated and unpaid dividends thereon into an aggregate number of shares of common stock as set forth in the Series B Certificate of Designation. Based upon the number of shares of our common stock outstanding as of November 6, 2015, the holders of Series B Preferred Stock own shares of Series B Preferred Stock currently convertible into approximately 14.8% of our common stock (after giving effect to the conversion of the shares of Series B Preferred Stock based on the conversion price of the Series B Preferred Stock on such date). Conversion of the Series B Preferred Stock may significantly dilute the ownership interest of existing holders of our common stock, in particular if the conversion price is lowered as a result of the various anti-dilution adjustments set forth in the Series B Certificate of Designation, and any sales in the public market of the common stock issuable upon conversion of the Series B Preferred Stock could adversely affect prevailing market prices of our common stock. In addition, we have granted the holders of the Series B Preferred Stock certain registration rights in respect of the shares of Series B Preferred Stock and any shares of common stock issued upon conversion of the Series B Preferred Stock. These registration rights would facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of our common stock available for public trading. Sales by the holders of the Series B Preferred Stock of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.

The holders of our Series A Preferred Stock are entitled to rights and preferences that are significantly greater than the rights and preferences of the holders of our common stock, including preferential payments upon a liquidation, as well as dividend and approval rights associated with their shares, and our obligations under the Series A Certificate of Designation could materially adversely affect our liquidity and financial condition.

We have issued 150 shares of newly designated Series A Preferred Stock, $0.001 par value per share, or Series A Preferred Stock, for an aggregate purchase price of $15.0 million. Holders of our Series A Preferred Stock are entitled to a number of rights and preferences which holders of our outstanding common stock do not and will not have. Pursuant to the certificate of designation governing our Series A Preferred Stock, or the Series A Certificate of Designation, the shares of our Series A Preferred Stock rank senior to our common stock with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Company. In the event of a liquidation event as further set forth in the Series A Certificate of Designation, the holders of Series A Preferred Stock will be entitled to be paid out of assets of the Company available for distribution to its stockholders, before any payment is made to holders of our common stock, an amount in cash equal to $100,000 per share of Series A Preferred Stock, or the Series A Liquidation Value, plus all unpaid accrued and accumulated dividends on such share of Series A Preferred Stock. As a result, only the liquidation proceeds in excess of the liquidation preference of the Series A Preferred Stock (and the Series B Preferred Stock as set forth above) would be available for distribution to holders of our common stock upon the occurrence of such event.

Pursuant to the Series A Certificate of Designation, until the first date upon which the aggregate Series A Liquidation Value and accrued and accumulated dividends on the outstanding shares of the Series A Preferred Stock is equal to $53 million, cumulative dividends on shares of Series A Preferred Stock shall accrue at the rate of 29.5% per annum on the sum of the Series A Liquidation Value thereof plus all accrued and accumulated dividends thereon. Thereafter, cumulative dividends on the Series A Preferred Stock accrue at the rate of 9% per annum and are payable in cash. The payment of dividends on the Series A Preferred Stock could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series

Table of Contents

A Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition.

In addition, we may not enter into, consummate, approve or recommend any proposed transaction (or any agreement with respect thereto) that results or would result in a change of control of the Company as set forth in the Series A Certificate of Designation unless (i) either (x) such transaction is approved by a vote, or by consent, of the holders of a majority of the outstanding shares of Series A Preferred Stock, or (y) the acquiror in such change of control agrees to purchase each share of Series A Preferred Stock then outstanding for cash at the Series A Liquidation Value of each such share of Series A Preferred Stock, plus all unpaid accrued and accumulated dividends on such share (whether or not declared) and (ii) any such change of control is conditioned upon the consummation of such purchase by such acquiror and such purchase must occur simultaneously with the consummation of the change of control transaction. As a result, we may not be able to pursue such a transaction without first seeking and obtaining the approval of the holders of a majority of the outstanding shares of Series A Preferred Stock and there is no assurance that we will obtain such approval if necessary.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

From July 1, 2015 until September 30, 2015, in reliance upon the exemption from registration requirements available under Section 4(2) of the Securities Act (or Regulation D promulgated thereunder), we issued an aggregate of 288,171 shares of our common stock to sellers of previously acquired businesses pursuant to earnout obligations under applicable purchase agreements.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION

On November 4, 2015, we entered into a letter agreement (the “React Letter”) amending the promissory note (the “React Note”) dated July 7, 2015, issued by the Company to the sellers of React Presents, Inc. and Clubtix Inc. evidencing our $10.8 million earnout obligation due to the sellers in five installments. The React Letter extends the deadline for the third installment payment of $2.0 million to December 1, 2015, which was otherwise due on November 2, 2015. In connection with the extension under the React Letter, Mr. Sillerman has increased the amount of his personal guaranty for the earnout obligation from $7.0 million to $7.8 million, which represents the remaining balance owed to the sellers on the React Note.

ITEM 6. EXHIBITS

Table of Contents

ITEM 6. EXHIBITS

2.1		Omnibus Amendment by and among the Company, SFXE Merger Sub Inc., SFXE Acquisition LLC, Sillerman Investment Company III LLC and Robert F. X. Sillerman, dated July 10, 2015. (incorporated by reference to Exhibit 2.1 to the Form 8-K (File No. 001-36119) filed by the Company on July 13, 2015)

2.2*		Termination of Merger Agreement addressed to SFXE Acquisition LLC, dated August 17, 2015

3.1		Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (Registration No. 333-189564) filed by the Company on June 25, 2013)

3.2		Certificate of Amendment to the Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form S-1 (Registration No. 333-189564) filed by the Company on June 25, 2013)

3.3		Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 (Registration No. 333-192236) filed by the Company on November 8, 2013)

3.4		Certificate of the Designations, Rights and Preferences of the Series A Preferred Stock of the Company (incorporated by reference to Exhibit 3.1 to the Form 8-K (File No. 001-36119) filed by the Company on September 22, 2015)

3.5		Certificate of Designation of Series B Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 3.1 to the Form 8-K (File No. 001-36119) filed by the Company on September 22, 2015)

4.1		Form of the Company’s Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement of the Form S-1 (File No. 333-189564), filed by the Company on July 18, 2013)

10.1		Letter Agreement, dated July 7, 2015, by and between the Company, SFX-React Operating LLC, Lucas King, Jeffrey Callahan, React Presents, Inc., and Clubtix, Inc. (incorporated by reference to Exhibit 10.1 to the Form 8-K (File No. 001-36119) filed by the Company on July 13, 2015)

10.2		Promissory Note, dated July 7, 2015, issued by the Company and SFX-React Operating LLC to Lucas King, Jeffrey Callahan, React Presents, Inc., and Clubtix, Inc. (incorporated by reference to Exhibit 10.2 to the Form 8-K (File No. 001-36119) filed by the Company on July 13, 2015)

10.3		Amendment to Employment Agreement, dated August 19, 2015, by and between the Company and Greg Consiglio (incorporated by reference to Exhibit 10.1 to the Form 8-K (File No. 001-36119) filed by the Company on August 25, 2015)

10.4		Amendment to Employment Agreement, dated August 19, 2015, by and between the Company and Kevin Arrix (incorporated by reference to Exhibit 10.2 to the Form 8-K (File No. 001-36119) filed by the Company on August 25, 2015)

10.5		Subscription Agreement, dated as of September 17, 2015, by and between the Company and Sillerman Investment Company III LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K (File No. 001-36119) filed by the Company on September 22, 2015)

10.6		Voting and Support Agreement, dated as of September 17, 2015, by and among the Company, Sillerman Investment Company III LLC, ESFX LLC and Robert F.X. Sillerman (incorporated by reference to Exhibit 10.2 to the Form 8-K (File No. 001-36119) filed by the Company on September

Table of Contents

	22, 2015)

10.7	Amendment No. 1 to Voting and Support Agreement, dated as of September 22, 2015, by and among the Company, Sillerman Investment Company III LLC, ESFX LLC and Robert F.X. Sillerman (incorporated by reference to Exhibit 10.3 to the Form 8-K (File No. 001-36119) filed by the Company on September 22, 2015)

10.8	Securities Purchase Agreement, dated as of September 17, 2015, by and among the Company and the purchasers set forth therein (incorporated by reference to Exhibit 10.4 to the Form 8-K (File No. 001-36119) filed by the Company on September 22, 2015)

10.9*	Amendment and Restatement Agreement, dated as of September 17, 2015, among the Company, certain of its subsidiaries party thereto, the lenders party thereto and Barclays Bank PLC

10.10*	Amendment to Employment Agreement, dated September 17, 2015, by and between the Company and Robert F.X. Sillerman

10.11*	Separation and Release Agreement, dated September 29, 2015, by and between the Company and Kevin Arrix

10.12*	Letter Agreement, dated November 4, 2015, by and between the Company, SFX-React Operating LLC, Lucas King, Jeffrey Callahan, React Presents, Inc., and Clubtix, Inc.

31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.Def		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

** Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SFX Entertainment, Inc.


		By:	/s/ Robert F.X. Sillerman
		Robert F.X. Sillerman
		Chairman of the Board and Chief Executive Officer


Date:	November 9, 2015


		By:	/s/ Richard Rosenstein
		Richard Rosenstein
		Chief Financial Officer


Date:	November 9, 2015

Attached files

Stock widget

Investing forum

SFX Entertainment, INC Reports

Also read