UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

For the quarterly period ~~end~~ed ended~~June 30, 2020~~ March 31, 2023

OR

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

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

For the transition period from to

Commission File Number: 001-39441

KUBIENT, INC.

(Exact name of registrant as specified in its charter)

~~Delaware~~

~~82-1808844~~

Delaware

82-1808844

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

~~228 Park~~500 7th Avenue ~~South~~, 8th Floor

~~Suite 72602~~

New York, New York ~~10003-1502~~10018

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: ~~(866) 668-2567~~(800) 409-9456

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.00001 per share	KBNT	The Nasdaq Stock Market LLC
Common Stock Purchase Warrants	KBNTW	The Nasdaq Stock Market LLC

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

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

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


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

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

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

As of ~~September 22, 2020,~~May 19, 2023, the registrant had ~~7,661,300~~14,727,036 shares of common stock outstanding.

Table of Contents

Item 1. Financial Statements

Kubient, Inc.

Condensed Consolidated Balance Sheets

June 30, December 31,
2020 2019
(unaudited)
Assets
Current Assets:
Cash $ 45,115 $ 33,785
Accounts receivable, net 572,651 38,704
Prepaid expenses and other current assets 29,389 28,072
Total Current Assets 647,155 100,561
Intangible assets, net 1,445,226 83,333
Property and equipment, net 5,827 4,549
Deferred offering costs 433,898 285,196
Total Assets $ 2,532,106 $ 473,639

Liabilities and Stockholders' Deficiency
Current Liabilities:
Accounts payable - suppliers $ 540,933 $ 785,180
Accounts payable - trade 2,206,827 867,554
Accrued expenses and other current liabilities 1,037,047 478,674
Accrued interest 251,653 117,912
Accrued interest - related parties 41,559 4,204
Due to related party 29,000 29,000
Notes payable, current portion 271,960 113,967
Convertible notes payable, current portion, net of discount of $0 and $630,994 as of June 30, 2020 and December 31, 2019, respectively - 2,569,006
Convertible notes payable - related parties, current portion, net of discount of $0 and $281,701 as of June 30, 2020 and December 31, 2019, respectively - 548,799
Total Current Liabilities 4,378,979 5,514,296
Convertible notes payable, non-current portion, net of discount of $330,585 and $0 as of June 30, 2020 and December 31, 2019, respectively 3,154,415 -
Convertible notes payable - related parties, non-current portion, net of discount of $183,965 and $0 as of June 30, 2020 and December 31, 2019, respectively 722,035 -
Notes payable, non-current portion 248,197 -
Notes payable - related parties, non-current portion 585,000 -
Total Liabilities 9,088,626 5,514,296

Commitments and contingencies (Note 8)
Stockholders' Deficiency:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized; No shares issued and outstanding as of June 30, 2020 and December 31, 2019 - -
Common stock, $0.00001 par value; 95,000,000 shares authorized; 3,602,633 and 3,601,521 shares issued and outstanding as of June 30, 2020 and December 31, 2019 36 36
Additional paid-in capital 3,410,279 3,362,724
Accumulated deficit (9,966,835 ) (8,403,417 )
Total Stockholders' Deficiency (6,556,520 ) (5,040,657 )
Total Liabilities and Stockholders' Deficiency $ 2,532,106 $ 473,639


	March 31,		December 31,
	2023		2022
	(unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	11,827,956	$	14,739,484
Accounts receivable, net		98,132		135,658
Prepaid expenses and other current assets		313,606		346,935
Total Current Assets		12,239,694		15,222,077
Deferred financing costs		10,000		10,000
Total Assets	$	12,249,694	$	15,232,077

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable - suppliers	$	386,497	$	673,781
Accounts payable - trade		776,545		816,190
Accrued expenses and other current liabilities		557,964		830,365
Deferred revenue		567		28,403
Total Current Liabilities		1,721,573		2,348,739
Notes payable		78,900		78,900
Total Liabilities		1,800,473		2,427,639

Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized; No shares issued and outstanding as of March 31, 2023 and December 31, 2022		—		—
Common stock, $0.00001 par value; 95,000,000 shares authorized; 14,515,940 and 14,456,035 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		145		145
Additional paid-in capital		53,115,414		53,004,967
Accumulated deficit		(42,666,338)		(40,200,674)
Total Stockholders’ Equity		10,449,221		12,804,438
Total Liabilities and Stockholders’ Equity	$	12,249,694	$	15,232,077

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

1

Table of Contents

Kubient, Inc.
Condensed Consolidated Statements of Operations
(unaudited)


For the Three Months Ended

March 31,


2023

2022

Net Revenues

$
11,748

$
1,245,304

Costs and Expenses:

Sales and marketing

735,033

1,333,010
Technology

519,194

1,155,699
General and administrative

1,243,384

2,182,549
Loss accrual on customer contract

—

789,605
Total Costs and Expenses

2,497,611

5,460,863
Loss From Operations

(2,485,863)

(4,215,559)

Other (Expense) Income:




Interest expense

(2,446)

(3,872)
Interest income

4,445

2,291
Change in fair value of contingent consideration

—

589,622
Other income

18,200

26
Total Other Income

20,199

588,067
Net Loss

$
(2,465,664)

$
(3,627,492)
Net Loss Per Share - Basic and Diluted

$
(0.17)

$
(0.25)
Weighted Average Common Shares Outstanding - Basic and Diluted

14,440,464

14,256,159
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Net Revenues $ 91,537 $ 49,150 $ 1,473,450 $ 105,956

Operating Expenses:
Technology 551,157 381,786 1,031,558 754,737
General and administrative 658,080 658,764 1,322,006 791,371

Total Operating Expenses 1,209,237 1,040,550 2,353,564 1,546,108

Loss From Operations (1,117,700 ) (991,400 ) (880,114 ) (1,440,152 )

Other (Expense) Income:
Interest expense (296,483 ) (143,663 ) (729,295 ) (160,099 )
Interest expense - related parties (101,637 ) (115 ) (202,551 ) (115 )
Gain on forgiveness of accounts payable - supplier - - 236,248 -
Other income 10,500 - 12,294 244

Total Other Expense (387,620 ) (143,778 ) (683,304 ) (159,970 )

Net Loss $ (1,505,320 ) $ (1,135,178 ) $ (1,563,418 ) $ (1,600,122 )

Net Loss Per Share - Basic and Diluted $ (0.42 ) $ (0.32 ) $ (0.43 ) $ (0.44 )

Weighted Average Common Shares Outstanding - Basic and Diluted 3,601,838 3,599,300 3,601,680 3,599,300

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

2

Table of Contents

Kubient, Inc.
Condensed Consolidated Statements of Changes in ~~Stockholders' Deficiency~~Stockholders’ Equity
(unaudited)


For the Three Months Ended March 31, 2023

Additional

Common Stock

Paid-In

Accumulated


Shares

Amount

Capital

Deficit

Total

Balance - January 1, 2023

14,456,035

$
145

$
53,004,967

$
(40,200,674)

$
12,804,438
Stock-based compensation:

Common stock

59,905

—

108,206

—

108,206
Options

—

—

2,241

—

2,241
Net loss

—

—

—

(2,465,664)

(2,465,664)
Balance - March 31, 2023

14,515,940

$
145

$
53,115,414

$
(42,666,338)

$
10,449,221


For the Three Months Ended March 31, 2022

Additional

Common Stock

Paid-In

Accumulated


Shares

Amount

Capital

Deficit

Total

Balance - January 1, 2022

14,253,948

$
143

$
52,030,907

$
(26,580,790)

$
25,450,260
Surrender and cancellation of common stock

(3,397)

—

(18,683)

—

(18,683)
Stock-based compensation:








Common stock

53,192

—

430,361

—

430,361
Options

—

—

2,295

—

2,295
Net loss

—

—

—

(3,627,492)

(3,627,492)
Balance - March 31, 2022

14,303,743

$
143

$
52,444,880

$
(30,208,282)

$
22,236,741

The accompanying notes are an integral part of these condensed consolidated financial statements.
~~(unaudited)~~

3

Table of Contents

Kubient, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Six Months Ended June 30, 2020
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance - January 1, 2020 3,601,521 $ 36 $ 3,362,724 $ (8,403,417 ) $ (5,040,657 )
Stock-based compensation:
Options - - 5,394 - 5,394
Net loss - - - (58,098 ) (58,098 )
Balance - March 31, 2020 3,601,521 36 3,368,118 (8,461,515 ) (5,093,361 )
Stock-based compensation:
Options - - 5,423 - 5,423
Common stock 1,112 - 3,000 - 3,000
Forgiveness of accrued expenses by related party - - 33,738 - 33,738
Net loss - - - (1,505,320 ) (1,505,320 )
Balance - June 30, 2020 3,602,633 $ 36 $ 3,410,279 $ (9,966,835 ) $ (6,556,520 )

For the Six Months Ended June 30, 2019
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance - January 1, 2019 3,599,300 $ 36 $ 2,717,538 $ (4,270,544 ) $ (1,552,970 )
Stock-based compensation:
Options - - 5,502 - 5,502
Net loss - - - (464,944 ) (464,944 )
Balance - March 31, 2019 3,599,300 36 2,723,040 (4,735,488 ) (2,012,412 )
Issuance of investor and placement agent warrants in connection with issuance of convertible notes payable, net of issuance costs [1] - - 437,901 - 437,901
Stock-based compensation:
Options - - 5,258 - 5,258
Net loss - - - (1,135,178 ) (1,135,178 )
Balance - June 30, 2019 3,599,300 $ 36 $ 3,166,199 $ (5,870,666 ) $ (2,704,431 )


For the Three Months Ended

March 31,


2023

2022

Cash Flows From Operating Activities:




Net loss

$
(2,465,664)

$
(3,627,492)
Adjustments to reconcile net loss to net cash used in operating activities:


Provision for credit losses

9,471

—
Depreciation and amortization

—

162,221
Change in fair value of contingent consideration

—

(589,622)
Stock-based compensation:




Common stock

108,206

429,811
Options

2,241

2,295
Changes in operating assets and liabilities:



Accounts receivable

28,055

(60,930)
Prepaid expenses and other current assets

33,329

590,661
Accounts payable - suppliers

(287,284)

630,026
Accounts payable - trade

(39,645)

391,034
Accrued expenses and other current liabilities

(190,221)

(1,532,150)
Deferred revenue

(27,836)

(369,195)
Net Cash Used In Operating Activities

(2,829,348)

(3,973,341)




Cash Flows From Investing Activities:




Purchase of property and equipment

—

(7,520)
Net Cash Used In Investing Activities

—

(7,520)

Cash Flows From Financing Activities:




Repayment of PPP loan

—

(109,270)
Repayment of financed director and officer insurance premiums

(82,180)

(108,788)
Net Cash Used In Financing Activities

(82,180)

(218,058)
Net Decrease In Cash and Cash Equivalents

(2,911,528)

(4,198,919)
Cash and Cash Equivalents - Beginning of the Period

14,739,484

24,907,963
Cash and Cash Equivalents - End of the Period

$
11,827,956

$
20,709,044
~~[1] Net of issuance costs of $78,766.~~

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

3
4

Table of Contents

Kubient, Inc.

Condensed Consolidated Statements of Cash Flows (Continued)

(unaudited)

For the Three Months Ended

March 31,

2023

2022

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for:




Interest

$
3,215

$
—




Non-cash investing and financing activities:




Surrender and cancellation of common stock

$
—

$
(18,683)
~~(unaudited)~~
For the Six Months Ended
June 30,
2020 2019
Cash Flows From Operating Activities:
Net loss $ (1,563,418 ) $ (1,600,122 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 139,145 -
Bad debt expense 3,734 1,684
Gain on forgiveness of accounts payable - supplier (236,248 ) -
Allowance for other asset - 200,000
Stock-based compensation:
Stock options 10,817 10,760
Common stock 73,125 6,000
Amortization of debt discount and debt issuance costs 585,409 125,683
Amortization of debt discount and debt issuance costs - related parties 173,236 70
Changes in operating assets and liabilities:
Accounts receivable (537,681 ) (38,808 )
Prepaid expenses and other current assets (1,317 ) (35,621 )
Other asset - (270,000 )
Accounts payable - suppliers (7,999 ) 82,773
Accounts payable - trade 209,292 55,596
Accrued expenses and other current liabilities 373,284 (37,164 )
Accrued interest 133,741 26,127
Accrued interest - related parties 37,355 34
Net Cash Used In Operating Activities (607,525 ) (1,472,988 )

Cash Flows From Investing Activities:
Purchase of intangible assets (355,019 ) -
Purchase of property and equipment (2,316 ) -
Advances to related party - (25,000 )
Net Cash Used In Investing Activities (357,335 ) (25,000 )

Cash Flows From Financing Activities:
Advances from related party - 250
Repayment of advance from related party - (45,000 )
Proceeds from issuance of convertible notes payable and investor warrants [1]       -          2,127,401
Proceeds from issuance of notes payable 406,190 -
Proceeds from issuance of notes payable - related parties 585,000 -
Repayment of notes payable - (82,369 )
Payment of deferred offering costs (15,000 ) -
Net Cash Provided By Financing Activities 976,190 2,000,282

Net Increase In Cash 11,330 502,294

Cash - Beginning of the Period 33,785 7,518

Cash - End of the Period $ 45,115 $ 509,812
~~[1] The amount for the six months ended June 30, 2019 includes gross proceeds of $2,500,000, less issuance costs of $372,599 deducted directly from the offering proceeds.~~

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ 8,331
Income taxes $ - $ -

Non-cash investing and financing activities:
Original issue discount in connection with convertible notes payable $ 285,000 $ 235,000
Original issue discount in connection with convertible notes payable - related party    $ 75,500       $ 15,000
Issuance of investor and placement agent warrants in connection with issuance of convertible notes payable    $ -       $ 437,901
Accrual of intangible assets $ 1,144,981 $ -
Accrual of deferred offering costs $ 148,702 $ 6,712
Forgiveness of related party liability $ 33,738 $ -
Equity issuance costs - placement agent warrants $ - $ 16,667

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

4
5

Table of Contents

Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 – BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES AND BASIS OF PRESENTATION
Organization and Operations
Kubient, Inc. (“Kubient”, “we”, “our” or the “Company”), a Delaware corporation, was incorporated in May 2017 to solve some of the most significant problems facing the global digital advertising industry.
The Company’s experienced team of marketing and technology veterans has developed the Audience ~~Cloud,~~Marketplace, a modular, highly scalable, transparent, cloud-based software platform for real-time trading of digital, ~~programmatic advertising.~~Programmatic Advertising. The Company’s platform’s open marketplace gives both advertisers (ad space buyers) and ~~publishers~~Publishers (ad space sellers) the ability to use machine learning in the most critical parts of any ~~programmatic advertising~~Programmatic Advertising inventory auction, while simultaneously and significantly reducing those advertisers and ~~publishers’~~Publishers’ exposure to fraud, ~~even~~specifically in athe pre-bid environment.
The Company also provides unique capabilities with its proprietary pre-bid ad fraud detection and prevention, Kubient Artificial Intelligence (“KAI”), which has the ability to stop fraud in the critical 300 millisecond window before an advertiser spends their budget on fraudulent ad space. The technology is powered by deep learning algorithms, the latest advancement in machine learning, which allows the Company to ingest vast amounts of data, find complex patterns in the data and make accurate predictions. This provides advertisers a powerful tool capable of preventing the purchase of ad fraud.
The Company believes that its Audience Marketplace technology allows advertisers to reach entire audiences rather than buying single impressions from disparate sources. By becoming a one stop shop for advertisers and ~~publishers,~~Publishers, providing them with the technology to deliver meaningful messages to their target audience, all in one place, on a single platform that is computationally efficient, transparent, and as safely fraud-free as possible, the Company believes that its Audience Marketplace platform (and the application of ~~its~~the platform’s machine learning algorithms) leads to increased ~~publisher~~Publisher revenue, lower advertiser cost, reduced latency and increased economic transparency during the advertising auction process.
~~Risks and Uncertainties~~
The Company’s financial condition and results of operations for the fiscal year 2020 is very likely to be adversely affected by the recent COVID-19 pandemic. The Company is currently following the recommendations of local health authorities in New York to minimize exposure risk for its employees and visitors. However, the scale and scope of this pandemic remains unknown, and the duration of the business disruption and related financial impact cannot be reasonably estimated at this time. While the Company is currently implementing specific business continuity plans to reduce the potential impact of COVID-19, the Company, has, as of the date of this prospectus, suffered a negative impact during the second quarter of 2020, with the most noticeable impact on our advertising impression volumes occurring in April, falling by almost 80%. The Company believes the reduction in April advertising impression volumes was driven by its customer’s advertising budgets being reduced due to the effects of COVID-19 on their respective businesses. With that said, impressions have not decreased further since April. In the third quarter of 2020, the Company has begun to see a slow return of those advertising budgets to its current customer base and, as a result, the Company expects an increase in advertising impression volumes by the beginning of the fourth quarter of 2020. There can be no assurances that the Company’s advertising impression volumes will return to pre-COVID-19 levels.
In addition, a report from the World Advertising Research Center (“WARC”) showed that global marketing budgets for digital advertising in April fell for the first time since WARC started tracking advertising spend in 2012. A lack of demand for media buys has also made ad spots less expensive, according to WARC data. For example, the cost of digital video ads was forecast to go up by 6.7% globally by media audit company ECI Media Management, but after taking into account the effects of COVID-19 on the advertising industry, the cost of digital video ads is only likely to increase by 1.3%, per WARC.
A lack of global demand from digital advertisers has also resulted in less value being placed upon Kubient’s publisher customers’ inventory. This lack of demand for digital media buys has led to a decrease in impressions served by Kubient on our publisher customers’ inventory. However, the Company’s publisher customers are trying to maintain their pre-COVID-19 advertising revenues, despite the lower demand for digital advertising globally. As such, the Company has taken a number of steps to maintain good business relationships with certain of its publisher customers. First, the Company has reduced its own profit margins in order to lower the closing price for certain of its advertiser customers, while keeping the Company’s publisher customers’ price level at a rate that will allow the publishers to meet their revenue goals. Second, in addition to reducing its own profit margin for certain customers, the Company has entered into negotiations for extended payment terms to be offered to these customers, which may lead to delays in the Company’s ability to collect its outstanding accounts receivables.
Further, the COVID-19 pandemic and resulting economic recession have resulted in advertisers and agencies expressing a reluctance to test new vendors. This will potentially increase the sales cycle for new advertisers and their agencies and could have a negative impact on the Company’s projected revenue and timelines for the launch of new products. For example, the Company’s fraud detection solution, Kubient Artificial Intelligence (“KAI”), was anticipated to be released as a stand-alone enterprise product in the second quarter of 2020, but instead was made available as a stand-alone enterprise product in the third quarter of 2020.
5
~~Kubient, Inc.~~
~~Notes to Unaudited Condensed Consolidated Financial Statements~~
As the scale and scope of COVID-19 remains unknown, and the duration of the financial impact of the pandemic on the Company cannot be reasonably estimated at this time. The COVID-19 pandemic could have a long-term impact on the Company’s customers during and after 2020 which could reduce their demand for Company products. The extent to which COVID-19 or any other health epidemic may impact the Company’s results for 2020 and beyond will depend on future developments that could be outside the Company’s control, and which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the overall economic impact of the COVID-19 pandemic. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during the remainder of 2020 and beyond. ~~The financial statements do not include any adjustments that might result from the outcome of this uncertainty.~~
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial ~~information.~~information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair ~~presentation~~statement of the unaudited condensed consolidated financial statements of the Company as of ~~June 30, 2020~~March 31, 2023 and for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2023 and ~~2019.~~2022. The results of operations for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2023 are not necessarily indicative of the operating results for the full year ending December 31, ~~2020~~2023 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures as of December 31, ~~2019~~2022 and ~~2018~~2021 and for the years then ended which are included the ~~registration statement filed~~Annual Report on Form ~~S-1~~10-K filed with the United States Securities and Exchange Commission (the “SEC”) on ~~August 11, 2020.~~March 30, 2023.

6

Table of Contents

~~Reverse Stock Split~~Kubient, Inc.

~~A 1:9 reverse stock split of the Company’s common stock was effected on August 6, 2020 (the “Reverse Stock Split”). All share and per share information has been retroactively adjusted~~Notes to ~~give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.~~Unaudited Condensed Consolidated Financial Statements

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the significant accounting policies included in the audited consolidated financial statements as of December 31, ~~2019~~2022 and ~~2018~~2021 and for the years then ended, which were included the ~~registration statement filed~~Annual Report on Form ~~S-1~~10-K filed with the SEC on ~~August 11, 2020,~~March 30, 2023, except as disclosed in this note.

Liquidity

~~Liquidity and Financial Condition~~

~~The Company has not yet achieved profitability and expects to continue to incur cash outflows from operations. It is expected that its operating expenses will continue to increase and, as a result,~~As of March 31, 2023, the Company ~~will eventually need to generate significant revenues to achieve profitability.~~

~~On August 14, 2020,~~had cash and cash equivalents of $11,827,956 and working capital of $10,518,121. During the quarter ended March 31, 2023, the Company ~~raised estimated aggregate gross~~incurred a net loss of $2,465,664 and ~~net proceeds~~used cash in operating activities of approximately $12.5 million and $10.7 million, respectively, in its initial public offering (“IPO”). See Note 10 – Subsequent Events – Initial Public Offering for additional details. In connection with and following the IPO, convertible notes payable with an aggregate principal balance of approximately $5.1 million and accrued interest of approximately $0.3 million were converted into equity.$2,829,348.

Subsequent to June 30, 2020, the Company received aggregate proceeds of $250,000 in connection with notes payable issued to our executive officers and notes payable with aggregate principal amount of $113,967 were repaid by the Company.

~~As a result, the~~The Company believes its current cash on hand is sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued. ~~Thereafter, the Company may need to raise further capital, through the sale of additional equity or debt securities or otherwise, to support its future operations.~~ The ~~Company’s~~Company's operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures. IfThe Company's future capital requirements and the adequacy of its available funds will depend on many factors, including the Company's ability to successfully commercialize its products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement the Company's product and service offerings.

Since inception, the Company’s operations have primarily been funded through proceeds received in equity and debt financings. The Company believes it has access to capital resources and continues to evaluate additional financing opportunities. There is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. There is ~~unable~~also no assurance that the amount of funds the Company might raise will enable the Company to ~~secure additional capital, it may be required to curtail~~complete its ~~research and~~ development initiatives or attain profitable operations.

Cash and ~~take additional measures to reduce costs~~Cash Equivalents

The Company maintains cash and cash equivalents in ~~order to conserve its cash.~~

~~Accounts Receivable~~

~~Accounts receivable are carried~~bank accounts, which, at ~~their contractual amounts, less an estimate for uncollectible amounts.~~times, may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. The Company has not experienced any losses in such accounts. As of ~~June 30, 2020~~March 31, 2023 and December 31, ~~2019, there~~2022, the Company had cash balances of $11,827,956 and $14,739,484, respectively, in excess of FDIC insured limits. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, and the FDIC was appointed as receiver. Thus, on March 17, 2023, the Company moved the majority of its funds on deposit at SVB to other banks, with the intention to move the remainder of its funds on deposit at SVB once the Company has transitioned all accounting and payroll functions connected to its account at SVB to accounts at other banks, such as our depository account at JP Morgan Chase. While the Company does not anticipate any losses, liquidity issues, or capital resource constraints arising as a result of the winding down of its accounts at SVB, it cannot predict at this time to what extent it or its collaborators, employees, suppliers, and/or vendors could be negatively impacted by the closure of SVB and other macroeconomic and geopolitical events.

Accounts Receivable

On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13, "Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," using a modified retrospective approach. The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses ("CECL") model. The cumulative effect of adoption did not result in an ~~allowance for uncollectible amounts of $6,838 and $34,115, respectively. Management estimates~~adjustment to the allowance for ~~uncollectible accounts based on existing economic conditions,~~credit loss, and accordingly, the ~~financial conditions~~Company’s accumulated deficit as of ~~the customers, and the amount and age~~January 1, 2023.

7

Table of ~~past due accounts.~~Contents

6

Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

~~Intangible Assets~~
~~Intangible~~Accounts receivable are recorded at the amount the Company is responsible to collect from the customer, less an estimate for expected credit losses. See Note 2 — Significant Accounting Policies — Revenue Recognition for additional details. In the event that the Company does not collect the gross billing amount from the customer, the Company generally is not contractually obligated to pay the associated supplier cost. The Company’s allowance for credit losses on accounts receivable reflects management’s estimate of credit losses over the remaining expected life of such assets, ~~are comprised of costs to acquire and develop~~ ~~computer software, including (i) the costs to acquire third-party data which is used to improve the Company’s artificial intelligence platform for client use~~measured primarily using historical experience, as well as ~~(i)~~current conditions and forecasts that affect the costs to acquire third-party software as well as the related source code. The intangible assets have estimated useful lives of two years for the computer software and five years for the capitalized data. Once placed into service, the Company amortizes the costcollectability of the ~~intangible assets over their estimated useful lives on a straight-line basis.~~reported amount.
~~Software~~ ~~Development Costs~~
The Company develops and utilizes software in connection with its ability to generate customer revenue (which is further explained in Note 3 – Significant Accounting Policies – Revenue Recognition). Costs incurred in this effort are accounted for under the provisions of ASC 985-20, Software – Cost of Software to be Sold, Leased or Marketed, whereby costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. The Company capitalizes subsequent additions, modifications, or upgrades to internally developed software only to the extent that such changes allow the software to perform a task it previously did not perform.
Revenue Recognition
~~The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines revenue recognition through the following steps:~~
· ~~Identification of a contract with a customer;~~
· ~~Identification of the performance obligations in the contract;~~
· ~~Determination of the transaction price;~~
· ~~Allocation of the transaction price to the performance obligations in the contract; and~~
· ~~Recognition of revenue when or as the performance obligations are satisfied.~~
The Company maintains a contract with each customer and supplier, which ~~specify~~specifies the terms of the ~~relationship and access to the Company’s platform.~~relationship. The Company provides a service to its customers (the buy-side ad networks who work for advertisers) by ~~providing its platform to connect~~connecting advertisers and ~~publishers.~~Publishers. For this service, the Company earns a ~~mark-up, which~~percentage of the amount that is ~~the spread between what the Company collects from~~paid by the advertiser, who wants to run ~~an ad~~a digital advertising campaign, ~~and what~~which, in some cases, is reduced by the ~~Company remits~~amount paid to the ~~publisher,~~Publisher, who wants to sell its ad ~~space.~~ space to the advertiser.
The transaction price is determined based on the consideration to which itthe Company expects to be entitled, including the impact of any implicit price concessions over the course of the contract. The Company’s performance obligation is to facilitate the publication of advertisements. The performance obligation is satisfied at the point in time that the ad is placed. Subsequent to a bid being won, the associated fees are generally not subject to refund or adjustment. Historically, any refunds and adjustments have not been material.
The revenue recognized is ~~the difference between (i)~~ the amount the Company is responsible to collect from the customer related to the placement of an ad (the “Gross Billing”) ~~and (ii)~~, less the amount the Company remits to the supplier for the ad space (the “Supplier Cost”)., if any. The determination of whether the Company is the principal or agent, and hence whether to report revenue on a gross basis equal to the Gross Billing or on a net basis for the difference between the Gross Billing and Supplier Cost, requires judgment. The Company acts as an agent in arranging via its platform for the specified good (the ad space) to be purchased by the advertiser, as it does not control the goods or services being transferred to the end customer, it does not take responsibility for the quality or acceptability of the ad space, it does not bear inventory risk, nor does it have discretion in establishing price of the ad space. As a result, the Company recognizes revenue on a net basis for the difference between the Gross Billing and the Supplier Cost. During the three months ended June 30, 2020 and 2019, the Company recognized aggregate revenue of $91,537 and $49,150, respectively, in connection with contracts where it acts as an agent. During the six months ended June 30, 2020 and 2019, the Company recognized aggregate revenue of $173,112 and $105,956, respectively, in connection with contracts where it acts as an agent.
7
~~Kubient, Inc.~~
~~Notes to Unaudited Condensed Consolidated Financial Statements~~
The Company invoices customers on a monthly basis for the amount of Gross Billings in the relevant period. Invoice payment terms, negotiated on a customer-by- customer basis, are typically between 45 to 90 days. However, for certain agency customers with sequential liability terms as specified by the Interactive Advertising Bureau, (i) payments are not due to the Company until such agency customers has received payment from its customers (ii) the Company is not required to make a payment to its supplier until payment is received from the Company’s customer and (iii) the supplier is responsible to pursue collection directly with the advertiser. As a result, once the Company has met the requirements of each of the five steps under ASC 606, the Company’s accounts receivable are recorded at the amount of Gross Billings which represent amounts it is responsible to collect and accounts payable, if applicable, are recorded at the amount payable to suppliers. In the event step 1 under ASC 606 is not met, the Company does not record either the accounts receivable or accounts payable. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.
From time to time, the Company records loss accruals for estimated costs that exceed estimated revenue related to its contracts with customers. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2022, the Company recognized ~~revenue in connection~~an estimated loss accrual on a customer contract of $789,605 related to media costs incurred associated with ~~contracts to scan~~ a ~~customers’ first-party anonymized data~~contract with ~~KAI. Upon completion of the scan, the Company delivered~~ a ~~report to the~~ customer, which iswas included in costs and expenses on the point in time the Company satisfied the performance obligation. The Company acts as the principal for these contracts, as it is primarily responsible for fulfilling the promise to provide the services and has discretion in establishing the pricecondensed consolidated statement of service. As a result, the Company recognizes revenue on a gross basis. During the three and six months ended June 30, 2020, the Company recognized aggregate revenue of $0 and $1,300,338, respectively, in connection with the contracts.
operations.
As of ~~June 30, 2020~~March 31, 2023 and December 31, ~~2019,~~2022, the Company did not have any contract assets from contracts with customers. During the three months ended March 31, 2023, the Company did not recognize any revenue that was deferred as of December 31, 2022. As of ~~June 30, 2020~~March 31, 2023 and December 31, ~~2019,~~2022, the Company had ~~$15,000~~$567 and $531, respectively, of contract liabilities where performance obligations have not yet been satisfied. ~~The Company expects to satisfy its remaining performance obligations and recognize the revenue within the next twelve months.~~ During the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2023 and ~~2019,~~2022, there was no revenue ~~was~~ recognized from performance obligations satisfied (or partially satisfied) in previous periods.

8

Table of Contents

Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of vested common and dilutive common-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares of options, warrants and convertible notes, if not anti-dilutive.
The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

For the Six Months Ended
June 30,
2020 2019
Stock options 97,856 54,333
Warrants 1,138,556 843,889
Convertible notes [1] 22,242 19,349
1,258,654 917,571


For the Three Months Ended

March 31,


2023

2022
Warrants [1]

4,980,963

5,122,074
Restricted stock units

531,095

855,989
Restricted stock awards

52,087

307,491
Stock options

36,667

94,447

5,600,812

6,380,001
[1]  ~~Excludes~~Includes shares ~~issuable upon conversion of the Senior and Junior Notes, which were not convertible as of June 30, 2020 and whose conversion price was not known as of such date. Subsequent to June 30, 2020,~~underlying warrants that are exercisable into an aggregate of ~~1,555,314~~(i) 368,711 shares of common stock and (ii) five-year warrants to purchase ~~1,461,091~~368,711 shares of common stock ~~were issued as a result~~at an exercise price of ~~the conversion of convertible notes outstanding as of June 30, 2020. See Note 10 – Subsequent Events for additional details.~~$5.50 per share.

~~Reclassifications~~
~~Certain prior period balance sheet amounts have been reclassified to conform to the fiscal 2020 presentation. These reclassifications~~ ~~have no impact on the previously reported net loss.~~
8
~~Kubient, Inc.~~
~~Notes to Unaudited Condensed Consolidated Financial Statements~~
~~NOTE 3 – INTANGIBLE ASSETS~~
~~Intangible assets consist of the following:~~
June 30,
2020 December 31,
2019
Acquired data $ 1,500,000 $ -
Acquired software 100,000 100,000
1,600,000 100,000
Less: accumulated amortization (154,774 ) (16,667 )
Intangible assets, net $ 1,445,226 $ 83,333
During the six months ended June 30, 2020, the Company acquired third-party data with a cost of $1,500,000 as a means using the data to support the evolution and growth of the Company’s artificial intelligence platform. The Company began recognizing amortization expense during the six months ended June 30, 2020 over the five-year useful life (which is the period in which is the estimated life of the enhancement), as the product enhancement was available for general release to the Company’s customers under its beta testing program as well as integration into the Company’s pre-existing platform. As of June 30, 2020, the Company had a remaining liability in connection with purchase of third-party data of $1,144,981, which is included within accounts payable – trade on the condensed consolidated balance sheet. Subsequent to June 30, 2020, the Company repaid $500,000 in connection with the remaining liability of the purchase of the third-party data.
Amortization expense related to intangible assets was $87,500 and $0 for the three months ended June 30, 2020 and 2019, respectively, and $138,107 and $0 for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the Company’s intangible assets had a remaining weighted average amortization period of 4.5 years.
~~The estimated future amortization expense is as follows:~~
For the Years Ending December 31, Total
2020 $ 175,000
2021 333,333
2022 300,000
2023 300,000
2024 300,000
Thereafter 36,893
$ 1,445,226
9
~~Kubient, Inc.~~
~~Notes to Unaudited Condensed Consolidated Financial Statements~~
NOTE 43 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:

June 30, December 31,
2020 2019


March 31,

December 31,

2023

2022
Accrued bonuses

$
—

$
215,761
Accrued payroll $ 331,327 $ -

89,375

—
Accrued payroll taxes 20,472 163,746
Financed director and officer insurance premiums

84,240

168,480
Accrued supplier expenses 98,943 39,026

44,448

44,949
Accrued legal and professional fees 289,737 172,801

170,332

49,832
Accrued commissions 25,000 -

702

4,181
Credit card payable 32,224 30,113

51,650

226,679
Accrued director fees 80,128 -
Accrued programming expenses 52,138 36,993
Accrued issuable equity 70,125 -
Deferred revenue 15,000 15,000
Accrued interest

8,734

11,220
Accrued warrant exercise costs

83,519

83,519
Other 21,953 20,995

24,964

25,744
Total accrued expenses and other current liabilities $ 1,037,047 $ 478,674

$
557,964

$
830,365

~~NOTE 5 – NOTES PAYABLE~~
As of June 30, 2020, notes payable with an aggregate principal amount of $178,967 were past due and are classified as current liabilities on the condensed consolidated balance sheet as of June 30, 2020. Such notes continue to accrue interest, which has been accrued as of June 30, 2020. Subsequent to June 30, 2020, notes payable with aggregate principal amount of $113,967 were repaid by the Company and notes payable with in the principal amount of $20,000 and accrued interest in the amount of $3,370 were converted into common stock. See Note 8 – Commitments and Contingencies – Litigation and Note 10 – Subsequent Events for additional details.
During the three months ended June 30, 2020 and 2019, the Company recorded interest expense of $87,752 and $22,463, respectively, and non-cash amortization of debt discount and debt issuance costs of $208,731 and $121,200, respectively, which is included in interest expense on the condensed consolidated statements of operations. During the six months ended June 30, 2020 and 2019, the Company recorded interest expense of $143,886 and $34,416, respectively, and non-cash amortization of debt discount and debt issuance costs of $585,409 and $125,683, respectively, which is included in interest expense on the condensed consolidated statement of operations. As of June 30, 2020 and December 31, 2019, the Company had $251,653 and $117,912, respectively, of accrued interest related to notes payable.
During the three months ended June 30, 2020 and 2019, the Company recorded interest expense – related parties of $12,569 and $45, respectively, and non-cash amortization of debt discount and debt issuance costs – related parties of $89,068 and $70, respectively, which is included in interest expense – related parties on the condensed consolidated statements of operations. During the six months ended June 30, 2020 and 2019, the Company recorded interest expense – related parties of $29,315 and $45, respectively, and non-cash amortization of debt discount and debt issuance costs – related parties of $173,236 and $70, respectively. As of June 30, 2020 and December 31, 2019, the Company had $41,559 and $4,204, respectively, of accrued interest - related parties related notes payable.
~~Notes Payable~~
~~Paycheck Protection Program Loan~~
On April 6, 2020, the Company received loan proceeds in the amount of approximately $327,000 (the “PPP Loan”) under the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security Act ~~and applicable regulations (the “CARES Act”).~~
10
9

Table of Contents

Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 4 – STOCKHOLDERS’ EQUITY
Stock-Based Compensation
Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020, the Company is eligible to apply for and receive forgiveness for all or a portion of its PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of the loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”) incurred during the 24 weeks subsequent to funding, and on the maintenance of employee and compensation levels, as defined, following the funding of the PPP Loan. The Company intends to use the proceeds of its PPP Loan for Qualifying Expenses. However, no assurance is provided that the Company will be able to obtain forgiveness of the PPP Loan in whole or in part. Any amounts that are not forgiven incur interest at 1.0% per annum and monthly repayments of principal and interest are deferred until the Small Business Administration makes a determination on forgiveness. The loan forgiveness amount will be reduced for the EIDL loan that the Company received, which is discussed further below. While the Company’s PPP Loan currently has a two-year maturity, the amended law will permit the Company to request a five-year maturity. As of June 30, 2020, the Company had not applied for forgiveness of the PPP Loan.
~~EIDL Loan~~
On June 20, 2020, the Company executed the loan documents required for securing a loan, which include the SBA Secured Disaster Loan Note, the Loan Authorization and Agreement and the Security Agreement (the “EIDL Loan”) from the United States Small Business Administration (the “SBA”) under its Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is $78,900, with proceeds to be used for working capital purposes. Interest on the EIDL Loan accrues at the rate of 3.75% per annum. Monthly installment payments in the amount of $385 per month, including principal and interest, will begin twelve months from the effective date of the EIDL Loan and the balance of principal and interest will be payable thirty years from the date of the promissory note. The EIDL Loan is collateralized by the assets of the Company. The Company received the proceeds from the EIDL Loan on June 23, 2020. Such EIDL Loan amount will reduce the Company’s PPP loan forgiveness amount described above.
~~Separately, during~~For the three months ended ~~June 30, 2020,~~March 31, 2023 and 2022, the Company ~~received a grant~~recognized stock-based compensation expense related to stock options, restricted stock awards and restricted stock units as follows:

For the Three Months Ended

March 31,

2023

2022
Sales and marketing

$
23,008

$
35,581
Technology

35,439

78,875
General and administrative

52,000

317,650
Total

$
110,447

$
432,106

As of ~~$10,000 from the Economic Injury Disaster Loan (“EIDL”) under the CARES Act. The grant~~March 31, 2023, there was approximately $1,152,375 of unrecognized stock-based compensation expense related to awards that were determined to be probable to vest, which will be recognized ~~as other income during the three and six months ended June 30, 2020.~~
~~Notes Payable – Related Parties~~
During the three and six months ended June 30, 2020, the Company received aggregate proceeds of $60,000 and $585,000, respectively, in connection with three-year notes payable issued to three of its executive officers. The notes bear interest ranging from 0.91% and 1.60% per annum, payable annually. The outstanding principal and accrued and unpaid interest became immediately due and payable upon the Company’s initial public offering. The holders have agreed to amend such notes prior to the effectiveness of this registration statement to provide for conversion of principal and interest thereunder into the units being issued in the public offering at the public offering price per unit. See Note 10 – Subsequent Events for additional details.
~~Convertible Notes Payable~~
over approximately 2.7 years.
During the three months ended ~~June 30, 2020,~~March 31, 2023, the Company ~~and all Senior Note and Junior Note holders entered to a consent and first amendment to Senior Notes and Junior Notes in the aggregate principal amount~~issued 59,905 shares of $3,000,000 and $1,326,000, respectively (the “Amended Senior Notes” and “Amended Junior Notes”, respectively). The Amended Senior Notes were amended as follows: (i) the holders authorized the Company to incur certain indebtedness, including certain government loans as well as non-government loans with a principal amount not to exceed $1,000,000 in the aggregate (the “Permitted Indebtedness”), (ii) the Amended Senior Notes are subordinated to the Permitted Indebtedness, (iii) effective May 1, 2020, the interest rate increased from 5% to 10% per annum, (iv) the original issuance discount was increased from 10% to 20%, (v) the maturity date of the Amended Senior Notes was extended to October 26, 2020, and (vi) in connection with the exercise price of the investor warrants, the date under which the Qualified IPO must occur on or before was extended to October 26, 2020. The Amended Junior Notes were amended as follows: (i) the holders authorized the Company to incur the Permitted Indebtedness and (ii) the Amended Junior Notes are subordinated to the Permitted Indebtedness, (iii) effective May 1, 2020, the interest rate increased from 5% to 10% per annum, (iv) the original issuance discount was increased from 10% to 20%, (v) the maturity date of the Amended Junior Notes was extended to April 11, 2021 and (vi) in connection with the exercise price of the investor warrants, the date under which the Qualified IPO must occur on or before was extended to October 26, 2020. The Company determined that the amended terms were debt modifications. The Company recorded additional debt discount in the amount of $360,500 associated with the increase in original issuance discount, which, together with the remaining unamortized balance of the debt discounts, will be recognized through the amended maturity dates. See Note 10 – Subsequent Events for additional detailscommon stock related to the ~~conversion~~previously granted restricted stock units.

10

Table of ~~the Company’s Senior and Junior Notes.~~Contents

11

Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE ~~6 – STOCKHOLDERS’ DEFICIENCY~~
~~Stock-Based Compensation~~
During the three months ended June 30, 2020 and 2019, the Company recognized aggregate stock-based compensation expense of $62,423 ($3,000 related to common stock issued to a service provider, $54,000 related to common stock that was not issued as of June 30, 2020 and, accordingly, was included in accrued expenses and other current liabilities and $5,423 related to stock options) and $9,758 ($4,500 related to common stock that was not issued as of June 30, 2019 and, accordingly, was included in accrued expenses and other current liabilities and $5,258 related to stock options), respectively. During the six months ended June 30, 2020 and 2019, the Company recognized aggregate stock-based compensation expense of $83,942 ($3,000 related to common stock issued to a service provider, $70,125 related to common stock that was not issued as of June 30, 2020 and, accordingly, was included in accrued expenses and other current liabilities and $10,817 related to stock options) and $16,760 ($6,000 related to common stock that was not issued as of June 30, 2019 and accordingly, was included in accrued expenses and other current liabilities and $10,760 related to stock options), respectively. As of June 30, 2020, there was $16,578 of unrecognized stock-based compensation expense, which will be recognized over approximately 2.0 years.
~~Common Stock~~
During the three and six months ended June 30, 2020, the Company issued 1,112 shares of immediately vested common stock under the Company’s 2017 Plan to a non-employee service provider. The shares had an issuance date fair value of an aggregate of $3,000, or $2.70 per share, which was recognized immediately.
~~NOTE 7 - RELATED PARTY TRANSACTIONS~~
~~As of June 30, 2020, the Company had outstanding notes payable – related parties, convertible notes payable – related parties and an advance due to a related party of $~~585,000, $830,500 and $74,905, respectively. As of December 31, 2019, the Company had outstanding convertible notes payable - related parties and an advance due to a related party of $830,500 and $29,000, respectively. See Note 5 – ~~Notes Payable and Note 10 – Subsequent Evets for additional details.~~
~~Sublease Agreement~~
~~In March 2019, Kubient entered into a sublease agreement with~~ OneQube, Inc. (“OneQube”) that provided for rent payments by Kubient to OneQube equal to $600 per desk per month and ends in June 2021. The Company’s current Chief Executive Officer is a stockholder of OneQube and serves as Chairman of the Board of OneQube. During the three months ended June 30, 2020 and 2019, rent expense associated with the OneQube sublease was $0 and $10,800, respectively, which is included in general and administrative expenses on the condensed consolidated statements of operations. During the six months ended June 30, 2020 and 2019, rent expense associated with the OneQube sublease was $35,821 and $14,400, respectively.
On June 18, 2020, the Company’s sublease agreement was terminated effective March 31, 2020. Pursuant to the termination agreement, the parties agreed that the Company shall have no obligation to pay OneQube any amount arising from its obligations under the sublease for rent during the period from January 1 to March 31, 2020. ~~As a result of the termination and release, during the three and six months ended June 30, 2020, the Company recognized the remaining liability and recorded a contribution of capital of $33,738.~~
~~NOTE 8 – COMMITMENTS AND CONTINGENCIES~~
~~Litigation~~
From time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
12
~~Kubient, Inc.~~
~~Notes to Unaudited Condensed Consolidated Financial Statements~~
On October 6, 2017, the Company entered into a Master Service Agreement for Buyers and Sellers, and an “Engage Buyer Addendum”, with Engage BDR, LLC whereby the Company could gain access to the Engage BDR, LLC proprietary trading technology platform in order to both offer and purchase inventory for the placement of ads. On August 31, 2018, Engage BDR, LLC filed suit against the Company (Engage BDR, LLC v. Kubient, Inc., Los Angeles County Superior Court Case No. SC129764) setting forth claims of breach of contract, unjust enrichment, quantum meruit, accounts stated, and breach of implied covenant of good faith and fair dealing. On November 14, 2018, Engage BDR, LLC obtained a summary default judgment against the Company for $35,936. A Writ of Execution was issued against the Company in the amount of $40,997 on April 16, 2020. On June 12, 2020, the Company filed a motion to vacate the default judgment and the Court granted the motion on August 25, 2020. The Court has set a September 24, 2020 deadline for the Company to respond to the complaint. The Court has set a January 7, 2021 hearing date. As of June 30, 2020 and December 31, 2019, the Company had accrued for all amounts.
On November 27, 2019, the Company received a summons from the Los Angeles County Superior Court of California in connection with a civil action filed by a vendor on November 25, 2019 against the Company in the amount of $20,764. On April 21, 2020, the Company made a settlement offer to pay $20,000 within 90 days of execution of a settlement agreement, however, that settlement offer was rejected by the vendor. On May 28, 2020, the Company filed a motion to dismiss. The Court has set an October 5, 2020 hearing date on the Company’s motion to dismiss. As of June 30, 2020 and December 31, 2019, the Company had accrued approximately $20,000.
In March 2019 the Company entered into a binding letter of intent (“LOI”) to acquire substantially all of the assets of Aureus Holdings, LLC d/b/a Lo70s (“Lo70s”). In connection with the LOI, the Company paid a good faith deposit to Lo70s of $200,000. Subsequently, during the diligence phase of the LOI it became apparent that Lo70s’ projections were grossly inaccurate and misstated. Diligence inquiries made to Lo70s on this subject continuously went ignored. As a result, the Company allowed the LOI to expire under its own terms. In connection with this expiration, the Company recently was served with a complaint by Lo70s (Aureus Holdings, LLC d/b/a Lo70s v. Kubient, Inc., et al., Superior Court of Delaware, Case No. N20C-07-061), which names the Company and three individuals, Peter A. Bordes, Jr., Paul Roberts and Philip Anderson (a former consultant to the Company) as defendants. The complaint alleges breach of contract on the expired LOI and other claims and seeks $5,000,000 in damages, without providing information or support as to how the alleged damages are calculated. The Company believes that Lo70s’ claim has no merit, and wholly and completely disputes Lo70s’ allegations therein. The Company has retained additional legal counsel in Delaware in order to defend the action vigorously. On August 31, 2020, the Company filed its answer to Lo70’s complaint on the contract claims, and moved to dismiss the unjust enrichment and tortious interference claims alleged by Lo70s for failure to state a claim. The individual defendants named in the claim moved to dismiss all of Lo70’s claims based on lack of personal jurisdiction and failure to state a claim. There is currently no argument date for these motions. On August 31, 2020, the Company also filed a counterclaim denying all allegations made by Lo70s and pursuing the Company’s claims against Lo70s’ and its affiliates, including claims for fraudulent inducement and breach of contract. Lo70s has requested until October 12, 2020 to respond to the Company’s counterclaim and motion to dismiss. During the year ended December 31, 2019, the Company recorded an allowance of $200,000 related to the deposit. As of June 30, 2020 and December 31, 2019, the Company had accrued for all probable and estimable amounts in its condensed consolidated financial statements.
~~Release of Liability~~
On March 10, 2020, the Company received a letter from one of its vendors releasing it from aggregate liabilities of $236,248, which were accrued as of December 31, 2019. The Company recognized the gain on release of liability effective March 10, 2020, which is included in other expense on the condensed consolidated statement of operations.
~~Settlement Agreements~~
On September 4, 2019, the Company entered into a settlement agreement whereby the parties agreed to settle an outstanding note payable balance of approximately $45,000 for $16,000, which was to be paid by September 3, 2019 by the Company. Subsequent to June 30, 2020, the Company paid a total of $20,000 in full satisfaction of the matter. As of June 30, 2020 and December 31, 2019, the outstanding note payable balance was $38,967 on the condensed consolidated balance sheets.
13
~~Kubient, Inc.~~
~~Notes to Unaudited Condensed Consolidated Financial Statements~~
On November 12, 2019, the Company received a summons from the Palm Beach County Circuit Court of Florida in connection with a civil action filed by the plaintiff against the Company in the aggregate amount of $207,502 ($132,502 for breach of contract and $75,000 for default under a promissory note). On May 13, 2020, the parties reached a settlement agreement that requires the Company to make aggregate payments to the plaintiff of a total of $135,000, which is due in seven (7) installments between May 20, 2020 and October 20, 2020. If the Company pays a total of $125,000 by September 15, 2020, the total amount due is automatically reduced to $125,000. In the event the Company fails to make timely payments and the default is not cured by the conclusion of the specified grace period, the plaintiff shall be entitled to the entry of a final judgment against the Company in the amount of $240,000, less any and all payments made. As of June 30, 2020 and December 31, 2019, the Company had accrued approximately $177,000. Subsequent to June 30, 2020, the Company paid a total of $125,000 in full satisfaction of the matter.
~~Salary Reduction Program~~
In direct response to the uncertainties arising from the COVID-19 pandemic on the Company’s operations, on April 30, 2020, the Company’s board of directors approved an employee salary reduction program, whereby the Company is authorized to issue shares of its common stock in lieu of salaries to employees. The value of such an equity award under the employee salary reduction program shall be equivalent to 150% of the cash compensation that otherwise would have been payable, based on the market value of the Company’s common stock on the date of issuance. Subsequent to June 30, 2020 and after the closing of the IPO, the Company decided to satisfy the obligation to the employees in full by paying cash equal to 150% of the of the cash compensation that otherwise would have been payable, for a total payment of approximately $374,000, at which time the salary reduction program was terminated.
~~NOTE 9 –~~ CONCENTRATIONS
Customer Concentrations
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s net revenues for the following periods:

For the Three Months Ended
June 30, For the Six Months Ended
June 30,
Customer 2020 2019 2020 2019
Customer A N/A 79.04 % N/A 73.39 %
Customer F N/A N/A 36.04 % N/A
Customer G N/A N/A 52.21 % N/A
Customer H 113.07 % N/A 12.79 % N/A
Customer I N/A 13.83 % N/A *
   Total 113.07 % 92.87 % 101.04 % 73.39 %


For the Three Months Ended


March 31,

Customer

2023

2022

Customer A

N/A

42.02
%
Customer B

N/A

43.25
%
Customer C

195.31
%
*

Customer D

191.34
%
*

Customer E

59.27
%
*

Customer F

46.23
%
N/A

Customer G

52.23
%
N/A

Customer H

12.59
%
*

Customer I

84.81
%
*

Customer J

270.46
%
*

Total

912.24
%
85.27
%
*Less than 10%.

~~During the three and six months ended June 30, 2020,~~From time to time, certain customers ~~generated~~generate negative net revenues that resulted from ~~Supplier Costs~~supplier costs that exceeded the ~~Gross Billings.~~gross billing. As a result, the Company’s concentrations on net revenues may result in total percentages that exceed 100%.
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s gross accounts receivable as of:

June 30, December 31,


March 31,

December 31,

Customer 2020 2019

2023

2022

Customer A

14.50
%
11.72
%
Customer B

24.59
%
10.25
%
Customer C

*

10.57
%
Customer D * 13.73 %

11.67
%
*

Customer E * 12.23 %

26.52
%
35.64
%
Customer F 29.13 % N/A
Customer G 47.72 % N/A
Customer H 12.68 % N/A
Total 89.53 % 25.96 %

77.27
%
68.18
%
* Less than 10%.
A reduction in sales from or loss of these customers would have a material adverse effect on the Company’s results of operations and financial condition.
14
11

Table of Contents

Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Supplier Concentrations
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s ~~Supplier Costs~~supplier costs for the following periods:

For the Three Months Ended For the Six Months Ended
June 30, June 30,
Supplier 2020 2019 2020 2019
Supplier A 51.93 % N/A 35.39 % N/A
Supplier B 14.67 % N/A 14.18 % N/A
Supplier C N/A 86.92 % N/A 83.73 %
Supplier D 19.17 % * 14.57 % *
Total 85.77 % 86.92 % 64.14 % 83.73 %


For the Three Months Ended


March 31,

Supplier

2023

2022

Supplier A

*

18.77
%
Supplier B

*

23.84
%
Supplier C

N/A

17.56
%
Supplier D

*

14.40
%
Supplier E

17.85
%
N/A

Supplier F

10.95
%
N/A

Supplier G

18.58
%
*

Total

47.38
%
74.56
%
* Less than 10%.

~~NOTE 10 – SUBSEQUENT EVENTS~~

The Company has evaluated events that have occurred after the balance sheet and through the date the financial statements were issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed below.
~~Initial Public Offering~~
On August 14, 2020, the Company consummated its IPO of 2,500,000 units (the “Units”) at a price of $5.00 per Unit, which resulted in aggregate gross and net proceeds of approximately $12.5 million and $10.7 million, respectively. Each Unit consisted of one share of common stock, par value $0.00001 per share and one warrant to purchase one share of common stock (the “Warrants”). The Warrants are exercisable immediately upon issuance and at any time up to the date that is five years from the date of issuance and will have an exercise price of $5.50 per share.
Also on August 14, 2020, the Company consummated the closing of a partial exercise of the over-allotment option granted to the underwriters in connection with its IPO to purchase 375,000 additional common stock purchase warrants at a price of $0.01 per warrant for aggregate proceeds of $3,750.
~~Founder Employee Incentive Program~~
On July 2, 2020, the Company’s board of directors adopted the Founder Employee Incentive Program (the “Founder Program”) under the 2017 Plan. The purposes of the Founder Program are to offer near-term and long-term incentives to founder employees of the Company that are intended to keep such employees in the employ of the Company, and that are based on individual performance, the achievement of financial goals of the Company and the total return to the Company’s stockholders.
~~Note Payable – Related Parties~~
On July 13, 2020, the Company received proceeds of $100,000 in connection with a three-year note payable issued to one of its executive officers. The note bears interest at 0.91% per annum, payable annually. The outstanding principal and accrued and unpaid interest became immediately due and payable upon the Company’s initial public offering. The holder has agreed to amend such notes prior to the effectiveness of this registration statement to provide for conversion of principal and interest thereunder into the units being issued in the public offering at the public offering price per unit. See below for additional details associated with the conversion of the note into equity.
Effective July 13, 2020, holders of notes payable – related parties with aggregate principal amount of $685,000 agreed to amend the terms of the notes to provide for automatic conversion of principal and interest thereunder into shares of common stock and warrants to purchase shares of common stock at the public offering price per unit. Upon closing of the IPO on August 14, 2020, such notes payable, along with accrued interest of $6,048, automatically converted into an aggregate of 138,209 shares of common stock and five-year warrants to purchase 138,209 shares of common stock with an exercise price of $5.50 per share.
In addition to these related party notes, on July 28, 2020, the Company received proceeds of $150,000 in connection with a note payable that was issued to an entity controlled by our Chief Executive Officer. The note bears interest at 0.17% per annum, payable annually. The note matures and is repayable in cash by the Company on October 28, 2020, subject to acceleration following the occurrence of an IPO, qualified financing or sale of the Company (as such terms are defined in the note).
15
12

~~Kubient, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Convertible Notes Payable~~

~~Upon the closing~~Table of the IPO, the Senior Notes and Junior Notes automatically converted into common stock and warrants at a conversion price of $3.50. Based on the foregoing, the Senior Notes and Junior Notes converted into an aggregate of 1,322,881 shares of common stock and warrants to purchase an aggregate of 1,322,881 shares of common stock (based on aggregate principal balance of $4,326,000 and aggregate accrued interest of $304,090 as of August 14, 2020). The Company expects to recognize expense of approximately $3.0 million associated with the recognition of a beneficial conversion feature of $1,917,188, unamortized debt discount of $812,349 and the recognition of an extinguishment loss on a convertible note payable of $224,775.Contents

On August 12, 2020, a noteholder exercised its option to convert a convertible note payable in the principal amount of $20,000 and accrued interest in the amount of $3,370 at a conversion price of $0.29 per share, which resulted in the issuance of 80,586 shares of common stock.

On August 14, 2020, a noteholder exercised its option to convert a convertible note payable in the principal amount of $45,000 and accrued interest in the amount of $22,502 at a conversion price of $4.95 per share, which resulted in the issuance of 13,637 shares of common stock.

~~Common Stock~~

~~Subsequent to June 30, 2020, the Company issued an aggregate of 3,334 shares of common stock to two employees and one nonemployee in connection with services provided to the Company.~~

16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, ~~the impact of COVID-19 on our business, operations, and the markets and communities in which we, our clients, and partners operate,~~ results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
We discuss many of these risks in other filings we make from time to time with the Securities and Exchange Commission (the “SEC”). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.
Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our ~~Registration Statement~~Annual Report on Form ~~S-1/A,~~10-K, filed with the SEC on ~~August 11, 2020,~~March 30, 2023, with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Unless the context requires otherwise, references to the “Company,” “Kubient,” “we,” “us” and “our” refer to Kubient, Inc., a Delaware corporation and its wholly-owned subsidiary, Fidelity Media, ~~LLC.~~LLC, a Delaware limited liability company. For explanations of certain terms used in this ~~prospectus,~~Quarterly Report on Form 10-Q, please read “Glossary” beginning on page A-1.
~~Unless otherwise noted, the share and per share information in this~~ ~~Quarterly Report on Form 10-Q reflect a reverse stock split of the outstanding common stock and treasury stock of the Company at an one for nine (1:9) ratio, which was effected on August 6, 2020.~~
Overview
Kubient, Inc. (“Kubient,” “we,” “our,” or the “Company”), a Delaware corporation, was incorporated in May 2017 to solve some of the most significant problems facing the global digital advertising industry.
~~Our~~The Company’s experienced team of marketing and technology veterans has developed the Audience ~~Cloud,~~Marketplace, a modular, highly scalable, transparent, cloud-based software platform for real-time trading of digital, ~~programmatic advertising. Our~~Programmatic Advertising. The Company’s platform’s open marketplace gives both advertisers (ad space buyers) and ~~publishers~~Publishers (ad space sellers) the ability to use machine learning in the most critical parts of any ~~programmatic advertising~~Programmatic Advertising inventory auction, while simultaneously and significantly reducing those advertisers and ~~publishers’~~Publishers’ exposure to fraud, ~~even~~specifically in athe pre-bid environment.
The Company also provides unique capabilities with its proprietary pre-bid ad fraud detection & prevention, Kubient Artificial Intelligence (“KAI”), which has the ability to stop fraud in the critical 300 millisecond window before an advertiser spends their budget on fraudulent ad space. The technology is powered by deep learning algorithms, the latest advancement in machine learning, which allows the Company to ingest vast amounts of data, find complex patterns in the data and make accurate predictions. Most importantly, it’s self-learning, getting smarter and more accurate over time. This provides advertisers a powerful tool capable of preventing the purchase of ad fraud.
The Company believes that its Audience Marketplace technology allows advertisers to reach entire audiences rather than buying single impressions from disparate sources. By becoming a one stop shop for advertisers and ~~publishers,~~Publishers, providing them with the technology to deliver meaningful messages to their target audience, all in one place, on a single platform that is computationally efficient, transparent, and as safely fraud-free as possible, ~~we believe~~the Company believes that ~~our~~its Audience Marketplace platform (and the application of ~~its~~the platform’s machine learning algorithms) leads to increased ~~publisher~~Publisher revenue, lower advertiser cost, reduced latency and increased economic transparency during the advertising auction process.
17
13

Table of Contents

Recent Developments

Cost Reductions

~~Initial Public Offering~~In November 2021, the Company acquired certain assets and personnel of MediaCrossing in order to bolster its Managed Services offerings. Throughout 2022, Kubient experienced an increase in customer churn stemming from MediaCrossing's legacy business. As a result of these customer losses, the Company executed further cost-cutting measures, including a reduction in force, in order to further reduce costs, and has shifted more of its focus towards its inorganic growth strategy. The Company believes that these reductions will not affect its intention to otherwise continue its Programmatic Advertising operations, including the monetization of supply and demand customers connected to its Audience Marketplace, as well as through the use of the Company’s KAI ad fraud prevention artificial intelligence.

Nasdaq Deficiency Notice

On August 14, 2020, we consummated our initial public offering (“IPO”) of 2,500,000 units (the “Units”) at a price of $5.00 per Unit, which resulted in aggregate gross and net proceeds of approximately $12.5 million and $10.7 million, respectively. Each Unit consisted of one share of our common stock and one warrant to purchase one share of our common stock (the “Warrants”). The Warrants are exercisable immediately upon issuance and at any time up to the date that is five years from the date of issuance, and will have an exercise price of $5.50 per share.

Also on August 14, 2020, we consummated the closing of a partial exercise of the over-allotment option granted to the underwriters in connection with our IPO to purchase 375,000 additional common stock purchase warrants at a price of $0.01 per warrant for aggregate proceeds of $3,750.

~~Note Issuance~~

On July 13, 2020, we received proceeds of $100,000 in connection with a note payable that was issued in connection with a three-year note payable issued to one of our executive officers. The note bears interest at 0.91% per annum, payable annually. The outstanding principal and accrued and unpaid interest became immediately due and payable upon the Company’s initial public offering. The holder has agreed to amend such notes prior to the effectiveness of this registration statement to provide for conversion of principal and interest thereunder into the units being issued in the public offering at the public offering price per unit. See below for additional details associated with the conversion of the note into equity.

~~On July 28, 2020,~~January 12, 2023, the Company received ~~proceeds~~a deficiency notice from the Listing Qualifications Staff (the “Staff”) of ~~$150,000 in connection with a note payable~~The Nasdaq Stock Market LLC, indicating that, was issued to an entity controlled by our Chief Executive Officer. The note bears interest at 0.17% per annum, payable annually. The note matures and is repayable in cash by the Company on October 28, 2020, subject to acceleration following the occurrence of a qualified financing or sale of the Company.

~~Note Conversions~~

Effective July 13, 2020, related party holders of notes payable with an aggregate principal amount of $685,000 agreed to amend the terms of such notes to provide for automatic conversion of principal and interest thereunder into units comprised of shares of common stock and warrants to purchase shares of common stock at the public offering price per unit. Upon closing of the IPO on August 14, 2020, such notes payable automatically converted into units comprised of an aggregate of 138,209 shares of common stock and five-year warrants to purchase 138,209 shares of common stock with an exercise price of $5.50 per share.

~~Upon~~based upon the closing ~~of the IPO, the Senior Notes and Junior Notes automatically converted into common stock and warrants at a conversion~~bid price of $3.50. Based on the foregoing, the Senior Notes and Junior Notes converted into units comprised of an aggregate of 1,322,881 shares of common stock and warrants to purchase an aggregate of 1,322,881 shares of common stock (based on aggregate principal balance of $4,326,000 and aggregate accrued interest of $304,090 as of August 14, 2020). The Company expects to recognize expense of approximately $3.0 million associated with the recognition of a beneficial conversion feature of $1,917,188, unamortized debt discount of $812,349 and the recognition of an extinguishment loss on a convertible note payable of $224,775.

On August 12, 2020, a noteholder exercised its option to convert a convertible note payable in the principal amount of $20,000 and accrued interest in the amount of $3,370 at a conversion price of $0.29 per share, which resulted in the issuance of 80,586 shares of common stock.

On August 14, 2020, a noteholder exercised its option to convert a convertible note payable in the principal amount of $45,000 and accrued interest in the amount of $22,502 at a conversion price of $4.95 per share, which resulted in the issuance of 13,637 shares of common stock.

~~COVID-19~~

The Company’s financial condition and results of operations for the rest of fiscal year 2020 is very likely to be adversely affected by the recent COVID-19 pandemic. The Company is currently following the recommendations of local health authorities in New York to minimize exposure risk for its employees and visitors. However, the scale and scope of this pandemic remains unknown, and the duration of the business disruption and related financial impact cannot be reasonably estimated at this time. While the Company is currently implementing specific business continuity plans to reduce the potential impact of COVID-19, the Company, has, as of the date of this Quarterly Report on Form 10-Q, suffered a negative impact during the second quarter of 2020, with the most noticeable impact on our advertising impression volumes occurring in April, falling by almost 80%. We believe the reduction in April advertising impression volumes was driven by our customer’s advertising budgets being reduced due to the effects of COVID-19 on their respective businesses. With that said, impressions have not decreased further since April. In the third quarter of 2020, the Company has begun to see a slow return of those advertising budgets to its current customer base and, as a result, the Company expects an increase in advertising impression volumes by the beginning of the fourth quarter of 2020. There can be no assurances that the Company’s advertising impression volumes will return to pre-COVID-19 levels.

In addition, a report from the World Advertising Research Center (WARC) showed that global marketing budgets for digital advertising in April fell for the first time since WARC started tracking advertising spend in 2012. A lack of demand for media buys has also made ad spots less expensive, according to WARC data. For example, the cost of digital video ads was forecast to go up by 6.7% globally by media audit company ECI Media Management, but after taking into account the effects of COVID-19 on the advertising industry, the cost of digital video ads is only likely to increase by 1.3%, per WARC.

18

A lack of global demand from digital advertisers has also resulted in less value being placed upon Kubient’s publisher customers’ inventory. This lack of demand for digital media buys has led to a decrease in impressions served by Kubient on our publisher customers’ inventory. However, the Company’s publisher customers are trying to maintain their pre-COVID-19 advertising revenues, despite the lower demand for digital advertising globally. As such, the Company has taken a number of steps to maintain good business relationships with certain of its publisher customers. First, the Company has reduced its own profit margins in order to lower the closing price for certain of its advertiser customers, while keeping the Company’s publisher customers’ price level at a rate that will allow the publishers to meet their revenue goals. Second, in addition to reducing its own profit margin for certain customers, the Company has entered into negotiations for extended payment terms to be offered to these customers, which may lead to delays in the Company’s ability to collect its outstanding accounts receivables.

Further, the COVID-19 pandemic and resulting economic recession have resulted in advertisers and agencies expressing a reluctance to test new vendors. This will potentially increase the sales cycle for new advertisers and their agencies and could have a negative impact on the Company’s projected revenue and timelines for the launch of new products. For example, KAI was anticipated to be released as a stand-alone enterprise product in the second quarter of 2020, but the full release of KAI as a stand-alone enterprise product has now been delayed to the third quarter of 2020.

As the scale and scope of COVID-19 remains unknown, and the duration of the financial impact of the pandemic on the Company cannot be reasonably estimated at this time. The COVID-19 pandemic could have a long-term impact on the Company’s customers during and after 2020 which could reduce their demand for Company products. The extent to which COVID-19 or any other health epidemic may impact the Company’s results for 2020 and beyond will depend on future developments that could be outside the Company’s control, and which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the overall economic impact of the COVID-19 pandemic. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during the remainder of 2020 and beyond.

In direct response to the uncertainties arising from the COVID-19 pandemic on the Company’s operations, on April 30, 2020, the Company’s board of directors approved an employee salary reduction program, whereby the Company is authorized to issue shares of its common stock in lieu of salaries to employees. The value of such an equity award under the employee salary reduction program shall be equivalent to 150% of the cash compensation that otherwise would have been payable, based on the market value of the Company’s common stock for the prior 30 consecutive business days, the Company was not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2).

Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the ~~date~~Company was provided with a compliance period of ~~issuance. Subsequent~~180 calendar days, or until July 11, 2023, to ~~June 30, 2020 and after~~regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the ~~IPO, the Company decided to satisfy the obligation in full by paying cash equal to 150% of the of the cash compensation that otherwise would~~Company’s common stock must have ~~been payable,~~met or exceeded $1.00 per share for a ~~total payment~~minimum of ~~approximately $374,000, at which time the salary reduction program was terminated.~~

~~Reverse Stock Split~~

~~A 1:9 reverse stock split of our common stock was effected on August 6, 2020 (the “Reverse Stock Split”). All share and per share information has been retroactively adjusted~~10 consecutive business days prior to ~~give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.~~

~~Components of Our Results of Operations~~

~~Net Revenues~~

Kubient provides a service to its customers by providing its platform to connect advertisers and publishers as well as to analyze customers’ data for potential ad fraud. For these services, we earn net revenue, which is the spread between what we collect from advertisers, who want to run an ad campaign, and what we pay to publishers, who want to sell their ad space. In addition, during the six months ended June 30, 2020, we allowed two clients to beta test KAI, our fraud prevention technology powered by machine learning. This testing was invaluable as it provided us an opportunity to stress test our ability to handle large scale, concurrent input of data into our system which is then analyzed using our patent-pending proprietary machine learning technology. We were able to successfully ingest hundreds of millions of rows of data in real-time and provide our clients the ability to prevent the purchase of non-human or fraudulent advertising traffic, which will lead to additional improvements to our technology. While KAI was monetized in the first quarter during beta testing, it was made available as a stand-alone enterprise product in the third quarter of 2020.

19

~~Technology~~

Technology expenses consists costs associated with the development and operation of our technology platform, including compensation expenses related to our technology personnel (including salaries, commissions, bonuses, stock-based compensation and taxes), fees for independent contractors, computer hosting and technology-related subscription costs, and amortization expense of our intangible assets.

~~General and Administrative~~

General and administrative expenses consists primarily of compensation expenses related to our executive, finance and administrative personnel (including salaries, commissions, bonuses, stock-based compensation and taxes), professional fees, selling and marketing fees, rent expense, general and administrative related subscription costs fees for independent contractors and bad debt expense.

July 11, 2023.

Results of Operations

Three Months Ended ~~June 30, 2020~~March 31, 2023 Compared With Three Months Ended ~~June 30, 2019~~

March 31, 2022

The following table presents the results of operations for the three months ended ~~June 30, 2020~~March 31, 2023 and ~~2019:~~2022:

For the Three Months Ended

March 31,


2023

2022

Net Revenues

$
11,748

$
1,245,304

Costs and Expenses:

Sales and marketing

735,033

1,333,010
Technology

519,194

1,155,699
General and administrative

1,243,384

2,182,549
Loss accrual on customer contract

—

789,605
Total Costs and Expenses

2,497,611

5,460,863
Loss From Operations

(2,485,863)

(4,215,559)

Other (Expense) Income:




Interest expense

(2,446)

(3,872)
Interest income

4,445

2,291
Change in fair value of contingent consideration

—

589,622
Other income

18,200

26
Total Other Income

20,199

588,067
Net Loss

$
(2,465,664)

$
(3,627,492)

For the Three Months Ended
June 30,
2020 2019
Net Revenues $ 91,537 $ 49,150

Operating Expenses:
Technology 551,157 381,786
General and administrative 658,080 658,764

Total Operating Expenses 1,209,237 1,040,550

Loss From Operations (1,117,700 ) (991,400 )

Other (Expense) Income:
Interest expense (296,483 ) (143,663 )
Interest expense - related parties (101,637 ) (115 )
Other income 10,500 -

Total Other Expense (387,620 ) (143,778 )

Net Loss $ (1,505,320 ) $ (1,135,178 )

14

Table of Contents

Net Revenues

For the three months ended ~~June 30, 2020,~~March 31, 2023, net revenues ~~increased~~decreased by ~~$42,387,~~$1,233,556, or ~~86%~~99%, to ~~$91,537~~$11,748 from ~~$49,150~~$1,245,304 for the three months ended ~~June 30, 2019.~~March 31, 2022. The ~~increase is~~decrease was primarily ~~due~~attributable to ~~approximately $104,000~~the loss of ~~net revenue generated from a single customer, partially offset by a decrease~~certain customers that we had acquired in connection with our acquisition of ~~approximately $39,000 of net revenue from another single customer during the 2020 period.~~MediaCrossing.

~~Technology~~

Sales and Marketing

For the three months ended ~~June 30, 2020, technology~~March 31, 2023, sales and marketing expenses ~~increased~~decreased by ~~$169,371,~~$597,977, or ~~44%~~45%, to ~~$551,157~~$735,033 from ~~$381,786~~$1,333,010 for the three months ended ~~June 30, 2019.~~March 31, 2022. The ~~increase~~decrease is primarily due to ~~an increase of approximately $88,000~~a decrease in ~~amortization expense of our intangible assets, increased compensation expenses of approximately $86,000 and increased computer hosting and subscription~~sales team headcount costs of approximately ~~$44,000, all partially offset by~~$448,000, a decrease in consulting expense of approximately ~~$119,000~~$59,000 for a consultant in the 2022 period that was not used in the 2023 period and a decrease in selling expense of ~~consulting fees~~$103,000 was primarily attributable to the aforementioned explanation for the decline in ~~2020.~~revenues.

20

~~General and Administrative~~

Technology

For the three months ended ~~June 30, 2020,~~March 31, 2023, technology expenses decreased by $636,505, or 55%, to $519,194 from $1,155,699 for the three months ended March 31, 2022. The decrease is primarily due to a decrease in technology team headcount costs of approximately $465,000, a decrease in hosting fees of approximately $131,000 and a decrease in software-technology subscription expense of approximately $40,000.

General and Administrative

For the three months ended March 31, 2023, general and administrative expenses decreased by ~~$684,~~$939,165, or 0%43%, to ~~$658,080~~$1,243,384 from ~~$658,764~~$2,185,549 for the three months ended ~~June 30, 2019.~~March 31, 2022. The decrease is primarily due to ~~an allowance~~a decrease in professional services costs of approximately ~~$200,000~~$573,000 primarily related to one time legal costs incurred during 2022 period, a decrease in ~~connection~~headcount costs of approximately $272,000, a decrease in insurance expense of approximately $36,000, and a decrease in office expenses of approximately $29,000.

Loss Accrual on Customer Contract

During the three months ended March 31, 2022, we recognized an estimated loss accrual on a customer contract of $789,605 related to media costs incurred associated with a ~~deposit recognized during~~contract with a customer. Subsequent to March 31, 2022 and through December 31, 2022, we recovered the 2019 period, as well as decreases in 2020 expenses as compared to the 2019 period, including decreased legal, consulting and audit fees of approximately $14,000 associated with work performed in connection with our public filings, decreased independent contractor fees of approximately $15,000, offset by an increase of approximately $152,000 of compensation expenses resulting from an increase in headcount, an increase of approximately $56,000 of stock-based compensation expenses primarily from accrued issuable equity and $42,000 of board of directors compensation expenses due to their appointment to our board in late 2019.entire estimated loss accrual.

Other ~~Expense~~

Income

For the three months ended ~~June 30, 2020,~~March 31, 2023, other ~~expense increased~~income decreased by ~~$243,842,~~$567,868, or ~~170%~~97%, to ~~$387,620~~$20,199 from ~~$143,778~~other income of $588,067 for the three months ended ~~June 30, 2019. The increase is~~March 31, 2022, primarily ~~due~~as a result of a one-time adjustment in the fair value of the earnout shares issuable to ~~an increase~~MediaCrossing, Inc. during the three months ended March 31, 2022.

15

Table of interest expense of approximately $254,000 (including an increase in non-cash amortization of debt discount and debt issuance costs of approximately $177,000) associated with notes payable issued subsequent to June 30, 2019.Contents

Non-GAAP Measures

~~Six Months Ended June 30, 2020 Compared With Six Months Ended June 30, 2019~~

Adjusted EBITDA

The ~~following table presents~~Company defines EBITDA as net income (loss) before interest, taxes and depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, further adjusted to eliminate the ~~results~~impact of ~~operations for~~certain non-recurring items and other items that we do not consider in our evaluation of our ongoing operating performance from period to period. These items will include stock-based compensation, restructuring and severance costs, transaction costs, acquisition costs, certain other non-recurring charges and gains that the ~~six months ended June 30, 2020 and 2019:~~

For the Six Months Ended
June 30,
2020 2019
Net Revenues $ 1,473,450 $ 105,956

Operating Expenses:
Technology 1,031,558 754,737
General and administrative 1,322,006 791,371

Total Operating Expenses 2,353,564 1,546,108

Loss From Operations (880,114 ) (1,440,152 )

Other (Expense) Income:
Interest expense (729,295 ) (160,099 )
Interest expense - related parties (202,551 ) (115 )
Gain on forgiveness of accounts payable - supplier 236,248 -
Other income 12,294 244

Total Other Expense (683,304 ) (159,970 )

Net Loss $ (1,563,418 ) $ (1,600,122 )
~~Net Revenues~~
Company does not believe reflects the underlying business performance.
For the ~~six~~three months ended ~~June 30, 2020, net revenues increased by $1,367,494, or 1,291%~~March 31, 2023 and 2022, EBITDA and Adjusted EBITDA consisted of the following:

For the Three Months Ended

March 31,

2023

2022
Net Loss

$
(2,465,664)

$
(3,627,492)
Interest expense

(2,446)

3,872
Interest income

4,445

(2,291)
Depreciation and amortization

—

162,221
EBITDA

(2,463,665)

(3,463,690)

Adjustments:

Stock-based compensation expense

$
110,447

$
432,656
Change in fair value of contingent consideration

—

(589,622)
Adjusted EBITDA

$
(2,353,218)

$
(3,620,656)

Adjusted Loss Per Share

$
(0.16)

$
(0.25)
Weighted Average Common Shares Outstanding - Basic and Diluted

14,440,464

14,256,159

EBITDA and Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes that because Adjusted EBITDA excludes (a) certain non-cash expenses (such as depreciation, amortization and stock-based compensation) and (b) expenses that are not reflective of the Company’s core operating results over time (such as stock-based compensation expense), this measure provides investors with additional useful information to ~~$1,473,450~~measure the Company’s financial performance, particularly with respect to changes in performance from ~~$105,956~~period to period. The Company’s management uses EBITDA and Adjusted EBITDA (a) as a measure of operating performance, (b) for planning and forecasting in future periods, and (c) in communications with the ~~six months ended June 30, 2019.~~Company’s board of directors concerning the Company’s financial performance. The ~~increase was primarily~~Company’s presentation of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to ~~approximately $1,300,000~~different methods of ~~revenue generated~~calculation and should not be used by investors as a substitute or alternative to net income or any measure of financial performance calculated and presented in ~~connection~~accordance with ~~beta testing~~U.S. GAAP. Instead, management believes EBITDA and Adjusted EBITDA should be used to supplement the Company’s financial measures derived in accordance with U.S. GAAP to provide a more complete understanding of ~~KAI, our fraud detection service, which commenced during~~ the ~~2020 period. We~~trends affecting the business.
Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for, or more meaningful than, amounts determined in accordance with U.S. GAAP. Some of the limitations to using non-GAAP measures as an analytical tool are (a) they do not ~~expect~~reflect the Company’s interest income and expense, or the requirements necessary to ~~generate~~service interest or principal payments on the Company’s debt, (b) they do not reflect future ~~revenue from our beta testing of KAI. That~~requirements for capital expenditures or contractual commitments, and (c) although depreciation and amortization charges are non-cash charges, the assets being ~~said, we do expect that revenues~~depreciated and amortized will ~~increase, in part, based upon customers adopting our KAI product~~often have to be replaced in the future, ~~however, we cannot provide~~and non-GAAP measures do not reflect any ~~assurance~~cash requirements for such replacements.

16

Table of ~~this.~~Contents

~~Technology~~

For the six months ended June 30, 2020, technology expenses increased by $276,821, or 37%, to $1,031,558 from $754,737 for the six months ended June 30, 2019. The increase is primarily due to an increase of approximately $138,000 in amortization expense of our intangible assets, increased computer hosting and subscription costs of approximately $95,000, an increase of approximately $109,000 of compensation expenses, an increase of approximately $57,000 of stock-based compensation expenses resulting from accrued issuable equity pursuant to a newly-entered consulting agreement in 2020, and an increase of approximately $108,000 of independent contractor fees resulting from an increase in headcount, all partially offset by a decrease of approximately $172,000 of consulting fees in 2020.

21

~~General and Administrative~~

For the six months ended June 30, 2020, general and administrative expenses increased by $530,635, or 67%, to $1,322,006 from $791,371 for the six months ended June 30, 2019. The increase is primarily due to increased legal, consulting and audit fees of approximately $197,000 associated with work performed in connection with our public filings, an increase of approximately $296,000 of compensation expenses resulting from an increase in headcount, an increase of approximately $88,000 of board of directors compensation expenses due to their appointment to our board in late 2019, an increase of approximately $65,000 of stock-based compensation expenses related to accrued issuable equity pursuant to a newly-entered consulting agreement in 2020, an increase of approximately $27,000 associated with new software subscriptions entered in 2020, an increase of approximately $11,000 of selling and marking expense due to a newly entered engagement with a consultant in 2020, and an increase of approximately $32,000 of rent expenses, offset by an allowance of approximately $200,000 in connection with a deposit recognized during the 2019 period.

~~Other Expense~~

For the six months ended June 30, 2020, other expense increased by $523,334, or 327%, to $683,304 from $159,970 for the six months ended June 30, 2019. The increase is primarily due to an increase of interest expense of approximately $771,632 (including an increase in non-cash amortization of debt discount and debt issuance costs of approximately $633,000) associated with notes payable issued subsequent to June 30, 2019.

Liquidity and Capital Resources

~~Liquidity~~

We measure our liquidity in a number of ways, including the following:

March 31,

December 31,

2023

2022

Cash and cash equivalents

$
11,827,956

$
14,739,484
Working capital

$
10,518,121

$
12,873,338
June 30, December 31,
2020 2019
(unaudited)
Cash $ 45,115 $ 33,785
Working capital deficiency $ (3,731,824 ) $ (5,413,735 )

As of June 30, 2020, notes payable with an aggregate principal amount of $178,967 were past due and are classified as current liabilities on the condensed consolidated balance sheet as of June 30, 2020. Such notes continue to accrue interest, which has been accrued as of June 30, 2020. Subsequent to June 30, 2020, the Company received aggregate proceeds of $250,000 in connection with notes payable issued to our executive officers and notes payable with aggregate principal amount of $113,967 were repaid by the Company.
On August 14, 2020, the Company consummated its IPO of 2,500,000 Units at a price of $5.00 per Unit, which resulted in aggregate gross and net proceeds of approximately $12.5 million and $10.7 million, respectively. Also on August 14, 2020, the Company consummated the closing of a partial exercise of the over-allotment option granted to the underwriters in connection with its IPO to purchase 375,000 additional common stock purchase warrants at a price of $0.01 per warrant for aggregate proceeds of $3,750. See ~~Recent Developments - Initial Public Offering~~ ~~for details.~~
In connection with and following the IPO, convertible notes payable with an aggregate principal balance of approximately $5.1 million and accrued interest of approximately $336,000 were converted into equity. See ~~Recent Developments – Note Conversions~~ ~~for details.~~
Availability of Additional Funds
As a result of its ~~IPO~~public offerings and the related note conversions, the Company believes its current cash on hand is sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued. Thereafter, the Company may need to raise further capital, through the sale of additional equity or debt securities or otherwise, to support its future operations. The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures. If the Company is unable to secure additional capital, it may be required to curtail its research and development initiatives and take additional measures to reduce costs in order to conserve its cash.
Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.
Cash Flows
22
~~Six~~Three Months Ended ~~June 30, 2020~~March 31, 2023 Compared With ~~Six~~Three Months Ended ~~June 30, 2019~~
March 31, 2022
Our sources and uses of cash were as follows:
Cash Flows From Operating Activities
We experienced negative cash flows from operating activities for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2023 and ~~June 30, 2019~~2022 in the amounts of ~~$607,525~~$2,829,348 and ~~$1,472,988,~~$3,973,341, respectively. The net cash used in operating activities for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2023 was primarily a result of cash used to fund a net loss of ~~$1,563,418,~~$2,465,664, adjusted for net non-cash expenses of ~~$749,218 and $206,675~~$119,918, partially offset by $483,602 of net cash ~~provided by~~used in changes in the levels of operating assets and liabilities. As of June 30, 2020, there was accounts receivable of $572,651, including accounts receivable of $445,317 associated with revenue generated from our beta testing. While we expect to collect these receivables, any failure to collect would have a material effect on our cash flows from operations. The net cash ~~provided by~~used in operating activities for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2022 was primarily a result of cash used to fund a net loss ~~$1,600,122,~~of $3,627,492, adjusted for net non-cash expenses of ~~$344,197, and $217,063~~$4,705, partially offset by $350,554 of net cash used in changes in the levels of operating assets and liabilities.
Cash Flows From Investing Activities
Net cash used in investing activities for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2023 was ~~$357,335, which was attributable to purchases of intangible assets, and property and equipment.~~$0. Net cash used in investing activities for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2022 was ~~$25,000,~~$7,520, which was attributable to ~~an advance to a related party.~~purchases of property and equipment.
Cash Flows From Financing Activities
~~We experienced positive~~Net cash ~~flows from~~used in financing activities for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2023 was $82,180, which was attributable to repayments of financed director and ~~June 30, 2019 in~~officer insurance premiums. Net cash provided by financing activities for the ~~amounts of $976,190 and $2,000,282, respectively. During the six~~three months ended ~~June 30, 2020, $991,190~~March 31, 2022 was $218,058, which was attributable to repayments of ~~proceeds were received from debt financings, partially offset by $15,000 used for payment~~our PPP loan of ~~deferred offering costs. During the six months ended June 30, 2019, $127,369 was used~~$109,270 as ~~debt~~well as repayments of financed director and ~~$2,127,401~~officer insurance premiums of ~~net proceeds were from debt financings.~~$108,788.

17

~~Off-Balance Sheet Arrangements~~

We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purposeTable of ~~facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.~~Contents

Critical Accounting ~~Policies and Significant Accounting~~ Estimates

~~Our management’s discussion and analysis~~The preparation of ~~our financial condition and results of operations are based on our~~ financial statements ~~which have been prepared~~ in ~~accordance~~conformity with accounting principles generally accepted in the United States of America, or ~~GAAP. The preparation of these financial statements~~U.S. GAAP, requires usmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities, ~~and the disclosure of~~ contingent assets and liabilities, each as of the date of the financial statements, ~~as well as the reported~~and revenues and expenses during the ~~reporting periods. The accounting~~periods presented. On an ongoing basis, management evaluates their estimates ~~that require our most significant, difficult,~~ and ~~subjective judgments have an impact on revenue recognition, financial instruments~~assumptions, and the ~~determination~~effects of ~~share-based compensation~~any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Management bases their estimates on historical experience and on various other factors that they believe are reasonable under the ~~useful lives~~circumstances, the results of ~~long-lived assets. We evaluate our estimates and~~which form the basis for making judgments ~~on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.~~

~~We believe that~~about the ~~assumptions and estimates associated with the evaluation~~carrying value of ~~revenue recognition criteria, including the determination of revenue recognition as net versus gross in our revenue arrangements, useful lives of long-lived~~ assets and stock-based compensation expense have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. By their nature, estimatesliabilities that are ~~subject to an inherent degree of uncertainty.~~not readily apparent from other sources. Actual ~~results~~outcomes could differ materially from ~~these estimates.~~

~~Our~~those estimates in a manner that could have a material effect on our consolidated financial statements. While our significant accounting policies are more fully described in the notes to our ~~condensed~~ consolidated financial statements ~~(Note 2) included~~appearing elsewhere in this ~~quarterly report.~~prospectus, we believe that the following accounting policies and estimates are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results.

Revenue Recognition

~~Recently Issued Accounting Standards~~The Company maintains a contract with each customer and supplier, which specifies the terms of the relationship. The Company provides a service to its customers (the buy-side ad networks who work for advertisers) by connecting advertisers and Publishers. For this service, the Company earns a percentage of the amount that is paid by the advertiser, who wants to run a digital advertising campaign, which, in some cases, is reduced by the amount paid to the Publisher, who wants to sell its ad space to the advertiser.

The transaction price is determined based on the consideration to which the Company expects to be entitled, including the impact of any implicit price concessions over the course of the contract. The Company’s performance obligation is to facilitate the publication of advertisements. The performance obligation is satisfied at the point in time that the ad is placed. Subsequent to a bid being won, the associated fees are generally not subject to refund or adjustment. Historically, any refunds and adjustments have not been material. The revenue recognized is the amount the Company is responsible to collect from the customer related to the placement of an ad (the “Gross Billing”), less the amount the Company remits to the supplier for the ad space (the “Supplier Cost”), if any. The determination of whether the Company is the principal or agent, and hence whether to report revenue on a gross basis equal to the Gross Billing or on a net basis for the difference between the Gross Billing and Supplier Cost, requires judgment. The Company acts as an agent in arranging via its platform for the specified good (the ad space) to be purchased by the advertiser, as it does not control the goods or services being transferred to the end customer, it does not take responsibility for the quality or acceptability of the ad space, it does not bear inventory risk, nor does it have discretion in establishing price of the ad space. As a result, the Company recognizes revenue on a net basis for the difference between the Gross Billing and the Supplier Cost.

~~Our analysis~~The Company invoices customers on a monthly basis for the amount of ~~recently issued accounting standards~~Gross Billings in the relevant period. Invoice payment terms, negotiated on a customer-by- customer basis, are ~~more fully described~~typically between 45 to 90 days. However, for certain agency customers with sequential liability terms as specified by the Interactive Advertising Bureau, (i) payments are not due to the Company until such agency customers has received payment from its customers (ii) the Company is not required to make a payment to its supplier until payment is received from the Company’s customer and (iii) the supplier is responsible to pursue collection directly with the advertiser. As a result, once the Company has met the requirements of each of the five steps under ASC 606, the Company’s accounts receivable are recorded at the amount of Gross Billings which represent amounts it is responsible to collect and accounts payable, if applicable, are recorded at the amount payable to suppliers. In the event step 1 under ASC 606 is not met, the Company does not record either the accounts receivable or accounts payable. Accordingly, both accounts receivable and accounts payable appear large in ~~our~~relation to revenue reported on a net basis.

From time to time, the Company records loss accruals for estimated costs that exceed estimated revenue related to its contracts with customers. During the three months ended March 31, 2022, the Company recognized an estimated loss accrual on a customer contract of $789,605 related to media costs incurred associated with a contract with a customer, which was included in costs and expenses on the condensed consolidated ~~financial statements (Note 2) included elsewhere~~statement of operations.

18

Table of Contents

Business Combinations

Business combinations are accounted for using the acquisition method and, accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any contingent consideration are recorded at their acquisition date fair values. The Company’s fair value measurement of the contingent consideration is based on significant inputs not observed in ~~this quarterly report.~~the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value.

Stock-Based Compensation

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares. The Company accrues for any equity awards at fair value that have been contractually earned but not yet issued.

23

Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of ~~June 30, 2020.~~March 31, 2023. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, ~~and as a result of the material weaknesses described below,~~ our CEO and CFO have concluded that our disclosure controls and procedures were ~~not~~ effective at the reasonable assurance level as of June 30, 2020. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the unaudited interim condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.March 31, 2023.
~~Material Weaknesses~~
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. The following material weaknesses in our internal control over financial reporting were identified in the normal course ~~as of December 31, 2019 and continued to exist as of June 30, 2020:~~
1. ~~We had inadequate segregation of duties in our finance and accounting function because of our limited personnel;~~
2. ~~We had~~ ~~inadequate policies and procedures to ensure our internal books and records are properly maintained in accordance with U.S. GAAP; and~~
3. ~~We had insufficient formal documentation and maintenance of the evidence for controls implemented.~~
We have concluded that these material weaknesses arose because, as a private company, we did not have the necessary business processes, systems, personnel and related internal controls. During the year ended December 31, 2019, began to undertake measures to address material weaknesses in our internal controls. In particular, we (i) engaged an outside advisory and consulting firm with expertise in preparation of financial statements and account reconciliations; (ii) developed and documented our accounting policies; and (iii) hired a Chief Financial Officer. We will continue to take steps to remediate these material weaknesses, including:
· ~~continuing to hire additional finance and accounting personnel; and~~
· ~~engaging an outside advisory and consulting firm with expertise in evaluating and remediating material weaknesses in internal control over financial reporting~~.
Changes in Internal Control over Financial Reporting
~~During the quarter ended June 30, 2020, there have been~~There were no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

25
19

Table of Contents

PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
~~We are currently a party to three material legal proceedings.~~
On May 8, 2018, the Company entered into a Master Services Agreement with AdKernel, LLC whereby AdKernel, LLC would provide the Company with certain exchange integration services in order to assist the Company in the purchase and placement of ads. On November 25, 2019, AdKernel LLC filed suit against the Company (AdKernel, LLC v. Kubient, Inc., Superior Court of California, County of Los Angeles, Case No. 19-STLC-10891) in an effort to collect outstanding payables due under such Master Services Agreement in the amount of $20,764. On April 21, 2020, the Company made a settlement offer to pay $20,000 within 90 days of execution of a settlement agreement, however, that settlement offer was rejected by Adkernel LLC. As of the date of filing, the parties had not executed a settlement agreement. On May 28, 2020, the Company filed a motion to dismiss AdKernel LLC’s lawsuit. The Court has set an October 5, 2020 hearing date on the Company’s motion to dismiss.
On October 6, 2017, the Company entered into a Master Service Agreement for Buyers and Sellers, and an “Engage Buyer Addendum”, with Engage BDR, LLC whereby the Company could gain access to the Engage BDR, LLC proprietary trading technology platform in order to both offer and purchase inventory for the placement of ads. On August 31, 2018, Engage BDR, LLC filed suit against the Company (Engage BDR, LLC v. Kubient, Inc., Los Angeles County Superior Court Case No. SC129764) setting forth claims of breach of contract, unjust enrichment, quantum meruit, accounts stated, and breach of implied covenant of good faith and fair dealing. On November 14, 2018, Engage BDR, LLC obtained a summary default judgment against the Company for $35,936. A Writ of Execution was issued against the Company in the amount of $40,997 on April 16, 2020. On June 12, 2020, the Company filed a motion to vacate the default judgment and the Court granted the motion on August 25, 2020. The Court has set a September 24, 2020 deadline for the Company to respond to the complaint. The Court has set a January 7, 2021 hearing date.
In March 2019, the Company entered into a binding letter of intent (“LOI”) to acquire substantially all of the assets of Aureus Holdings, LLC d/b/a Lo70s (“Lo70s”). In connection with this LOI, the Company made a good faith deposit of $200,000. Subsequently, during the diligence phase of the LOI it became apparent that Lo70s’ projections were grossly inaccurate and misstated. Diligence inquiries made to Lo70s on this subject continuously went ignored. As a result, the Company allowed the LOI to expire under its own terms. In connection with this expiration, the Company recently was served with a complaint by Lo70s (Aureus Holdings, LLC d/b/a Lo70s v. Kubient, Inc., et al., Superior Court of Delaware, Case No. N20C-07-061), which names the Company and three individuals, Peter A. Bordes, Jr., Paul Roberts and Philip Anderson (a former consultant to the Company) as defendants. The complaint alleges breach of contract on the expired LOI and other claims and seeks $5,000,000 in damages, without providing information or support as to how the alleged damages are calculated. The Company believes that Lo70s’ claim has no merit, and wholly and completely disputes Lo70s’ allegations therein. The Company has retained additional legal counsel in Delaware in order to defend the action vigorously. On August 31, 2020, the Company filed its answer to Lo70’s complaint on the contract claims, and moved to dismiss the unjust enrichment and tortious interference claims alleged by Lo70s for failure to state a claim. The individual defendants named in the claim moved to dismiss all of Lo70’s claims based on lack of personal jurisdiction and failure to state a claim. There is currently no argument date for these motions. On August 31, 2020, the Company also filed a counterclaim denying all allegations made by Lo70s and pursuing the Company’s claims of its own against Lo70s’ and its affiliates, including claims for fraudulent inducement and breach of contract. Lo70s has requested until October 12, 2020 to respond to the Company’s counterclaim and motion to dismiss.
~~In addition, an additional material legal proceeding has been threatened against the Company.~~
On July 25, 2018, the Company entered into a secured business loan agreement to pay WebBank the principal amount of $100,000, plus interest, over the course of 39 weekly payments of principal and interest in the amount of $2,977 (the “WebBank Loan”). The WebBank Loan is secured by present and future accounts, receivables, chattel paper, deposit accounts, personal property, assets and fixtures, general intangibles, instruments, equipment and inventory, and was personally guaranteed by Paul Roberts, our Chief Strategy Officer, President and Chairman. As of September 10, 2019, approximately $45,000 was due under the WebBank Loan and is currently in default. Subsequent to June 30, 2020, the Company paid a total of $20,000 in full satisfaction of the matter.
~~Apart from the foregoing legal proceedings and threatened legal proceeding, from~~From time to time, we may be subject to various other legal proceedings and claims that are routine and incidental to our business. Although some of the legal proceedings set forth herein may result in adverse decisions or settlements, Management believes that the final disposition of such matters will not have a material adverse effect on our business, financial position, results of operations or cash flows.
In August 2022, we received subpoenas from both the SEC and the United States Attorney’s Office for the Southern District of New York requesting certain information from us relating to revenue in connection with two of our customers. Kubient is fully cooperating with both of these agencies.
Item 1A. Risk Factors.
Not applicable to smaller reporting companies.
26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
None.
Pursuant to the terms of its consulting agreement with Gateway Group, Inc., the Company issued Gateway Group, Inc. 1,112 shares of common stock under the 2017 Plan on June 5, 2020. The foregoing shares were issued in reliance upon an exemption from registration pursuant to Rule 701 promulgated under the Securities Act.
~~Use of Proceeds~~
On August 11, 2020, the SEC declared effective our Registration Statement on Form S-1 (File No. 333-239682), as amended, filed in connection with the initial public offering of our units. Pursuant to the Registration Statement, we registered the offer and sale of up to $12,500,000 of our units. Each Unit consisted of one share of our common stock and one warrant to purchase one share of our common stock (the “Warrants”). On August 14, 2020, we consummated our IPO of 2,500,000 units (the “Units”) at a price of $5.00 per Unit.
Also on August 14, 2020, pursuant to and in compliance with the terms and conditions of the Underwriting Agreement entered into by and among the Company, Maxim Group LLC and Joseph Gunnar & Co., LLC, as co-representatives of the underwriters named therein (collectively, the “Underwriters”), the Company consummated the closing of a partial exercise of the over-allotment option granted to the Underwriters in connection with its IPO to purchase 375,000 additional common stock purchase warrants at a price of $0.01 per warrant, resulting in total gross proceeds to the Company in connection with the IPO of $12,503,750, prior to deducting underwriting discounts and commission and offering expenses payable by the Company. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates. The offering has terminated.
There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus, dated August 13, 2020, filed with the SEC pursuant to Rule 424(b) relating to our Registration Statement on Form S-1.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosure.
Not applicable.
Item 5. Other Information.
There is no other information required to be disclosed under this item which was not previously disclosed.

27
20

Table of Contents

Item 6. Exhibits
Exhibit
Number
Exhibit Description Incorporated by Reference
Filed
Herewith
Form Filing Date Number

3.1 Amended and Restated Certificate of Incorporation of Kubient, Inc. S-1/A 8/11/2020 3.1

3.2 Certificate of Correction to the Amended and Restated Certificate of Incorporation of Kubient, Inc. S-1/A 8/11/2020 3.2

3.3 Amended and Restated Bylaws of Kubient, Inc. S-1/A 8/11/2020 3.4

4.2 Form of Common Stock Certificate S-1/A 8/11/2020 4.1

10.1 Amended and Restated Kubient, Inc. Incentive Stock Plan dated October 2, 2019+ DRS 11/26/19 10.1

10.2 Employment Agreement with Christopher Andrews dated June 17, 2019+ DRS 11/26/19 10.4

10.2 Employment Agreement with Peter Bordes dated May 15, 2019+ DRS 11/26/19 10.5

10.3 Employment Agreement with Christopher Francia dated May 26, 2017+ S-1 7/2/20 10.6

10.4 Employment Agreement with Pavel Medvedev dated April 12, 2018+ DRS 11/26/19 10.6

10.5 Employment Agreement with Paul Roberts dated May 26, 2017+ DRS 11/26/19 10.7

10.6 Employment Agreement with Joshua Weiss dated December 23, 2019+ S-1 7/2/20 10.9

10.7 Amendment to Employment Agreement with Paul Roberts dated October 2, 2019+ DRS 11/26/19 10.8

10.8 Amendment to Employment Agreement with Pavel Medvedev dated November 21, 2019+ DRS 11/26/19 10.9

10.9 Master Services Agreement with The Associated Press dated February 5, 2020 S-1 7/2/20 10.14

10.10 Form of Warrant Agency Agreement including Form of Unit Warrant S-1/A 7/30/20 10.15

31.1 Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X

31.2 Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X

32.1 Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) X

101.ins XBRL Instance Document X

101.sch XBRL Taxonomy Schema Document X

101.cal XBRL Taxonomy Calculation Linkbase Document X

101.def XBRL Taxonomy Definition Linkbase Document X

101.lab XBRL Taxonomy Label Linkbase Document X

101.pre XBRL Taxonomy Presentation Linkbase Document X

+
~~Indicates a management contract or compensatory plan or arrangement.~~

Exhibit
Number
Exhibit Description
Incorporated by Reference
Filed
Herewith

Form
Filing Date
Exhibit
Number
31.1

Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X

31.2

Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X

32.1 *

Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
X

101.ins

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
X

101.sch

Inline XBRL Taxonomy Schema Document
X

101.cal

Inline XBRL Taxonomy Calculation Linkbase Document
X

101.def

Inline XBRL Taxonomy Definition Linkbase Document
X

101.lab

Inline XBRL Taxonomy Label Linkbase Document
X

101.pre

Inline XBRL Taxonomy Presentation Linkbase Document
X

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

X
~~(1)~~ The information in this exhibit is furnished and deemed not filed with the SEC for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and is not to be incorporated by reference into any filing of Kubient, Inc. under the Securities Act of 1933, as amended, of the Securities Act, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

*This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, and it is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
28

21

Table of Contents

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.

~~KUBIENT, INC.~~
KUBIENT, INC.
~~Dated: September 23, 2020~~
~~/s/ Peter A. Bordes, Jr.~~
Dated: May 22, 2023
~~Peter A. Bordes, Jr.~~
/s/ Paul Roberts
Paul Roberts
Chief Executive Officer
(principal executive officer)

Dated: ~~September 23, 2020~~May 22, 2023
/s/ Joshua Weiss
Joshua Weiss
Chief Financial Officer
(principal financial and accounting officer)

29

22

Table of Contents

GLOSSARY
~~GLOSSARY~~
“Ad ~~Network~~”network” means an intermediary network or company that acts as a broker between advertisers who want to purchase ad placements and content ~~publishers~~Publishers who want to host the advertiser’s ads. Examples of advertisers are consumer good companies, multimedia companies and automobile manufacturers. Publishers in the context are website operators or app developers.

“~~Ad Tech~~”Audience Marketplace” means the modular, highly scalable, transparent, cloud-based software ~~and tools that help agencies and brands target, deliver, and analyze their digital advertising efforts.~~
“~~Bot~~~~” or “internet bot” means an autonomous program (or robot) running on a network (usually,~~platform created by the ~~internet) that can interact with computer systems or users. Typically, Bots perform tasks that are both simple and structurally repetitive, at a much higher rate than would be possible~~Company for ~~a human alone. According to Imperva, more than half of all web traffic is fraudulent, as it is made up of Bots rather than actual human beings.~~
“~~Brand~~~~” means a particular name used to identify a type of product or products manufactured by a particular company.~~
“~~Data Management Platform~~” or “DMP” means a technology platform used for collecting and managing data, mainly for digital marketing purposes. It allows Ad Networks to generate audience segments, which are then used to target specific users in online advertising campaigns.
“~~Demand Side Platform~~~~” or “DSP” means a system that allows buyers~~real-time trading of digital, ~~advertising space (ie, advertisers) to manage multiple ad exchange and data exchange accounts through one interface.~~Programmatic Advertising.
“~~Double monetization~~~~” means our ability to serve both a video advertisement as well as a display advertisement where there would traditionally be one or the other.~~
“~~Full stack~~~~” means computer engineering that encompasses databases, servers, systems engineering, and clients, across mobile applications, web based applications and native applications.~~
“~~GDPR~~” means the General Data Protection Regulation, which was agreed upon by the European Parliament and Council in April 2016, regulates how companies (including American companies) must protect European Union citizens’ personal data.
“~~Latency~~”Latency” means the lag time between a customer click on an internet link and the conversion of that customer to a sale. The term can also refer to the lag time between ad inventory’s purchase and its display on ~~publisher’s~~Publisher’s media.
“~~Omni-channel marketing~~” means marketing that is intended to reach target consumers across all advertising channels -- mobile, video, desktop, and more -- within the context of how the specific customer has interacted with a brand (for example, those first seeing an ad about a brand they have never experienced will receive a different message from those who have engaged with that brand a number of times).
“Programmatic ~~advertising~~”Advertising” means the purchase of advertising space meant to target audiences using ~~Ad Tech,~~software and tools that help agencies and brands target, deliver, and analyze their digital advertising efforts., rather than the traditional method of purchasing time slots in mass media, such as television programming.
“~~Pre-bid~~”Pre-bid” means the bid placed by an advertiser for placement of its ad, verified prior to such ad being run or displayed.
“~~Post-bid~~~~” means the verification of the running or display of an ad, after such running or display has occurred.~~
“~~Publisher~~”Publisher” means a source of ad inventory, such as website owners, website operators or app developers. Publishers are generally either managed or owned and operated. An owned and operated ~~publisher~~Publisher receives 100% of the profit for impressions sold. This is opposed to a managed ~~publisher:~~Publisher: a ~~publisher~~Publisher that does not own its inventory but has a financial relationship with those who do.

“~~Specialist coding language~~~~” means certain coding languages that deliver performance above and beyond traditional coding languages.~~
“~~Supply Side Platform~~~~” or “SSP” means a platform that enables Publishers to access advertiser demand from a variety of networks, exchanges, and platforms via one interface.~~
“~~300-millisecond window~~~~” means the window of time adopted by the digital advertising industry in which a website or app has to load the content on their website and auction off the advertising space on their web property.~~
“~~Verification companies~~~~” or “ad verification companies” means companies that offer a technological service that ensures that ads appear on intended sites and reach the targeted audience.~~
“~~Volume~~~~” means the concept buying large scale amounts of media in hopes of reaching a specific, smaller audience that lives within that larger pool.~~

A-1

		~~Page~~
~~Part I.~~	~~FINANCIAL INFORMATION~~	Page
~~Item 1.~~ Part I.	~~Condensed Consolidated Financial Statements (Unaudited)~~ FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of ~~June 30, 2020~~March 31, 2023 (Unaudited) and December 31, ~~2019~~2022	1
	Unaudited Condensed Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~June 30, 2020~~March 31, 2023 and ~~2019~~2022	2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ ~~Deficiency~~Equity for the Three ~~and Six~~ Months Ended ~~June 30, 2020~~March 31, 2023 and ~~2019~~2022	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30, 2020~~March 31, 2023 and ~~2019~~2022	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5 6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17 13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24 19
Item 4.	Controls and Procedures	24 19
~~Part II.~~	~~OTHER INFORMATION~~	26
~~Item 1.~~Part II.	~~Legal Proceedings~~OTHER INFORMATION	26 20
Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	26 20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27 20
Item 3.	Defaults Upon Senior Securities	27 20
Item 4.	Mine Safety Disclosure	27 20
Item 5.	Other Information	27 20
Item 6.	Exhibits	28 21
Signatures		22
Glossary		29

	June 30,			December 31,
	2020			2019
		(unaudited)
Assets
Current Assets:
Cash	$	45,115		$	33,785
Accounts receivable, net		572,651			38,704
Prepaid expenses and other current assets		29,389			28,072
Total Current Assets		647,155			100,561
Intangible assets, net		1,445,226			83,333
Property and equipment, net		5,827			4,549
Deferred offering costs		433,898			285,196
Total Assets	$	2,532,106		$	473,639

Liabilities and Stockholders' Deficiency
Current Liabilities:
Accounts payable - suppliers	$	540,933		$	785,180
Accounts payable - trade		2,206,827			867,554
Accrued expenses and other current liabilities		1,037,047			478,674
Accrued interest		251,653			117,912
Accrued interest - related parties		41,559			4,204
Due to related party		29,000			29,000
Notes payable, current portion		271,960			113,967
Convertible notes payable, current portion, net of discount of $0 and $630,994 as of June 30, 2020 and December 31, 2019, respectively		-			2,569,006
Convertible notes payable - related parties, current portion, net of discount of $0 and $281,701 as of June 30, 2020 and December 31, 2019, respectively		-			548,799
Total Current Liabilities		4,378,979			5,514,296
Convertible notes payable, non-current portion, net of discount of $330,585 and $0 as of June 30, 2020 and December 31, 2019, respectively		3,154,415			-
Convertible notes payable - related parties, non-current portion, net of discount of $183,965 and $0 as of June 30, 2020 and December 31, 2019, respectively		722,035			-
Notes payable, non-current portion		248,197			-
Notes payable - related parties, non-current portion		585,000			-
Total Liabilities		9,088,626			5,514,296

Commitments and contingencies (Note 8)
Stockholders' Deficiency:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized; No shares issued and outstanding as of June 30, 2020 and December 31, 2019		-			-
Common stock, $0.00001 par value; 95,000,000 shares authorized; 3,602,633 and 3,601,521 shares issued and outstanding as of June 30, 2020 and December 31, 2019		36			36
Additional paid-in capital		3,410,279			3,362,724
Accumulated deficit		(9,966,835	)		(8,403,417	)
Total Stockholders' Deficiency		(6,556,520	)		(5,040,657	)
Total Liabilities and Stockholders' Deficiency	$	2,532,106		$	473,639


	For the Three Months Ended
	March 31,
	2023		2022

Net Revenues	$	11,748	$	1,245,304

Costs and Expenses:
Sales and marketing		735,033		1,333,010
Technology		519,194		1,155,699
General and administrative		1,243,384		2,182,549
Loss accrual on customer contract		—		789,605
Total Costs and Expenses		2,497,611		5,460,863
Loss From Operations		(2,485,863)		(4,215,559)

Other (Expense) Income:
Interest expense		(2,446)		(3,872)
Interest income		4,445		2,291
Change in fair value of contingent consideration		—		589,622
Other income		18,200		26
Total Other Income		20,199		588,067
Net Loss	$	(2,465,664)	$	(3,627,492)
Net Loss Per Share - Basic and Diluted	$	(0.17)	$	(0.25)
Weighted Average Common Shares Outstanding - Basic and Diluted		14,440,464		14,256,159

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Net Revenues	$	91,537		$	49,150		$	1,473,450		$	105,956

Operating Expenses:
Technology		551,157			381,786			1,031,558			754,737
General and administrative		658,080			658,764			1,322,006			791,371

Total Operating Expenses		1,209,237			1,040,550			2,353,564			1,546,108

Loss From Operations		(1,117,700	)		(991,400	)		(880,114	)		(1,440,152	)

Other (Expense) Income:
Interest expense		(296,483	)		(143,663	)		(729,295	)		(160,099	)
Interest expense - related parties		(101,637	)		(115	)		(202,551	)		(115	)
Gain on forgiveness of accounts payable - supplier		-			-			236,248			-
Other income		10,500			-			12,294			244

Total Other Expense		(387,620	)		(143,778	)		(683,304	)		(159,970	)

Net Loss	$	(1,505,320	)	$	(1,135,178	)	$	(1,563,418	)	$	(1,600,122	)

Net Loss Per Share - Basic and Diluted	$	(0.42	)	$	(0.32	)	$	(0.43	)	$	(0.44	)

Weighted Average Common Shares Outstanding - Basic and Diluted		3,601,838			3,599,300			3,601,680			3,599,300


	For the Three Months Ended March 31, 2023
				Additional
	Common Stock			Paid-In		Accumulated
	Shares	Amount		Capital		Deficit		Total

Balance - January 1, 2023	14,456,035	$	145	$	53,004,967	$	(40,200,674)	$	12,804,438
Stock-based compensation:
Common stock	59,905		—		108,206		—		108,206
Options	—		—		2,241		—		2,241
Net loss	—		—		—		(2,465,664)		(2,465,664)
Balance - March 31, 2023	14,515,940	$	145	$	53,115,414	$	(42,666,338)	$	10,449,221

	For the Six Months Ended June 30, 2020
					Additional
	Common Stock				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance - January 1, 2020		3,601,521	$	36	$	3,362,724	$	(8,403,417	)	$	(5,040,657	)
Stock-based compensation:
Options		-		-		5,394		-			5,394
Net loss		-		-		-		(58,098	)		(58,098	)
Balance - March 31, 2020		3,601,521		36		3,368,118		(8,461,515	)		(5,093,361	)
Stock-based compensation:
Options		-		-		5,423		-			5,423
Common stock		1,112		-		3,000		-			3,000
Forgiveness of accrued expenses by related party		-		-		33,738		-			33,738
Net loss		-		-		-		(1,505,320	)		(1,505,320	)
Balance - June 30, 2020		3,602,633	$	36	$	3,410,279	$	(9,966,835	)	$	(6,556,520	)

		For the Six Months Ended June 30, 2019
						Additional
		Common Stock				Paid-In		Accumulated
		Shares		Amount		Capital		Deficit			Total
Balance - January 1, 2019		3,599,300	$	36	$	2,717,538	$	(4,270,544	)	$	(1,552,970	)
Stock-based compensation:
Options		-		-		5,502		-			5,502
Net loss		-		-		-		(464,944	)		(464,944	)
Balance - March 31, 2019		3,599,300		36		2,723,040		(4,735,488	)		(2,012,412	)
Issuance of investor and placement agent warrants in connection with issuance of convertible notes payable, net of issuance costs [1]		-		-		437,901		-			437,901
Stock-based compensation:
Options		-		-		5,258		-			5,258
Net loss		-		-		-		(1,135,178	)		(1,135,178	)
Balance - June 30, 2019		3,599,300	$	36	$	3,166,199	$	(5,870,666	)	$	(2,704,431	)


~~[1] The amount for the six months ended June 30, 2019 includes gross proceeds of $2,500,000, less issuance costs of $372,599 deducted directly from the offering proceeds.~~


Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	-	$	8,331
Income taxes	$	-	$	-

Non-cash investing and financing activities:
Original issue discount in connection with convertible notes payable	$	285,000	$	235,000
Original issue discount in connection with convertible notes payable - related party	$	75,500	$	15,000
Issuance of investor and placement agent warrants in connection with issuance of convertible notes payable	$	-	$	437,901
Accrual of intangible assets	$	1,144,981	$	-
Accrual of deferred offering costs	$	148,702	$	6,712
Forgiveness of related party liability	$	33,738	$	-
Equity issuance costs - placement agent warrants	$	-	$	16,667

	June 30, 2020			December 31, 2019
Acquired data	$	1,500,000		$	-
Acquired software		100,000			100,000
		1,600,000			100,000
Less: accumulated amortization		(154,774	)		(16,667	)
Intangible assets, net	$	1,445,226		$	83,333

For the Years Ending December 31,	Total
2020	$	175,000
2021		333,333
2022		300,000
2023		300,000
2024		300,000
Thereafter		36,893
	$	1,445,226

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Customer	2020			2019			2020			2019
Customer A		N/A			79.04	%		N/A			73.39	%
Customer F		N/A			N/A			36.04	%		N/A
Customer G		N/A			N/A			52.21	%		N/A
Customer H		113.07	%		N/A			12.79	%		N/A
Customer I		N/A			13.83	%		N/A			*
Total		113.07	%		92.87	%		101.04	%		73.39	%


	For the Three Months Ended
	March 31,
Customer	2023		2022
Customer A	N/A		42.02	%
Customer B	N/A		43.25	%
Customer C	195.31	%	*
Customer D	191.34	%	*
Customer E	59.27	%	*
Customer F	46.23	%	N/A
Customer G	52.23	%	N/A
Customer H	12.59	%	*
Customer I	84.81	%	*
Customer J	270.46	%	*
Total	912.24	%	85.27	%


	For the Three Months Ended
	March 31,
Supplier	2023		2022
Supplier A	*		18.77	%
Supplier B	*		23.84	%
Supplier C	N/A		17.56	%
Supplier D	*		14.40	%
Supplier E	17.85	%	N/A
Supplier F	10.95	%	N/A
Supplier G	18.58	%	*
Total	47.38	%	74.56	%

+	~~Indicates a management contract or compensatory plan or arrangement.~~
Exhibit Number		Exhibit Description	Incorporated by Reference			Filed Herewith
			Form	Filing Date	Exhibit Number
31.1		Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X

31.2		Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X

32.1 *		Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)				X

101.ins		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.				X

101.sch		Inline XBRL Taxonomy Schema Document				X

101.cal		Inline XBRL Taxonomy Calculation Linkbase Document				X

101.def		Inline XBRL Taxonomy Definition Linkbase Document				X

101.lab		Inline XBRL Taxonomy Label Linkbase Document				X

101.pre		Inline XBRL Taxonomy Presentation Linkbase Document				X

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)				X

	~~KUBIENT, INC.~~
	KUBIENT, INC.
~~Dated: September 23, 2020~~	~~/s/ Peter A. Bordes, Jr.~~
Dated: May 22, 2023	~~Peter A. Bordes, Jr.~~ /s/ Paul Roberts
	Paul Roberts
	Chief Executive Officer
	(principal executive officer)


Dated: ~~September 23, 2020~~May 22, 2023	/s/ Joshua Weiss
	Joshua Weiss
	Chief Financial Officer
	(principal financial and accounting officer)