UNITED STATES
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Troika Media Group, Inc. | ||
(Exact name of registrant as specified in its charter) |
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Nevada | 83-0401552 | |||||||||||||
(State or other jurisdiction of
| (I.R.S. Employer
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| 25 West 39th Street, |
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(Address of principal executive offices) | (Zip Code) |
(323) 965-1650
Title of each class |
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Common Shares, | TRKA | The | ||||||
Redeemable warrants to acquire Common Stock | TRKAW | The Nasdaq Capital Market |
Large accelerated filer |
| Accelerated filer |
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Non-accelerated Filer |
| Smaller reporting company |
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Emerging growth company |
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APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
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Class | Outstanding at | |||||||
Common Stock, $.001 par value |
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| March 31, 2022 |
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| June 30, 2021 |
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ASSETS |
| (Unaudited) |
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Current assets: |
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Cash and cash equivalents |
| $ | 42,396,000 |
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| $ | 12,066,000 |
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Accounts receivable, net |
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| 32,461,000 |
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| 1,327,000 |
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Prepaid expenses |
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| 221,000 |
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| 670,000 |
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Other assets – short term portion |
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| 150,000 |
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|
| 1,000 |
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Total current assets |
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| 75,228,000 |
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| 14,064,000 |
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Other assets -long term portion |
|
| 1,447,000 |
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| 626,000 |
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Property and equipment, net |
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| 642,000 |
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| 343,000 |
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Operating lease right-of-use assets |
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| 9,543,000 |
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| 6,887,000 |
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Intangible assets, net |
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| 72,864,000 |
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| 2,603,000 |
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Goodwill |
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| 60,896,000 |
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| 19,368,000 |
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Total assets |
| $ | 220,620,000 |
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| $ | 43,891,000 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
| $ | 40,808,000 |
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| $ | 8,363,000 |
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Convertible notes payable |
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| 50,000 |
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| 50,000 |
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Note payable - related party - short term portion |
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| 120,000 |
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| 200,000 |
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Due to related parties |
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| 0 |
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| 41,000 |
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Contract liabilities |
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| 21,057,000 |
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| 5,973,000 |
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Operating lease liability - short term portion |
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| 3,781,000 |
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| 3,344,000 |
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Bank loan net of debt discount – short term portion |
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| 1,461,000 |
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| 0 |
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Derivative liabilities |
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| 1,000 |
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| 13,000 |
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Taxes payable |
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| 100,000 |
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| 62,000 |
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Stimulus loan programs- short term portion |
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| 0 |
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| 22,000 |
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Total current liabilities |
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| 67,378,000 |
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| 18,068,000 |
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Long term liabilities: |
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Operating lease liability - long term portion |
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| 10,514,000 |
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| 5,835,000 |
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Preferred stock liability |
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| 15,998,000 |
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| 0 |
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Warrant liability |
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| 30,639,000 |
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| 0 |
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Bank loan net of debt discount – long term portion |
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| 65,824,000 |
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| 0 |
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Acquisition liability |
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| 5,000,000 |
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| 0 |
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Stimulus loan programs - long term portion |
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| 0 |
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| 547,000 |
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Rental deposits |
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| 124,000 |
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| 119,000 |
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Other long-term liabilities |
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| 0 |
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| 477,000 |
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Liabilities of discontinued operations - long term portion |
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| 107,000 |
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| 107,000 |
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Total liabilities |
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| 195,584,000 |
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| 25,153,000 |
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Stockholders’ equity: |
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Preferred stock, $0.01 par value: 15,000,000 shares authorized |
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| - |
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| 0 |
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Series A Preferred Stock ($0.01 par value: 5,000,000 shares authorized, 720,000 shares issued and outstanding as of March 31, 2022 and June 30, 2021) |
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| 7,000 |
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| 7,000 |
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Series E Preferred Stock ($0.01 par value: 500,000 shares authorized, 500,000 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively) |
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| 5,000 |
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| 0 |
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Common stock, ($0.001 par value: 800,000,000 shares authorized; 64,159,616 and 39,496,588 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively) |
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| 64,000 |
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| 40,000 |
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Additional paid-in-capital |
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| 232,836,000 |
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| 204,788,000 |
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Stock payable |
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| 0 |
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| 1,210,000 |
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Accumulated deficit |
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| (207,526,000 | ) |
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| (186,889,000 | ) |
Other Comprehensive Loss |
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| (350,000 | ) |
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| (418,000 | ) |
Total stockholders’ equity |
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| 25,036,000 |
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| 18,738,000 |
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Total liabilities and stockholders’ equity |
| $ | 220,620,000 |
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| $ | 43,891,000 |
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(unaudited)
June 30, 2023 | December 31, 2022 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 18,325,055 | $ | 28,403,797 | |||||||
Restricted cash | 447,285 | — | |||||||||
Accounts receivable, net | 15,197,469 | 10,801,299 | |||||||||
Prepaid expenses and other current assets | 2,313,242 | 1,388,084 | |||||||||
Total current assets | 36,283,051 | 40,593,180 | |||||||||
Other assets | 675,729 | 702,750 | |||||||||
Property and equipment, net | 323,850 | 618,699 | |||||||||
Right-of-use lease assets | 2,696,108 | 3,029,785 | |||||||||
Amortizable intangible assets, net | 60,686,111 | 64,761,111 | |||||||||
Goodwill | 45,518,505 | 45,518,505 | |||||||||
Total assets | $ | 146,183,354 | $ | 155,224,030 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 25,475,164 | $ | 14,270,063 | |||||||
Accrued and other current liabilities | 6,031,766 | 8,390,196 | |||||||||
Accrued billable expenses | 7,510,508 | 7,810,126 | |||||||||
Deferred revenue | 9,316,686 | 6,209,442 | |||||||||
Current portion of long term debt, net of deferred financing costs | 1,611,444 | 1,551,211 | |||||||||
Convertible note payable | 60,006 | 60,006 | |||||||||
Note payable - related party, current | — | 30,000 | |||||||||
Operating lease liabilities, current | 1,598,693 | 1,506,534 | |||||||||
Acquisition liabilities | 9,346,504 | 9,293,402 | |||||||||
Contingent liability | 939,224 | 3,385,000 | |||||||||
Total current liabilities | 61,889,995 | 52,505,980 | |||||||||
Long-term liabilities: | |||||||||||
Long-term debt, net of deferred financing costs | 64,013,064 | 64,833,844 | |||||||||
Operating lease liabilities, non-current | 6,399,369 | 7,192,662 | |||||||||
Other long-term liabilities | 13,425 | 212,432 | |||||||||
Total liabilities | 132,315,853 | 124,744,918 | |||||||||
Commitments and Contingencies (Note 10) | |||||||||||
Stockholders’ equity: | |||||||||||
Preferred stock, $0.01 par value: 25,000,000 shares authorized | — | — | |||||||||
Series E Preferred Stock ($0.01 par value: 500,000 shares authorized, 14 and 310,793 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively); redemption amount and liquidation preference $0.0 million and $31.1 million , as of June 30, 2023 and December 31, 2022, respectively | — | 3,107 | |||||||||
Common stock, ($0.001 par value: 32,000,000 shares authorized; 16,676,762 and 5,572,089 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively) | 16,677 | 5,572 | |||||||||
Additional paid-in-capital | 269,350,052 | 265,806,976 | |||||||||
Accumulated deficit | (255,499,228) | (235,336,543) | |||||||||
Total stockholders’ equity | 13,867,501 | 30,479,112 | |||||||||
Total liabilities and stockholders’ equity | $ | 146,183,354 | $ | 155,224,030 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Revenue | $ | 58,689,147 | $ | 85,381,703 | $ | 117,727,485 | $ | 101,066,703 | |||||||||||||||
Cost of revenue | 52,945,735 | 67,969,498 | 103,229,453 | 79,707,498 | |||||||||||||||||||
Gross profit | 5,743,412 | 17,412,205 | 14,498,032 | 21,359,205 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Selling, general and administrative expenses | 12,114,352 | 13,991,857 | 23,051,346 | 31,174,857 | |||||||||||||||||||
Depreciation and amortization | 2,065,753 | 2,267,780 | 4,129,048 | 2,696,780 | |||||||||||||||||||
Restructuring and other related charges | (324,907) | 5,590,932 | (98,584) | 5,590,932 | |||||||||||||||||||
Impairment and other losses (gains), net | — | 8,937,677 | — | 8,937,677 | |||||||||||||||||||
Total operating expenses | 13,855,198 | 30,788,246 | 27,081,810 | 48,400,246 | |||||||||||||||||||
Operating loss | (8,111,786) | (13,376,041) | (12,583,778) | (27,041,041) | |||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense | (3,449,052) | (2,796,367) | (6,889,708) | (2,896,367) | |||||||||||||||||||
Miscellaneous expense | (680,087) | (1,937,673) | (632,199) | (2,527,673) | |||||||||||||||||||
Total other expense | (4,129,139) | (4,734,040) | (7,521,907) | (5,424,040) | |||||||||||||||||||
Loss from operations before income taxes | (12,240,925) | (18,110,081) | (20,105,685) | (32,465,081) | |||||||||||||||||||
Income tax (expense) benefit | (21,030) | 54,075 | (57,000) | 21,075 | |||||||||||||||||||
Net loss | (12,261,955) | (18,056,006) | (20,162,685) | (32,444,006) | |||||||||||||||||||
Foreign currency translation adjustment | — | (605,438) | — | (569,438) | |||||||||||||||||||
Comprehensive loss | $ | (12,261,955) | $ | (18,661,444) | $ | (20,162,685) | $ | (33,013,444) | |||||||||||||||
Loss per share: | |||||||||||||||||||||||
Basic | $ | (0.73) | $ | (6.60) | $ | (1.51) | $ | (13.41) | |||||||||||||||
Weighted average number of shares outstanding: | |||||||||||||||||||||||
Basic | 16,738,384 | 2,735,084 | 13,395,164 | 2,420,262 | |||||||||||||||||||
Six Months Ended June 30, 2023 and 2022
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| Three Months Ended March 31, |
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| Nine Months Ended March 31, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Project revenues, net |
| $ | 15,685,000 |
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| $ | 3,854,000 |
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| $ | 31,028,000 |
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| $ | 12,437,000 |
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Cost of revenues |
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| 11,738,000 |
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| 1,941,000 |
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| 20,158,000 |
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|
| 6,360,000 |
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Gross profit |
|
| 3,947,000 |
|
|
| 1,913,000 |
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|
| 10,870,000 |
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|
| 6,077,000 |
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Operating expenses: |
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Selling, general and administrative expenses |
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| 14,606,000 |
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| 6,813,000 |
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| 27,835,000 |
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|
| 14,864,000 |
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Professional fees |
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| 2,577,000 |
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|
| 136,000 |
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|
| 3,445,000 |
|
|
| 1,274,000 |
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Depreciation expense |
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| 33,000 |
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|
| 34,000 |
|
|
| 91,000 |
|
|
| 95,000 |
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Amortization expense of intangibles |
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| 396,000 |
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| 540,000 |
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|
| 739,000 |
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|
| 1,619,000 |
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Total operating expenses |
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| 17,612,000 |
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| 7,523,000 |
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| 32,110,000 |
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|
| 17,852,000 |
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Loss from operations |
|
| (13,665,000 | ) |
|
| (5,610,000 | ) |
|
| (21,240,000 | ) |
|
| (11,775,000 | ) |
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Other income (expense): |
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|
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Business acquisition costs |
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| (827,000 | ) |
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| 0 |
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|
| (827,000 | ) |
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| 0 |
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Income from government grants |
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| 0 |
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|
| 831,000 |
|
|
| 262,000 |
|
|
| 2,535,000 |
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Amortization expense of note payable discount |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (409,000 | ) |
Interest expense |
|
| (100,000 | ) |
|
| 11,000 |
|
|
| (147,000 | ) |
|
| (35,000 | ) |
Foreign exchange gain |
|
| 1,000 |
|
|
| (11,000 | ) |
|
| (25,000 | ) |
|
| (48,000 | ) |
Gain on early termination of operating lease |
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| 0 |
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| 0 |
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|
| (3,000 | ) |
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| 0 |
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Gain in derivative liabilities |
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| 201,000 |
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|
| 0 |
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|
| 213,000 |
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|
| 0 |
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Other income |
|
| 35,000 |
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|
| 122,000 |
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|
| 1,220,000 |
|
|
| 378,000 |
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Other expenses |
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| 0 |
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| 1,000 |
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| 0 |
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| 154,000 |
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Total other income (expense) |
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| (690,000 | ) |
|
| 954,000 |
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|
| 693,000 |
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|
| 2,575,000 |
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Net loss from continuing operations before income tax |
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| (14,355,000 | ) |
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| (4,656,000 | ) |
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| (20,547,000 | ) |
|
| (9,200,000 | ) |
Provision for income tax |
|
| (33,000 | ) |
|
| (23,000 | ) |
|
| (90,000 | ) |
|
| (23,000 | ) |
Net loss attributable to common stockholders |
| $ | (14,388,000 | ) |
| $ | (4,679,000 | ) |
| $ | (20,637,000 | ) |
| $ | (9,223,000 | ) |
Foreign currency translation adjustment |
|
| 36,000 |
|
|
| (130,000 | ) |
|
| 68,000 |
|
|
| (629,000 | ) |
Comprehensive loss |
| $ | (14,352,000 | ) |
| $ | (4,809,000 | ) |
| $ | (20,569,000 | ) |
| $ | (9,852,000 | ) |
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Basic earnings (loss) per share |
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Net loss attributable to common stockholders |
| $ | (0.30 | ) |
| $ | (0.31 | ) |
| $ | (0.47 | ) |
| $ | (0.55 | ) |
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Weighted average basic shares |
|
| 48,051,751 |
|
|
| 15,110,400 |
|
|
| 44,325,690 |
|
|
| 16,784,773 |
|
Preferred Stock Series A | Preferred Stock Series E | Common Stock | Additional Paid In Capital | Accumulated Deficit | Accumulated Comprehensive Income (Loss) | Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amount | Amount | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2022 | $ | — | $ | 3,107 | $ | 5,572 | $ | 265,806,976 | $ | (235,336,543) | $ | — | $ | 30,479,112 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | 547,197 | — | — | 547,197 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cashless exercise of warrants for common shares | — | — | 5,646 | (5,646) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Preferred Series E shares to common shares | — | (3,048) | 4,877 | (1,829) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Partial liquidated damages settled in common shares | — | — | 428 | 2,672,748 | — | — | 2,673,176 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (7,900,730) | — | (7,900,730) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - March 31, 2023 | $ | — | $ | 59 | $ | 16,523 | $ | 269,019,446 | $ | (243,237,273) | $ | — | $ | 25,798,755 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rounding adjustment resulting from one (1) for twenty-five (25) reverse stock split | — | — | 31 | (31) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | 330,580 | — | — | 330,580 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Preferred Series E shares to common shares | — | (59) | 2 | 57 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock via At-the-Market offering, net | — | — | 121 | — | — | — | 121 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (12,261,955) | — | (12,261,955) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - June 30, 2023 | $ | — | $ | — | $ | 16,677 | $ | 269,350,052 | $ | (255,499,228) | $ | — | $ | 13,867,501 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance — December 31, 2021 | $ | 7,000 | $ | — | $ | 1,760 | $ | 208,127,240 | $ | (193,138,000) | $ | (386,000) | $ | 14,612,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Record vested deferred compensation relating to Redeeem employees | — | — | — | 805,000 | — | — | 805,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock related to Converge acquisition | — | — | 480 | 14,874,520 | — | — | 14,875,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Record preferred stock issued to PIPE | — | 5,000 | — | (5,000) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 320 | 9,095,680 | — | — | 9,096,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation reclassification | — | — | — | — | — | 36,000 | 36,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (14,388,000) | — | (14,388,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - March 31, 2022 | $ | 7,000 | $ | 5,000 | $ | 2,560 | $ | 232,897,440 | $ | (207,526,000) | $ | (350,000) | $ | 25,036,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | 4,204,534 | — | — | 4,204,534 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition adjustments | — | — | — | 257,849 | — | — | 257,849 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of Preferred Series A | (7,000) | — | — | (439,200) | — | — | (446,200) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation reclassification | — | — | — | — | — | (605,438) | (605,438) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (18,056,006) | — | (18,056,006) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - June 30, 2022 | $ | — | $ | 5,000 | $ | 2,560 | $ | 236,920,623 | $ | (225,582,006) | $ | (955,438) | $ | 10,390,739 |
Condensed Consolidated Statement of Stockholders’ Equity (Deficit)
For the Three Months Ending March 31, 2022 and 2021
|
| Preferred Stock - Series A |
|
| Preferred Stock -Series B |
|
| Preferred Stock - Series C |
|
| Preferred Stock - Series D |
|
| Preferred Stock - Series E |
|
| Common Stock |
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Stockholders’ |
| |||||||||||||||||||||||||||||||||||
|
| $ 0.01 Par Value |
|
| $ 0.01 Par Value |
|
| $ 0.01 Par Value |
|
| $ 0.01 Par Value |
|
| $ 0.01 Par Value |
|
| $ 0.001 Par Value |
|
| Paid In |
|
| Stock |
|
| Accumulated |
|
| Comprehensive |
|
| Equity |
| |||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Income (Loss) |
|
| (Deficit) |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
BALANCE — July 1, 2020 |
|
| 720,000 |
|
| $ | 7,000 |
|
|
| 2,495,000 |
|
| $ | 25,000 |
|
|
| 911,149 |
|
| $ | 9,000 |
|
|
| 1,979,000 |
|
| $ | 20,000 |
|
|
| - |
|
| $ | 0 |
|
|
| 15,454,623 |
|
| $ | 16,000 |
|
|
| 176,262,000 |
|
|
| 1,300,000 |
|
|
| (170,892,000 | ) |
|
| 253,000 |
|
|
| 7,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of preferred stock - series D |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
Retirement of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
Issuance of common stock related to convertible note payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 499,222 |
|
|
| 0 |
|
|
| 1,400,000 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
| 1,400,000 |
|
Issuance of common stock related to stock payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
| - |
|
|
|
|
|
|
| 1,733,334 |
|
|
| 2,000 |
|
|
| 1,298,000 |
|
|
| (1,300,000 | ) |
|
|
|
|
|
|
|
|
|
| 0 |
|
Stock-based compensation on options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 166,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 166,000 |
|
Stock-based compensation on warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 154,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 154,000 |
|
Imputed interest on convertible note payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,000 |
|
Foreign currency translation loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (93,000 | ) |
|
| (93,000 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,921,000 | ) |
|
|
|
|
|
| (3,921,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — September 30, 2020 |
|
| 720,000 |
|
| $ | 7,000 |
|
|
| 2,495,000 |
|
| $ | 25,000 |
|
|
| 911,149 |
|
| $ | 9,000 |
|
|
| 1,979,000 |
|
| $ | 20,000 |
|
|
| - |
|
| $ | 0 |
|
|
| 17,687,179 |
|
| $ | 18,000 |
|
| $ | 179,284,000 |
|
| $ | 0 |
|
| $ | (174,813,000 | ) |
| $ | 160,000 |
|
| $ | 4,710,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation on options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 263,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 263,000 |
|
Stock-based compensation on warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 301,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 301,000 |
|
Imputed interest on convertible note payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,000 |
|
Beneficial conversion features on convertible promissory notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 144,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 144,000 |
|
Warrants granted for convertible promissory note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,000 |
|
Shares to be issued for convertible promissory note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 156,000 |
|
|
|
|
|
|
|
|
|
|
| 156,000 |
|
Foreign currency translation gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (406,000 | ) |
|
| (406,000 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (623,000 | ) |
|
|
|
|
|
| (623,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
BALANCE — December 31, 2020 |
|
| 720,000 |
|
| $ | 7,000 |
|
|
| 2,495,000 |
|
| $ | 25,000 |
|
|
| 911,149 |
|
| $ | 9,000 |
|
|
| 1,979,000 |
|
| $ | 20,000 |
|
|
| - |
|
| $ | 0 |
|
|
| 17,687,179 |
|
| $ | 18,000 |
|
|
| 180,007,000 |
|
| $ | 156,000 |
|
| $ | (175,436,000 | ) |
| $ | (246,000 | ) |
| $ | 4,560,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,666,667 | ) |
|
| (3,000 | ) |
|
| 3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
Stock-based compensation on options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 271,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 271,000 |
|
Stock-based compensation on warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,427,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,427,000 |
|
Imputed interest on convertible note payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,000 |
|
Beneficial conversion features on convertible promissory notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
Warrants granted for convertible promissory note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
Foreign currency translation gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (130,000 | ) |
|
| (130,000 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,679,000 | ) |
|
|
|
|
|
| (4,679,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — March 31, 2021 |
|
| 720,000 |
|
| $ | 7,000 |
|
|
| 2,495,000 |
|
| $ | 25,000 |
|
|
| 911,149 |
|
| $ | 9,000 |
|
|
| 1,979,000 |
|
| $ | 20,000 |
|
|
| - |
|
| $ | 0 |
|
|
| 15,020,512 |
|
| $ | 15,000 |
|
| $ | 182,717,000 |
|
| $ | 156,000 |
|
| $ | (180,115,000 | ) |
| $ | (376,000 | ) |
| $ | 2,458,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — July 1, 2021 |
|
| 720,000 |
|
|
| 7,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 39,496,588 |
|
|
| 40,000 |
|
|
| 204,788,000 |
|
|
| 1,210,000 |
|
|
| (186,889,000 | ) |
|
| (418,000 | ) |
|
| 18,738,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued relating to Redeeem acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 452,929 |
|
|
| 0 |
|
|
| 1,210,000 |
|
|
| (1,210,000 | ) |
|
|
|
|
|
|
|
|
|
| 0 |
|
Record vested deferred compensation relating to Redeeem employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,623,433 |
|
|
| 4,000 |
|
|
| 801,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 805,000 |
|
Stock-based compensation on options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 107,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 107,000 |
|
Stock-based compensation on warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 67,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 67,000 |
|
Beneficial conversion features on convertible promissory notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
Foreign currency translation gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 31,000 |
|
|
| 31,000 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,139,000 | ) |
|
| 0 |
|
|
| (2,139,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — September 30, 2021 |
|
| 720,000 |
|
| $ | 7,000 |
|
|
| - |
|
| $ | 0 |
|
|
| - |
|
| $ | 0 |
|
|
| - |
|
| $ | 0 |
|
|
| - |
|
|
| 0 |
|
|
| 43,572,950 |
|
| $ | 44,000 |
|
| $ | 206,973,000 |
|
|
| 0 |
|
| $ | (189,028,000 | ) |
| $ | (387,000 | ) |
| $ | 17,609,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record vested deferred compensation relating to Redeeem employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 805,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 805,000 |
|
Stock-based compensation on options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 106,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 106,000 |
|
Stock-based compensation on warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 57,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 57,000 |
|
Issuance of common stock related to employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 66,666 |
|
|
| 0 |
|
|
| 104,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 104,000 |
|
Issuance of common stock to contractors for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 20,000 |
|
|
| 0 |
|
|
| 40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 40,000 |
|
Foreign currency translation gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,000 |
|
|
| 1,000 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,110,000 | ) |
|
|
|
|
|
| (4,110,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2021 |
|
| 720,000 |
|
| $ | 7,000 |
|
|
| - |
|
| $ | 0 |
|
|
| - |
|
| $ | 0 |
|
|
| - |
|
| $ | 0 |
|
|
| - |
|
|
| 0 |
|
|
| 43,659,616 |
|
| $ | 44,000 |
|
| $ | 208,085,000 |
|
|
| 0 |
|
| $ | (193,138,000 | ) |
| $ | (386,000 | ) |
| $ | 14,612,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record vested deferred compensation relating to Redeeem employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 805,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 805,000 |
|
Issuance of common stock related to Converge acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,500,000 |
|
|
| 12,000 |
|
|
| 14,863,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 14,875,000 |
|
Record preferred stock issued for PIPE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 500,000 |
|
|
| 5,000 |
|
|
|
|
|
|
|
|
|
|
| (5,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
Stock-based compensation on options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 256,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 256,000 |
|
Stock-based compensation on warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 730,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 730,000 |
|
Stock-based compensation on restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,000,000 |
|
|
| 8,000 |
|
|
| 8,102,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,110,000 |
|
Foreign currency translation gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 36,000 |
|
|
| 36,000 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (14,388,000 | ) |
|
|
|
|
|
| (14,388,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — March 31, 2022 |
|
| 720,000 |
|
| $ | 7,000 |
|
|
| - |
|
| $ | 0 |
|
|
| - |
|
| $ | 0 |
|
|
| - |
|
| $ | 0 |
|
|
| 500,000 |
|
| $ | 5,000 |
|
|
| 64,159,616 |
|
| $ | 64,000 |
|
| $ | 232,836,000 |
|
|
| 0 |
|
| $ | (207,526,000 | ) |
| $ | (350,000 | ) |
| $ | 25,036,000 |
|
Troika Media Group, Inc. and Subsidiaries
|
| Nine Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net loss |
| $ | (20,637,000 | ) |
| $ | (9,223,000 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 91,000 |
|
|
| 95,000 |
|
Amortization of intangibles |
|
| 739,000 |
|
|
| 1,619,000 |
|
Amortization of right-of-use assets |
|
| 732,000 |
|
|
| 893,000 |
|
Amortization of discount on convertible note payables |
|
| 0 |
|
|
| 409,000 |
|
Stock-based compensation on options |
|
| 509,000 |
|
|
| 700,000 |
|
Stock-based compensation on warrants |
|
| 854,000 |
|
|
| 2,882,000 |
|
Stock-based compensation relating to Redeeem acquisition |
|
| 2,415,000 |
|
|
| 0 |
|
Issuance of common stock related to employees |
|
| 104,000 |
|
|
| 0 |
|
Issuance of common stock to contractors for services |
|
| 8,110,000 |
|
|
| 0 |
|
Imputed interest for note payable |
|
| 0 |
|
|
| 16,000 |
|
Recognition of stimulus of contribution revenue from stimulus funding |
|
| 0 |
|
|
| (2,535,000 | ) |
Gain on derivative liabilities |
|
| (213,000 | ) |
|
| 0 |
|
Recovery of bad debt |
|
| (5,000 | ) |
|
| (202,000 | ) |
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (9,772,000 | ) |
|
| (2,205,000 | ) |
Prepaid expenses |
|
| 552,000 |
|
|
| 21,000 |
|
Accounts payable and accrued expenses |
|
| 3,925,000 |
|
|
| 2,418,000 |
|
Deferred expenses |
|
| 775,000 |
|
|
| 0 |
|
Other assets |
|
| 0 |
|
|
| 63,000 |
|
Rental deposits |
|
| 5,000 |
|
|
| (11,000 | ) |
Operating lease liability |
|
| (889,000 | ) |
|
| (10,000 | ) |
Taxes payable |
|
| (103,000 | ) |
|
| 0 |
|
Contract liabilities |
|
| 13,166,000 |
|
|
| 2,462,000 |
|
Net cash provided by (used in) operating activities |
|
| 358,000 |
|
|
| (2,608,000 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Decrease in other assets |
|
| (75,000 | ) |
|
| 0 |
|
Cash paid for acquisition of Converge, net of cash received |
|
| (82,730,000 | ) |
|
| 0 |
|
Purchase of fixed assets |
|
| (161,000 | ) |
|
| (24,000 | ) |
Net cash used in investing activities |
|
| (82,966,000 | ) |
|
| (24,000 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from the issuance of preferred stock, net of offering costs |
|
| 44,405,000 |
|
|
| 0 |
|
Proceeds from stimulus loan programs |
|
|
|
|
|
| 2,258,000 |
|
Repayment of other longer-term liabilities |
|
| (477,000 | ) |
|
| 0 |
|
Repayment of amount due to related party |
|
| (41,000 | ) |
|
| 0 |
|
Payment of stimulus loan program |
|
| (566,000 | ) |
|
| 0 |
|
Payments to note payable of related party |
|
| (80,000 | ) |
|
| 0 |
|
Proceeds from bank loan, met of debt issuance cost |
|
| 69,718,000 |
|
|
| 0 |
|
Proceeds from convertible note payable |
|
| 0 |
|
|
| 500,000 |
|
Net cash provided by financing activities |
|
| 112,959,000 |
|
|
| 2,758,000 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash |
|
| (21,000 | ) |
|
| (406,000 | ) |
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| $ | 30,330,000 |
|
| $ | (280,000 | ) |
CASH AND CASH EQUIVALENTS — beginning of period |
|
| 12,066,000 |
|
|
| 1,706,000 |
|
CASH AND CASH EQUIVALENTS — end of period |
| $ | 42,396,000 |
|
| $ | 1,426,000 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Income taxes |
| $ | 0 |
|
| $ | 0 |
|
Interest expense |
| $ | 3,000 |
|
| $ | 0 |
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Beneficial conversion features on convertible promissory notes |
| $ | 0 |
|
| $ | 144,000 |
|
Record derivative liability on convertible notes |
| $ | - |
|
| $ | 98,000 |
|
Fair value of common stock issued relating to the Converge acquisition |
|
| 14,875,000 |
|
|
| 0 |
|
Warrants issued for convertible promissory note |
| $ | 0 |
|
| $ | 12,000 |
|
Warrants issued relating to debt financing |
| $ | 2,232,000 |
|
| $ | 0 |
|
Warrants issued relating to equity financing |
| $ | 28,407,000 |
|
| $ | 0 |
|
Record acquisition liability relating to Converge acquisition |
| $ | 5,000,000 |
|
| $ | 0 |
|
Capitalized fee on initial term loan |
| $ | 1,500,000 |
|
| $ | 0 |
|
Original issue discount on amount held in escrow |
| $ | 900,000 |
|
| $ | - |
|
Shares to be issued for convertible promissory note |
| $ | 0 |
|
| $ | 156,000 |
|
Issuance of common stock related to stock payable |
| $ | - |
|
| $ | 1,300,000 |
|
Issuance of common stock related to stock payable |
| $ | 104,000 |
|
| $ | 0 |
|
Issuance of common stock to contractors for services |
| $ | 40,000 |
|
| $ | 0 |
|
Conversion of convertible note payable |
| $ | 0 |
|
| $ | 1,400,000 |
|
Right-of-use assets acquired through adoption of ASC 842 |
| $ | 0 |
|
| $ | 8,931,000 |
|
Right-of-use assets acquired through operating leases |
| $ | 467,000 |
|
| $ | 2,398,000 |
|
Six Months Ended June 30, | |||||||||||
2023 | 2022 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net loss | $ | (20,162,685) | $ | (32,444,006) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
Depreciation and amortization | 4,129,048 | 2,696,780 | |||||||||
Amortization of right-of-use assets | 333,677 | 728,455 | |||||||||
Amortization of deferred financing costs | 1,151,953 | 791,292 | |||||||||
Impairments and other losses (gains), net | — | 8,937,677 | |||||||||
Stock-based compensation | 877,778 | 13,300,534 | |||||||||
Accretion of interest on acquisition liabilities | 53,102 | — | |||||||||
Gain on derivative liabilities | — | (626,145) | |||||||||
Provision for bad debt | (135,705) | 243,524 | |||||||||
Partial liquidated damages expense | 227,400 | 3,615,000 | |||||||||
Change in operating assets and liabilities: | |||||||||||
Accounts receivable | (4,260,465) | (10,612,057) | |||||||||
Prepaid expenses | (925,158) | (954,183) | |||||||||
Accounts payable and accrued expenses | 8,838,694 | 9,247,500 | |||||||||
Other assets | 27,021 | 17,269 | |||||||||
Operating lease liability | (701,134) | (2,904,470) | |||||||||
Due to related parties | — | (7,000) | |||||||||
Deferred revenue | 3,107,244 | 4,345,159 | |||||||||
Other long-term liabilities | (199,009) | (121,361) | |||||||||
Net cash used in operating activities | (7,638,239) | (3,746,032) | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Purchase of property and equipment | (50,839) | (70,638) | |||||||||
Net cash paid for acquisition of Converge | — | (82,730,000) | |||||||||
Net cash used in investing activities | (50,839) | (82,800,638) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Principal payments made for bank loan | (1,912,500) | (956,250) | |||||||||
Payments for note payable to related party | (30,000) | (50,000) | |||||||||
Proceeds from at-the-market offering, net | 121 | — | |||||||||
Proceeds from the issuance of preferred stock, net of offering costs | — | 44,405,000 | |||||||||
Proceeds from bank loan, net of debt issuance cost | — | 69,717,960 | |||||||||
Payments made for the redemption of Series A preferred stock | — | (446,400) | |||||||||
Payment of stimulus loan programs | — | (435,000) | |||||||||
Net cash (used in) provided by financing activities | (1,942,379) | 112,235,310 | |||||||||
Effect of exchange rate on cash | — | 1,003,161 | |||||||||
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | $ | (9,631,457) | $ | 26,691,801 | |||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — beginning of period | 28,403,797 | 5,982,000 | |||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — end of period | $ | 18,772,340 | $ | 32,673,801 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
Cash paid during the period for: | |||||||||||
Interest expense | $ | 5,714,032 | $ | 1,998,958 | |||||||
Income taxes | $ | — | $ | — | |||||||
Noncash investing and financing activities: | |||||||||||
Conversion of Series E Preferred shares to common shares | $ | 31,078,000 | $ | — | |||||||
Cashless exercise of warrants for common shares | $ | 34,690,000 | $ | — | |||||||
Settlement of contingent liability in common shares | $ | 2,673,176 | $ | — | |||||||
Write-off of property and equipment | $ | 291,641 | $ | — | |||||||
Fair value of common stock issued relating to the Converge Acquisition | $ | — | $ | 14,875,000 | |||||||
Warrants issued relating to debt financing | $ | — | $ | 2,232,000 | |||||||
Warrants issued relating to equity financing | $ | — | $ | 28,407,000 | |||||||
For the Three
NOTE 1 – PRESENTATION OF THE FINANCIAL STATEMENTS
The terms “Troika,” “the Company,” “we,” “our” and “us” each refer to Basis of Presentation
In oursix months ended June 30, 2023 presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion the accompanying unaudited condensed consolidatedof management such financial statements reflect all adjustments, consisting solely of normal recurring accruals, consideredadjustments, necessary for a fair presentation in all material respects, of the information contained herein. These unauditedresults for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2022, was derived from audited financial statements, should be read in conjunction with our annual report on Form 10-K for the year ended June 30, 2021.
Risks & Uncertainties
Liquidity
For the nine months ending March 31, 2022, the Company had a net loss of $20.6 million, which increased the accumulated deficit to $207.5 million at March 31, 2022 from $186.9 million at June 30, 2021. At March 31, 2022, the Company had approximately $42.4 million in cash and cash equivalents and a total of $75.2 million in current assets in relation to $67.4 million in current liabilities.
With the most recent acquisition of Converge Direct, the Company believes that on a consolidated basis it will achieve positive operating cash flow in the fiscal year 2023. Converge is an independent performance marketing and managed service business. Converge provides to its customer acquisition services utilizing a broad range of engagement channels in the digital, off-line and emerging media sectors. Along with the added end-to-end solutions integrating Converge and Troika clients in major media markets, such as NY, Los Angeles and London, the Company expects to achieve improved profitability year over year through these integrated solutions and synergies.
If the Company raises additional fundsbut does not include all disclosures required by issuing equity securities, its stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant debt service payments, which diverts resources from other activities. The Company’s ability to raise additional capital will also be impacted by the outbreak of COVID-19, as well as market conditions and the price of the Company’s common stock.
Based on the recent acquisitions, equity raises, Company-wide consolidation, and management’s plans, the Company believes that the cash on hand of $42,396,000 as of March 31, 2022 and anticipated cash from operations is sufficient to conduct planned operations for one year from the issuance of the consolidated financial statements. In addition, Management believes they can raise additional capital, if necessary, given the Company has been successful at raising funding through both equity and debt financing.
Impact of COVID-19
In March 2020, the World Health Organization categorized the coronavirus (COVID-19) as a pandemic, and it continues to spread throughout the United States and the rest of the world with different geographical locations impacted more than others. The outbreak of COVID-19 and the resulting public and private sector measures to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, have adversely impacted our business and those of our clients. Businesses have adjusted, reduced, or suspended operating activities, which has negatively impacted the clients we service. We continue to believe our focus on our strategic strengths, including talent, our differentiated market strategy and the relevance of our services, including the longevity of our relationships, will continue to assist our Company as we navigate a rapidly changing marketplace. The effects of the COVID-19 pandemic have negatively impacted our results of operations, cash flows and financial position; however, the continued extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19.
We took steps to protect the safety of our employees, with a large majority of our worldwide workforce working from home, while developing creative ideas to protect the health and well-being of our communities and setting up our people to help them do their best work for our clients while working remotely. With respect to managing costs, we implemented multiple initiatives to align our expenses with changes in revenue. The steps taken across our agencies and corporate group include deferred merit increases, freezes on hiring and temporary labor, major cuts in non-essential spending, staff reductions, furloughs in markets where that option is available and salary reductions, including voluntary salary deferment for our senior corporate management team. In addition, we remain committed to and have intensified our efforts around cash flow discipline, including the identification of significant capital expenditures that can be deferred, and working capital management. Due to mandatory stay at home orders and social distancing, our experiential business has been particularly impacted by COVID-19. Promotional and experiential events with the Company’s assistance are particularly susceptible to external factors and were delayed by many of the Company’s Mission clients due to the effects of COVID-19.
In the current environment, a major priority for us is preserving liquidity. Our primary liquidity sources are operating cash flow, cash and cash equivalents and short-term investments. Although we experienced a decrease in our cash flow from operations as a result of the impact of COVID-19, we obtained relief under the CARES Act in the form of a Small Business Administration backed loans. In aggregate we received $1.7 million in SBA stimulus “Payroll Protection Program” funding in April 2020 of which the majority of these funds were used for payroll. As per the US Government rules, the funds used for payroll, healthcare benefits, and other applicable operating expenses can be forgiven and the Company reported them as such in December 2020 considering the Company believed it had substantially met these conditions. On August 14, 2020, the Company received an additional $500,000 in loans with 30 year terms under the SBA’s “Economic Injury Disaster Loan” program which the Company used to address any cash shortfalls that resulted from the current pandemic. In February 2021, the Company obtained additional relief under the CARES Act in the form of Small Business Administration backed loans and received an additional $1.7 million in SBA stimulus “Payroll Protection Program” funds which were used for payroll, healthcare benefits, and other applicable operating expenses. In July 2021, the Company was notified that all of the stimulus funds were forgiven with the exception of approximately $8,000 which was returned in the three months ending September 30, 2021.
In the United Kingdom in August 2020, the Company received £50,000 in loans related to the COVID pandemic with an interest rate of 2.5% to be paid over five years beginning one year after receipt. The Company used these proceeds to address any cash shortfalls that resulted from the pandemic.
The extent to which the COVID-19 outbreak continues to impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of TMG, and its wholly-owned subsidiaries, Troika Design Group, Inc. (California), Troika Services Inc. (New York), Troika Production Group, LLC (California), Troika-Mission Holdings, Inc. (New York), Mission Culture LLC (Delaware), Mission-Media Holdings Limited (England and Wales), Mission Media USA, Inc. (New York), Troika IO, Inc. (f/k/a Redeeem Acquisition Corp) (California), Converge Direct, LLC (Delaware), Converge Direct Interactive, LLC (Delaware), Converge Marketing Services (to the extent of 40%), LLC (Delaware) and Lacuna Ventures, LLC (Delaware). All significant intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.
Significant estimates and assumptions made by management include, among others, the assessment of the collectabilityvaluation of accounts receivable and the determination of the allowance for doubtful accounts, the valuation and useful life of capitalized equipment costs and long-lived assets, valuation of warrants and options, the determination of the useful lives and any potential impairment of long-lived assets such as intangible assets and goodwill, the allocation of purchase consideration to assets and liabilities due to the Redeeem acquisition, the allocation of purchase consideration to assets and liabilities due to the Converge Direct acquisition,Acquisition, stock-based compensation, and deferred tax assets. Actual results could differManagement believes its use of estimates in the condensed consolidated financial statements to be reasonable.
FAIR VALUE MEASUREMENT
Fair value is defined as the exchange price that wouldat-the-market ("ATM") issuance held by B.Riley Securities, Inc., our agent for sale of Common Stock under the ATM ("ATM Agent") and must be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Other inputs that are directly or indirectly observable in the marketplace.
Level 3 - Unobservable inputs which are supported by little or no market activity.
Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2022 and June 30, 2021. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable, accrued liabilities, and convertible notes payable. Fair values for these items were assumed to approximate carrying values because of their short-term nature or they are payable on demand. The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as the fair values were determined by using the Black-Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates, on a periodic basis, long-lived assets to be held and used for impairmentBlue Torch in accordance with the reporting requirements of ASC 360-10. The evaluation is based on certain impairment indicators, such as the natureterms of the assets,Financing Agreement. There was no restricted cash balance as of December 31, 2022.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalent account balances with financial institutions in the United States and United Kingdom which at times exceed federally insured limits for accounts in the United States. Considering deposits with these institutions can be redeemed$65.9 million paid on demand, the Company believes there is minimal risk. As of March 31, 2022 and June 30, 2021, the Company had $39,766,000 and $10,125,000 in cash that was uninsured, respectively.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, and highly liquid debt instruments with original maturities of less than three months. At various times during the year, the Company has maintained cash balances in excess of federally insured limits. The Company believes it mitigates its risk by banking with major financial institutions.
The Company invests all excess cash primarily in government bonds, corporate debt securities, mortgage-backed and asset-backed securities, time deposits, and money market funds.
We classify all marketable debt securities that have stated maturities of three months or less from the date of purchase as cash equivalentsthe acquisition, $29.1 million held in escrow payable upon satisfaction of certain conditions, and those with stated maturities of greater than threeanother $5.0 million payable 12 months as marketable securitiesafter the acquisition date contingent on our Consolidated Balance Sheet
We determine the appropriate classification of our investments in marketable debt securitiesCompany satisfying its bank covenants and at the timeoption of purchase and reevaluate such designationthe payee payment will be in the form of cash or common stock of the Company valued at each balance sheet date. We$2.00 per share. The remaining $25.0 million was paid in the form of 12.5 million shares of the Company’s restricted common stock at a price of $2.00 per share, which for accounting purposes was valued at $1.19 per share for $14.9 million. All 12.5 million shares were subject to a nine (9) month lock-up period. Pursuant to the provisions of the MIPA dated as of November 22, 2021, as amended, an aggregate of $2.5 million (10%) or 1,250,000 shares of the Common Stock issued to the Sellers are held in escrow to secure against claims for indemnification. The escrowed shares will be held until the later of (a) one year from the Closing Date, or (b) the resolution of indemnification claims. The escrowed shares have classified and accountednot yet been released. The Company is accounting for our marketable debt securities as available-for-sale. After consideration of our risk versus reward objectives, as well as our liquidity requirements, we may sell these debt securities prior to their stated maturities. As we view these securities as available to support current operations, we classify highly liquid securities with maturities beyond 12 months as current assetsthe transaction under the caption marketable securitiespurchase method of accounting in accordance with the provisions of ASC Topic 805 Business Combinations (ASC 805). On the Closing Date, Converge became a wholly-owned subsidiary.
ACCOUNTS RECEIVABLE
Our accounts receivable are amounts due from our clients. The Company accounts for unbilled accounts receivable using the percentage-of-completion accounting method for revenue recognized and the customer has not been invoiced due“Cause,” pursuant to the terms of the contract orNew Agreements. See the timingCompany’s Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on August 13, 2023, the contents of which are incorporated by reference herein. Mr. Marianacci resigned his employment with the Company on September 28, 2023.
For those clients to whom we extend credit, we perform periodic evaluationsemployment of accounts receivableMr. Toama for "Cause" and maintain allowances for potential credit losses as deemed necessary.
the resignation of Mr. Marianacci.
PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost less accumulated depreciation and amortization. Property and equipment consist of furniture and computer equipment. Depreciation is calculated using the straight-line method over the estimated useful livesfair values of the related assets generally ranging from threeacquired and liabilities assumed, which are based on management estimates and third-party appraisals. The Company engaged a valuation expert to seven years. Maintenanceprovide guidance to management which was considered and repairs are charged to expense as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is reflected in the statements of incomepart relied upon in the period realized.
GOODWILL AND INTANGIBLE ASSETS
As a result of acquisitions, the Company recorded goodwill and identifiable intangible assets as part ofcompleting its allocation of the purchase consideration.
Goodwill
Goodwill is theprice allocation. The excess of the purchase price paid over the aggregate estimated fair value of the net assets acquired was allocated to goodwill.
Current assets | $ | 33,856,000 | |||
Fixed assets | 233,000 | ||||
Other non-current assets | 4,340,000 | ||||
Intangible assets | 71,100,000 | ||||
Goodwill | 45,519,000 | ||||
Current liabilities | (34,904,000) | ||||
Other non-current liabilities | (5,506,000) | ||||
Consideration | $ | 114,638,000 |
Intangible Assets: | Preliminary Fair Value | Life in Years | Discount Rate | Valuation Method | |||||||||||||||||||
Customer relationships | $ | 53,600,000 | 10 | 17.8% | Income (MPEEM) | ||||||||||||||||||
Technology | 10,400,000 | 5 | 17.8% | Income (Relief-from-Royalty) | |||||||||||||||||||
Tradename | 7,100,000 | 10 | 18.8% | Income (Relief-from-Royalty) | |||||||||||||||||||
$ | 71,100,000 |
We test our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is June 30.
The Company is currently working with its tax partners to assess whether the goodwill is deductible for income tax purposes.
Intangibles
Intangible assets with finite useful lives consist of tradenames, non-compete agreements, acquired workforce and customer relationships and are amortizedabove on a straight-linestraight line basis over their estimated useful lives, which range from threelives.
For the six months ended | |||||||||||
June 30, 2022 | |||||||||||
Revenue | $ | 155,924,997 | |||||||||
Cost of revenue | 128,643,653 | ||||||||||
Gross profit | 27,281,344 | ||||||||||
Operating expenses | (50,638,734) | ||||||||||
Operating loss | (23,357,390) | ||||||||||
Other expenses | (6,668,896) | ||||||||||
Net loss | $ | (30,026,286) |
LEASES
Right-of-use assets and lease liabilities are recorded in accordance with Leases (Topic 842)marketing performance reporting). The Company has recorded a lease liability because the Company has the obligation to make lease payments and a ROU assetis compensated for the right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments over the lease term. The right-of-use asset is measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs. The Company uses the optional transitional method and elected to use the package of three practical expedients which allows the Company not to reassess whether contracts are or contain leases, lease classification and whether initial direct costs qualify for capitalization.
Income from subleased properties as well as non-lease items such as common-area maintenance and utilities are recognized as non-operating “other income” on the Consolidated Statements of Operations and Comprehensive Loss.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification (“ASC”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
Troika/Mission
The Company recognizes primarily four revenue streams and they are retainer fees, project fees, reimbursement income, and fee income.
Retainer fees are non-refundable fixed amounts being received from a client often on a recurring basis and the performance obligation is the staff being available to provide consultation services. Consulting engagements do not incur a significant amount of direct costs however any costs are recognized as incurred. Consulting fees are recognized evenly throughout the term of the agreement.
Project fees are associated with the delivery of services and/or goods to a client and the revenue includes both the anticipated costs to deliver the product or service as well as the Company’s margin. margin, which is arranged in one of three ways (i) a predetermined fixed fee amount (ii) cost plus margin or (iii) a predetermined commission percentage based on the total media spend executed by the Company on a client’s behalf.
Reimbursement income represents compensationearned.
Fee income represents the Company’s margin Accruals for costs incurred but not yet billed by third parties are recorded in accrued billable expenses on the staging of a live event, is negotiated with the client prior and fixed. Based on ASC 606, the Company’s progress in satisfying the performance obligation in a contract is difficult to determine so as a result the fee income is only recognized at the conclusion of a project. Only upon confirmation the Company has performed all its contractual obligations as per the contract does the Company record fee income.
condensed consolidated balance sheets.
Advertising Revenues
The Company offers advertising and services by delivering both performance and brand advertising. The Company recognizes revenues for performance advertising when a user engages with the advertisement, such as a click, a view, or a purchase.
Our
if the Company were not able to obtain new customers. For the six months ended June 30, 2023 and June 30, 2022 five (5) customers accounted for 82% and 67% of our revenues, respectively.
June 30, | December 31, | |||||||||||||
2023 | 2022 | |||||||||||||
Accounts receivable | $ | 15,197,469 | $ | 10,801,299 | ||||||||||
Deferred revenue | $ | 9,316,686 | $ | 6,209,442 |
Managed Services
Company provides a service (such as, but not limited to, media planning, media buying, media ROI measurementthree and media or marketing performance reporting). The Company is compensated for delivering such services by means of a (i) predetermined retainer amount or (ii) a pre-determined commission percentage based on the total media spend executed by Company on a client’s behalf.
Reimbursements
Our customers reimburse for expensessix
Performance Marketing (“Pay Per Event”)
Company provides to its clients the ability to pay for a marketing or sales event rather than incurring the media and services expense in a managed service engagement. The Company utilizes the same functions that it delivers in its managed services offering but only charges a client for a pre-determined marketing or sales outcome. The fees in this situation will typically be tied to a (i) cost per phone call, (ii) cost per web form lead, (iii) cost per consumer appointment, (iv) cost per qualified lead, and (v) cost per sale.
There is a premium that is charged to the client for the Performance Marketing service due to the fact that the Company is taking on the cost risk associated with the services and media that it is executing without knowing that revenue will be generated. The risk is mitigated by the fact that the client has agreed to purchase the “work product’” (lead, call, etc.) at a predetermined cost and the Company charges higher margins associated with the service.
Sales Commissions
We expense sales commissions when incurred when the amortization period is one year or less. We recognize an asset for certain sales commissions if we expect the period of benefit of these costs to exceed one year and amortize it over the period of expected benefit. These costs are recorded within sales and marketing expenses.
Deferred Revenues and Remaining Performance Obligations
We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Additionally, we have performance obligations associated with commitments in customer contracts for future services that have not yet been recognized as revenues, also referred to as remaining performance obligations. Remaining performance obligations include related deferred revenue currently recorded as well as amounts that will be invoiced in future periods and excludes (i) contracts with an original expected term of one year or less, (ii) cancellable contracts, and (iii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
As of MarchDecember 31, 2022, the amount not yet recognized as revenues from these commitments for Converge Directis $13,618,000 which we expect to recognize entirely over the next six months. However, the amountwas approximately $0.3 million
Cost of Revenues
Cost of revenues consists of the payments made to third parties, such as media costs and administrative fees (Google, Facebook, TheTradeDesk, etc), technology fees (TheTradeDesk, Invoca, LiveRamp etc), production expenses (printing, logistics, etc), data costs, and other third-party expenses that Company incurs on behalf of a client that is needed to deliver the services.
Equipment
The Company does not have any contract assets such as work-in-process. All trade receivables on the Company’s consolidated balance sheet are from contracts with customers.
Contract Costs
Costs incurred to obtain a contract are capitalized unless short term in nature. As a practical expedient, costs to obtain a contract that are short term in nature are expensed as incurred. The Company does not have any contract costs capitalized as of March 31, 2022 and June 30, 2021.
ADVERTISING
The Company generally expenses marketing and advertising costs as incurred. During the nine months ended March 31, 2022 and 2021, the Company incurred $117,000 and $0, respectively, on marketing, trade shows and advertising. During the three months ended March 31, 2022 and 2021, the Company incurred $58,000 and $0, respectively, on marketing, trade shows and advertising.
The Company received rebates on advertising from co-operative advertising agreements with several vendors and suppliers. These rebates have been recorded as a reduction to the related advertising and marketing expense.
DERIVATIVE LIABILITY
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect their fair value at each period end with any increase or decrease in the fair value being recorded in results of operations. The fair value of derivative instruments such as convertible note payables are valued using the Black-Scholes option-pricing model based on various assumptions.
STOCK-BASED COMPENSATION
The Company recognizes stock-based compensation in accordance with ASC Topic 718 “Stock Compensation”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.
For non-employee stock-based compensation, the Company has adopted ASC 2018-07, Improvements to Nonemployee Share-Based Payment Accounting which expands on the scope of ASC 718 to include share-based payment transactions for acquiring services from non-employees and requires stock-based compensation related to non-employees to be accounted for based on the fair value of the related stock or the fair value of the services at the grant date, whichever is more readily determinable in accordance with ASC Topic 718.
FOREIGN CURRENCY TRANSLATION
The consolidated financial statements of the Company are presented in U.S. dollars. The functional currency for the Company is U.S. dollars for all entities other than Mission Media Limited whose operations are based in the United Kingdom and their functional currency is British Pound Sterling (GBP). Transactions in currencies other than the functional currencies are recorded using the appropriate exchange rate at the time of the transaction. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) income. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The relevant translation rates are as follows: for the nine months ended March 31, 2022 closing rate at 1.313900 US$: GBP, average rate at 1.351989 US$: GBP, for the nine months ended March 31, 2021 closing rate at 1.378900 US$: GBP, average rate at 1.342278 US$: GBP.
INCOME TAXES
The Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for consolidated financial reporting purposes and such amounts recognized for tax purposes and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse.
The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.
The Company has net operating losses for both their US and UK entities however a full valuation allowance was recorded due to uncertainties in realizing the deferred tax asset.
COMPREHENSIVE LOSS
Comprehensive loss is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. For the Company, comprehensive loss for the three and nine months ended March 31, 2022 and 2021 included net loss and unrealized gains (losses) from foreign currency translation adjustments.
EARNINGS PER COMMON SHARE
Net income (loss) per common share is calculated in accordance with ASC Topic: 260 Earnings per Share. Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. In periods where the Company has a net loss, all dilutive securities are excluded.
The following are dilutive common stock equivalents as the three and nine months ending March 31, 2022 and 2021, which were not included in the calculation of loss per share, since the Company had a net loss from continuing operations and net loss:
|
| Three Months Ending March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Convertible preferred stock |
|
| 42,048,000 |
|
|
| 18,068,034 |
|
Stock options |
|
| 3,080,016 |
|
|
| 2,342,660 |
|
Stock warrants |
|
| 58,538,006 |
|
|
| 7,622,411 |
|
Total |
|
| 103,666,022 |
|
|
| 28,033,105 |
|
|
| Nine Months Ending March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Convertible preferred stock |
|
| 42,048,000 |
|
|
| 18,068,034 |
|
Stock options |
|
| 3,155,233 |
|
|
| 2,127,915 |
|
Stock warrants |
|
| 58,557,984 |
|
|
| 6,443,472 |
|
Total |
|
| 103,761,217 |
|
|
| 26,639,421 |
|
STIMULUS FUNDING
In accordance with IAS-20, Accounting for Government Grants and Disclosure of Government Assistance, the proceeds from government grants are to be recognized as a deferred income liability and reported as income as the related costs are expensed. On March 31, 2022, the Company recorded deferred income liabilities of $0 within contract liabilities and $0 of stimulus loans. On June 30, 2021, the Company recorded deferred income liabilities of $270,000 within contract liabilities and $569,000 within stimulus loans. For the three months ending March 31, 2022 and 2021, the Company recognized $0 and $831,000 in income from government grants, respectively. For the nine months ending March 31, 2022 and 2021, the Company recognized $262,000 and $2,535,000 in income from government grants, respectively. In the nine months ending March 31, 2022, $8,000 of the stimulus funding was not forgiven and returned to the bank.
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Pronouncements Adopted
In August 2020, FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other and Derivatives and Hedging—Contracts in Entity’s Own Equity: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” which simplifies the accounting for convertible instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The new guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company has adopted the guidance effective July 1, 2021.
In December 2019, the FASB issued amended guidance in the form of ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company has adopted the guidance effective July 1, 2021.
NOTE 2 – CONVERGE DIRECT ACQUISITION
On March 22, 2022 (the “Closing Date”), the Company completed the acquisition of Converge Direct, LLC and affiliates (the “Converge Acquisition”) and the total purchase price was $125,000,000 valued at $114,875,000. The purchase price for accounting purposes consists of sixty-five million dollars ($65,000,000) in cash paid on the date of the acquisition, thirty million dollars ($30,000,000) currently held in escrow payable upon completion of its annual audits, another five million dollars ($5,000,000) payable twelve months after the acquisition date contingent on the Company satisfying its bank covenants, and the remaining fourteen million eight hundred and seventy-five thousand ($14,875,000) dollars was paid in the Company’s restricted common stock valued at $1.19 per share. All 12,500,000 shares are subject to a nine (9) month lock-up. Pursuant to the provisions of the Membership Interest Purchase Agreement (the “MIPA”) dated as of November 22, 2021, as amended, an aggregate of $2,500,000 (10%) or 1,250,000 shares of the common stock issued to the Sellers are held in escrow to secure against claims for indemnification. The escrowed shares shall be held until the later of (a) one year from the Closing Date, or (b) the resolution of indemnification claims. The Company is accounting for the transaction under the purchase method of accounting in accordance with the provisions of ASC Topic 805 Business Combinations (ASC 805).
PURCHASE PRICE
The Company has estimated the fair value of the consideration due as follows:
Cash paid at closing |
| $ | 65,000,000 |
|
Cash held in escrow |
|
| 30,000,000 |
|
Cash payable after a year if bank covenants satisfied |
|
| 5,000,000 |
|
Fair value of common stock issued at Closing |
|
| 14,875,000 |
|
Total purchase price |
| $ | 114,875,000 |
|
The fair value of the 12,500,000 shares was calculated to be $14,875,000 based on a closing price of the Company’s common stock at $1.19 per share on March 22, 2022.
The Company is recording the $5,000,000 payable twelve months after the acquisition date contingent on the Company satisfying its bank covenants as a long-term liability as the cash would be distributed subsequent to the March 31, 2023 reporting period. The Company will also reevaluate this balance during the June 30, 2022 close.
PURCHASE PRICE ALLOCATION
The Company negotiated the purchase price based on the expected cash flows to be derived from their operations after integration into the Company’s existing distribution, production and service networks. The acquisition purchase price is allocated based on the fair values of the assets acquired and liabilities assumed, which are based on management estimates and third-party appraisals. The Company engaged a valuation expert to provide guidance to management which was considered and in part relied upon in completing its purchase price allocation. The excess of the purchase price over the aggregate estimated fair value of net assets acquired was allocated to goodwill. The purchase price allocation is preliminary and the entire allocation is subject to a final review, including but not limited to the accounts receivable, accounts payable, deferred revenue, intangible assets and accruals.
Subject to final review, the following table summarizes the preliminary allocation of the purchase price of the fair value of the assets acquired and liabilities assumed at the date of the acquisition:
Current assets |
| $ | 33,856,000 |
|
Fixed assets |
|
| 233,000 |
|
Other non-current assets |
|
| 4,340,000 |
|
Intangible assets |
|
| 71,000,000 |
|
Goodwill |
|
| 41,528,000 |
|
Current liabilities |
|
| (30,576,000 | ) |
Other non-current liabilities |
|
| (5,506,000 | ) |
Consideration |
| $ | 114,875,000 |
|
INTANGIBLE ASSETS
The estimated fair values of the identifiable intangible assets acquired were calculated using an income valuation approach which requires a forecast of expected future cash flows either through the use of relief-from-royalty method or multi-period excess earnings methods (MPEEM). The estimated useful lives are based on the Company’s experience and expectations as to the duration of the time the Company expects to realize benefits of the assets.
The estimated fair values of the identifiable intangible assets acquired, estimated useful lives and related valuation methodology are as follows:
Intangible Assets: |
| Preliminary Fair Value |
|
| Life in Years |
|
| Discount Rate |
|
| Valuation Method | ||||
Customer relationships |
| $ | 56,900,000 |
|
|
| 10 |
|
|
| 17.5 | % |
| Income (MPEEM) | |
Technology |
|
| 10,500,000 |
|
|
| 5 |
|
|
| 17.5 | % |
| Income (Relief-from-Royalty) | |
Tradename |
|
| 3,600,000 |
|
|
| 10 |
|
|
| 18.5 | % |
| Income (Relief-from-Royalty) | |
|
| $ | 71,000,000 |
|
|
|
|
|
|
|
|
|
|
|
Customer relationships, technology and tradename will be amortized on a straight-line basis over their estimated useful lives.
Unaudited Pro Forma Financial Information
The following unaudited pro forma information presents the combined results of operations as if the acquisition of Converge Direct, LLC by the Company had been completed on July 1. The unaudited proforma results include amortization associated with preliminary estimates for the acquired intangible assets, amortization of debt discounts, and interest expense on the debt issued to complete the acquisition on these unaudited pro forma adjustments.
|
| For the Nine Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Gross revenue |
| $ | 216,685,000 |
|
| $ | 194,587,000 |
|
Cost of revenue |
|
| (183,890,000 | ) |
|
| (167,680,000 | ) |
Gross profit |
|
| 32,795,000 |
|
|
| 26,907,000 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
| (59,825,000 | ) |
|
| (44,611,000 | ) |
|
|
|
|
|
|
|
|
|
Net gain/(loss) |
| $ | (27,030,000 | ) |
| $ | (17,704,000 | ) |
NOTE 3 – PROPERTY AND EQUIPMENT
|
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Computer equipment |
| $ | 990,000 |
|
| $ | 697,000 |
|
Website design |
|
| 6,000 |
|
|
| 6,000 |
|
Office machine & equipment |
|
| 95,000 |
|
|
| 97,000 |
|
Furniture & fixtures |
|
| 975,000 |
|
|
| 438,000 |
|
Leasehold improvements |
|
| 235,000 |
|
|
| 135,000 |
|
Tenant incentives |
|
| 145,000 |
|
|
| 145,000 |
|
|
|
| 2,446,000 |
|
|
| 1,518,000 |
|
Accumulated depreciation |
|
| (1,804,000 | ) |
|
| (1,175,000 | ) |
Net book value |
| $ | 642,000 |
|
| $ | 343,000 |
|
2023, and December 31, 2022:
June 30, 2023 | December 31, 2022 | ||||||||||
Computer equipment | $ | 318,968 | $ | 820,000 | |||||||
Website design | — | 6,000 | |||||||||
Office machine & equipment | — | 109,000 | |||||||||
Furniture & fixtures | 18,609 | 338,000 | |||||||||
Leasehold improvements | 154,383 | 436,000 | |||||||||
Total Property and equipment | 491,960 | 1,709,000 | |||||||||
Less: accumulated depreciation | (168,110) | (1,090,000) | |||||||||
Property and equipment, net | $ | 323,850 | $ | 619,000 |
NOTE 4 – INTANGIBLE ASSETS
Intangible assets consisted
|
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Customer relationship |
| $ | 61,860,000 |
|
| $ | 4,960,000 |
|
Non-core customer relationships |
|
| 760,000 |
|
|
| 760,000 |
|
Non-compete agreements |
|
| 1,430,000 |
|
|
| 1,430,000 |
|
Technology |
|
| 11,020,000 |
|
|
| 520,000 |
|
Tradename |
|
| 4,070,000 |
|
|
| 470,000 |
|
Workforce acquired |
|
| 2,125,000 |
|
|
| 2,125,000 |
|
|
|
| 81,265,000 |
|
|
| 10,265,000 |
|
Less: accumulated amortization |
|
| (8,401,000 | ) |
|
| (7,662,000 | ) |
|
|
|
|
|
|
|
|
|
Net book value |
| $ | 72,864,000 |
|
| $ | 2,603,000 |
|
2023.
June 30, 2023 | December 31, 2022 | ||||||||||
Customer relationship | $ | 53,600,000 | $ | 53,600,000 | |||||||
Technology | 10,400,000 | 10,400,000 | |||||||||
Tradename | 7,100,000 | 7,100,000 | |||||||||
Total intangible assets | 71,100,000 | 71,100,000 | |||||||||
Less: accumulated amortization | (10,413,889) | (6,339,000) | |||||||||
Total amortizable intangible assets, net | $ | 60,686,111 | $ | 64,761,000 |
Fiscal year ending December 31: | ||||||||
Remaining 2023 | $ | 4,075,000 | ||||||
2024 | 8,150,000 | |||||||
2025 | 8,150,000 | |||||||
2026 | 8,150,000 | |||||||
2027 | 6,532,222 | |||||||
Thereafter | 25,628,889 | |||||||
Total | $ | 60,686,111 |
During the three months ended March 31, 2022 and 2021, amortization expense was $396,000 and $540,000, respectively. During the nine months ended March 31, 2022 and 2021, amortization expense was $739,000 and $1,619,000, respectively.
As of March 31, 2022, the future amortization expense related to intangible assets will be recognized in the periods below:
Fiscal year ending June 30: |
|
|
| |
Remaining 2022 |
| $ | 2,949,000 |
|
2023 |
|
| 8,837,000 |
|
2024 |
|
| 8,549,000 |
|
2025 |
|
| 8,527,000 |
|
2026 |
|
| 8,427,000 |
|
2027 |
|
| 7,742,000 |
|
2028 |
|
| 6,050,000 |
|
2029 |
|
| 6,050,000 |
|
2030 and thereafter |
|
| 15,733,000 |
|
|
| $ | 72,864,000 |
|
NOTE 5 – ACCOUNTS PAYABLE & ACCRUED EXPENSES
As of March 31, 2022 and June 30, 2021,2022, the Company recorded $40,808,000goodwill impairment charges of approximately $6.7 million and $8,363,000$2.0 million related to the Mission U.K. and Redeeem subsidiaries, respectively, as a result of the Company's annual impairment testing. There were no goodwill impairment charges recorded in accounts payablethe three and six months ended June 30, 2023.
|
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Accounts payable |
| $ | 10,491,000 |
|
| $ | 2,362,000 |
|
Accrued expenses |
|
| 29,083,000 |
|
|
| 4,819,000 |
|
Accrued payroll |
|
| 700,000 |
|
|
| 294,000 |
|
Accrued taxes |
|
| 534,000 |
|
|
| 888,000 |
|
|
| $ | 40,808,000 |
|
| $ | 8,363,000 |
|
NOTE 6 – CONVERTIBLE NOTES PAYABLE
In October 2020,consolidated balance sheets. The change in the Company received gross proceeds of $50,000 representing a convertible note payable issued to an existing investor. Terms include an interest rate of 10% and a maturity date the earlier of January 1, 2021 or five business days after the Company is listed on a US national securities exchange. Upon mutual agreement, the outstanding balance can be converted to common stock at a conversion price 25% less the current market price. In consideration for the loan, 6,667 warrants were issued at an exercise price of $2.25 per share vesting over three years. The Company determined that the note’s conversion feature should be valued separately and bifurcated from the host instrument and accounted for as a separate derivative liability. The fair market value of the embedded conversion feature was determined to be $1,000 and $13,000 using the Black-Scholes model as of March 31, 2022 and June 30, 2021, respectively. The derivativerestructuring reserve liability was recorded as a short-term liability and interest expense of $1,000 and $4,000 were recorded for the three and nine months ending March 31, 2022, respectively. The assumptions used in the Black-Scholes valuation include a volatility of 63.62%, risk-free rate of 2.42% and a term of one year.
During the threesix months ended March 31, 2022
Severance and termination costs | Other exit costs | Total | ||||||||||||||||||
Balance as of December 31, 2022 | $ | 496,599 | $ | 401,260 | $ | 897,859 | ||||||||||||||
Charges | 327,000 | — | 327,000 | |||||||||||||||||
Payments | (69,968) | — | (69,968) | |||||||||||||||||
Credits | — | (296,264) | (296,264) | |||||||||||||||||
Balance as of March 31, 2023 | 753,631 | 104,996 | 858,627 | |||||||||||||||||
Charges | — | — | — | |||||||||||||||||
Payments | (135,435) | — | (135,435) | |||||||||||||||||
Credits | (605,232) | 4,791 | (600,441) | |||||||||||||||||
Balance as of June 30, 2023 | $ | 12,964 | $ | 109,787 | $ | 122,751 |
As of March 31, 2022 and June 30, 2021, there was a total $50,000 in notes payable outstanding. The Company recorded $1,000 and $12,000 in interest expense relating to convertible note payables during the three months ended March 31, 2022 and 2021. The Company recorded $4,000 and $24,000 in interest expense relating to convertible note payables during the nine months ended March 31, 2022 and 2021. The Company recorded $0 and $0 in amortization expense relating to the note payable discount during the three months ended March 31, 2022 and 2021, respectively. The Company recorded $0 and $409,000 in amortization expense relating to the note payable discount during the nine months ended March 31, 2022 and 2021, respectively.
NOTE 7 – NOTE PAYABLE
following:
Effective Interest Rate | June 30, 2023 | December 31, 2022 | ||||||||||||||||||
Senior Note due 2026 (1) | 17.1 | % | $ | 65,624,508 | $ | 66,385,055 | ||||||||||||||
Convertible Note | 60,006 | 60,006 | ||||||||||||||||||
Related Party Note | — | 30,000 | ||||||||||||||||||
Total debt | 65,684,514 | 66,475,061 | ||||||||||||||||||
Less: current portion | 1,671,450 | 1,641,217 | ||||||||||||||||||
Long-term debt, excluding current portion | $ | 64,013,064 | $ | 64,833,844 | ||||||||||||||||
(1) Includes unamortized discount and issuance costs of approximately $6.1 million and $7.2 million, as of June 30, 2023 and December 31, 2022, respectively. |
in connection with the Converge Acquisition. This $75,000,000$76.5 million First Lien Senior Secured Term Loan (the “Credit Facility”) formed the majority ofwas used in part to fund the purchase price of the CDConverge Acquisition, as well as, for working capital and general corporate purposes.
The outstanding balancewhich were delivered during fourth quarter of fiscal year 2022. As of June 30, 2023, Blue Torch has not authorized the release of the notefunds in escrow.
Principal balance |
| $ | 76,500,000 |
|
Fair value of the warrants |
|
| (2,433,000 | ) |
Original issue discount |
|
| (1,500,000 | ) |
Debt issuance costs |
|
| (5,282,000 | ) |
Outstanding balance, net |
|
| 67,285,000 |
|
Current portion |
|
| (1,461,000 | ) |
Long-term portion |
| $ | 65,824,000 |
|
solely to the escrow account, it is possible that the Converge Sellers could make claims against the Company for the deferred amount. In the event that the Converge Sellers were to make and be successful in such claims, the Company believes that a court would likely order Blue Torch to release the escrowed funds to satisfy such claims
The payment of principal to be madepayments required under the Term Loan Facility are as follows:
FY 2022 |
| $ | 956,250 |
|
2023 |
|
| 3,825,000 |
|
2024 |
|
| 3,825,000 |
|
2025 |
|
| 3,825,000 |
|
2026 |
|
| 64,068,750 |
|
|
| $ | 76,500,000 |
|
Fiscal year ending December 31: | |||||
Remaining 2023 | $ | 1,912,500 | |||
2024 | 3,825,000 | ||||
2025 | 3,825,000 | ||||
2026 | 62,156,250 | ||||
Total maturities | $ | 71,718,750 |
UsingThe shares have been adjusted to reflect the Black-Scholes model,one (1) for twenty-five (25) reverse stock split.
First Amendment to the Second A&R Limited Waiver.
As of March 31, 2022 and June 30, 2021,9. Leases
As of March 31, 2022 and 2021, the Company owed the estate of his mother Sally Pappalardo $0 and $235,000, respectively. The loan was due and payable on demand and accrued interest at 10.0% per annum. Interest expense of $5,000 and $15,000 were recorded for this note for the three and nine months ending March 31, 2021, respectively. In the year ended June 30, 2021, the Company paid $300,000 to the estate of Sally Pappalardo representing the outstanding principal of $235,000 and accrued interest of $65,000. The holder provided the Company a signed release acknowledging all obligations under the note had been paid in full.
Total interest expense on note payable related party was $4,000 and $13,000 for these notes for the three and nine months ending March 31, 2022, respectively. Total interest expense on note payable related party was $10,000 and $30,000 for these notes for the three and nine months ending March 31, 2021, respectively.
NOTE 9 – LEASE LIABILITIES
The Company leases office space and as a result of our adoption of ASC Topic 842, Leases, the operating leases are reflected on our balance sheet within operating lease right-of-use (ROU) assets andCompany used the related current and non-current operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from lease agreement. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the terms. Variable lease costs such as common area maintenance, property taxes and insurance are expensed as incurred.
When the new accounting standard was adoptedincremental borrowing rate on July 1, 2019 for all operating leases that commenced prior to that date.
Undiscounted Cash Flows | |||||
Weighted average remaining lease term in years | 2.7 years | ||||
Weighted average discount rate | 5.50% | ||||
As of June 30, 2023, the maturities of the Company's operating lease liabilities are as follows: | |||||
Remainder of fiscal year ending December 31, 2023 | $ | 1,016,167 | |||
2024 | 1,954,575 | ||||
2025 | 1,449,060 | ||||
2026 | 1,453,734 | ||||
2027 | 1,117,060 | ||||
Thereafter | 2,354,471 | ||||
Total undiscounted operating lease payments | 9,345,067 | ||||
Less: Imputed interest | (1,347,005) | ||||
Total operating lease liabilities | 7,998,062 | ||||
Less: current portion of operating lease liabilities | (1,598,693) | ||||
Non-current operating lease liabilities | $ | 6,399,369 |
Payments Due by Period | |||||||||||||||||||||||||||||
Remaining 2023 | Years 2-3 | Years 4-5 | >5 Years | Total | |||||||||||||||||||||||||
Operating lease obligations (a) | $ | 1,016,167 | $ | 3,403,635 | $ | 2,570,794 | $ | 2,354,471 | $ | 9,345,067 | |||||||||||||||||||
Debt repayment (b) | 1,912,500 | 7,650,000 | 62,156,250 | — | 71,718,750 | ||||||||||||||||||||||||
Restructuring liabilities (c) | 122,751 | — | — | — | 122,751 | ||||||||||||||||||||||||
Acquisition liabilities (d) | 9,346,504 | — | — | — | 9,346,504 | ||||||||||||||||||||||||
Total | $ | 12,397,922 | $ | 11,053,635 | $ | 64,727,044 | $ | 2,354,471 | $ | 90,533,072 | |||||||||||||||||||
(a) Operating lease obligations primarily represent future minimum rental payments on various long-term noncancellable leases for office space. Lease obligations related to excess facilities associated with the Company wide restructuring plan are included within the operating lease obligations line. | |||||||||||||||||||||||||||||
(b) Debt repayments consists of principal repayments required under the Company's Credit Facility. | |||||||||||||||||||||||||||||
(c) Restructuring liabilities relate primarily to future severance payments and other exit costs | |||||||||||||||||||||||||||||
(d) Acquisition liabilities recorded on the balance sheet consist of the Company's obligations to the Converge Sellers arising from the Converge Acquisition. See Note 3 - Converge Direct Acquisition |
Future minimum lease paymentsthis Quarterly Report on a discounted and undiscounted basis under these leases are as follows:
|
| Undiscounted Cash Flows |
| |
Discount rate |
|
| 5.50 | % |
|
|
|
|
|
Remainder of 2022 |
| $ | 2,383,000 |
|
2023 |
|
| 2,728,000 |
|
2024 |
|
| 2,724,000 |
|
2025 |
|
| 2,434,000 |
|
2026 |
|
| 2,063,000 |
|
2027 |
|
| 1,388,000 |
|
2028 |
|
| 947,000 |
|
2029 |
|
| 970,000 |
|
2030 |
|
| 909,000 |
|
Total undiscounted minimum future payments |
|
| 16,546,000 |
|
Imputed interest |
|
| (2,251,000 | ) |
Total operating lease liabilities |
| $ | 14,295,000 |
|
Short-term lease liabilities |
| $ | 3,781,000 |
|
Long-term lease liabilities |
| $ | 10,514,000 |
|
OtherForm 10-Q for more information related to our operating leases is as follows:
| ||||
|
| |||
|
LEASE AGREEMENTS
On February 1, 2018,the partial liquidated damages.
On January 9, 2014, Mission USA entered into a seven year and five-month lease agreement for office space in New York, NY. The lease expired in January 2022 and was not renewed.
On May 2, 2017, Mission USA entered into a ten-year lease agreement for office space in Brooklyn, NY. The beginning lease expense was $34,278 per month escalating annually at 2.5%. As part of the lease agreement, Mission USA received a rent abatement in months one through four of the lease. The lease expires on May 1, 2027. In August 2021, the Company amended the lease agreement and lowered the base rent beginning in July 2021 to $24,750 for twelve months, escalating to $28,875 in July 2022 for twelve months, and then returninghas accrued approximately
On April 6, 2016, Mission UK entered into a ten-year lease agreement for office space in London, UK. In April 2021, Mission UK terminated the original lease agreement and has agreed with the landlord to occupy the first floor of the building through
On February 1, 2020, Troika Production Group, LLC. entered into a five-year lease agreement for office space in Los Angeles, CA. The beginning lease expense is $42,265 and the lease provides for an escalation clause where the Company will be subject to an annual rent increase of 3.5%, year over year. The lease expires on January 31, 2025.
On April 19, 2019, Converge Direct LLC entered into a ten-year lease agreement for office space in New York, NY. The beginning lease expense is $62,848 and the lease provides for an escalation clause where the Company will be subject to an annual rent increase of 2.5%, year over year. The lease expires on October 15, 2029.
On October 20, 2021, Converge Direct LLC entered into a three-year lease agreement for office space in Bedford Hills, NY. The beginning lease expense is $11,000 and the lease provides for an escalation clause where the Company will be subject to an annual rent increase of 4.0%, year over year. The lease expires on February 29, 2024.
In May 2021, Converge Direct LLC renewed an existing lease and entered into a two-year lease agreement for office space in San Diego, CA. The beginning lease expense is $1,800 and the lease provides for an escalation clause where the Company will be subject to an annual rent increase of 3.0%, year over year. The lease expires on May 31,30, 2023.
The Company accounts for leases based on the new accounting standard ASC 842 and recorded $1,440,000 and $1,283,000 in rent expense for the nine months ended March 31, 2022 and 2021 respectively.
SUBLEASE AGREEMENTS
On January 19, 2018, Mission Media USA, Inc. entered into a four-year sublease agreement pertaining to the aforementioned office space in New York, NY. The sublease commenced on March 1, 2018, ended in January 2022, and was not renewed. The lease income was $22,496 per month escalating annually at 3.0%.
On April 19, 2018, Mission-Media Limited entered into a sublease agreement pertaining to a floor within the aforementioned office space in London, UK. The sublease commenced in April 2018 and terminated in March 2021. The lease income was £5,163 per month.
NOTE 10 – LEGAL MATTERS
STEPHENSON SETTLEMENT
In July 2021,
Other thanCompany’s NQSOs for the foregoing, no material legal proceedings to whichsix months ended June 30, 2023:
Number of: | ||||||||||||||||||||||||||
Nonperformance based vesting NQSO's | Weighted average exercise price | Weighted Average remaining contractual term (in years) | Aggregate Intrinsic value | |||||||||||||||||||||||
Balance: | ||||||||||||||||||||||||||
December 31, 2022 | 198,849 | $ | 23.28 | 1.14 | $ | — | ||||||||||||||||||||
June 30, 2023 | 102,517 | $ | 20.05 | 0.97 | $ | — | ||||||||||||||||||||
Exercisable at: | ||||||||||||||||||||||||||
December 31, 2022 | 127,013 | $ | 24.26 | 0.30 | $ | — | ||||||||||||||||||||
June 30, 2023 | 43,675 | $ | 18.74 | 0.44 | $ | — |
MVRK SETTLEMENT
Mission Culture, LLC recently settled a claim from a former vendor, Maverick, LLC (“MVRK”)holders of the Company’s RSUs issued under the Plan for the six months ended June 30, 2023:
Number of: | ||||||||||||||||||||
Nonperformance based vesting RSU's | Weighted-Average Fair Value Per Share At Date of Grant | |||||||||||||||||||
Outstanding award balance at December 31, 2022 | 42,000 | $ | 23.75 | |||||||||||||||||
Granted | — | — | ||||||||||||||||||
Exercised | — | — | ||||||||||||||||||
Forfeited | — | — | ||||||||||||||||||
Outstanding award balance at June 30, 2023 | 42,000 | $ | 23.75 | |||||||||||||||||
Vested | 32,000 | $ | 25.84 | |||||||||||||||||
Unvested | 10,000 | $ | 37.40 |
NOTE 11 – STOCKHOLDERS’ EQUITY
calculation of loss per share, since the Company had a net loss from continuing operations and a net loss:
June 30, 2023 | June 30, 2022 | ||||||||||
Convertible preferred stock | 224 | 15,253 | |||||||||
Stock options | 43,675 | 144,673 | |||||||||
Stock warrants | 163,213 | 270,849 | |||||||||
Financing warrants | 4,600 | 2,810,801 | |||||||||
Restricted stock units | 135,333 | 178,000 | |||||||||
Total | 347,045 | 3,419,576 |
Pursuant to the CoD, the Company authorized 500,000$50.0 million of securities, consisting of shares of Series E Preferred Stock $.01 parand warrants to purchase (100% coverage) shares of Common Stock ("Series E Warrants"). Under the terms of the Series E Purchase Agreement, the Company agreed to sell 500,000 shares of its Series E Preferred Stock and Series E Warrants to purchase up to 1,333,333 shares of the Common Stock. Each share of the Series E Preferred Stock has a stated value with a Stated Value of $100 per share.
As of March 18, 2022, pursuant to the Nevada Revised Statutes (the “NRS”), we received a written consent in lieu of a meeting of Stockholders from 20 principal stockholders, representing approximately 57% of the total possible votes outstanding (the “Majority Stockholders”), authorizing the following:
The sale of $50 million ofshare and is convertible into shares of Series E Convertible PreferredCommon Stock par value $0.01at a conversion price of $37.5 per share (the Series E Preferred Stock”), with accompanying, 100% warrant coverage (the “Warrants”), with certain purchasers’ signatory thereto (the “Purchasers”).subject to adjustment. The Series E Preferred Stock is perpetual and has no maturity date. The Series E Preferred Stock is not subject to any mandatory redemption or other similar provisions. All future shares of other Company preferred tock shall rank junior to the Series E Preferred Stock, except if at least a majority of the Series E Preferred Stock expressly consent, to the creation of the parity stock of senior preferred stock.
REVERSE STOCK SPLIT
In June 2020, our Board of Directors and stockholders holding a majority of the outstanding shares of our voting securities approved a resolution authorizing our Board of Directors to effect a reverse stock split of our common stock at a certain exchange ratios from 1:10 to 1:15 with our Board of Directors retaining the discretion as to whether to implement the reverse stock split and which exchange ratio to implement. In September 2020, the Company amended its articles of incorporation and enacted a reverse stock split of one share for each fifteen shares and the accompanying financials reflect the reverse stock split retroactively.
The reverse stock split resulted in a decrease in authorized shares of all classes of stock from 615,000,000 to 315,000,000 shares consisting of 300,000,000 shares of common stock at a par value of $0.001 and 15,000,000 shares of preferred stock at a par value of $0.01 per share. PriorThe foregoing does reflect changes to the reverse stock split,authorized and issued shares from the Reverse Stock Split which occurred on June 1, 2023.
COMMON STOCK
As ofon March 31,16, 2022 (the “New PIPE Terms”), including an amendment and June 30, 2021, the Company had 64,159,616 and 39,496,588 shares of common stock issued and outstanding, respectively.
In the three months ending September 30, 2020, the holder of a convertible promissory note for $1,000,000 informed the Company that they had elected to convert the balance due to common shares at the agreed upon conversion price of $3.00 per share and 387,222 shares were issued representing the outstanding principal and accrued interest.
In the three months ending September 30, 2020, the holder of a convertible promissory note for $200,000 informed the Company that they had elected to convert the balance due to common shares at the agreed upon conversion price of $3.75 per share and 56,000 shares were issued representing the outstanding principal and loan fee.
In the three months ending September 30, 2020, the holder of a convertible promissory note for $200,000 informed the Company that they had elected to convert the balance due to common shares at the agreed upon conversion price of $3.75 per share and 56,000 shares were issued representing the outstanding principal and loan fee.
In the three months ending September 30, 2020, the holder of a related party convertible promissory note of $1,300,000 elected to convert the debt into sharesrestatement of the Company’s common stock at a rateterms of $0.75 per share for 1,733,334 shares.
In the three months ending December 31, 2021, the Company issued 66,666 shares of common stock to a former employee as per their employment agreement. The common stock was distributed in two separate issuances at an average closing price of $1.56 per share and $104,000 in stock-based compensation was recorded.
In the three months ending December 31, 2021, the Company issued 20,000 shares of common stock to a contractor providing marketing services as per their vendor agreement. The common stock was issued at a price of $2.01 per share and $40,000 in expenses relating to professional fees was recorded.
In the three months ending March 31, 2022, the Company issued 12,500,000 shares of common stock relating to its acquisition of Converge Direct, LLC. The common stock was issued at a price of $2.00 per share totaling $25,000,000 representing the equity portion of the acquisition price. The fair value of these shares was calculated at $14,875,000 based on the closing price of $1.19 per share on March 22, 2022.
In the three months ending March 31, 2022, the Company awarded a total of 8,600,000 restricted stock units (RSU’s) as incentive compensation to executive officers, directors and employees. As of March 31, 2022, only 8,000,000 of those restricted stock units were vested and only 5,800,000 of those vested were distributed. For presentation purposes, the Company is reporting the 2,200,000 restricted stock units as issued as they are vested and simply not distributed by the transfer agent.
PREFERRED STOCK
The Company has authorized 15,000,000 shares asour Series E convertible preferred stock, par value $0.01 series A, B, C, D,per share (the “Series E Preferred Stock”).
As of March 31, 2022, 720,000 shares of Series A Preferred Stock were issued and outstanding; 0 shares(the “Certificate of Designation”) with the Secretary of State of the State of Nevada on September 27, 2022 to effect certain changes contemplated by the Exchange Agreement.
Aspursuant to the Certificate of June 30, 2021, 720,000 shares of Series A Preferred Stock were issued and outstanding; 0 shares of Series B Preferred Stock were issued and outstanding; 0 shares of Series C Preferred Stock were issued and outstanding; and 0 shares of Series D Preferred Stock were issued and outstanding. On May 10, 2021,Designation are not repurchased by the Company converted all Preferred Stock Series B, C, and D into Common Stock following its uplistingon or prior to November 26, 2022, on such date, the exercise price per share of the New Warrants will revert to $50.00, subject to further adjustment as set forth in the New Warrant. In general, such further adjustments provide that, subject to acceleration by the holder thereof, after the Subsequent Adjustment Period, the exercise price is adjusted to the Nasdaq Capital Market. At the timelesser of the conversionexercise price then in effect or the Company had 2,495,000 sharesgreater of Series B Convertible Preferred Stock that were convertible into 594,048 shares(i) the average of common stock at a price of $4.20 per share; 911,149 shares of Series C Convertible Preferred Stock convertible into 12,287,386 shares of Common Stock at $0.75 per share;the ten (10) lowest daily volume-weighted average prices ("VWAPs") during the Subsequent Adjustment Period and 1,979,000 shares of Series D Convertible Preferred Stock convertible into 5,277,334 shares of Common Stock at $3.75 per share for a total of 18,158,768 shares of Common Stock.
In the three months ending March 31, 2022, the Company entered into a Securities Purchase Agreement with certain institutional investors to issue and sell in a private offering an aggregate of $50,000,000 of securities, consisting of shares of (ii) $6.25.
Thethe following respective dates is lower than the Conversion Price ofat that time, the Series E Preferred Stock and the Exercise Price of the Warrants is subject to adjustment for: (a) stock dividends and stock distributions; (b) subsequent rights offerings; (c) pro rata distributions; and (d) Fundamental Transactions (as defined).
The Conversion Price shall be downwardly adjusted (the “Registration Reset Price”)by $6.25 on each of October 24, 2022, October 31, 2022, November 7, 2022, November 14, 2022, and November 21, 2022. The conversion price is subject to further adjustments upon conclusion of the Subsequent Adjustment Period, subject to acceleration by the holder thereof, to the lesser of the conversion price then in effect or the greater of (i) eighty (80%) percent of the average of the ten (10) lowest daily VWAPs during the forty (40) trading daySubsequent Adjustment Period and (ii) $6.25.
The Company issued accompanying Common Stock Purchase Warrants (the “Warrants”) exercisable for five (5) years at $2.00 per share, to purchase an aggregate of 33,333,333 shares of Common Stock. The exercise price is subject to the same Registration Reset Price, as described above. The Floor Price is $0.25 per share.
Using the Black-Scholes model,Rights Agreement, the Company recordeddelivered to each Purchaser a market valuenumber of $28,407,000 on both March 22, 2022 and March 31, 2022. The fair market value of these warrants on March 31, 2022 was recorded as a warrant liability and a no gain on derivative liabilities was recorded in the three months ending March 31, 2022.
A roll-forward of the warrant liability follows:
Balance upon issuance |
|
|
| |
Loan warrants |
| $ | 2,433,000 |
|
Preferred stock warrants |
|
| 28,407,000 |
|
|
|
| 30,840,000 |
|
|
|
|
|
|
Change in fair value |
|
| (201,000 | ) |
|
|
|
|
|
Balance on March 31, 2022 |
| $ | 30,639,000 |
|
If at any time there is no effective registration statement, the Warrants are exercisable on a cashless basis.
The Company has reserved up to 200,000,000 shares of Common Stock issuable upon full conversionequal to the dollar amount of liquidated damages purportedly owed to each such Purchaser multiplied by four (4). The Company agreed to prepare and file with the SEC a resale registration statement on Form S-3 covering such Common Stock (the “Resale Registration Statement”),
STOCK PAYABLE
In$6.25. The Company recorded the fiscal year$2.7 million share settlement as equity within its condensed consolidated balance sheets. The foregoing reflects changes to the authorized and issued shares from the Reverse Stock Split which occurred on June 1, 2023.
DEFERRED COMPENSATION
condensed consolidated statements of operations and comprehensive loss using the most recently available earnings data at the end of the period.
In August 2021, all 3,623,433 shares of the Company’s common stock was issued to Redeeem’s employees and held in an escrow account subject to the vesting schedule in the aforementioned escrow agreement. Based on the vesting schedule summarized below, 2,583,801 shares of the Company’s common stock was issued as of March 31, 2022 but not vested.
The following table summarizes the deferred compensation recorded:
|
| Amount |
|
| Unvested Shares |
| ||
Deferred compensation balance recorded at acquisition date |
| $ | 9,680,000 |
|
|
| 3,623,433 |
|
Vested portion of deferred compensation in fiscal year 2021 |
|
| (362,000 | ) |
|
| (135,425 | ) |
Unamortized deferred compensation at June 30, 2021 |
|
| 9,318,000 |
|
|
| 3,488,008 |
|
Vested portion of deferred compensation in nine months ending March 31, 2022 |
|
| (2,415,000 | ) |
|
| (904,207 | ) |
Unamortized deferred compensation at March 31, 2022 |
| $ | 6,903,000 |
|
|
| 2,583,801 |
|
In the three and nine months ended March 31, 2022, the Company recorded $805,000 and $2,415,000 in stock-based compensation associated with the vested portion of the deferred compensation.
WARRANTS
As of March 31, 2022 and 2021, respectively, the Company has outstanding warrant shares of 59,470,897 with an intrinsic value of $12,498,000 and 8,550,852 warrant shares with an intrinsic value of $12,039,000
The Company uses the Black-Scholes Model to determine the fair value of warrants granted. Option-pricing models require the input of highly subjective assumptions, particularly for the expected stock price volatility and the expected term of options. Changes in the subjective input assumptions can materially affect the fair value estimate. The expected stock price volatility assumptions are based on the historical volatility of the Company’s common stock over periods that are similar to the expected terms of grants and other relevant factors. The Company derives the expected term based on an average of the contract term and the vesting period taking into consideration the vesting schedules and future employee behavior with regard to option exercise. The risk-free interest rate is based on U.S. Treasury yields forConverge filed a maturity approximating the expected term calculated at the date of grant. The Company has never paid any cash dividends on its common stock and the Company has no intention to pay a dividend at this time; therefore, the Company assumes that no dividends will be paid over the expected terms of warrants awards.
The Company determines the assumptions used in the valuation of warrants awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for warrants granted throughout the year.
The Company has utilized the following assumptions in its Black-Scholes warrant valuation model to calculate the estimated grant date fair value of the warrants during the nine months ended March 31, 2022 and 2021:
|
| ||
|
|
| |
|
|
| |
|
|
| |
|
|
|
A summary of the warrants granted, exercised, forfeited and expired for the nine months ended March 31, 2022 are presented in the table below:
|
| Number of Warrants |
|
| Weighted-Average Exercise Price |
|
| Weighted-Average Grant-Date Fair Value |
|
| Aggregate Intrinsic Value of Outstanding Warrant Shares |
|
| Weighted- Average Remaining Contractual Term (in years) |
| |||||
Outstanding July 1, 2021 |
|
| 8,296,408 |
|
|
| 1.05 |
|
|
| 1.90 |
|
|
| 12,158,467 |
|
|
| 2.2 |
|
Granted |
|
| 51,366,341 |
|
|
| 1.13 |
|
|
| 0.78 |
|
|
| 2,289,988 |
|
|
| 4.0 |
|
Exercised |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
Expired/Forfeited |
|
| (191,852 | ) |
|
| 0.75 |
|
|
| 0.70 |
|
|
| (1,950,000 | ) |
|
| - |
|
Outstanding March 31, 2022 |
|
| 59,470,897 |
|
|
| 1.12 |
|
|
| 0.75 |
|
|
| 12,498,455 |
|
|
| 3.7 |
|
Vested and exercisable March 31, 2022 |
|
| 58,505,968 |
|
|
| 1.11 |
|
|
| 0.88 |
|
|
| 10,976,530 |
|
|
| 3.6 |
|
Non-vested March 31, 2022 |
|
| 964,929 |
|
|
| 1.47 |
|
|
| 2.29 |
|
|
| 1,521,925 |
|
|
| 2.3 |
|
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrantscomplaint (the “Complaint”) under the Company’s warrant plans as of March 31, 2022.
|
|
| Outstanding Warrant Shares |
|
| Exercisable Warrant Shares |
| |||||||||||
Exercise price range |
|
| Number of Warrant Shares |
|
| Weighted average remaining contractual life |
|
| Number of Warrant Shares |
|
| Weighted average remaining contractual life |
| |||||
$ | 0.01 |
|
|
| 2,179,439 |
|
| 4.0 years |
|
|
| 2,179,439 |
|
| 4.0 years |
| ||
$ | 0.75 |
|
|
| 7,109,555 |
|
| 2.1 years |
|
|
| 6,535,182 |
|
| 2.0 years |
| ||
$ | 0.84 |
|
|
| 25,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
$ | 1.05 |
|
|
| 49,011,902 |
|
| 4.0 years |
|
|
| 49,011,902 |
|
| 4.0 years |
| ||
$ | 1.24 |
|
|
| 150,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
$ | 1.50 |
|
|
| 400,000 |
|
| 2.2 years |
|
|
| 400,000 |
|
| 2.2 years |
| ||
$ | 1.95 |
|
|
| 26,667 |
|
| 3.8 years |
|
|
| 8,889 |
|
| 3.8 years |
| ||
$ | 3.00 |
|
|
| 66,667 |
|
| 2.9 years |
|
|
| 66,667 |
|
| 2.9 years |
| ||
$ | 3.75 |
|
|
| 501,667 |
|
| 2.9 years |
|
|
| 303,889 |
|
| 3.3 years |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 59,470,897 |
|
| 3.7 years |
|
|
| 58,505,968 |
|
| 3.6 years |
|
A summary of the warrants granted, exercised, forfeited and expired for the nine months ending March 31, 2021 are presented in the table below:
|
| Number of Warrant Shares |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Grant- Date Fair Value |
|
| Aggregate Intrinsic Value of Outstanding Warrant Shares |
|
| Weighted- Average Remaining Contractual Term (in years) |
| |||||
Outstanding July 1, 2020 |
|
| 7,858,741 |
|
| $ | 1.52 |
|
| $ | 1.92 |
|
| $ | 9,234,295 |
|
|
| 3.0 |
|
Granted |
|
| 1,256,667 |
|
|
| 0.93 |
|
|
| 3.04 |
|
|
| 3,845,945 |
|
|
| 4.7 |
|
Exercised |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
Expired |
|
| (564,556 | ) |
|
| 3.16 |
|
|
| 3.13 |
|
|
| (733,295 | ) |
|
| - |
|
Outstanding March 31, 2021 |
|
| 8,550,852 |
|
|
| 1.12 |
|
|
| 1.88 |
|
|
| 12,039,000 |
|
|
| 2.5 |
|
Vested and exercisable March 31, 2021 |
|
| 7,598,630 |
|
|
| 1.10 |
|
|
| 1.73 |
|
|
| 9,644,333 |
|
|
| 2.4 |
|
Non-vested March 31, 2021 |
|
| 952,222 |
|
| $ | 1.24 |
|
| $ | 3.02 |
|
| $ | 2,394,667 |
|
|
| 3.4 |
|
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants under the Company’s warrant plans as of March 31, 2021.
|
|
| Outstanding Warrant Shares |
| Exercisable Warrant Shares | ||||||||||
Exercise price range |
|
| Number of Warrant Shares |
|
| Weighted average remaining contractual life |
| Number of Warrant Shares |
|
| Weighted average remaining contractual life | ||||
$ | 0.75 |
|
|
| 7,440,667 |
|
| 2.5 years |
|
| 6,658,445 |
|
| 2.3 years | |
$ | 1.50 |
|
|
| 400,000 |
|
| 3.2 years |
|
| 400,000 |
|
| 3.2 years | |
$ | 1.50 |
|
|
| 26,667 |
|
| 0.0 years |
|
| - |
|
| 0.0 years | |
$ | 3.00 |
|
|
| 66,667 |
|
| 3.9 years |
|
| 66,667 |
|
| 3.9 years | |
$ | 3.75 |
|
|
| 435,000 |
|
| 3.2 years |
|
| 291,667 |
|
| 3.7 years | |
$ | 6.00 |
|
|
| 163,333 |
|
| 0.2 years |
|
| 163,333 |
|
| 0.2 years | |
$ | 27.00 |
|
|
| 18,518 |
|
| 0.4 years |
|
| 18,518 |
|
| 0.4 years | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| 8,550,852 |
|
| 2.5 years |
|
| 7,598,630 |
|
| 2.4 years |
2017 EQUITY INCENTIVE PLAN
On June 13, 2017, the Board adopted and approved an amendment to thecaption
2021 EQUITY INCENTIVE PLAN
his employment agreement. The Company does not agree and views Mr. Marianacci's resignation as voluntary.
ISO’s Awards
During the three months ended March 31, 2022, the Company did not issue additional options. In the three months ended March 31, 2022, the Company recorded compensation of $256,000 relating to the vested portion of options that were issued in previous periods. The total compensation of the unvested options to be recognized in future periods is $748,000 and the weighted average remaining is 2.6 years.
During the three months ended March 31, 2021, the Company did not issue additional options. In the three months ended March 31, 2021, the Company recorded compensation of $271,000 relating to the vested portion of options that were issued in previous periods. The total compensation of the unvested options to be recognized in future periods is $360,000 and the weighted average remaining is 1.5 years.
The Company uses the Black-Scholes Model to determine the fair value of Options granted. Option-pricing models require the input of highly subjective assumptions, particularly for the expected stock price volatility and the expected term of options. Changes in the subjective input assumptions can materially affect the fair value estimate. The expected stock price volatility assumptions are based on the historical volatility of the Company’s common stock over periods that are similar to the expected terms of grants and other relevant factors. The Company derives the expected term based on an average of the contract term and the vesting period taking into consideration the vesting schedules and future employee behavior with regard to option exercise. The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected term calculated at the date of grant. The Company has never paid any cash dividends on its common stock and the Company has no intention to pay a dividend at this time; therefore, the Company assumes that no dividends will be paid over the expected terms of option awards.
The Company determines the assumptions used in the valuation of Option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for options granted throughout the year.
The Company has utilized the following assumptions in its Black-Scholes options valuation model to calculate the estimated grant date fair value of the options during the nine months ended March 31, 2022 and 2021:
|
| 2022 |
| 2021 |
| |
Volatility - range |
| 64.20%–65.22% |
|
| 64.8 | % |
Risk-free rate |
| 0.7% – 1.2% |
|
| 0.3 | % |
Contractual term |
| 3.0 years |
| 3.0 years |
| |
Exercise price | $ | 1.49 - $3.75 |
| $ | 3.75 |
|
A summary of the options granted, exercised, forfeited and expired for the nine months ended March 31, 2022 are presented in the table below:
|
| Number of Options |
|
| Weighted-Average Exercise Price |
|
| Weighted-Average Grant-Date Fair Value |
|
| Aggregate Intrinsic Value of Outstanding Option Shares |
|
| Weighted-Average Remaining Contractual Term (in years) |
| |||||
Outstanding July 1, 2021 |
|
| 3,088,333 |
|
| $ | 1.13 |
|
| $ | 1.06 |
|
|
| 1,829,999 |
|
|
| 0.4 |
|
Granted |
|
| 720,169 |
|
|
| 2.51 |
|
|
| 1.18 |
|
|
| 273,207 |
|
|
| 3.0 |
|
Exercised |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
Expired/Forfeited |
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
Outstanding March 31, 2022 |
|
| 3,808,502 |
|
|
| 1.39 |
|
|
| 1.13 |
|
|
| 2,103,206 |
|
|
| 0.7 |
|
Vested and exercisable March 31, 2022 |
|
| 3,056,125 |
|
|
| 1.02 |
|
|
| 1.14 |
|
|
| 2,054,017 |
|
|
| 0.2 |
|
Non vested March 31, 2022 |
|
| 752,377 |
|
| $ | 2.91 |
|
| $ | 1.29 |
|
| $ | 49,189 |
|
|
| 2.6 |
|
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s warrant plans as of March 31, 2022.
|
|
| Outstanding Option Shares |
| Exercisable Option Shares | ||||
| Exercise price range |
| Number of Option Shares |
| Weighted average remaining contractual life |
| Number of Option Shares |
| Weighted average remaining contractual life |
$ | 0.75 |
| 2,546,667 |
| 0.1 years |
| 2,618,889 |
| 0.1 years |
$ | 1.49 |
| 10,000 |
| 2.7 years |
| - |
| 0.0 years |
$ | 1.50 |
| 200,000 |
| 0.0 years |
|
200,000 |
| 0.0 years |
$ | 2.08 |
| 258,334 |
| 2.1 years |
| 2,917 |
| 1.8 years |
$ | 2.61 |
| 383,500 |
| 3.3 years |
| 31,958 |
| 3.3 years |
$ | 2.84 |
| 1,667 |
| 0.9 years |
| 139 |
| 3.3 years |
$ | 3.75 |
| 408,334 |
| 1.2 years |
| 202,222 |
| 0.9 years |
|
|
| 3,808,502 |
| 0.7 years |
| 3,056,125 |
| 0.2 years |
A summary of the options granted, exercised, forfeited and expired for the nine months ending March 31, 2021 are presented in the table below:
|
| Number of Option Shares |
|
| Weighted-Average Exercise Price |
|
| Weighted-Average Grant-Date Fair Value |
|
| Aggregate Intrinsic Value of Outstanding Option Shares |
|
| Weighted-Average Remaining Contractual Term (in years) |
| |||||
Outstanding July 1, 2020 |
|
| 3,377,222 |
|
| $ | 1.10 |
|
| $ | 1.06 |
|
| $ | 2,030,000 |
|
|
| 0.7 |
|
Granted |
|
| 76,667 |
|
|
| 3.75 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2.8 |
|
Exercised |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
Expired |
|
| (143,333 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (200,000 | ) |
|
| - |
|
Outstanding March 31, 2021 |
|
| 3,310,556 |
|
|
| 1.10 |
|
|
| 1.01 |
|
|
| 1,830,000 |
|
|
| 0.5 |
|
Vested and exercisable March 31, 2021 |
|
| 2,883,458 |
|
|
| 0.89 |
|
|
| 0.93 |
|
|
| 1,469,818 |
|
|
| 0.3 |
|
Non-vested March 31, 2021 |
|
| 427,098 |
|
| $ | 2.59 |
|
| $ | 1.90 |
|
| $ | 360,182 |
|
|
| 1.5 |
|
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s warrant plans as of March 31, 2021.
|
|
| Outstanding Option Shares |
| Exercisable Option Shares | ||||||||||
Exercise price range |
|
| Number of Option Shares |
|
| Weighted average remaining contractual life |
| Number of Option Shares |
|
| Weighted average remaining contractual life | ||||
$ | 0.75 |
|
|
| 2,768,889 |
|
| 0.3 years |
|
| 2,628,458 |
|
| 0.2 years | |
$ | 1.50 |
|
|
| 200,000 |
|
| 0.5 years |
|
| 166,667 |
|
| 0.5 years | |
$ | 3.75 |
|
|
| 341,667 |
|
| 2.0 years |
|
| 88,333 |
|
| 1.9 years | |
|
|
|
|
| 3,310,556 |
|
| 0.5 years |
|
| 2,883,458 |
|
| 0.3 years |
NOTE 12 – DISAGGREGATION OF REVENUE & LONG-LIVED ASSETS
The following table presents the disaggregation of gross revenue between revenue types:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Project fees |
| $ | 2,045,000 |
|
| $ | 1,627,000 |
|
| $ | 10,045,000 |
|
| $ | 5,268,000 |
|
Retainer fees |
|
| 5,148,000 |
|
|
| 560,000 |
|
|
| 6,059,000 |
|
|
| 1,648,000 |
|
Fee income |
|
| 1,184,000 |
|
|
| 676,000 |
|
|
| 3,777,000 |
|
|
| 2,435,000 |
|
Reimbursement income |
|
| 1,927,000 |
|
|
| 991,000 |
|
|
| 5,743,000 |
|
|
| 3,086,000 |
|
Performance marketing |
|
| 3,827,000 |
|
|
| 0 |
|
|
| 3,827,000 |
|
|
| 0 |
|
Managed services |
|
| 1,543,000 |
|
|
| 0 |
|
|
| 1,543,000 |
|
|
| 0 |
|
Other revenue |
|
| 11,000 |
|
|
| 0 |
|
|
| 34,000 |
|
|
| 0 |
|
|
| $ | 15,685,000 |
|
| $ | 3,854,000 |
|
| $ | 31,028,000 |
|
| $ | 12,437,000 |
|
The following table presents the disaggregation of gross revenue between the United States and the United Kingdom for the three and nine months ended:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Gross Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ | 13,963,000 |
|
| $ | 2,309,000 |
|
| $ | 24,481,000 |
|
| $ | 7,940,000 |
|
United Kingdom |
|
| 1,722,000 |
|
|
| 1,545,000 |
|
|
| 6,547,000 |
|
|
| 4,497,000 |
|
Total gross revenue |
| $ | 15,685,000 |
|
| $ | 3,854,000 |
|
| $ | 31,028,000 |
|
| $ | 12,437,000 |
|
The following table presents the disaggregation of gross profit between the United States and the United Kingdom for the three and nine months ended:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ | 2,911,000 |
|
| $ | 1,078,000 |
|
| $ | 7,293,000 |
|
| $ | 3,770,000 |
|
United Kingdom |
|
| 1,036,000 |
|
|
| 835,000 |
|
|
| 3,577,000 |
|
|
| 2,307,000 |
|
Total gross profit |
| $ | 3,947,000 |
|
| $ | 1,913,000 |
|
| $ | 10,870,000 |
|
| $ | 6,077,000 |
|
The following table presents the disaggregation of net loss between the United States and the United Kingdom for the three and nine months ended:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ | (13,993,000 | ) |
| $ | (4,188,000 | ) |
| $ | (19,954,000 | ) |
| $ | (8,147,000 | ) |
United Kingdom |
|
| (395,000 | ) |
|
| (491,000 | ) |
|
| (683,000 | ) |
|
| (1,076,000 | ) |
Total net loss |
| $ | (14,388,000 | ) |
| $ | (4,679,000 | ) |
| $ | (20,637,000 | ) |
| $ | (9,223,000 | ) |
The following table presents the disaggregation of fixed assets between the United States and the United Kingdom as of March 31, 2022:
|
|
| United States |
|
| United Kingdom |
|
| Total |
| ||||
Computer equipment |
|
|
| $ | 748,000 |
|
| $ | 242,000 |
|
| $ | 990,000 |
|
Website design |
|
|
|
| 6,000 |
|
|
| 0 |
|
|
| 6,000 |
|
Office machine & equipment |
|
|
|
| 53,000 |
|
|
| 42,000 |
|
|
| 95,000 |
|
Furniture & fixtures |
|
|
|
| 893,000 |
|
|
| 82,000 |
|
|
| 975,000 |
|
Leasehold improvements |
|
|
|
| 223,000 |
|
|
| 12,000 |
|
|
| 235,000 |
|
Tenant incentives |
|
|
|
| 145,000 |
|
|
| 0 |
|
|
| 145,000 |
|
|
|
|
|
| 2,068,000 |
|
|
| 378,000 |
|
|
| 2,446,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
| (1,492,000 | ) |
|
| (312,000 | ) |
|
| (1,804,000 | ) |
Net book value |
|
|
| $ | 576,000 |
|
| $ | 66,000 |
|
| $ | 642,000 |
|
The following table presents the disaggregation of fixed assets between the United States and the United Kingdom as of June 30, 2021:
|
| United States |
|
| United Kingdom |
|
| Total |
| |||
Computer equipment |
| $ | 468,000 |
|
| $ | 229,000 |
|
| $ | 697,000 |
|
Website design |
|
| 6,000 |
|
|
| 0 |
|
|
| 6,000 |
|
Office machine & equipment |
|
| 51,000 |
|
|
| 46,000 |
|
|
| 97,000 |
|
Furniture & fixtures |
|
| 352,000 |
|
|
| 86,000 |
|
|
| 438,000 |
|
Leasehold improvements |
|
| 135,000 |
|
|
| 0 |
|
|
| 135,000 |
|
Tenant incentives |
|
| 145,000 |
|
|
| 0 |
|
|
| 145,000 |
|
|
|
| 1,157,000 |
|
|
| 361,000 |
|
|
| 1,518,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
| (867,000 | ) |
|
| (308,000 | ) |
|
| (1,175,000 | ) |
Net book value |
| $ | 290,000 |
|
| $ | 53,000 |
|
| $ | 343,000 |
|
The following table presents the disaggregation of intangible assets and goodwill between the United States and the United Kingdom as of March 31, 2022:
Intangibles |
| US |
|
| UK |
|
| Total |
| |||
Customer relationship |
| $ | 61,860,000 |
|
| $ | 0 |
|
| $ | 61,860,000 |
|
Non-core customer relationships |
|
| 760,000 |
|
|
| 0 |
|
|
| 760,000 |
|
Non-compete agreements |
|
| 1,430,000 |
|
|
| 0 |
|
|
| 1,430,000 |
|
Technology |
|
| 11,020,000 |
|
|
| 0 |
|
|
| 11,020,000 |
|
Tradename |
|
| 4,070,000 |
|
|
| 0 |
|
|
| 4,070,000 |
|
Workforce acquired |
|
| 2,125,000 |
|
|
| 0 |
|
| 2,125,000 |
| |
|
|
| 81,265,000 |
|
|
| 0 |
|
|
| 81,265,000 |
|
Less: accumulated amortization |
|
| (8,401,000 | ) |
|
| 0 |
|
|
| (8,401,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
| $ | 72,864,000 |
|
| $ | 0 |
|
| $ | 72,864,000 |
|
The following table presents the disaggregation of intangible assets and goodwill between the United States and the United Kingdom as of June 30, 2021:
Intangibles |
| US |
|
| UK |
|
| Total |
| |||
Customer relationship |
| $ | 4,960,000 |
|
| $ | 0 |
|
| $ | 4,960,000 |
|
Non-core customer relationships |
|
| 760,000 |
|
|
| 0 |
|
|
| 760,000 |
|
Non-compete agreements |
|
| 1,430,000 |
|
|
| 0 |
|
|
| 1,430,000 |
|
Technology |
|
| 520,000 |
|
|
| 0 |
|
|
| 520,000 |
|
Tradename |
|
| 470,000 |
|
|
| 0 |
|
|
| 470,000 |
|
Workforce acquired |
|
| 2,125,000 |
|
|
| 0 |
|
|
| 2,125,000 |
|
|
|
| 10,265,000 |
|
|
| 0 |
|
|
| 10,265,000 |
|
Less: accumulated amortization |
|
| (7,662,000 | ) |
|
| 0 |
|
|
| (7,662,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
| $ | 2,603,000 |
|
| $ | 0 |
|
| $ | 2,603,000 |
|
NOTE 13 – SUBSEQUENT EVENTS
EQUITY INCENTIVES
Relating to the aforementioned incentive compensation plan, in April 2022 the Company distributed an additional 2,000,000 restricted stock units consisting of 1,300,000 RSUs to executive officers and directors and 700,000 RSUs to employees. A total 8,600,000 RSUs were previously awarded with 5,800,000 RSUs distributed in the three months ending March 31, 2022 and an additional 2,000,000 in April 2022 for a total of 7,800,000 RSUs distributed. Of the 800,000 RSUs remaining to be distributed, 200,000 RSUs are vested with 600,000 RSUs remain unvested.
BOARD APPOINTMENTS
On April 27, 2002, the Company appointed three (3) new members to the Board of Directors of the Company:
Sabrina Yang, age 42, joined the Company’s Board of Directors (the “Board”) and will serve as a member of the Audit Committee. Sabrina is a seasoned finance executive with over 17 years of experience in accounting, financial planning and analysis (“FP&A”), M&A advisory, and corporate finance. Since 2021, Sabrina has served as CFO of Final Bell Holdings, Inc. (“Final Bell”), an industry leader in providing end-to-end product development and supply chain solutions to leading cannabis brands in the United States and Canada. During her tenure at Final Bell, she led the reverse take-over transaction process, establishing a path for Final Bell to become a publicly traded company on the Canadian Stock Exchange. In conjunction with the reverse takeover, she also integrated and managed all of Final Bell’s administrative functions, including accounting, finance, legal, HR and IT operations.
Prior to joining Final Bell, since 2018, Sabrina has served as CFO, on a part-time basis, of Apollo Program, a data-driven advertising technology company, where she ran all administrative and operating functions. She also served as deputy CFO for a private school with operations in both the United States and China. She has held prior roles in strategy, analytics and FP&A, at the Topps Company and Undertone, a digital advertising company. Sabrina started her career with five years at KPMG LLP in its transaction services team, in which she advised clients on strategy, corporate finance, valuation and financial modeling. Ms. Yang is a Certified Public Accountant with Masters of Science in Accounting and Applied Statistics from Louisiana State University.
John Belniak, age 45, joined the Board and will serve on the Company’s Audit Committee. Mr. Belniak’s background brings to the Board extensive financial, operational and transactional experience across a range of investment banking, private equity, niche consumer businesses and large corporate businesses. Since April 2020, John has served as Managing Director of Hagerty Garage + Social overseeing the indemnification, development and operation of Hagerty’s collector enthusiast center. From July 2008 to 2020, he was a founder and partner of Propel Equity Partners (and its predecessor firm) focused on identifying niche, branded consumer products for acquisition, recapitalization or strategic partnership. Mr. Belniak serves on the Board of Directors of NEMO Equipment since 2006 and Veto Pro Pac since 2012. Mr. Belniak obtained his B.A. in English from Hamilton College.
Wendy Parker, age 56, joined the Board as an independent director. Since 2002, Ms. Parker has been a member of Gatehouse Chambers’ Commercial, Property and Insurance Groups in London, England and undertakes most areas of work within those fields. She has developed a strong practice both as an adviser and advocate and has experience of appearing in the specialist commercial and property forums as well as Tribunals and the Court of Appeal.
Ms. Parker has been involved in many technically complex cases. She has a strong academic background which she combines with a practical and common sense approach in order to assist clients in achieving their objectives. Ms. Parker is a member of the United Kingdom Chancery Bar Association and the COMBAR (the Specialist Bar Association for Commercial Barristers advising the international business community).
INCREASE OF AUTHORIZED SHARES
On April 21, 2022 (as amended on April 25, 2022), Troika Media Group Inc. (the “Corporation”) filed a Certificate of Amendment (the “Amendment”) to its Articles of Incorporation to reflect an increase in the number of authorized shares of all classes of stock which the Corporation shall have the authority to issue from 315,000,000 shares to 825,000,000 shares, such shares being designated as follows: (i) 800,000,000 shares of common stock, par value of $.001 per share of the Corporation; and (ii) 25,000,000 shares of preferred stock, par value $0.01 per share.
RESIGNATION OF DANIEL PAPPALARDO
On April 15, 2022, Daniel Pappalardo, President of Troika Design Group and a member of the Troika Media Group, Inc.’s (the “Company”) Board of Directors, resigned for personal reasons. He had maintained those positions since the Company’s June 13, 2017 merger with Troika Design Group, which he founded some twenty-one (21) years ago. His departure follows the Company’s recent acquisition of Converge Direct. The Company will fulfill the remainder of Mr. Pappalardo’s employment agreement dated June 9, 2017, which was set to expire on June 17, 2022. Pursuant to his employment agreement, the Company will pay Mr. Pappalardo a severance payment equal to one (1) year of his current base salary of $347,288 in semi-annual installments unless he chooses to continue to be paid bi-monthly. All other terms of his contract will be honored.
LA BREA LEASE SETTLEMENT
On May 3, 2022, the Company entered into a settlement agreement with the landlord of the Company’s former Los Angeles offices. The Landlord has accepted a full and final settlement of $660,577 which is substantially less than the Company had accrued. The terms provide that the Company will pay a lump sum of $312,000. The remaining amount of $348,577 to be paid in monthly installments of $29,048, commencing with on June 1, 2022, and ending on May 1, 2023.
APPOINTMENT OF SID TOAMA
On May 19, 2022, Sid Toama was appointed as the Company’s Chief Executive Officer upon the resignation of Robert Machinist. Sid Toama will hold both positions of Chief Executive Officer and President as well as serve on the Board of Directors. Robert Machinist will remain the Company’s Chairman of the Board.
plan.
Critical Accounting Policy & Estimates
Our Management’s Discussionthey are made with respect to future events and Analysis of Financial Condition andfinancial performance.
On an ongoing basis, management evaluates its estimatesnon-cancelable lease costs and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various(3) other factors that are believed to be reasonable under the circumstances, the results ofcharges, which form the basis for making judgments about the carrying value of assets and liabilities thatinclude but are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptionslimited to legal fees, regulatory/compliance expenses, and conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates ascontractual obligations. See Note 7 to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this quarterly report.
OVERVIEW
Troika Media Group, Inc. was incorporatedQuarterly Report on Form 10-Q for discussions on restructuring charges.
The Impactordinary course of business. These costs will continue to be incurred until the Global COVID-19 Virus
In March 2020, the World Health Organization categorized the coronavirus (COVID-19) asCompany concludes a pandemic, and it continues to spread throughout the United States and the rest of the world with different geographical locations impacted more than others. The outbreak of COVID-19 and the resulting public and private sector measuressuitable transaction to reduce its transmission, such asdebt service and stabilize its capital structure. These costs are primarily recorded within selling, general and administrative costs, unless otherwise specified, within the impositionCondensed Consolidated Statements of social distancingOperations.
Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
2023 | 2022 | Change ($) | Change (%) | ||||||||||||||||||||||||||||||||||||||||||||
Revenue | $ | 58,689 | $ | 85,381 | $ | (26,692) | (31) | % | |||||||||||||||||||||||||||||||||||||||
Cost of revenue | 52,946 | 67,969 | (15,023) | (22) | % | ||||||||||||||||||||||||||||||||||||||||||
Gross profit | 5,743 | 17,412 | (11,669) | (67) | % | ||||||||||||||||||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 12,114 | 13,992 | (1,878) | (13) | % | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 2,066 | 2,268 | (202) | (9) | % | ||||||||||||||||||||||||||||||||||||||||||
Restructuring and other related charges | (325) | 5,591 | (5,916) | (106) | % | ||||||||||||||||||||||||||||||||||||||||||
Impairment and other losses (gains), net | — | 8,937 | (8,937) | (100) | % | ||||||||||||||||||||||||||||||||||||||||||
Total operating expenses | 13,855 | 30,788 | (16,933) | (55) | % | ||||||||||||||||||||||||||||||||||||||||||
Operating loss | (8,112) | (13,376) | 5,264 | (39) | % | ||||||||||||||||||||||||||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (3,449) | (2,796) | (653) | 23 | % | ||||||||||||||||||||||||||||||||||||||||||
Miscellaneous income (expense) | (680) | (1,938) | 1,258 | (65) | % | ||||||||||||||||||||||||||||||||||||||||||
Total other expense | (4,129) | (4,734) | 605 | (13) | % | ||||||||||||||||||||||||||||||||||||||||||
Loss from operations before income taxes | (12,241) | (18,110) | 5,869 | (32) | % | ||||||||||||||||||||||||||||||||||||||||||
Income tax (expense) benefit | (21) | 54 | (75) | (139) | % | ||||||||||||||||||||||||||||||||||||||||||
Net loss | $ | (12,262) | $ | (18,056) | $ | 5,794 | (32) | % |
Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
2023 | 2022 | Change ($) | Change (%) | ||||||||||||||||||||||||||||||||
Managed Services | $ | 28,466,605 | $ | 45,782,516 | $ | (17,315,911) | (38) | % | |||||||||||||||||||||||||||
Performance Solutions | 30,222,542 | 34,372,526 | (4,149,984) | (12) | % | ||||||||||||||||||||||||||||||
Other | — | 5,226,661 | (5,226,661) | (100) | % | ||||||||||||||||||||||||||||||
Total | $ | 58,689,147 | $ | 85,381,703 | $ | (26,692,556) | (31) | % |
We took steps to protect the safety of our employees, with a large majority of our worldwide workforce working from home, while developing creative ideas to protect the health and well-being of our communities and setting up our people to help them do their best work for our clients while working remotely. With respect to managing costs, we implemented multiple initiatives to align our expenses with changes in revenue. The steps taken across our agencies and corporate group include deferred merit increases, freezes on hiring and temporary labor, major cuts in non-essentialdecreased spending staff reductions, furloughs in markets where that option is available and salary reductions, including voluntary salary deferment for our senior corporate management team. In addition, we remain committed to and have intensified our efforts around cash flow discipline, including the identification of significant capital expenditures that can be deferred, and working capital management. Due to mandatory stay at home orders and social distancing, our experiential business has been particularly impacted by COVID-19. Promotional and experiential events with the Company’s assistance are particularly susceptible to external factors and were delayed by many of the Company’s Missioninsurance clients, due to an increase in their costs, including car repair and insurance claims costs, which resulted in lower advertising spend. The decrease in performance solutions revenue of approximately $4.1 million was the effectsresult of COVID-19.a decline related to legal services clients of approximately $2.7 million and a net decrease in home services clients of approximately $1.3 million. The Company had temporarily furloughed employeesdecrease in legal services clients was driven by an increase in competition to reflect current reduced demands associatedacquire leads, which drove down response rates from certain tort campaigns. As compared to the prior period, legal services clients experienced higher borrowing costs, which also led to a decline in their overall marketing spend. The decline related to home services clients was driven by a decline in response rates in media campaigns as compared to the prior year period. During the quarter, client retention was not an issue and management believes future revenues could increase if budget and inflationary pressures become more favorable.
In the current environment, a major priority for us is preserving liquidity. Our primary liquidity sources are operating cash flow, cash and cash equivalents and short-term investments. Although we experiencedadministrative expenses was primarily driven by a decrease in our cash flow from operationspersonnel costs of approximately $2.1 million, a decrease in miscellaneous selling, general, and administrative expenses of approximately $1.1 million, a decrease in travel and entertainment costs of approximately $0.2 million, a decrease in information technology costs of approximately $0.1 million, and a decrease in facilities and occupancy costs of approximately $0.1 million. These decreases were offset by an increase in professional fees of approximately $1.4 million and an increase in public company costs of approximately $0.3 million.
In the United Kingdom in August 2020, the Company received £50,000 in loans related to the COVID pandemic with an interest rate of 2.5% to be paid over five years beginning one year after receipt. The Company used these proceeds to address any cash shortfalls that resulted from the pandemic.
The extent to which the COVID-19 outbreak continues to impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
See, Risk Factors Related to the COVID-19 Virus and Pandemic Response in General
RESULTS OF OPERATIONS
(losses) gains, net
Our revenuesRedeeem entity, and impairment charges of intangible assets of approximately $0.4 million related to the Redeeem entity. The other gains of approximately $0.3 million consisted of a gain on rent abatement. There were no such amounts recorded for the three months ended June 30, 2023.
The costs of revenue exclusive of operating expensesto June 30, 2022 (in thousands):
Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
2023 | 2022 | Change ($) | Change (%) | ||||||||||||||||||||||||||||||||||||||||||||
Revenue | $ | 117,727 | $ | 101,067 | $ | 16,660 | 16 | % | |||||||||||||||||||||||||||||||||||||||
Cost of revenue | 103,229 | 79,707 | 23,522 | 30 | % | ||||||||||||||||||||||||||||||||||||||||||
Gross profit | 14,498 | 21,360 | (6,862) | (32) | % | ||||||||||||||||||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 23,051 | 31,175 | (8,124) | (26) | % | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 4,129 | 2,697 | 1,432 | 53 | % | ||||||||||||||||||||||||||||||||||||||||||
Restructuring and other related charges | (99) | 5,591 | (5,690) | (102) | % | ||||||||||||||||||||||||||||||||||||||||||
Impairment and other losses (gains), net | — | 8,938 | (8,938) | (100) | % | ||||||||||||||||||||||||||||||||||||||||||
Total operating expenses | 27,081 | 48,401 | (21,320) | (44) | % | ||||||||||||||||||||||||||||||||||||||||||
Operating loss | (12,583) | (27,041) | 14,458 | (53) | % | ||||||||||||||||||||||||||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (6,890) | (2,896) | (3,994) | 138 | % | ||||||||||||||||||||||||||||||||||||||||||
Miscellaneous income (expense) | (632) | (2,528) | 1,896 | (75) | % | ||||||||||||||||||||||||||||||||||||||||||
Total other expense | (7,522) | (5,424) | (2,098) | 39 | % | ||||||||||||||||||||||||||||||||||||||||||
Loss from operations before income taxes | (20,105) | (32,465) | 12,360 | (38) | % | ||||||||||||||||||||||||||||||||||||||||||
Income tax (expense) benefit | (57) | 21 | (78) | (370) | % | ||||||||||||||||||||||||||||||||||||||||||
Net loss | $ | (20,162) | $ | (32,444) | $ | 12,282 | (38) | % |
Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
2023 | 2022 | Change ($) | Change (%) | |||||||||||||||||||||||||||||||||||
Managed Services | $ | 64,229,389 | $ | 50,076,258 | $ | 14,153,131 | 28 | % | ||||||||||||||||||||||||||||||
Performance Solutions | 53,498,096 | 40,178,974 | 13,319,122 | 33 | % | |||||||||||||||||||||||||||||||||
Other | — | 10,811,471 | (10,811,471) | (100) | % | |||||||||||||||||||||||||||||||||
Total | $ | 117,727,485 | $ | 101,066,703 | $ | 16,660,782 | 16 | % |
The operating costs forincrease during the three months ended March 31,six month period is related to rising interest rates during the six month period ending June 30, 2023 compared to June 30, 2022 (15.83% compared to 9.50% and 2021 were $17,612,000 and $7,523,000 respectively, an increasethe addition of $10,089,000 or 134.1%. The driver of this increase was the recognition of $8,110,000a two (2%) percent default interest fee that began in stock-based compensationOctober 2022) primarily related to the vested shareCompany's Senior Secured credit facility, which was entered into in March 2022 to finance the Converge Acquisition (see "Liquidity and Capital Resources - Financing Agreements"). See Note 8 – Credit Facilities to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of restricted stock units issuedthis Quarterly Report on Form 10-Q for more information on the Company's Credit Facility.
The Company recognized a $201,000 gain in derivative liabilities resulting fromexpense during the change in value of warrants liabilities associated with the debt and equity financing related to the Converge acquisition in the three months ending March 31, 2022. The Company also incurred $827,000 in business acquisition costs associated with the purchase of Converge in the three months ending March 31, 2022. The Company recognized a $831,000 reduction in gains from the extinguishment of stimulus loans in other expenses in the three months ending March 31, 2022 in relation to the three months ending March 31, 2021. The loans were awarded as a result of the pandemic and the funds were recognized in the prior period as expensed.
As a result of the foregoing, our net loss for the threesix months ended March 31, 2022 increased to $14,388,000 from $4,679,000 for the three months ended March 31, 2021.
For the nine months ended March 31, 2022 compared to the three months ended March 31, 2021.
Our revenues for the nine months ended March 31, 2022 and 2021 were $31,028,000 and $12,437,000, respectively, an increase of approximately $18,591,000 or 149.5%. This increase is attributable to the acquisition of Converge Direct LLC and affiliates on March 22, 2022 who recognized a total of $10,053,000 in revenue. The other $8,538,000 increase in revenue is the result of the generation of new business at Troika Design of $4,516,000 as well as the UK and US subsidiaries of Mission-Media Holdings Limited which recognized increases of $2,051,000 and $1,826,000, respectively.
The costs of revenue exclusive of operating expenses for the nine months ended March 31, 2022 and 2021 were $20,158,000 and $6,360,000, respectively, an increase of $13,798,000, or 216.9%. This increase is also attributable to the acquisition of Converge Direct LLC and affiliates who recognized a total of $9,232,000 in costs of revenue. This increase is also correlated to the aforementioned increases in revenue at Troika Design and the UK and US subsidiaries of Mission-Media Holdings Limited as these costs relate to the staging and production of the additional revenue being generated. The gross profit margin for the nine months ended March 31, 2022 and 2021 decreased to 35.0% from 48.9% as a result of the acquisition of Converge Direct LLC and affiliates which, as anticipated, recognized a gross profit margin of 8.2%. Excluding Converge Direct LLC and affiliates, the gross profit margin decreased slightly to 47.9% from 48.9% from the prior period.
The operating costs for the nine months ended March 31, 2022 and 2021 were $32,110,000 and $17,852,000, respectively, an increase of $14,258,000, or 79.9%. The primary driver of this increase was an increase of $8,369,000 in stock-based compensation consisting of $2,416,000 in deferred compensation relating to the Troika IO (aka Redeeem) acquisition in May 2021 and an additional $5,953,000 relating to the vesting of restricted stock units, warrants and options awarded as incentive compensation to executive officers, directors and employees. Also contributing to the increase in operating costs is increases in salary costs at Troika Labs ($465,000), Troika IO ($421,000) and the UK subsidiary of Mission-Media Holdings Limited ($549,000). An additional driver of the increase in operating costs was an increase of $2,171,000 in professional fees.
The Company recognized a $213,000 gain in derivative liabilities primarily resulting from the change in value of warrants liabilities associated with the debt and equity financing related to the Converge acquisition in the nine months ending March 31, 2022. The Company also incurred $827,000 in business acquisition costs associated with the purchase of Converge in the nine months ending March 31, 2022. The Company recognized a $2,273,000 reduction in gains from the extinguishment of stimulus loans in the nine months ending March 31, 2022 in relation to the nine months ending March 31, 2021. The loans were awarded as a result of the pandemic and the funds were recognized in the prior period as expensed.
As a result of the foregoing, our net loss for the nine months ended March 31, 2022 increased to $20,637,000 from $9,223,000 for the nine months ended March 31, 2021.
LIQUIDITY & CAPITAL RESOURCES
As of March 31, 2022 compared with June 30, 2021:
As of March 31, 2022, the Company has a working capital surplus of $7,850,000 compared with a deficit of $(4,004,000) at June 30, 2021. The increase in working capital2023, was primarily the result of a $50,000,000 private investment in public entity exclusive of costs relating to the Converge acquisition during the nine months ended March 31, 2022 of which approximately $15,000,000 was retained for working capital. Another increase in working capital was the acquisition of Converge Direct LLC which had an approximate $3,279,000 capital surplus at the date of acquisition and $3,969,000 capital surplus on March 31, 2022.
As of March 31, 2022 compared with March 31, 2021:
Net cash used in operating activities was $2,608,000 for the nine months ended March 31, 2021 and net cash provided by operating activities was $358,000 for the nine months ended March 31, 2022 which is a difference of $2,966,000. The difference was the result of an increase of $8,110,000 in stock-based compensation relating to the issuance of restricted stock units, $10,704,000 increase contract liabilities, and $1,507,000 increase in accounts payable and accrued expenses. This was offset by a reduction of $7,567,000 in accounts receivable and an increase in $11,414,000 in net loss for the period.
Net cash used in investing activities increased by $82,942,000 primarily as a result of the acquisition of Converge Direct ($82,730,000) in the nine months ended March 31, 2022.
Net cash provided by financing activities increased by $110,201,000 from $2,758,000 to $112,959,000 for the nine months ended March 31, 2021 and 2022, respectively. The increase was the result of a $69,718,000 increase in net proceeds from obtaining a bank loan and a $44,405,000 increase in proceeds from the issuance of preferred stock net of offering costs. Both transactions related to the acquisition of Converge Direct, LLC and affiliates in the nine months ending March 31, 2022.
As a result of the forgoing, the Company had an increase in cash of $30,330,000 for the nine months ended March 31, 2022 in comparison to a decrease of approximately $3.4 million in liquidated damages expenses, partially offset by the absence of approximately $0.6 million of a gain on derivative liabilities, and the absence of approximately $0.6 million in other income.
Non-GAAP Measures
components that reconcile net loss, the most directly comparable GAAP financial measure, to adjusting operating income (loss).
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net loss | $ | (12,261,955) | $ | (18,056,006) | $ | (20,162,685) | $ | (32,444,006) | |||||||||||||||
Depreciation and amortization | 2,065,753 | 2,267,780 | 4,129,048 | 2,696,780 | |||||||||||||||||||
Interest expense | 3,449,052 | 2,796,367 | 6,889,708 | 2,896,367 | |||||||||||||||||||
Income tax expense (benefit) | 21,030 | (54,075) | 57,000 | (21,075) | |||||||||||||||||||
EBITDA | (6,726,120) | (13,045,934) | (9,086,929) | (26,871,934) | |||||||||||||||||||
Stock-based compensation expense | 330,580 | 1,184,000 | 877,778 | 13,300,534 | |||||||||||||||||||
Non-recurring expenses related to debt financing matters (1) | 5,777,344 | — | 9,256,168 | — | |||||||||||||||||||
Non-recurring expenses related to equity matters (2) | 72,888 | — | 155,159 | — | |||||||||||||||||||
Reverse stock split charges | 53,744 | — | 53,744 | ||||||||||||||||||||
Restructuring and other related charges | (324,907) | 5,590,932 | (98,584) | 5,590,932 | |||||||||||||||||||
Partial liquidated damages expense | 3,615,000 | 227,400 | 3,615,000 | ||||||||||||||||||||
Related acquisition & related professional costs | — | 320,000 | — | 1,683,000 | |||||||||||||||||||
Impairments and other (gains) losses, net | — | 8,937,677 | — | 8,937,677 | |||||||||||||||||||
Adjusted EBITDA | $ | (816,471) | $ | 6,601,675 | $ | 1,384,736 | $ | 6,255,209 |
1) | Costs primarily relate to Blue Torch financing matters. Costs are recorded in selling, general, and administration expenses. | |||||||||||||
2) | Costs primarily relate to the Preferred Series E equity matters. |
Adjusted Earnings before Interest, Taxes, Depreciationtime, and Amortization (“Adj. EBITDA”):
liabilities from prior acquisitions. The adjusted EBITDA metric is most helpful when used in determiningCompany’s use of its available liquidity will be based upon the valueongoing review of the funding needs of the business, its view of a company for transactions such as mergers, acquisitionsfavorable allocation of cash resources, and the timing of cash flow generation.
The adjustments madethat if it is arranged, that it will be on favorable terms. If we cannot obtain the needed
We believe thatoperate and grow our business.
Six Months Ended | |||||||||||
June 30, | |||||||||||
2023 | 2022 | ||||||||||
(unaudited) | (unaudited) | ||||||||||
Net cash used in operating activities | $ | (7,638,239) | $ | (3,746,032) | |||||||
Net cash used in investing activities | $ | (50,839) | $ | (82,800,638) | |||||||
Net cash (used in) provided by financing activities | $ | (1,942,379) | $ | 112,235,310 |
We have presentedprincipal repayments required under the following non-GAAP measures to assist investors in understanding our core net operating results on an on-going basis: (i) Adjusted EBITDA as it relates to Net Income (Loss). These non-GAAP financial measures may also assist investors, securities analystsCompany’s Term Loan Facility and others in making comparisons of our core operating results with those of other companies and making informed business decisions.
As used herein, Net Loss represents Net Loss plus depreciation and amortization, interest expense, net and income tax expense. As used herein, Adjusted EBITDA represents Net Loss plus the following add backs;
Net Loss plus unrealized gains, depreciation and amortization, interest expense, non-operating related management bonus compensation, foreign exchange losses, stock-based compensation expense and litigation expenses.
We recognize that Adjusted EBITDA calculated off Net Loss has limitations as analytical financial measures. For example, neither EBITDA nor Adjusted EBITDA reflects:
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Additionally, Adjusted EBITDA excludes non-cash expense for stock-based compensation, which is currently and is expected to remain a key element of our overall long-term incentive compensation package.
The bulkmaturities of the adjustments are often different typesCompany's operating lease liabilities, respectively.
EBITDA Adjustments included below:
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Non-GAAP Financial Measures
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| Three Months Ended March 31, |
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| 2022 |
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| 2021 |
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Non-GAAP Measures (Un-Audited) |
| Un-Audited |
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| Un-Audited |
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NET LOSS |
| $ | (14,388,000 | ) |
| $ | (4,679,000 | ) |
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Related Acquisition & Related Professional costs |
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| 2,658,000 |
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| - |
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Non-cash expenses (depreciation, amortization) |
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| 429,000 |
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| 574,000 |
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Interest expenses |
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| 100,000 |
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| - |
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Bad Debt Expense - One Time |
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| 85,000 |
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| - |
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Stock-based compensation non-cash expense |
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| 9,901,000 |
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| 2,698,000 |
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Legal Settlement One Time |
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| 59,000 |
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| 47,000 |
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Adjusted EBITDA |
| $ | (1,156,000 | ) |
| $ | (1,360,000 | ) |
Company’s critical accounting policies from those set forth in our Transition Report on Form 10-K/T (as amended by Form 10-KT/A) for the six month transition period ended December 31, 2022.
The term “disclosure
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This term refers to the controls and procedures of a Company that are designed to ensure that information required to be disclosed by a Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Management continues to take steps to improve its controls and procedures, and expects, further, that the growing scale of the business will enable the Company to obtain additional resources to assist in that effort.
effective.
The Company is in the process of consolidating
the Action without prejudice. Mr. Toama recused himself from all deliberations by the Board concerning the Action. The Board also formed a Special Litigation Committee composed of Board members Randall Miles, Grant Lyon, Jeffrey Stein, and Wendy Parker with delegated full power to evaluate, investigate, review, and analyze the facts and circumstances surrounding the Action.
None.
The Company’s registration statement
The Company registered and sold 5,783,133 shares of Common Stock and Warrants to purchase 5,783,133 shares of Common Stock, at an initial public offering price of $4.15 per share and accompanying warrant. The Company sold shares and warrants for gross proceeds of $24,000,002.
The Company paid estimated offering expenses of $3,298,000, consisting of $1,920,000 of underwriting discounts and commissions, a 1% non-accountable expense allowance ($240,000) and other expenses including legal and accounting of approximately $1,138,000. Payments of approximately $3,616,000 were made to directors, officers and ten (10%) percent or greater shareholders and to affiliates of its issuer for deferred compensation, severance payments, bonuses, and taxes. The net proceeds to the Company after deducting total expenses set forth above were approximately $17,086,000.
From the effective date of the Registration Statements through March 31, 2022, the amount of net proceeds were used for: the acquisition of Redeeem LLC ($1,380,000; repayment of indebtedness (approximately $5,329,780), working capital (approximately $4,500,000) and any other purpose for which at least five (5%) percent of total offering proceeds or $100,000 (whichever is less) has been used, including approximately $1,153,780 for legal expenses outside of the offering and $761,475 for deferred consultant fees and $1,666,660 of deferred compensation for officers, directors and employees. Diligence and other prepayment costs related to the Converge acquisition of (approximately $2.3MM). As of March 31, 2022, the net proceeds of the offering had been expended.
reference herein.
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Exhibit Number | Exhibit Title | |||||||
| Inline 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). |
| Inline XBRL Taxonomy Extension Schema Document. | |||||||
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| Inline XBRL Taxonomy Extension Labels Linkbase Document. | |||||||
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being
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herewith.
Troika Media Group, Inc. | |||||||||
(Registrant) | |||||||||
/s/ | Eric Glover | ||||||||
(Signature) | |||||||||
Date: | Name: |
| Eric Glover | ||||||
Title: | Chief Financial Officer | ||||||||
(Principal Financial Officer) |