UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~OMB APPROVAL~~

~~OMB Number: 3235-0070~~

~~Expires: July 31, 2022~~

~~Estimated average burden~~

~~hours per response....... 186.82~~

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March 31, 2022~~June 30, 2023

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

For the transition period from _________ to_________

Commission File Number: 001-40329


Troika Media Group, Inc.
(Exact name of registrant as speciﬁed in its charter)

~~Nevada~~

~~83-0401552~~

Nevada

83-0401552

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identiﬁcation No.)

~~1715 N. Gower~~

25 West 39th Street, ~~Los Angeles, California~~

6th Floor, New York, NY

~~90028~~

10018

(Address of principal executive oﬃces)

(Zip Code)

~~(323) 965-1650~~

(212) 213-0111

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former ﬁscal year, if changed since last report)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, ~~$.001~~$0.001 par value	TRKA	The ~~NASDAQ~~Nasdaq Capital Market
Redeemable warrants to acquire Common Stock	TRKAW	The Nasdaq Capital Market

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

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

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


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

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

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

~~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 ☐x No

~~Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.~~

~~Class~~
Class						Outstanding at ~~May~~October 20, ~~2022~~ 2023
Common Stock, $.001 par value						~~64,109,616~~ 16,676,762

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets ~~as of March 31, 2022 (Unaudited) and June 30, 2021~~	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss ~~for the Three and Nine Months ended March 31, 2022 and 2021 (Unaudited)~~	4
	Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit) for the Three Months Ended March 31, 2022 and 2021 (Unaudited)~~	5
	Condensed Consolidated Statements of Cash Flows ~~for the Nine Months Ended March 31, 2022 and 2021 (Unaudited)~~	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion & Analysis of Financial Condition and Results of Operations.	38	28
Item 3.	Quantitative and Qualitative Disclosures about Market ~~Risk.~~Risk	42	37
Item 4.	Controls and ~~Procedures.~~Procedures	43	36

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	44	37
Item 1A.	Risk Factors	44	38
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	44	38
Item 3.	Defaults Upon Senior Securities	44	38
Item 4.	Mine Safety Disclosure	44	38
Item 5.	Other Information	44	38
Item 6.	Exhibits	45	39
SIGNATURES		46

~~-2-~~

~~Table of Contents~~

-2-

Troika Media Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

March 31,
2022

June 30,
2021

ASSETS

(Unaudited)

Current assets:

Cash and cash equivalents

$ 42,396,000

$ 12,066,000

Accounts receivable, net

32,461,000

1,327,000

Prepaid expenses

221,000

670,000

Other assets – short term portion

150,000

1,000

Total current assets

75,228,000

14,064,000

Other assets -long term portion

1,447,000

626,000

Property and equipment, net

642,000

343,000

Operating lease right-of-use assets

9,543,000

6,887,000

Intangible assets, net

72,864,000

2,603,000

Goodwill

60,896,000

19,368,000

Total assets

$ 220,620,000

$ 43,891,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$ 40,808,000

$ 8,363,000

Convertible notes payable

50,000

50,000

Note payable - related party - short term portion

120,000

200,000

Due to related parties

0

41,000

Contract liabilities

21,057,000

5,973,000

Operating lease liability - short term portion

3,781,000

3,344,000

Bank loan net of debt discount – short term portion

1,461,000

0

Derivative liabilities

1,000

13,000

Taxes payable

100,000

62,000

Stimulus loan programs- short term portion

0

22,000

Total current liabilities

67,378,000

18,068,000

Long term liabilities:

Operating lease liability - long term portion

10,514,000

5,835,000

Preferred stock liability

15,998,000

0

Warrant liability

30,639,000

0

Bank loan net of debt discount – long term portion

65,824,000

0

Acquisition liability

5,000,000

0

Stimulus loan programs - long term portion

0

547,000

Rental deposits

124,000

119,000

Other long-term liabilities

0

477,000

Liabilities of discontinued operations - long term portion

107,000

107,000

Total liabilities

195,584,000

25,153,000

Stockholders’ equity:

Preferred stock, $0.01 par value: 15,000,000 shares authorized

-

0

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)

7,000

7,000

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)

5,000

0

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)

64,000

40,000

Additional paid-in-capital

232,836,000

204,788,000

Stock payable

0

1,210,000

Accumulated deficit

(207,526,000 )

(186,889,000 )
Other Comprehensive Loss

(350,000 )

(418,000 )
Total stockholders’ equity

25,036,000

18,738,000

Total liabilities and stockholders’ equity

$ 220,620,000

$ 43,891,000

(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

The accompanying notes are an integral part of these unaudited condensedconsolidated financial statements.

-3-

Troika Media Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)


	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

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

~~-3-~~

~~Table of Contents~~

-4-

Troika Media Group, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Operations~~Stockholders’ Equity

For the Three and ~~Comprehensive Loss~~

Six Months Ended June 30, 2023 and 2022

(Unaudited)

Three Months Ended March 31,

Nine Months Ended March 31,

2022

2021

2022

2021

Project revenues, net

$ 15,685,000

$ 3,854,000

$ 31,028,000

$ 12,437,000

Cost of revenues

11,738,000

1,941,000

20,158,000

6,360,000

Gross profit

3,947,000

1,913,000

10,870,000

6,077,000

Operating expenses:

Selling, general and administrative expenses

14,606,000

6,813,000

27,835,000

14,864,000

Professional fees

2,577,000

136,000

3,445,000

1,274,000

Depreciation expense

33,000

34,000

91,000

95,000

Amortization expense of intangibles

396,000

540,000

739,000

1,619,000

Total operating expenses

17,612,000

7,523,000

32,110,000

17,852,000

Loss from operations

(13,665,000 )

(5,610,000 )

(21,240,000 )

(11,775,000 )

Other income (expense):

Business acquisition costs

(827,000 )

0

(827,000 )

0

Income from government grants

0

831,000

262,000

2,535,000

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

0

0

(3,000 )

0

Gain in derivative liabilities

201,000

0

213,000

0

Other income

35,000

122,000

1,220,000

378,000

Other expenses

0

1,000

0

154,000

Total other income (expense)

(690,000
)

954,000

693,000

2,575,000

Net loss from continuing operations before income tax

(14,355,000 )

(4,656,000 )

(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 )

Basic earnings (loss) per share

Net loss attributable to common stockholders

$ (0.30 )

$ (0.31 )

$ (0.47 )

$ (0.55 )

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

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

~~-4-~~

~~Table of Contents~~

-5-

Troika Media Group, Inc. and Subsidiaries

~~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

~~-5-~~

~~Table of Contents~~

~~Troika Media Group, Inc. and Subsidiaries~~

Condensed Consolidated Statements of Cash Flows

(Unaudited)

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

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

~~-6-~~

~~Table of Contents~~

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TROIKA MEDIA GROUP, INC.

NOTES TO ~~UNAUDITED~~ CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~For the Three~~

NOTE 1. Description of Business and ~~Nine Months Ended March 31, 2022 and 2021~~

~~NOTE 1 – PRESENTATION OF THE FINANCIAL STATEMENTS~~

~~The terms “Troika,” “the Company,” “we,” “our” and “us” each refer to~~ Basis of Presentation

Description of Business

Troika Media Group, Inc. (“Company”, “our” or “we”) is a professional services company that architects and ~~its subsidiaries, unless the context indicates otherwise.~~ builds enterprise value in consumer facing brands to generate scalable performance driven revenue growth. The Company delivers three solutions pillars that CREATE brands and experiences and CONNECT consumers through emerging technology products and ecosystems to deliver PERFORMANCE based measurable business outcomes.

Unaudited Interim Financial Statements

The accompanying ~~unaudited~~interim condensed consolidated unaudited financial statements ~~were~~have been prepared in accordance with generally accepted accounting principles in the United States ~~or U.S. GAAP or GAAP,~~(“GAAP”) for interim financial information and ~~Article 8~~the instructions to Rule 10-01 of Regulation S-X, and should be read in conjunction with the Company’s 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 financial statements as of June 30, 2023 and for the ~~Securities~~three and ~~Exchange Commission. Accordingly, certain information and footnote disclosures have been condensed or omitted.~~

~~In our~~six months ended June 30, 2023 presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion ~~the accompanying unaudited condensed consolidated~~of management such financial statements reflect all adjustments, consisting solely of normal recurring ~~accruals, considered~~adjustments, necessary for a fair presentation ~~in all material respects,~~ of the ~~information contained herein. These unaudited~~results 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 funds~~but 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.

~~-7-~~

~~Table of Contents~~

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.

~~-8-~~

~~Table of Contents~~

~~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.

Reverse Stock Split

On June 1, 2023, we effected a reverse stock split (the "Reverse Split") of our Common stock, par value $.001 par share ("Common Stock") such that each stockholder received 1 share of Common Stock for every 25 shares owned by such stockholder before the Reverse Split. All historical share amounts disclosed in this quarterly report on Form 10-Q have been retroactively restated to reflect the Reverse Split and subsequent share exchange. No fractional shares were issued as a result of the Reverse Split, as fractional shares of Common Stock were rounded up to the nearest whole share.

Going Concern

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with GAAP. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern, the Company has the responsibility to evaluate whether conditions or events raise substantial doubt about its ability to meet its obligations as they become due within one year from the date that financial statements are issued. In performing this evaluation as of the date of the filing of this 10-Q, the Company has determined there is substantial doubt that the Company will have sufficient liquidity under its cash flow forecasts to fund commitments for the twelve months following the date of the filing of this 10-Q.

The costs of and distractions caused by restructuring, pursuing a Potential Transaction, negotiating amendments to the Financing Agreement, and servicing the Blue Torch debt, have materially depleted liquidity and negatively impacted performance of the Company. Consequently, management has concluded that there is substantial doubt about the Company’s ability to fund ongoing operations and meet debt service obligations over the ensuing twelve month period. To preserve operating liquidity and maintain optionally, the Company chose not to make the principal and interest payment due to Blue Torch on September 30, 2023 and negotiated a wavier of that default and other specified events of default through October 20, 2023. The Company is currently in negotiations to extend that date.

As has been previously reported and as summarized below in Note 8. Credit Facilities, the Company agreed with its senior lender, Blue Torch Finance LLC ("Blue Torch"), to undertake a process with an investment banker to facilitate the repayment in full of Blue Torch debt either through an acquisition or disposition involving the Company, a refinancing, or

-7-

some combination thereof (a “Potential Transaction”).As a result, in December 2022, the Company engaged Jefferies LLC (“Jefferies”), a leading global full-service investment banking and capital markets firm, and the Board of Directors of the Company (the "Board")formed a Special Committee to, among other things, oversee a Potential Transaction. In the absence of a Potential Transaction, the Company and Blue Torch have, in good faith, continued to negotiate to resolve ongoing issues. However, the Company can provide no assurance that it will be able to execute a Potential Transaction, or reach a final agreement with Blue Torch default. However, the Company will request additional waivers and seek further extensions, if required.

The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 2. Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements of the Company include the accounts of Troika Media Group, Inc. and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions ~~that~~about future events. These estimates and the underlying assumptions affect the ~~reported amounts~~amount of assets and liabilities ~~and disclosure of~~reported, disclosures about contingent assets and liabilities, atand reported amount of revenues and expenses. Such estimates include the ~~date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.~~

~~Significant estimates and assumptions made by management include, among others, the assessment of the collectability~~valuation 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 differ~~Management believes its use of estimates in the condensed consolidated financial statements to be reasonable.

Restricted cash

The Company defines restricted cash as cash that is legally restricted as to withdrawal or usage. Restricted cash of approximately $0.4 million as of June 30, 2023, consists of cash deposits received from ~~those estimates.~~

~~FAIR VALUE MEASUREMENT~~

~~Fair value is defined as~~ the ~~exchange price that would~~at-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 impairment~~Blue Torch in accordance with the ~~reporting requirements of ASC 360-10. The evaluation is based on certain impairment indicators, such as the nature~~terms of the ~~assets,~~Financing Agreement. There was no restricted cash balance as of December 31, 2022.

Recently Adopted Accounting Pronouncements

In October 2021, the ~~future economic benefit~~FASB issued ASU 2021-08, "Business Combinations (Subtopic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” ("ASU 2021-08”), which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. The Company has adopted the guidance effective January 1, 2023. The adoption of the ~~assets, any historical or future profitability measurements,~~pronouncement did not have a material impact on the financial statements when adopted.

Recently Issued Accounting Pronouncements Not Yet Adopted

Not Applicable.

NOTE 3 – Converge Direct Acquisition

On the March 22, 2022 (the "Closing Date"), the Company and CD Acquisition Corp. ("CD"), as ~~well~~purchasers, and Thomas Marianacci, Maarten Terry, Sadiq ("Sid") Toama and Michael Carrano, as ~~other external market conditions or factors that may be present. If these impairment indicators are present or other factors exist that indicate that~~sellers (the "Converge Sellers") closed on the ~~carrying amount~~acquisition of all the equity of Converge Direct LLC (together with its affiliates, "Converge") and 40% of the ~~asset may not be recoverable, then~~equity of Converge Marketing Services, LLC ("CMS") an ~~estimate~~affiliated entity, for a notional aggregate purchase price of $125.0 million,

-8-

valued for accounting purposes at approximately $114.9 million pursuant to the Membership Interest Purchase Agreement, dated November 22, 2021 (the "MIPA").

Purchase Price

The cash portion of the ~~undiscounted value~~purchase price consisted of expected future operating cash flows is used to determine whether the asset is recoverable and the amount of any impairment is measured as the difference between the carrying amount of the asset and its estimated fair value. The fair value is estimated using valuation techniques such as market prices for similar assets or discounted future operating cash flows.

~~-9-~~

~~Table of Contents~~

~~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 equivalents~~the acquisition, $29.1 million held in escrow payable upon satisfaction of certain conditions, and ~~those with stated maturities of greater than three~~another $5.0 million payable 12 months ~~as marketable securities~~after the acquisition date contingent on ~~our Consolidated Balance Sheet~~

~~We determine~~ the ~~appropriate classification of our investments in marketable debt securities~~Company satisfying its bank covenants and at the ~~time~~option of ~~purchase and reevaluate such designation~~the 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 accounted~~not 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 securities~~purchase 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.

At March 22, 2022 the Company recorded the $5.0 million payable due March 21, 2023, at its then net present value of $4.7 million. Further, pursuant to the MIPA, the Company recorded an additional liability totaling $4.3 million which represents the excess net working capital value received by the Company at the purchase date. Per the terms of the MIPA, this amount was to be repaid within 120 days of closing. As of June 30, 2023, a total of $9.3 million is included within acquisition liabilities on the ~~Combined Balance Sheet. We carry these securities at fair value,~~condensed consolidated balance sheets.

On March 21, 2022, the Company entered into employment agreements with Mr. Toama and ~~have elected~~Mr. Marianacci, two (2) of the ~~fair value option,~~Converge Sellers. Mr. Toama was appointed President of TMG and Mr. Marianacci was appointed as President of the Converge entities.

On February 13, 2023, the Company and Mr. Toama entered into a letter agreement (the "Toama Letter Agreement") amending certain terms of Mr. Toama’s employment agreement, including by appointing him Chief Executive Officer of the Company. See the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on February 16, 2023, the contents of which are incorporated by reference herein.

On May 26, 2023, the Company and Mr. Toama entered into a new employment agreement and a new restrictive covenant agreement (together, the “New Agreements”). The New Agreements supersede Mr. Toama’s prior Executive Employment Agreement with the Company effective March 21, 2022, as the same was amended by the Toama Letter Agreement. For a description of the material terms of the New Agreements, see the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2023, the contents of which are incorporated by reference herein.

On August 14, 2023, the Company terminated the employment of Mr. Toama for which changes in fair value are recorded in other income (expense), net. We determine any realized gains or losses on the sale of marketable debt securities on a specific identification method, and we record such gains and losses as a component of other income (expense), net.

~~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 or~~New Agreements. See the ~~timing~~Company’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. See "Subsequent Events" of this Quarterly Report on Form 10-Q for more information on the termination of the ~~account invoicing cycle.~~

~~For those clients to whom we extend credit, we perform periodic evaluations~~employment of ~~accounts receivable~~Mr. Toama for "Cause" and ~~maintain allowances for potential credit losses as deemed necessary.~~

the resignation of Mr. Marianacci.

Purchase Price Allocation

The Company ~~periodically reviews~~negotiated the ~~outstanding accounts receivable to determine whether an allowance is necessary~~purchase price based on ~~an analysis of past due accounts and other factors that may indicate that~~ the ~~realization of an account may be in doubt. When a customer’s account is deemed~~expected cash flows to be ~~uncollectible~~derived from their operations after integration into the ~~outstanding balance~~Company’s existing distribution, production, and service networks. The acquisition purchase price is ~~charged to~~allocated based on the ~~allowance for doubtful accounts. As of March 31, 2022 and June 30, 2021, the Company had $517,000 and $521,000 in allowance for doubtful accounts, respectively.~~

~~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 three~~acquired and liabilities assumed, which are based on management estimates and third-party appraisals. The Company engaged a valuation expert to ~~seven years. Maintenance~~provide 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 income~~part relied upon in ~~the period realized.~~

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~~Table of Contents~~

~~GOODWILL AND INTANGIBLE ASSETS~~

~~As a result of acquisitions, the Company recorded goodwill and identifiable intangible assets as part of~~completing its ~~allocation of the~~ purchase ~~consideration.~~

~~Goodwill~~

~~Goodwill is the~~price allocation. The excess of the purchase price ~~paid~~ over the aggregate estimated fair value of ~~the~~ net assets acquired was allocated to goodwill.

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The following table summarizes the allocation of the ~~acquired business. Goodwill is tested annually at June 30 for impairment. The annual qualitative or quantitative assessments involve determining an estimate~~purchase price of the ~~fair value of reporting units in order~~assets acquired related to ~~evaluate whether an impairment~~the acquisition as of the ~~current carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s~~closing date:


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

The estimated fair ~~value is less than its carrying amount before applying the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value~~values of the ~~reporting unit~~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 ~~its carrying amount including goodwill. If~~ the ~~carrying amount~~duration of the ~~reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing~~time the ~~implied fair value~~Company expects to realize benefits of the ~~reporting unit’s goodwill with the carrying amount. If the carrying amount exceeds the implied~~assets.

The estimated fair ~~value then an impairment loss is recognized equal to that excess. There was no goodwill impairment recorded as a result~~values of the ~~Company’s annual impairment assessment on June 30, 2021.~~ 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	$	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

The Company ~~has adopted~~will amortize the provisions of ASU 2017-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 requires goodwill impairments to be measured on the basis of the fair value of a reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. Thus, ASU 2017-04 permits an entity to record a goodwill impairment that is entirely or partly due to a decline in the fair value of otherintangible assets that, under existing GAAP, would not be impaired or have a reduced carrying amount. Furthermore, the ASU removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Accordingly, the goodwill of reporting unit or entity with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit/entity may indicate that goodwill is impaired.

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 amortized~~above on a ~~straight-line~~straight line basis over their estimated useful ~~lives, which range from three~~lives.

UNAUDITED PRO FORMA OPERATING RESULTS

The following unaudited pro forma information presents the combined results of operations as if the acquisition of Converge had been completed on January 1, 2022.


	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)

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NOTE 4. Revenue and Accounts Receivable

The Company generates revenues primarily by delivering both managed services and performance based marketing services to ~~ten years.~~customers. The ~~estimated useful lives~~Company’s revenue recognition policies describe the nature, amount, timing and uncertainty associated with ~~finite-lived intangible assets~~each major source of revenue from contracts with customers are ~~consistent with the estimated lives of the associated products~~summarized below.

Managed and ~~may be modified when circumstances warrant. Such assets are reviewed for impairment when events~~Professional Services

The Company provides managed and professional services (such as, but not limited to, media planning, media buying, media ROI measurement, and media or circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount. The amount of any impairment is measured as the difference between the carrying amount and the fair value of the impaired asset. There was no impairment recorded for intangibles in the three and nine months ended March 31, 2022 and 2021.

~~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 asset~~is 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.

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~~Table of Contents~~

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.

As per ASC 606-10-25-31, the Company recognizes ~~project~~managed and professional service fees over time by measuring the progress toward complete satisfaction of a performance obligation by measuring its performance in transferring control of the services contractually delivered to a client by applying the input method. Revenue is recognized based on the extent of inputs expended toward satisfying a performance obligation and it was determined that the best judge of inputs is the costs consumed by a project in relation to its total anticipated costs. ~~As part~~

Consultative service engagements typically do not incur a significant amount of direct costs; however, any costs are recognized as incurred. Professional services fees are recognized evenly throughout the term of the ~~close process~~agreement.

Performance Solutions (“Pay Per Event”)

The 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 predetermined 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 Solutions service due to the fact that the Company ~~compiles~~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 preliminary percentage of completion (POC) for each project which is the ratio of incurred costs to date in relation to the anticipated costs from the production team’s approved budgets. The POC ratio is then applied to the contracted revenuepredetermined cost and the ~~pro-rated~~Company charges higher margins associated with the service.

The Company recognizes revenues for performance advertising when a user engages with the advertisement, such as a click, view, call, or purchase. The Company’s payment terms vary by the type of customer. Generally, payment terms range from prepayment to sixty (60) days after revenue is ~~then recognized accordingly.~~

~~Reimbursement income represents compensation~~earned.

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Principal versus Agent Revenue Recognition

Our customers reimburse us for expenses relating to the out-of-pocket costs associated with ~~a staging~~the provision of Managed Services engagements. This includes third party expenses such as media costs and administrative fees, technology fees, production expenses, data costs, and other third-party expenses that the Company incurs on behalf of a ~~live event. As per~~client that is needed to deliver the services. In accordance with ASC 606-10-25-31, the Company recognizes reimbursement income over time by measuring the progress toward complete satisfaction of a performance obligation by measuring its performance in transferring control of the services contractually delivered to a client by applying the input method. The revenue is recognized based on the extent of inputs expended toward satisfying a performance obligation and it was determined that the best judge of input is the costs incurred to date in relation to the anticipated costs. As a result, unless an overage or saving is identified, the reimbursement income equates to the reimbursement costs incurred. Given that the Company contracts directly with the majority of the vendors, ~~and is liable for any overages,~~ the Company is deemed a principal in this revenue transaction as they have control over the asset and transfer the asset themselves. As a result, this transaction is recorded gross rather than net.

~~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.

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~~Table of Contents~~

condensed consolidated balance sheets.

~~Converge Direct~~

~~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.

Generally, advertising revenues are reported on a gross basis, that is, the amounts billed to our customers are recorded as revenues, and amounts paid to suppliers are recorded as cost of revenues. Where we are the principal, we control the advertising and services before ~~it is~~they are transferred to our customers. Our control is evidenced by our being primarily responsible to our customers and having a level of discretion in establishing pricing.

~~Arrangements~~

Contract Balances from Contracts with ~~Multiple Performance Obligations~~Customers

~~Our~~

An account receivable is recorded when there is an unconditional right to consideration based on a contract with a customer. For certain types of contracts with customers, the Company may ~~include multiple performance obligations. For such arrangements, we allocate revenues~~recognize revenue in advance of when the customer is issued the invoice. Once the Company has an unconditional right to ~~each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based~~consideration under these contracts, the contract assets are recorded to accounts receivable on the ~~prices charged~~condensed consolidated balance sheets.

When consideration is received from a customer prior to transferring services to the customer under the terms of a contract, a contract liability (deferred revenue) is recorded. Deferred revenue is recognized as revenue when, or as, control of the services is transferred to the customer and all revenue recognition criteria have been met.

The Company’s customer base is highly concentrated. Revenue may significantly decline if the Company were to lose one or more of its significant customers, or ~~using expected cost-plus margin.~~

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.

The following table provides information about current contract balances from contracts with customers:

June 30, December 31,
2023 2022
Accounts receivable $ 15,197,469 $ 10,801,299
Deferred revenue $ 9,316,686 $ 6,209,442

Accounts receivable is presented net of allowance for doubtful accounts. The Company ~~has~~analyzes receivables aging, customer specific risks, and other factors to estimate its allowance. The Company’s allowance for doubtful accounts was approximately $0.9 million and $1.0 million as of June 30, 2023, and December 31, 2022, respectively.

The amount of revenue recognized during the ~~two distinct contractual services~~

~~Managed Services~~

~~Company provides a service (such as, but not limited to, media planning, media buying, media ROI measurement~~three 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 expenses~~six months ended June 30, 2023, relating to the out-of-pocket costs associated with the provision of Managed Services engagements. This includes third party expenses 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.

~~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.

~~-13-~~

~~Table of Contents~~

~~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 March~~December 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 amount~~was approximately $0.3 million and ~~timing of revenue recognition is largely driven by when the customer utilizes the services~~ $0.4 million, respectively.

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NOTE 5. Property and ~~our ability to deliver in accordance with relevant contract terms, which could impact our estimate of the remaining performance obligations and when we expect to recognize such as revenues.~~

~~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

~~Contract Assets~~

~~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.

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~~Table of Contents~~

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.

~~-15-~~

~~Table of Contents~~

~~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.

~~-16-~~

~~Table of Contents~~

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.

~~-17-~~

~~Table of Contents~~

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 )

~~-18-~~

~~Table of Contents~~

~~NOTE 3 – PROPERTY AND EQUIPMENT~~

Property and equipment consist of the following as of ~~March 31, 2022 and~~ June 30, ~~2021:~~

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

During the three months ended ~~March 31,~~June 30, 2023, and 2022, ~~and 2021,~~ depreciation expense was ~~$33,000~~approximately $28 thousand and ~~$34,000,~~$56 thousand, respectively.

During the ~~nine~~six months ended ~~March 31,~~June 30, 2023 and 2022, ~~and 2021,~~ depreciation expense was ~~$91,000~~approximately $54 thousand and ~~$95,000,~~$89 thousand, respectively.

~~NOTE 4 – INTANGIBLE ASSETS~~

~~Intangible assets consisted~~

During the six months ended June 30, 2023, the Company wrote-off approximately $0.3 million of property and equipment related to the legacy Troika and Mission entities. The write-off of the ~~following as of March 31, 2022~~property and equipment was recorded against the restructuring liabilities. There were no write-offs in the three months ended June 30, ~~2021:~~

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.

NOTE 6. Amortizable Intangible Assets & Goodwill

The Company's intangible assets subject to amortization are as follows:


	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

Purchased intangible assets with finite useful lives are amortized over their respective estimated useful lives (using an accelerated method for customer relationships and trade names) to their estimated residual values, if any. The Company’s finite-lived intangible assets consist of customer relationships, contractor and resume databases, trade names, and internal use software and are being amortized over periods ranging from two to ten years. Purchased intangible assets are reviewed annually to determine if facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, recoverability is assessed by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts.

During the three months ended June 30, 2023 and 2022, amortization expense was approximately $2.0 million and $2.2 million, respectively.

During the six months ended June 30, 2023 and 2022, amortization expense was approximately $4.1 million and $2.6 million, respectively.

As of June 30, 2023, estimated amortization expense related to the Company's intangible assets is as follows:

-13-


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

Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the rate of amortization is accelerated and the remaining carrying value is amortized over the new shorter useful life. ~~For~~The Company completed its quarterly triggering events assessments for the ~~three and nine~~six months ended ~~March 31,~~June 30, 2023, during which there was no impairment, and June 30, 2022, during which there were impairments of approximately $0.4 million.

Goodwill

As of June 30, 2023 and June 30, 2022, the ~~Company had no impairments.~~balance of goodwill was approximately $45.5 million and $45.5 million, respectively. For ~~the three and nine months ended March 31, 2021, the Company had no impairments. During the fiscal year ending June 30, 2021, the Company recorded $0 in impairment expense related to intangibles.~~

~~-19-~~

~~Table of Contents~~

~~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 ~~$40,808,000~~goodwill 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 payable~~the three and six months ended June 30, 2023.

Although the Company's next annual measurement date for testing for impairment to goodwill and intangible assets is not required until October 31, 2023, the Company believes that there is a significant likelihood that once tested there could be a substantial adjustment to both goodwill and intangibles.

NOTE 7. Restructuring

Initiated in the fourth quarter of the fiscal year ended June 30, 2022, the Company underwent organizational changes to further streamline operations. This restructuring program includes workforce reductions, closure of excess facilities, and other charges. The restructuring program resulted in costs incurred primarily for (1) workforce reduction of 113 employees across certain business functions and operating units, (2) abandoned or excess facilities relating to lease terminations and non-cancelable lease costs and (3) other charges, which include but are not limited to legal fees, regulatory/compliance expenses, and contractual obligations.

Company management performed an analysis of the certain Troika, Mission, and Redeeem companies to determine whether discontinued operation classification was appropriate. In the evaluation, the Company considered ASC 205 Presentation of Financial Statements and specifically ASC 205-20 Discontinued Operations. Under that guidance, a disposal shall be reported in discontinued operations if the disposal represents a strategic shift that will have a major impact on an entity’s operations and financial results. The Troika, Mission, and Redeeem subsidiaries did not have a major impact on the Company's operations, and management did not consider them to be separate segments or geographic areas in our reported results. The subsidiaries were consolidated, operated within the same geographical areas, and provided similar professional services as the Converge business, which are marketing and advertising consultative services. Therefore, the Company does not believe this represented a strategic shift in business operations but a strategic overhaul in cost reduction, operating efficiencies and establishing a stable baseline for future scalable growth. Further, the Company considered if the abandonment of these subsidiaries had a major effect on the entities’ operations and financial results. We noted that the guidance does not provide any “bright lines” when evaluating the quantitative factors that would represent a strategic shift.  The Company does believe that these changes will deliver significant future cost savings to the consolidated entity in the form of selling, general and administrative costs as a result of the workforce reductions and excess facilities costs.

Based on the quantitative analysis of the six months ended December 31, 2022 results, the Company noted that the total revenues from these certain subsidiaries only constituted three point six (3.6%) percent of total consolidated revenues, one (1%) percent of the total consolidated assets, and seven percent (7%) of total consolidated liabilities. Based on this analysis the Company determined there was not a significant impact on the Company’s operations and financial results. Therefore, discontinued operations reporting was not required. 

-14-

For the three months ended June 30, 2023 and 2022, the Company recorded approximately $0.3 million of net restructuring credits and $5.6 million in costs, respectively. Net restructuring credits for the three months ended June 30, 2023 primarily consisted of approximately $0.6 million of credits related to favorable settlements of executive and employee severance and benefit payments and the reclassification of approximately $0.3 million, of liabilities recorded in the first quarter 2023 related to potential severance payments, to accrued ~~expenses~~and other liabilities. These credits were partially offset by associated legal fees of approximately $0.6 million, which did not have a restructuring reserve liability.

For the six months ended June 30, 2023 and 2022, the Company recorded approximately $0.1 million of net restructuring credits and $5.6 million in costs, respectively. ~~Both accounts payable~~Net restructuring credits for the six months ended June 30, 2023 primarily consisted of approximately $0.3 million in credits related to favorable settlements of executive and employee severance and benefit payments and the reclassification of approximately $0.3 million of restructuring liabilities related to potential severance payments to accrued ~~expenses are treated as~~and other liabilities. These credits were partially offset by associated legal fees of approximately $0.6 million, which did not have a restructuring reserve liability.

The restructuring reserve liability is presented within the accrued and other current liabilities ~~however~~line within the ~~difference is that a formal invoice has been received and entered to record an accounts payable.~~

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.~~

~~-20-~~

~~Table of Contents~~

~~During the three~~six months ended ~~March 31, 2022~~June 30, 2023 was as follows:


	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

There was no restructuring reserve as of June 30, 2022.

NOTE 8. Credit Facilities

Debt related to the Senior Secured Credit Facility, Convertible Note Payable, and ~~2021, the Company paid $0 towards the principal~~Related Party Note Payable consisted of the ~~Promissory Notes. During the nine months ended March 31, 2022 and 2021, the Company paid $0 towards the principal of the Promissory Notes.~~

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.

-15-

Senior Secured Credit Facility

On March 21, 2022, the Company entered into athe Financing Agreement with Blue Torch ~~Finance LLC (“Blue Torch”), as Administrative Agent and Collateral Agent.~~

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 of~~was used in part to fund the purchase price of the CDConverge Acquisition, as well as, for working capital and general corporate purposes.

The Credit Facility provides for: (i) a ~~Term Loan~~term loan in the amount of ~~$75,000,000;~~$76.5 million; (ii) an interest rate of the ~~Libor~~LIBOR Rate Loan of three (3) months; (iii) a four-year maturity amortized 5.0% per year, payable quarterly; (iv) a ~~1.0%~~one (1.0%) percent commitment fee and an upfront fee of ~~2.0%~~two (2.0%) percent ($1.5 million) of the Credit Facility paid at closing, plus an administrative agency fee of $250,000 per year; (v) a first priority perfected lien on all property and assets including all outstanding equity of the Company’s subsidiaries; (vi) ~~1.5%~~one point five (1.5%) fully-diluted penny warrant coverage in the combined entity; (vii) mandatory prepayment for ~~50%~~fifty (50%) percent of excess cash flow and 100% of proceeds from various transactions; (viii) customary affirmative, negative and financial covenants; (ix) delivery of audited financial statements of Converge; and (x) customary closing conditions. The Company agreed to customary restrictive covenants in the Credit Facility and leverage ratios, fixed charge coverage ratios, and maintaining liquidity of at least ~~$6,000,000~~$6.0 million at all times.

On September 22, 2023, the Company and Blue Torch entered into the First Amendment to Financing Agreement by adding provisions for the use of secured overnight financing rate loans in place of LIBOR rate loans. See the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on September 27, 2023, the contents of which are incorporated by reference herein.

The Company and each of its subsidiary Guarantors entered into a Pledge and Security Agreement (the “Security Agreement”) dated as of March 21, 2022, as a requirement with the Credit Facility. Each Guarantor pledged and assigned to the Collateral Agreement and granted the Collateral Agent with a continuing security interest in all personal property and fixtures of the Guarantors (the “Collateral”) and all proceeds of the Collateral. All equity of the Guarantors was pledged by the Borrower.

On March 21, 2022, each of the Company’s Subsidiaries, as Guarantors, entered into an Intercompany Subordination Agreement (the “ISA”) with the Collateral Agent. Under the ISA, each obligor agreed to the subordination of such indebtedness of each other obligor to such other obligations.

On March 21, 2022, the Company entered into an Escrow Agreement with Blue Torch ~~Finance LLC~~ and Alter Domus (US) LLC, as Escrow Agent. The Escrow Agreement provides for the escrow of ~~$30,000,000~~$29.1 million of the ~~$75,000,000~~$76.5 million proceeds, under the Credit Facility to be held until the audited financial statements of Converge Direct LLC and affiliates for the years ended December 31, ~~2019~~2020 and ~~2020~~2019, are delivered to Blue Torch, ~~Finance LLC.~~

~~-21-~~

~~Table of Contents~~

~~The outstanding balance~~which were delivered during fourth quarter of fiscal year 2022. As of June 30, 2023, Blue Torch has not authorized the release of the ~~note~~funds in escrow.

Although the Company believes that the Converge Sellers’ recourse is ~~as follows:~~

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

In connection with the ~~aforementioned note,~~Credit Facility, the Company recorded debt discount and issuance costs totaling ~~$9,215,000.~~approximately $9.2 million. The discount and issuance costs will be amortized over the life of the note using the effective interest rate method. ~~The company recognized $0 in~~For the three and six months ended June 30, 2023, amortization of ~~debt discount for~~deferred financing costs was approximately $0.6 million and $1.2 million, respectively. For the three and six months ended ~~March 31,~~June 30, 2022, ~~as no~~amortization of deferred financing costs were approximately $0.6 million and $0.8 million, respectively.

For the three and six months ended June 30, 2023 the Company made principal payments ~~were~~totaling approximately $1.0 million and $1.9 million, respectively. For the three and six months ended June 30, 2022 the Company made onprincipal payments totaling approximately $1.0 million and $1.0 million, respectively.

-16-

At June 30, 2023, the ~~note.~~

~~The payment of~~ principal ~~to be made~~payments 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

At any time on or after March 21, 2022, and on or prior to March 21, 2026, the ~~lender has~~Lenders have the right to subscribe for and purchase from ~~Troika Media Group, Inc.,~~the Company, up to ~~1,929,439~~initially 77,178 shares of Common Stock, subject to adjustment. During the six months ended December 31, 2022, the number of shares increased to 177,178. The exercise price per share of Common Stock under this Warrant shall be ~~$.01~~$0.01 per share. If at any time when this Warrant becomes exercisable and ~~the~~a related Registration Statement is not in effect, ~~this~~the Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise”.

~~Using~~The shares have been adjusted to reflect the ~~Black-Scholes model,~~one (1) for twenty-five (25) reverse stock split.

As ofJune 30, 2023, the fair ~~market~~ value of long-term debt is considered to approximate its stated value of $71.7 million.

Blue Torch Extensions, Waivers and Amendments

On October 14, 2022, Blue Torch and the Company entered into a Limited Waiver of events of default under the Financing Agreement that related to the Company’s failure to satisfy certain financial and non-financial covenants (as amended, the "Original Limited Waiver"). The Original Limited Waiver was ~~determined~~initially scheduled to expire on October 28, 2022, if not terminated earlier by Blue Torch (“Original Waiver Period”), but the Original Waiver Period was subsequently extended through February 10, 2023 by the First Amendment to Limited Waiver to Financing Agreement dated as of October 28, 2022, the Second Amendment to the Limited Waiver to Financing Agreement dated as of November 11, 2022, the Third Amendment to the Limited Waiver to Financing Agreement dated as of November 25, 2022, the Fourth Amendment to the Limited Waiver to Financing Agreement dated as of December 9, 2022, the Fifth Amendment to the Limited Waiver to Financing Agreement dated as of December 23, 2022, the Sixth Amendment to the Limited Waiver to Financing Agreement dated as of January 13, 2023, and the Seventh Amendment to the Limited Waiver to the Financing Agreement dated January 31, 2023, and the Eight Amendment to the Limited Waiver to the Financing Agreement dated as of February 7, 2023.

On February 10, 2023, Blue Torch and the Company entered into an Amended and Restated Limited Waiver (the “First A&R Limited Waiver”) of certain events of default (such events of default, the “Specified Events of Default”) under the Financing Agreement, which amended and restated the Original Limited Wavier. The First A&R Limited Waiver provided that, among other things, during the First A&R Waiver Period (defined below), the Company would comply with certain sale and refinancing milestones and refrain from engaging in any “Permitted Acquisition” under the Financing Agreement or making certain post-closing payments to Converge Sellers. The First A&R Limited Waiver would have expired on the earliest of (x) the occurrence of an Event of Default under the Financing Agreement that is not a Specified Event of Default, (y) a failure by the Company to comply with certain sale and refinancing milestones set forth in a side letter agreed by the Company and the Lenders and (z) June 30, 2023, subject to potential extension of up to sixty 60 days to obtain regulatory and/or shareholder approval in the event the Company is pursuing a sale transaction (the “First A&R Waiver Period”, and the date referenced in subclause (z) above, the “Outside Date”).

On April 14, 2023 and April 28, 2023, Blue Torch and the Company entered into letter agreements (the “Extension Letters”, collectively with the First A&R Limited Waiver and associated side letter, the “Prior Waiver Documents”) that extended the Applicable Milestones (as defined below). The “Applicable Milestones” included (i) the date for which potential acquirers (collectively, “bidders” and each a “bidder”) would be required to submit binding bids to acquire the Company, (ii) the date by which the Company would be required to select a winning bidder, and (iii) the date by which the winning bidder and the Company would be required to enter into definitive documentation providing for an acquisition of the Company or a refinancing of its indebtedness with Blue Torch, in each case subject to the terms and conditions of the Extension Letters and the First A&R Limited Waiver.

On May 8, 2023, the Company and Blue Torch entered into a first amendment to the First A&R Limited Waiver (the “First Amendment to First A&R Limited Waiver”) and an amended and restated letter agreement that, in each case, superseded

-17-

the Prior Waiver Documents, and pursuant to which the Company affirmed its commitment to work in good faith to consummate a sale of the Company’s business or assets or a refinancing transaction before the expiration of the First A&R Waiver Period, and Blue Torch agreed to remove the Applicable Milestones and to extend the Outside Date from June 30, 2023 to July 14, 2023, subject to a potential extension if a definitive written agreement is delivered on or prior to July 14, 2023 that provides for cash repayment in full of all obligations owed to Blue Torch or which is otherwise acceptable to Blue Torch. In addition, under the First Amendment to the First A&R Limited Waiver, the Company agreed to pay Blue Torch an “exit fee” equal to five (5%) percent of the aggregate outstanding principal balance of the Company’s indebtedness with Blue Torch as of the date of the First Amendment to the First A&R Limited Waiver, plus accrued interest, subject to reduction or waiver if such Blue Torch indebtedness is repaid in full in cash by the dates specified therein. The foregoing summary does not purport to be ~~$2,433,000~~complete and ~~$2,232,000~~is subject to, and qualified in its entirety by, Amendment No. 1 to the A&R Limited Waiver attached as Exhibit 10.2 to this Quarterly Report on ~~March 22, 2022~~Form 10-Q. See also "Subsequent Events" of this Quarterly Report on Form 10-Q for a description of Amendments Two, Three, and ~~March 31, 2022, respectively, as a warrant liability~~Four to the First A&R Limited Waiver, the First Amendment to the Financing Agreement, the Second A&R Limited Waiver and ~~a $201,000 gain on derivative liabilities as recorded in~~ the ~~three months ending March 31, 2022.~~

First Amendment to the Second A&R Limited Waiver.

NOTE ~~8 – NOTE PAYABLE RELATED PARTY~~

~~As of March 31, 2022 and June 30, 2021,~~9. Leases

The Company has various operating leases for office space. Some leases include options to extend the lease term, generally at the Company's discretion. The leases generally provide for fixed annual rentals plus certain other costs. The Company's lease agreements do not include any material residual value guarantees or material restrictive covenants. Since the Company's leases do not provide an implicit interest rate, the Company ~~owed~~uses its incremental borrowing rate as of the ~~founder and former CEO~~lease commencement date to determine the present value of ~~Troika Design Group, Inc., Dan Pappalardo, approximately $120,000 and $200,000, respectively. The loan was due and payable on demand and accrued interest at 10.0% per annum. In~~future lease payments. Upon the three and nine months ending March 31, 2022, the Company made payments of $30,000 and $80,000 in principal, respectively. Interest expense of $4,000 and $13,000 were recorded for this note for the three and nine months ending March 31, 2022, respectively. Interest expense of $5,000 and $15,000 were recorded for this note for the three and nine months ending March 31, 2021, respectively.

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.

~~-22-~~

~~Table of Contents~~

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 and~~Company 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 adopted~~incremental borrowing rate on July 1, 2019 for all operating leases that commenced prior to that date.

During the three months ended June 30, 2023, and 2022, lease expense was approximately $0.3 million and $0.4 million, respectively.

During the six months ended June 30, 2023, and 2022, lease expense was were approximately $0.6 million and $0.8 million, respectively.

The following table summarizes the weighted-average remaining lease term and discount rate for operating leases:


	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

NOTE 10 – Commitments and Contingencies

Commitments

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As of June 30, 2023, commitments of the Company ~~had current~~in the normal course of business in excess of one year are as follows:


	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

Contingencies

In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and ~~long-term operating lease liabilities~~the amount of ~~$2,275,000~~the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and ~~$6,916,000,~~the ability to reasonably estimate the amount of any such loss.

Partial Liquidated Damages

For the three months ended June 30, 2022, approximately $3.6 million of partial liquidated damages charges were recorded and there were no such charges recorded for the three months ended June 30, 2023. For the six months ended June 30, 2023 and June 30, 2022, the Company recorded approximately $0.2 million and $3.6 million, respectively, of partial liquidated damages expense which was recorded within miscellaneous expenses on the condensed consolidated statements of operations and ~~right of use of assets of $8,348,000.~~comprehensive loss. As of ~~March~~June 30, 2023 and December 31, 2022, the Company had ~~current~~approximately $0.9 million and ~~long-term operating lease liabilities of $3,781,000 and $10,514,000,~~$3.4 million, respectively, ~~and right of use of assets of $9,543,000.~~related to the outstanding partial liquidated damages, which is presented within the line contingent liability on the condensed consolidated balance sheets. As of June 30, ~~2021,~~2023, approximately $3.6 million of liquidated damages were paid in cash and approximately $2.7 million was settled in common shares.

On March 21, 2023, the Company ~~had current~~disclosed on Form 8-K its intent to engage in negotiations with stockholders ("Series E Holders") of the Company's Series E Convertible Preferred Stock, par value $.01 per share ("Series E Preferred Stock") to waive certain provisions of the Securities Purchase Agreement (the "Series E Purchase Agreement') and ~~long-term operating lease liabilities~~the related Registration Rights Agreement each entered into on March 16, 2022 with the Series E Holders (the "Series E Registration Rights Agreement"), and to settle Series E Holders' claims for liquidated damages owed, if any, under the Series E Registration Rights Agreement. The Company provided each Series E Holder the same opportunity to enter into Settlement Agreements (the "Series E Settlement Agreements") on substantially identical terms. However, certain Series E Holders elected not to enter into Series E Settlement Agreements, notwithstanding the effective termination of ~~$3,344,000~~the Series E Purchase Agreement and ~~$5,835,000, respectively, and right~~related documents (other than certain rights surviving under the Series E Registration Rights Agreement, to which all Series E Holders continue to be equally entitled). The maximum liquidated damages before interest was capped at $7.0 million. See Note 11 to the condensed consolidated financial statements included in Item 1 of ~~use of assets of $6,887,000.~~

~~Future minimum lease payments~~this 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

~~Other~~Form 10-Q for more information related to ~~our operating leases is as follows:~~

	~~March 31, 2022~~
~~Weighted average remaining lease term in years~~	~~3.9 years~~
~~Weighted average discount rate~~		~~13.6~~	%

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~~Table of Contents~~

~~LEASE AGREEMENTS~~

~~On February 1, 2018,~~the partial liquidated damages.

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401K Matters

In the calendar year 2022, the Company discovered that it had not made the safe harbor non-elective employer contributions to the Troika ~~Media Group entered into a five-year lease agreement for office space~~Design 401k plan in ~~Englewood Cliffs, NJ. The beginning lease expense was $4,120 per month escalating annually at 3.5%~~2017 pursuant to its 3% formula under plan terms, and the ~~lease expires on January 31, 2023. In August 2021,~~Company corrected that contribution for the affected participants, with earnings, in 2022.

The Company also discovered that it did not make the three (3%) percent safe harbor non elective employer contributions to the 401k plan for plan years 2018 through 2022. When the error was discovered in 2022, the Company ~~terminated~~attempted to correct the ~~lease~~error by performing the applicable non-discrimination tests and ~~Troika Services, Inc. entered into a new lease agreement for a larger office space within~~by making qualified non-elective contributions ("QNECs") to affected participant accounts. However, as the ~~same building. The beginning lease expense was $8,390 per month escalating annually at 3.0% for a term~~administration of ~~five years expiring July 2026. As per accounting standard ASC 842,~~the 401k plan did not conform to the plan terms with respect to the three (3%) percent employer contribution, additional correction is required. Although the Company is ~~treating this lease as new agreement and recorded a loss of $3,000 from~~evaluating the ~~early termination of the operating lease. As a result of the new lease agreement,~~appropriate corrective approach, the Company ~~acquired $467,000 in right-of-use assets.~~

~~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 $1.2 million related to the ~~original lease agreement. Contingent on the Company abiding by the payment terms stipulated in the amendment regarding the outstanding rent, the landlord agreed to abate $120,405~~safe harbor 2018 – 2022 contributions, as of ~~this balance and the Company plans to record this abatement in August 2022 after fulfilling its obligations relating to the payment terms.~~

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 June 2021 at £8,858 per month. In April 2021, Mission UK entered into a three-year lease agreement for office space in London, UK ending in April 2024. The lease expense is £39,173 ($52,875) per month throughout the life of the lease.

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%.

~~-24-~~

~~Table of Contents~~

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~~

Legal Matters

We may become a party to litigation in the normal course of business. In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon our financial condition, results of operations or cash flows.

~~STEPHENSON SETTLEMENT~~

~~In July 2021,~~

Machinist Litigation

On February 7, 2023, Robert Machinist, the former Chief Executive Officer and Chairman of the Board, filed a Complaint against the Company in the Supreme Court of the State of New York in a case styled Robert Machinist v. Troika Media Group, Inc., No. 650728/2023. Mr. Machinist alleged that the Company breached a Separation Agreement between Mr. Machinist and the Company, dated May 19, 2022, by not paying certain severance and other benefits. The Complaint sought damages with interest, a declaration that Mr. Machinist is entitled the payments sought by the Complaint (and an injunction compelling the Company to pay them), and an award of Mr. Machinist’s costs incurred in connection with the litigation. On May 15, 2023, the Company entered into a settlement agreement ~~regarding the Stephenson legal dispute~~with Mr. Machinist pursuant to which ~~settled all matters between~~Mr. Machinist dismissed his claims against the Company with prejudice in exchange for a cash settlement payment which was paid on May 17, 2023.

See also "Subsequent Events" of this Quarterly Report on Form 10-Q for a description of additional Legal Matters, which such matters in the opinion of management if a final outcome was negative could have a material adverse effect upon our financial condition, results of operations or cash flows.

NOTE 11. Equity

Common Stock

The Company filed a shelf registration statement on Form S-3 (referred to herein as the “Shelf Registration Statement”) (file no. 333-271189) with the SEC on April 7, 2023 which was amended on April 28, 2023 and declared effective by the ~~former owners of~~SEC on May 23, 2023. Under the ~~Mission entities. The agreement provided for the full payment of all amounts due to~~Shelf Registration Statement, the Company may from time to time sell any combination of securities described therein in one or more offering up to a total dollar amount of $150 million.

The Company also filed a registration statement on Form S-3 (File no. 333-271889) with the SEC on May 12, 2023, which was declared effective on May 26, 2023, to register the resale of 427,708 shares of Common Stock issued to certain current and ~~allowed~~former Series E Holders under the ~~Stephensons~~Series E Settlement Agreements.

On May 24, 2023, the Company entered into an At Market Issuance Sales Agreement ("ATM Sales Agreement"), with B. Riley Securities, Inc., to sell shares of our Common Stock, with aggregate gross proceeds of $70 million through an "at-the-market" equity offering program under which the ATM Agent agreed to act as sales agent or principal from time to time. Under the ATM Sales Agreement, the ATM Agent may sell shares of Common Stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. The ATM Agent will use commercially reasonable efforts to sell the shares ~~subject~~of Common Stock from time to time, based upon instructions from the Company. Any shares of Common Stock sold under the ATM Sales Agreement will be issued pursuant to the Company’s Shelf Registration Statement (file no. 333-271189), as supplemented by the prospectus

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supplement dated May 24, 2023. A copy of the prospectus supplement may be obtained on the SEC’s website at www.sec.gov. The foregoing description of the material terms of the ATM Sales Agreement is qualified in its entirety by reference to the full ATM Sales Agreement, a ~~leak-out period.~~copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and which is incorporated herein by reference.

For the period ended June 30, 2023, the Company sold a total of 120,628 shares of Common Stock under the ATM Sales Agreement for aggregate gross proceeds of approximately $0.5 million at an average selling price of $4.19 per share, resulting in net proceeds of approximately $0.0 million after deducting commissions and other transaction costs of approximately $0.5 million. The ~~agreement was~~cash deposits received from the ATM issuance are held by the ATM Agent and must be paid to Blue Torch in accordance with the terms of the Financing Agreement.

On June 20, 2023, the Nasdaq staff notified the Company that the Company had regained compliance with the Minimum Bid Price Rule based on the closing bid price of Common Stock having been at $1.00 per share or greater for 10 consecutive business days. For additional detail, see the Company’s Current Reports on Form 8-K filed with the ~~Court~~SEC on May 18, 2023 and June 21, 2023.

Reverse stock split

On June 1, 2023, we effected the Reverse Split. All historical share amounts disclosed in this quarterly report on Form 10-Q have been retroactively restated to reflect the Reverse Split and subsequent share exchange. No fractional shares were issued as a ~~settlement payment~~result of the Reverse Split as fractional shares of Common Stock were rounded up to the nearest whole share. The number of authorized shares of Common Stock before the Reverse Split was 800,000,000. After the Reverse Split, the number of authorized shares of common Stock was 32,000,000. There was no change in par value as result of the Reverse Split.

Stock Compensation

See Note 15 to the consolidated financial statements included in the Company’s Transition Report on Form 10-KT (as amended by Form 10-KT/A) for the six months ended December 31, 2022 for more information regarding (i) 2021 Employee, Director & Consultant Equity Incentive Plan (the “2021 Plan”), and (ii) Troika Media Group, Inc. 2015 Employee, Director and Consultant Equity Incentive Plan, as amended (the “2017 Equity Plan” and together with the 2021 Plan, the "Equity Incentive Plan"). Share-based compensation expense, presented within selling, general and administrative expenses and direct operating expenses, was approximately ~~$905,000 which was recognized in~~$0.3 million and $0.6 million for the three months ~~ending September~~ended June 30, ~~2021. In addition to~~2023 and 2022, respectively. Share-based compensation expense was approximately $0.9 million and $13.3 million for the six months ended June 30, 2023 and 2022, respectively.

See also "Subsequent Events" of this ~~cash settlement,~~Quarterly Report on Form 10-Q for a description of the 2023 Troika Employee Incentive Plan.

Non-Qualified Stock Options (“NQSOs”) Award Activity

Under the Equity Incentive Plan the Company ~~also reversed approximately $133,000~~grants options to purchase shares of the Common Stock to employees and affiliates of the Company. These options are time based and vest over the contractual term. The options granted are approved by the Company's Compensation Committee. The Company accounts for forfeitures as they occur; therefore, stock-based compensation expense has been calculated based on actual forfeitures in ~~accruals~~the Company's consolidated statements of comprehensive loss.

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The following table summarizes activity relating to holders of the ~~Stephensons which was recorded as other income.~~

~~Other than~~Company’s NQSOs for the ~~foregoing, no material legal proceedings to which~~six 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	$	—

For the three and six months ended June 30, 2023 the Company ~~(or any officer or director~~recognized stock compensation expense for options of approximately $0.0 million and $0.1 million, respectively.For the three and six months ended June 30, 2022 the Company recognized stock compensation expense for options of approximately $0.2 million and $0.5 million, respectively. For the three months ended June 30, 2023, approximately eighty thousand options were forfeited.

As of June 30, 2023, total unrecognized share-based compensation related to unvested options was approximately $0.4 million, and the weighted-average remaining vesting period for these awards was approximately one year and eleven months.

Restricted Share Units Award Activity

Pursuant to the Company’s 2021 Plan the Company issues Restricted Share Units ("RSUs") in consideration for employee and consultant services. RSUs issued under the Plan may be exercised in accordance with the applicable grant notice. The Company has also issued RSUs outside of the Plan in accordance with the Converge transaction to certain Converge Sellers, these RSUs may also be exercised in accordance with the applicable grant notice. The Company ~~or any affiliate, to management’s knowledge) is party to or to which~~records stock-based compensation based on the ~~property~~grant date fair value of the awards. The Company ~~is subject is pending, and no such material proceeding is known by management~~recognizes the fair value of restricted stock awards that do not contain a performance condition as expense using the straight-line method over the requisite service period of the award. The Company accounts for forfeitures as they occur; therefore, stock-based compensation expense has been calculated based on actual forfeitures in the Company's consolidated statements of comprehensive loss.

The following table summarizes activity relating to ~~be contemplated.~~

~~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

During the three and six months ended June 30, 2023 the Company recognized stock compensation expense related to restricted stock units of approximately $0.3 million and $0.7 million, respectively. For the three and six months ended June 30, 2022 the Company recognized stock compensation expense related to restricted stock units of approximately $0.4 million and $8.5 million, respectively. Further, during the six months ended June 30, 2023, certain executives of Converge vested 46,667 restricted stock units that were issued outside of the 2021 Equity Incentive Plan. As of June 30, 2023, there was 93,333 unvested restricted stock units associated with ~~certain services purportedly provided. Mission Culture, LLC and MVRK counsel have agreed~~the Converge executives who were issued restricted

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stock units outside of the 2021 Equity Incentive Plan. As of June 30, 2023, total unrecognized share-based compensation related to ~~settle the claim for $110,000 with an upfront payment of $70,000 paid at signature~~unvested restricted stock units was approximately $2.2 million, and the ~~remainder paid~~weighted-average remaining vesting period for the awards is approximately one year and one month.

Earnings per Share

Net income (loss) per common share is calculated in ~~four monthly installments~~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 ~~$10,000.~~shares of Common Stock outstanding during the period. The ~~parties are~~computation of diluted net loss per share does not include dilutive Common Stock equivalents in the ~~process of drafting the settlement documents and~~weighted average shares outstanding as they would be anti-dilutive. In periods where the Company has ~~fully accrued the settlement~~a net loss, all dilutive securities are excluded.

The following are dilutive Common Stock equivalents as of June 30, 2023 and 2022, which were not included in the ~~nine months ending March 31, 2022.~~

~~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

Series E Preferred Shares

On March ~~21,~~16, 2022, the Company ~~filed with~~entered into the ~~Nevada Secretary of State a Certificate of Designation of Preferences, Rights and Limitations of~~ Series E ~~Convertible Preferred Stock, pursuant~~Purchase Agreement with certain institutional investors to ~~NRS 78.1955~~issue and sell in a private offering an aggregate of ~~the Nevada Revised Statutes (the “CoD”).~~

~~Pursuant to the CoD, the Company authorized 500,000~~$50.0 million of securities, consisting of shares of Series E Preferred Stock ~~$.01 par~~and 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 of~~share and is convertible into shares of ~~Series E Convertible Preferred~~Common Stock ~~par value $0.01~~at 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.

The Conversion Price of the Series E Preferred Stock and the exercise price of the Series E Warrants is subject to adjustment for: (a) stock dividends and stock distributions; (b) subsequent rights offerings; (c) pro rata distributions; and (d) certain fundamental transactions.

The Conversion Price is also subject to downward adjustment (the “Registration Reset Price”) to the greater of (i) eighty (80%) percent of the average of the ten (10) lowest daily VWAPs during the forty (40) trading day period beginning on and including the Trading Day immediately follow the effective date of the initial Registration Statement in July 2022, and (ii) the Floor Price of $6.25 per share.

The Company issued accompanying Common Stock Purchase Warrants (the “Warrants”) exercisable for five (5) years at $50.0 per share, to purchase an aggregate of 1,333,333 shares of Common Stock. The exercise price is subject to the same Registration Reset Price, as described above. The Floor Price is $6.25 per share.

At the time of the closing of the Purchase Agreement, using the Black-Scholes model, the Company recorded a fair value of approximately $28.4 million on the balance sheet within derivative liabilities - financing warrants. At June 30, 2022, the fair value of such warrants was $28.4 million and a resultant gain on change in fair value of derivative liabilities was recorded for approximately $0.6 million. At December 9, 2022, the date of the mark to market revaluation, the fair value of such warrants was approximately $10.2 million and a resultant gain on change in fair value of derivative liabilities was recorded for approximately $20.0 million.

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The Series E Preferred Stock and Series E Warrants include certain reset and anti-dilution provisions that could reduce the conversion prices and exercise prices thereof down to ~~$0.25~~$6.25 (the “Floor Price”) which iswas a significant discount to the then current market price. For purposes of complying with Rule 5635(d) of the Nasdaq Stock Market rules, the shareholders approved the issuance of more than 19.99% of the current total issued and outstanding shares of Common Stock upon conversion of the Series E Preferred Stock and exercise of the Warrants, including, but not limited to, reducing the conversion price to the Floor Price.

In addition, as reported pursuant to the Information Statement field on Schedule 14C on March 14, 2022 with the SEC, the Majority Stockholders approved the amendment to Article Three of the Articles of Incorporation to reflect an increase in the number of authorized shares of all classes of stock which the Company shall have the authority to issue from ~~315,000,000~~36,600,000 shares to ~~825,000,000~~57,000,000 shares, such shares being designated as follows: (i) ~~800,000,000~~32,000,000 shares of Common Stock, and (ii) 25,000,000 shares of preferred stock, par value ~~$.01 per share.~~

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~~Table of Contents~~

~~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. ~~Prior~~The foregoing does reflect changes to the ~~reverse stock split,~~authorized and issued shares from the Reverse Stock Split which occurred on June 1, 2023.

On September 26, 2022, we entered into an Exchange Agreement (the “Exchange Agreement”) with each holder of our Series E Preferred Stock (each a “Series E Holder”), pursuant to which (i) each Series E Holder exchanged its existing warrant to purchase our Common Stock, dated March 16, 2022 (the “Old Warrants”), for new warrants to purchase our Common Stock (the “New Warrants”), and (ii) each Series E Holder consented to changes in the terms of the private investment in public equity (“PIPE”) placement effected by the Company ~~had 600,000,000 shares of common stock at a par value of $0.001, 15,000,000 shares of preferred stock at a par value of $0.20 per share.~~

~~COMMON STOCK~~

~~As of~~on 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 related party convertible promissory note of $1,300,000 elected to convert the debt into shares~~restatement of the ~~Company’s common stock at a rate~~terms 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.

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~~Table of Contents~~

~~PREFERRED STOCK~~

~~The Company has authorized 15,000,000 shares as~~our Series E convertible preferred stock, par value $0.01 ~~series A, B, C, D,~~per share (the “Series E Preferred Stock”).

In consideration for the issuance of the New Warrants and Ethe other New PIPE Terms, we will filed an amended and restated certificate of which 5,000,000 shares have been designated as Series A preferred stock; 3,000,000 shares have been designated as Series B convertible preferred stock; 1,200,000 shares have been designated as Series C convertible preferred stock; 2,500,000 shares have been designated as Series D convertible preferred stock; and 500,000 shares have been designated asdesignation for the Series E ~~convertible 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.

The New PIPE Terms effected the following changes, among others, to the rights Series ~~B Preferred~~E Holders:

•New Warrant Exercise Price: The New Warrant exercise price per share of Common Stock ~~were issued and outstanding; 0 shares of Series C Preferred Stock were issued and outstanding; 0 shares of Series D Preferred Stock were issued and outstanding; and 500,000~~is $13.75, provided that if all shares of Series E Preferred Stock ~~were~~ issued ~~and outstanding.~~

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 uplisting~~on 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 time~~lesser of the ~~conversion~~exercise price then in effect or the ~~Company had 2,495,000 shares~~greater 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.

•Series E convertible preferred stock of the Company, par value $.01 per share and warrants to purchase (100% coverage) shares of common. Under the terms of the Purchase Agreement, the Company agreed to sell 500,000 shares of its Series E Preferred Stock and Warrants to purchase up to 33,333,333 shares of the Company’s common stock. Each share ofConversion Price: The conversion price for the Series E Preferred Stock ~~has a stated value of $100~~shall initially equal $10.00 per share, and is convertible into shares of common stock at a conversion price of $1.50 per share subject to adjustment. The Preferred Stock is perpetual and has no maturity date. The Preferred Stock will not be subject to any mandatory redemption or other similar provisions. All future shares of Preferred Stock shall rank junior toso long as the ~~Series E Preferred Stock, except if at least a majority~~arithmetic average of the ~~Series E Preferred Stock expressly consent, to the creation~~daily VWAPs of the ~~Parity~~Common Stock for the calendar week prior to each of ~~Senior Preferred Stock.~~

~~The~~the 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 day~~Subsequent Adjustment Period and (ii) $6.25.

•Standstill Period: The Series E Holders agreed to a 60-day standstill period ending on November 26, 2022 (the “Standstill Period”), during which each Series E Holder may convert not more than fifty (50%) percent of the Series E Preferred Stock held by such holder at the beginning of the Standstill Period.

•Series E Buyout. During the Standstill Period the Company will use commercially reasonable efforts to raise funds to repurchase all outstanding shares of Series E Preferred Stock held by the Series E Holders at a purchase price of $100 per share, subject to the provisions of the Certificate of Designation.

•Limitation on Sales: During the Standstill Period, the Purchasers agreed not to sell shares of the Common Stock for a price less than $7.50 per share.

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•Liquidated Damages: The Company agreed to pay to the Purchasers all liquidated damages owed through September 21, 2022 (including any pro-rated amounts), which totaled approximately $3.6 million, all of which was paid during the three months ended June 30, 2022. The Company accrued an additional $0.2 million for the six months ended June 30, 2023 which is recorded in miscellaneous income (expense) on the statements of operations and ~~including~~comprehensive income (loss). See below for additional detail.

The Company paid to the ~~Trading Day immediately follow~~Series E Holders all liquidated damages owed through September 21, 2022 (including any pro-rated amounts), which totaled approximately $3.6 million, all of which has been paid.

On March 31, 2023, the Company entered into Settlement Agreements (the “Settlement Agreements”) with certain former holders of its Series E Preferred Stock (the “Purchasers”) who constituted the registered or beneficial owners of more than 50.1% of the Registrable Securities under, and defined in, the Registration Rights Agreement, and more than 50.1% of the Series E Preferred Stock originally purchased under the Purchase Agreement. As such, in accordance with the terms of the Registration Rights Agreement and thePurchase Agreement, as applicable, as of March 31, 2023 (the “Effective Date”), each such agreement and all rights and obligations thereunder were terminated and deemed of no further force and effect as of such date. In addition, effective as of the Effective Date, the Settlement Agreements contain a release of any and all claims against the Company and its subsidiaries that such Purchaser (or its affiliates) may have purported to have against the Company or its subsidiaries under such agreements; provided, however, that the Purchasers will maintain their respective “Piggy-Back Registration Rights” under Section 6(d) of the ~~initial~~ Registration ~~Statement in July 2022,~~Rights Agreement.In exchange for the release by the Purchasers of any and ~~(ii)~~all claims for liquidated damages under the ~~Floor Price of $0.25 per share.~~

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 ~~recorded~~delivered to each Purchaser a ~~market value~~number 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.~~

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~~Table of Contents~~

~~The Company has reserved up to 200,000,000~~ shares of Common Stock ~~issuable upon full conversion~~equal 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”),which was declared effective on May 26, 2023 (file no. 333-271889).

As of June 30, 2023, the Company had settled with the Purchasers and issued common shares. For the six months ended June 30, 2023, 304,838 shares of Series E Preferred Stock were converted into approximately 4.9 million shares of Common Stock, at a ~~Floor Price~~conversion price of ~~$0.25 per share.~~

~~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.

Some Series E Holders have not settled with the Company and continue to advocate for payment of liquidated damages under the Registration Rights Agreement. As of June 30, 2023, fourteen (14) shares of Series E Preferred Stock were issued and outstanding. The Company accrued an additional $0.2 million of interest related to the liquidated damages during the six months ended June 30, ~~2021,~~2023 for Series E Holders who have not entered into a Settlement Agreement.

All Other Preferred shares

During the period beginning on May 12, 2023 and ending May 15, 2023, the Company filed with the Secretary of the State of Nevada, Certificates of Withdrawal (the “Certificates of Withdrawal”) of the Certificates of Designation of Preferences, Rights and Limitations previously filed with Secretary of State of Nevada with respect to the Company’s (i) Series B Preferred Stock, (ii) Series C Preferred Stock, and (iii) Series D Preferred Stock (together, the “Previously Designated Series”). At the time of the filing of the Certificate of Withdrawal, no shares of any of the Previously Designated Series were outstanding. The Certificates of Withdrawal were effective upon filing, and eliminated from our Articles of Incorporation all matters set forth in the previously-filed Certificates of Designation of Preferences, Rights and Limitations with respect to the Previously Designated Series. As a result, the only designated series of preferred stock is the Series E Preferred Stock. The foregoing descriptions of the Certificates of Withdrawal are qualified in their entirety by reference to the Certificates of Withdrawal, copies of which are filed as Exhibits 4.3, 4.4 and 4.5 hereto and each of which is incorporated herein by reference.

NOTE 12. Related Party

Converge Sellers

During the quarter ended June 30, 2022, in connection with the Converge Acquisition, the Company incurred amounts due to the Converge Sellers totaling $9.3 million. The Converge Sellers include Mr. Toama and Mr. Marianacci, Mike Carrano, Head of Supply Solutions of the Converge subsidiaries, and Maarten Terry, employee and sixty (60%) percent

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owner of CMS, all are party to the amounts due. The Converge subsidiaries are wholly owned subsidiaries of the Company. As of June 30, 2023, and December 31, 2022, $9.3 million was outstanding and included on the balance sheet under acquisition liabilities.

Media Resource Group ("MRG")

Mr. Marianacci, who is an employee of the Company and one of the Converge Sellers, serves as an owner and executive director of Media Resource Group (“MRG”) company that entered into a service agreement with the Company, dated January 1, 2007, under which MRG agreed to provide certain media services to the Company. On September 29, 2023, Mr. Marianacci submitted his resignation to the Company. See also "Subsequent Events" of this Quarterly Report on Form 10-Q for further information.

For the three months ended June 30, 2023, and June 30, 2022, the Company incurred approximately $0.4 million and $0.5 million, respectively, for services performed by MRG. For the six months ended June 30, 2023 and 2022 the Company incurred approximately $0.8 million and $0.5 million, respectively, for services performed by MRG.

Additionally, amounts due to MRG as of June 30, 2023, and December 31, 2022, were approximately $0.2 million and are reflected within the accounts payable line on its condensed consolidated balance sheets.

On July 26, 2023, the Company informed MRG of its intent to cease all future business with MRG.

See also "Subsequent Events" of this Quarterly Report on Form 10-Q for further information on future business with MRG and Mr. Marianacci.

Converge Marketing Services ("CMS")

The Company has an Exclusive Services Agreement with CMS, a 40% owned entity, to provide advertising and related services. CMS and the Company operate with a managed service relationship whereby the expenses incurred by the Company relating to the out-of-pocket costs associated with media campaigns are reimbursed by CMS and the Company receives management fee income.

The Company recognizes revenue on a gross basis as the principal since it controls the marketing services before delivery to the customer and is primarily responsible for fulfilling the promise to provide the services to the customer. According to ASC 606-10-55-37A, which explains the principal versus agent guidance for when another party is involved in providing goods or services to a customer, a principal obtains control when the right to a service to be performed by the other party (vendor), which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf. Given that the Company has discretion of how media spend is allocated and optimized and can direct a third party to provide media services, the Company is deemed to be the principal.

For the three months ended June 30, 2023, and 2022, the Company generated gross managed service revenue of approximately $7.7 million and $10.7 million, respectively, of which $0.8 million and $1.2 million was management fee revenue. For the six months ended June 30, 2023 and 2022, the Company generated gross managed service revenue of approximately $20.5 million and $10.7 million, respectively, of which $2.0 million and $1.3 million was management fee revenue. For the six months ended June 30, 2022, activity from CMS was for the period March 22, 2023 to June 30, 2023.

As of June 30, 2023, and December 31, 2022, the Company recorded ~~a stock payable of $1,210,000 relating to~~approximately $2.6 million and $3.7 million, respectively, as amounts due from CMS within the accounts receivable line on its condensed consolidated balance sheets.

At the acquisition date and as of ~~Redeeem, LLC. As per~~June 30, 2023, the ~~asset purchase agreement dated May 21, 2021, 452,929 shares~~Company's carrying amount of ~~common stock valued at $2.6715 per~~the investment was insignificant. The Company reflects its share ~~were due to be issued to Redeeem’s employees~~of gains and ~~these shares were issued~~losses of the investment in other income and expenses in the ~~three months ending September 30, 2021.~~

~~DEFERRED COMPENSATION~~

condensed consolidated statements of operations and comprehensive loss using the most recently available earnings data at the end of the period.

Union Ventures Limited purchase of Mission-Media Holdings Limited

On ~~May 21, 2021,~~August 1, 2022, Troika-Mission Holdings, Inc., (“TM Holdings"), a subsidiary of the Company, entered into an Equity Purchase Agreement with Union Ventures Limited, a company organized under the law of England and Wales ("UVL"). UVL is a company owned by Union Investments Management Limited, which is a stockholder of the Company and

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affiliated with Daniel Jankowski, a former director of the Company, and Thomas Ochocki, a current Director of the Company. UVL purchased from TM Holdings, all of TM Holdings’ right, title, and interest in and to the shares (the "Mission UK Shares") of Mission-Media Holdings Limited, a private limited company incorporated under the laws of England and Wales (“Mission Holdings”), including Mission UK’s subsidiary, Mission-Media Limited, a company organized under the laws of England and Wales (“Mission Media UK”). As consideration for all the Mission UK Shares, UVL paid TM Holdings an aggregate purchase price of $1,000 USD. Mr. Ochocki recused himself from the decision to sell the Mission UK Shares to UVL.

Union Eight Limited and Mission Media Limited

On July 1, 2021 Mission Media UK entered into a Consultancy Agreement with Service Company (the “U8L Consultancy Agreement”) with Union Eight Limited (“U8L”) in which U8L agreed to interface with investors and provide strategic advice related to Mission Media UK in exchange for a start-up fee of £150,000 and a monthly retainer of £25,000. In 2022, the U8L Consultancy Agreement was terminated prior to the expiration of its 2-year term in exchange for a termination payment. U8L is a current stockholder of the Company and is affiliated with Thomas Ochocki, a current director of the Company and former director of Mission Media UK. Daniel Jankowski, a former director of the Company and Mission Media UK, is also affiliated with U8L. U8L was also granted Company Restricted Stock Units.

Ochocki Director Letter

In connection with the subscription for Company shares by Mr. Peter Coates, the Company executed an agreement with Mr. Coates dated May 5, 2017 agreeing that for so long as Mr. Coates (or any of his family members, trusts, or investment vehicles) or Mr. Ochocki owns any shares in the Company, Mr. Ochocki will serve as a director of the Company as Mr. Coates’ designee.

See also "Subsequent Events" below for a discussion on the Areté Engagement Letter (as defined below).

NOTE 13. Income Taxes

On each of June 30, 2023, and December 31, 2022, the accompanying condensed consolidated balance sheets include a tax liability of $0.1 million included on the condensed consolidated balance sheets within accrued expenses. The Company recorded income tax expense of $0.1 million for the three and six months ended June 30, 2023 and 2022.

The Company's tax rate differs from the statutory rate of 21.0% due to ~~acquire~~ the ~~assets~~effects of state taxes, effects of permanent nondeductible expense, and ~~specific liabilities~~valuation allowance. The Company's utilization of ~~fintech platform Redeeem, LLC~~its NOL generated post December 31, 2017 is expected to be limited to eighty (80%) percent of taxable income.

See Note 17 to the consolidated financial statements for ~~$2.6 million consisting of $1.2 million~~the transition period ended December 31, 2022, included in ~~cash, $166,000 in specific liabilities,~~Item 8. Financial Statements and ~~$1.2 million~~Supplementary Data of the Company’s ~~common stock. In addition,~~Transition Report on Form 10-KT.

NOTE 14. Subsequent Events

Senior Secured Facility

On July 14, 2023, the Company and Blue Torch entered into a second amendment to the First A&R Limited Waiver (the “Second Amendment to First A&R Limited Waiver”) pursuant to which Blue Torch agreed to ~~provide equity~~extend the Outside Date from July 14, 2023, to ~~its employees~~July 28, 2023, subject to potential extension if a definitive written agreement was delivered on or prior to July 28 2023 providing for cash repayment in full of all obligations owed to Blue Torch or which was otherwise acceptable to Blue Torch.

On July 28, 2023, the Company and Blue Torch entered into the third amendment to the First A&R Limited Wavier (the “Third Amendment to First A&R Limited Waiver”) pursuant to which Blue Torch agreed to extend the Outside Date from July 28, 2023, to August 28, 2023, subject to potential extension if a definitive written agreement was delivered on or prior to August 28, 2023 providing for cash repayment in full of all obligations owed to Blue Torch or which was otherwise acceptable to Blue Torch.

On August 22, 2023, the Company and Blue Torch entered into a fourth amendment to the First A&R Limited Waiver effective as of August 18, 2023 (the “Fourth Amendment to First A&R Limited Waiver”) pursuant to which Blue Torch agreed to extend the Outside Date from August 28, 2023 to September 29, 2023, subject to potential extension if a

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definitive written agreement is delivered on or prior to September 29, 2023 providing for cash repayment in full of all obligations owed to Blue Torch or which is otherwise acceptable to Blue Torch.

On September 22, 2023, the Company and Company Subsidiaries entered into the First Amendment to Financing Agreement (the "First Amendment to Financing Agreement”) with Blue Torch and the Lenders. The First Amendment to Financing Agreement amends the Financing Agreement by adding provisions for the use of secured overnight financing rate loans in place of LIBOR rate loans.

On September 29, 2023, Blue Torch and the Company entered into a Second Amended and Restated Limited Waiver (the “Second A&R Limited Waiver”) of certain Specified Events of Default under the Financing Agreement, as amended by the First Amendment. The Second A&R Limited Waiver amends and restates the First A&R Limited Waiver. The Company and Blue Torch entered into the Second A&R Limited Wavier to, among other things, (i) waive certain Specified Events of Default including any failure of the Company to make the quarterly principal and interest payments due to be ~~vested over three years valued at $9,680,000 representing 3,623,433 shares~~paid on or about September 30, 2023 under the Financing Agreement; and (ii) extend the Outside Date. The Second A&R Limited Waiver will expire on the earliest of (x) the occurrence of an Event of Default under the Financing Agreement that is not a Specified Event of Default, (y) a failure by the Company to comply with certain sale and refinancing milestones set forth in a side letter agreed by the Company and the Lenders and (z) a revised Outside Date of October 13, 2023 (the “Current Waiver Period”).

On October 13, 2023, the Company and Blue Torch entered into the first amendment to the Second A&R Limited Waiver effective as of October 13, 2023 (the “First Amendment to Second A&R Limited Waiver”) pursuant to which Blue Torch agreed to extend the Outside Date from October 13, 2023 to October 20, 2023. The Company is currently in negotiations with Blue Torch to extend the Outside Date.

The Second A&R Limited Waiver concerns events of default that relate to the Company’s ~~common stock at conversion price of $2.6715 per share. Given~~existing and anticipated failures to satisfy certain financial and non-financial covenants under the ~~equity is contingent on the employees being employed and are vested over three years,~~Financing Agreement. If the Company is ~~treating this as deferred compensation~~unsuccessful in curing the continuing events of default by the expiration of the Current Waiver Period, the Company intends to seek further extensions of the Current Waiver Period with Blue Torch and the ~~expenses are recorded~~Lenders, although we cannot assure you that Blue Torch and the Lenders would be willing to grant extensions. If the Company failed to obtain an extension, the Company would be in default under the Financing Agreement and the Lenders would be able to exercise remedies available to them under the Financing Agreement. Any such action would likely have a material adverse effect on the Company and its financial condition.

The foregoing summaries do not purport to be complete and is subject to, and qualified in its entirety by, the Second Amendment to First A&R Limited Waiver, the Third Amendment to First A&R Limited Waiver and Fourth Amendment to A&R Limited Waiver filed with our Current Reports on Form 8-K filed with the SEC on July 17, 2023, July 28, 2023 and August 28, 2023, respectively, the First Amendment to Financing Agreement filed with our Current Reports on Form 8-K filed with the SEC on September 27, 2023, the Second A&R Limited Waiver filed with our Current Reports on Form 8-K filed with the SEC on October 4, 2023 the First Amendment to Second A&R Limited Waiver filed with our Current Reports on Form 8-K with the SEC on October 18, 2023.

Converge Sellers

On July 17, 2023, the Converge Sellers in their capacities as the ~~equity is vested. The vested portion~~sellers of ~~the deferred compensation was charged to additional paid-in capital and the expenses are recorded as stock-based compensation~~

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

~~-28-~~

~~Table of Contents~~

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:

	~~2022~~	~~2021~~
~~Volatility - range~~	~~63.6% - 64.0%~~	~~63.5% - 66.5~~
~~Risk-free rate~~	~~0.87% - 2.42%~~	~~0.2% - 0.5%~~
~~Contractual term~~	~~4.0 – 5.0 years~~	~~4.0 - 5.0 years~~
~~Exercise price~~	~~$0.84 - $1.24~~	~~$0.75 - $3.75~~

~~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

~~-29-~~

~~Table of Contents~~

~~The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants~~complaint (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

~~-30-~~

~~Table of Contents~~

~~2017 EQUITY INCENTIVE PLAN~~

~~On June 13, 2017, the Board adopted and approved an amendment to the~~caption Carrano et al. v. Troika Media Group, Inc. ~~2015 Employee, Director~~ and ~~Consultant Equity Incentive Plan~~CD Acquisition Corporation,Case No. 653449/2023 (the ~~“Equity Plan”~~“Action”), in the Supreme Court of the State of New York, New York County against the Company and CD (together, the “Defendants”). On August 8, 2023, Mr. Toama, who was Chief Executive Officer of the Company, withdrew from 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 ~~change~~evaluate, investigate, review, and analyze the ~~name from M2 nGage Group, Inc. to Troika Media Group, Inc., in order to attract, motivate, retain,~~facts and ~~reward high-quality executives and other employees, officers, directors, consultants, and other persons who provide services~~circumstances surrounding the Action.

Although the results of litigation and claims cannot be predicted with certainty, the Company ~~by enabling such persons~~currently believes that a negative final outcome of this matter could have a material adverse effect on its business, operating results, financial

-28-

condition or cash flow. Nothing in this Quarterly Report on Form 10-Q shall be deemed an admission of liability in respect of the Action.

Departure of Chief Executive Officer and Chief Financial Officer and appointment of Interim Chief Executive Officer and Interim Chief Financial Officer

On August 14, 2023, the Company terminated the employment of Mr. Toama, its former Chief Executive Officer, for “Cause,” pursuant to ~~acquire an equity interest~~the terms of his employment agreement. Mr. Toama was deemed to have resigned from the Board immediately upon his termination, pursuant to the terms of his employment agreement. The Company has also terminated the employment of Erica Naidrich, its former Chief Financial Officer, for “Cause,” pursuant to the terms of her employment agreement. The Board determined that “Cause” existed to terminate the employment of Mr. Toama and Ms. Naidrich pursuant to the terms of their respective employment agreements, including, among other things, for engaging in acts of gross misconduct that are materially injurious to the Company. ~~Under~~

Effective August 14, 2023, the ~~Plan, the Board (or the compensation committee~~Company appointed Grant Lyon, a current member of the Board, ~~if one is established) may award stock options, either stock grant of shares~~as the Company’s Interim Chief Executive Officer and Eric Glover as the Company’s Interim Chief Financial Officer. The Company entered into an engagement letter (the “Areté Engagement Letter”) with Areté Capital Partners, LLC (“Areté”), a consulting firm founded and owned by Mr. Lyon pursuant to which Areté will make Messrs. Lyon and Glover available to serve as the Interim Chief Executive Officer and Interim Chief Financial Officer, respectively. The foregoing summary of the ~~Company’s common stock, incentive stock option under IRS section 422 (“ISO’s”) or~~Areté Engagement Letter does not purport to be complete and is subject to, and qualified in its entirety by the Areté Engagement Letter filed with our Current Reports on Form 8-K filed with the SEC on August 15, 2023.

Both Mr. Toama and Ms. Naidrich have disputed whether they were properly terminated for "Cause".

Notice of Non-Compliance

On August 22, 2023, the “Company received a ~~non-qualified stock option (“Non-ISO’s”) (collectively “Options”~~delinquency notification letter from Nasdaq stating that the Company was not in compliance with Nasdaq Listing Rule 5250(c)(1) because it had not timely filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the “Q2 2023 Form 10-Q”). ~~The Plan allocates 3,333,334 shares~~Nasdaq has informed the Company that the Company must submit a plan of compliance (the “Plan”) within sixty (60) days (the "Plan Deadline") addressing how it intends to regain compliance with Nasdaq’s listing rules or otherwise file the ~~Company’s common stock (“Plan Shares”) for issuance~~Q2 2023 Form 10-Q before the expiration of ~~equity awards under the Plan. As of March 31, 2022,~~such sixty (60) day period. Because the Company has ~~granted,~~filed this Quarterly Report on 10-Q for the quarter ended June 30, 2023 before the Plan Deadline, the Company will not be required to submit a Plan to Nasdaq by the Plan Deadline.

MRG

On July 26, 2023, the Company informed MRG of its intent to cease all future business with MRG. It is expected that the Company will be able to source the same services from alternative vendors and that current orders with MRG will be completed by mid-October 2023.

Resignation of Thomas Marianacci

On September 28, 2023, Thomas Marianacci submitted his resignation to the Company. Mr. Marianacci claims to have resigned with "Good Reason" under the ~~Plan, awards in the form~~terms of ~~NQSO’s for all 3,333,334 shares.~~

~~2021 EQUITY INCENTIVE PLAN~~

his employment agreement. The Company does not agree and views Mr. Marianacci's resignation as voluntary.

2023 Incentive Plan

On October ~~28, 2021,~~18, 2023 the ~~Board adopted, and a majority of outstanding shares subsequently~~Company approved the ~~2021 Employee, Director & Consultant Equity~~2023 Incentive Plan, ~~(the “2021 Plan”). The prior Equity Plan did not have any remaining authorized shares. The 2021 Plan~~which is ~~intended to attract and retain employees, directors and consultants, to involve them to work for the benefit of the Company or its affiliated entities, and~~designed to provide ~~additional incentive~~financial and equity incentives to reward employees for ~~them~~performance that will be critical to ~~promote the Company’s success. The 2021 Plan provides for the award of stock options, either incentive stock options (ISOs) or non-qualified stock options (NQSOs), restricted shares~~build a profitable business and ~~restricted stock units (RSUs). The 2021 Plan authorized 12,000,000 shares of Common Stock for the issuance of awards under the 2021 Plan.~~drive value to shareholders. As of the date of this report, ~~an aggregate of 4,400,000 RSUs had~~no equity has been ~~awarded to executive officers and directors and 4,200,000 RSUs had been awarded to employees.~~

~~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.~~

~~-31-~~

~~Table of Contents~~

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

~~-32-~~

~~Table of Contents~~

~~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

~~-33-~~

~~Table of Contents~~

~~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 )

~~-34-~~

~~Table of Contents~~

~~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

~~-35-~~

~~Table of Contents~~

~~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.

~~-36-~~

~~Table of Contents~~

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.

~~-37-~~

~~Table of Contents~~

plan.

-29-

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

The following management’s discussion and analysis should be read in conjunction with the Company’s ~~historical~~condensed consolidated financial statements and the related notes thereto included in ~~our audited financial statements for the year ended June 30, 2021, and the notes thereto (the “Form 10-K”).~~this Quarterly Report on Form 10-Q. The management’s discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and ~~uncertainties, such~~uncertainties. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends, or results as ~~statements~~ of ~~our plans, objectives, expectations and intentions. Any statements that~~the date they are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements.made. These forward-looking statements can be identified by the use of terminology such as “anticipate,” “believe," "estimate," "expect," "intend," "project," "will," or the negative thereof or other variations thereon or comparable terminology. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results ~~or events~~ to differ materially from ~~those~~any future results expressed or implied by the forward-looking ~~statements in this quarterly report. The Company’s~~statements. Many factors could cause our actual activities or results ~~and the timing of events could~~to differ materially from ~~those~~the activities and results anticipated in ~~these~~ forward-looking ~~statements~~statements. These factors include those contained in this and our other Quarterly Reports on Form 10-Q, as ~~a result~~well as the disclosures made in the Company's Transition Report on Form 10-KT for the transition period ended December 31, 2022 filed on March 7, 2023 (as amended, the "2022 Form 10-KT") including without limitation, those discussed in Item 1A. "Risk Factors." in part I. of ~~several factors. The Company does~~the 2022 Form 10-KT, and other filings we make with the Securities and Exchange Commission (the "SEC"). We do not undertake any obligation to update forward-looking statements, toexcept as required by law. These forward-looking statements are only predictions and reflect ~~events or circumstances occurring after~~our views as of the date ~~of this quarterly report.~~

~~Critical Accounting Policy & Estimates~~

~~Our Management’s Discussion~~they are made with respect to future events and ~~Analysis of Financial Condition and~~financial performance.

Factors Affecting Results of Operations ~~section discusses~~

Seasonality

The revenue in our ~~financial statements, which have been prepared in accordance with accounting principles generally accepted~~three and six months ended June 30, 2023, is reflective of the seasonality in the ~~United States of America. The preparation of these financial statements requires management~~business which is driven by our sector and revenue stream mix where we typically see lower customer acquisition investments (in relative terms) by our clients in Q1 and Q4.

Restructuring Programs

During the year ended June 30, 2022 the Company initiated an intensive, what was expected to ~~make estimates and assumptions that affect~~be a year long organizational restructuring program in order to fully optimize the ~~reported amounts of assets and liabilities at the date~~operations of the ~~financial statements~~post-acquisition consolidated company. The restructuring program resulted in costs not expected to recur that were incurred primarily for (1) workforce reductions of over 100 employees across multiple business functions and ~~the reported amount of revenues~~subsidiaries, (2) abandoned or excess facilities relating to lease terminations and ~~expenses during the reporting period.~~

~~On an ongoing basis, management evaluates its estimates~~non-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 of~~charges, which ~~form the basis for making judgments about the carrying value of assets and liabilities that~~include but are not ~~readily apparent from other sources.~~

~~Actual results may differ from these estimates under different assumptions~~limited to legal fees, regulatory/compliance expenses, and ~~conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as~~contractual 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 incorporated~~Quarterly Report on Form 10-Q for discussions on restructuring charges.

During the six months ended June 30, 2023 the Company leveraged the previously completed restructuring effort to begin the latter phases of its organizational restructuring which included various efforts related to the recapitalization of its Balance Sheet. On February 22, 2023 the Company announced that it retained leading Investment Banking firm Jefferies to assist in ~~Nevada~~optimizing its capital structure and to explore strategic alternatives. Last quarter, the Company announced that it had executed the First A&R Limited Waiver with Blue Torch to provide the Company with time to explore different avenues and opportunities to enhance stockholder value. We continue to explore our options with Blue Torch and have extended the waiver through October _20, 2023. See Note 8 to the condensed consolidated financial statements included in ~~2003. The~~“Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions on the Blue Torch financing.

Additionally, on March 31, 2023, the Company ~~is a transatlantic agency focusing on branding, digital marketing~~ and ~~performance media services, using actionable intelligence across all broadcast digital media and live experiences. On June 12, 2017, we commenced our current operations upon~~certain former Series E Holders entered into the ~~merger with Troika Design Group, Inc., a strategic brand consultancy with deep expertise in entertainment media, sports, consumer goods and service brands. On June 29, 2018, we acquired all~~Series E Settlement Agreements. Under the terms of the ~~equity interests~~Series E Settlement Agreements, the parties thereto agreed to terminate the Series E Registration Rights Agreement and the Series E Purchase Agreement and all rights respectively thereunder (other than certain rights surviving under the Series E Registration Rights Agreement, to which all Series E Holders continue to be equally entitled) and to release any and all claims for liquidated damages under the Series E Registration Rights Agreement, in exchange for shares of ~~Mission Culture LLC and Mission Media Holdings Limited, a company headquartered~~Common Stock in ~~London, with North American operations since 2009, as a brand experience and communications agency that specializes~~the amounts set forth in ~~consumer immersion through a cultural lens, via live experiences, brand partnerships, public relations and social and influencer engagement. On May 21, 2021, we acquired substantially all~~the Settlement Agreements. See “Item 1A Risk Factors” of the ~~assets of Redeeem LLC (n/k/a Troika IO, Inc.), a peer-to-peer NFT blockchain exchange founded~~2022 Form 10-KT for additional detail on certain risks associated with the Settlement Agreements and the Resale Registration Statement filed in ~~2018. On March 22, 2022, we completed~~connection therewith.

-30-

The Corporate restructuring program, the ~~acquisition of Converge Direct, LLC~~Blue Torch financing matters, and ~~affiliates, a leading independent performance marketing~~the Series E Equity matters have contributed to additional expenses for the Company such as costs for professional fees, legal and ~~managed services business providing to customer acquisition services utilizing a broad range of engagement channels~~financial experts, special board committee members and other costs that are not in the ~~digital, offline and emerging media sectors.~~

~~The Impact~~ordinary 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) as~~Company 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 as~~debt service and stabilize its capital structure. These costs are primarily recorded within selling, general and administrative costs, unless otherwise specified, within the ~~imposition~~Condensed Consolidated Statements of ~~social distancing~~Operations.

-31-

RESULTS OF OPERATIONS

Comparison of the three months ended June 30, 2023 to the three months ended June 30, 2022.

The table below sets forth, for the periods presented, certain historical financial information (in thousands):


	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)	%

Revenue


	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)	%

Revenues for the three months ended June 30, 2023 were approximately $58.7 million, a decrease of approximately $26.7 million from the comparable prior year period. The decrease in the current year period was attributable to a decrease in the managed services 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 strategyperformance solutions revenue streams, and the ~~relevance~~absence of ~~our~~other revenue.

The decrease in managed services ~~including~~revenue of approximately $17.3 million was primarily the ~~longevity~~result 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.

~~-38-~~

~~Table of Contents~~

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 Mission~~insurance 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 ~~effects~~result 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 employees~~decrease in legal services clients was driven by an increase in competition to ~~reflect current reduced demands associated~~acquire 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.

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Costs of revenue

For the three months ended June 30, 2023, cost of revenues was approximately $52.9 million, a decrease of approximately $15.0 million, as compared to the comparable prior year period. The cost of revenues decline is related to decreases in spend from managed services revenue stream of approximately $16.5 million and was partially offset by increased spend in performance solutions revenue stream of approximately $2.5 million and the absence of approximately $0.6 million of other cost of revenues. The decrease in spend as it related to managed services is discussed above in the revenue discussion. The net increase in performance solutions spend is due to an increase in competition to acquire leads, which lead to higher media costs by the Company.

Gross profit

For the three months ended June 30, 2023, gross profit was approximately $5.7 million, a decrease of approximately $11.7 million, as compared to the prior year period. Gross profit of approximately $5.7 million was comprised of approximately $2.3 million and $3.4 million, related to the managed services and performance solutions revenue streams, respectively. As performance solutions require spend commitments by the company with ~~those client sets. However,~~no guarantee on the amount of revenue generated, underperformance in a certain campaign or medium can cause a disproportionate decline to gross profit. Managed services gross profit is derived on a fixed fee and/or commission basis and does not have a direct correlation to decreases or increases in revenue.

The decline in gross profit generated from the performance solutions revenue stream of approximately $4.1 million was primarily attributable to legal and home services clients. The decrease in gross profit amongst legal clients was a result of increased competition to acquire leads, which increased our spend on a cost per lead basis and compressed margin as compared to the prior period. The decrease in gross profit related to home services clients was driven by a decline in response rates and higher customer acquisition costs, which were partially offset by our ability to diversify home services revenues with more stable margins.

The decline in gross profit generated from the managed services revenue stream of approximately $2.3 million was primarily attributable to the ~~first~~decreased spend by the insurance sector clients.

Selling, general, and ~~second quarters of calendar 2021, we started~~administrative expenses

For the three months ended June 30, 2023, selling, general, and administrative expenses decreased approximately $1.9 million, to ~~see business dramatically improve. As cities have commenced openings with~~$12.1 million, as compared to the ~~improvement of vaccines distribution~~prior year period. The decrease in selling, general, and infection rates declining, our client activities have doubled and there is a real optimism that the economic conditions are improving. Sports, Entertainment, Pharma clients are contracting our services across all entities at rates similar to 2019.

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 operations~~personnel 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.

Selling, general, and administrative expenses during the three months ended June 30, 2023, contained certain non-recurring, one-time costs associated with the Company's efforts in reducing its debt service and stabilizing its capital structure. These one-time costs included approximately $2.7 million related to bonuses, approximately $3.4 million related to legal and consulting fees, approximately $0.3 million related to other financing matters, approximately $0.1 million related to the reverse stock split, and approximately $0.2 million related to Board of Director fees for the Special Committee. These amounts were included in the adjusted EBITDA calculation below.

The decrease in personnel costs of approximately $2.1 million was primarily driven by a decrease in employee compensation and benefits of approximately $1.2 million, related to the decrease in headcount since the prior year, the decrease of approximately $0.8 million in stock-based compensation expense, and the decrease of approximately $0.1 million in non-recurring bonuses during the quarter.

The decrease in miscellaneous selling, general, and administrative expenses of approximately $1.1 million was primarily driven by the absence of approximately $0.7 million in business acquisition costs and other miscellaneous costs related to the Converge Acquisition in the prior year period. Additionally, there was a decrease of approximately $0.4 million in corporate tax expenses, which was mainly driven by a decrease in sales tax costs.

-33-

The increase in professional fees of approximately $1.4 million as compared with the prior period was primarily driven by an increase in legal and consulting fees of approximately $1.9 million. These increased fees were driven by the Company's efforts in organizational restructuring, optimization of its capital structure, and exploration of strategic alternatives. This increase was offset by a decrease of approximately $0.5 million in audit and accounting fees as a result of higher audit and advisory fees in the prior year period related to the Converge Acquisition.

The increase in public company costs of approximately $0.3 million as compared to the prior period were primarily driven by the increase in Board of Director fees.

Depreciation and amortization

For the three months ended June 30, 2023, depreciation and amortization expense decreased approximately $0.2 million, to approximately $2.1 million, as compared to the prior year period. The decrease was primarily attributable to the absence of depreciation and amortization expense of the Troika, Mission, and Redeeem entities as a result of the ~~impact~~impairment of ~~COVID-19, we obtained relief under~~their intangible assets and write-off of fixed assets during the ~~CARES Act~~fiscal year ending June 30, 2022 and transition period ending December 31, 2022.

Restructuring and other related charges

For thethree months ended June 30, 2023, the Company recorded credits of approximately $0.3 million, a decrease of approximately $5.9 million as compared to the prior year period. The decrease was primarily driven by the absence of severance related charges of approximately $3.2 million, which was inclusive of credits related to employee severance and benefit payments of approximately $0.3 million and $0.3 million related to a reclassification of future severance payments to selling, general, and administrative expenses, and driven by settlement charges of approximately $3.3 million in the ~~form~~prior year period, partially offset by legal fees of ~~a Small Business Administration backed loans. In aggregate we received $1.7~~approximately $0.6 million in ~~SBA stimulus “Payroll Protection Program” funding~~the current year period. See Note 7 to the condensed consolidated financial statements included in ~~April 2020~~“Part I — Item 1. Financial Statements” of ~~which~~this Quarterly Report on Form 10-Q for discussions on the ~~majority of these funds were used for payroll. As per the US Government rules, the funds used for payroll, healthcare benefits,~~restructuring program.

Impairment 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.

~~See, Risk Factors Related to the COVID-19 Virus and Pandemic Response in General~~

~~RESULTS OF OPERATIONS~~

(losses) gains, net

For the three months ended ~~March 31,~~June 30, 2022, ~~compared~~impairment and other (losses) gains, net of approximately $8.9 million were a result of impairment charges of approximately $9.2 million, offset by other gains of approximately $0.3 million. The impairment charges of $9.2 million included goodwill impairment charges of approximately $6.7 million from Mission UK as a result of the Sale Agreement entered into on August 1, 2022, goodwill impairment charges of approximately $2.0 million related to the ~~three months ended March 31, 2021.~~

~~Our revenues~~Redeeem 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.

Interest expense

For the three months ended June 30, 2023, interest expense increased approximately $0.7 million to approximately $3.4 million, as compared to the prior year period. The increase during the three month period is related to rising interest rates (15.83% compared to 9.50% as of June 30, 2023 and June 30, 2022, respectively and the addition of a two (2%) percent default interest fee that began October 2022) primarily related to the Company's Senior Secured credit facility, which was entered into in March ~~31,~~ 2022 to finance the Converge Acquisition (see "Liquidity and ~~2021 were $15,685,000 and $3,854,000 respectively,~~Capital Resources - Financing Agreements"). See Note 8 – Credit Facilities to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for more information on the Company's Credit Facility.

Miscellaneous expense

For the three months ended June 30, 2023, miscellaneous expense decreased approximately $1.3 million to approximately $0.7 million, as compared to the prior year period. The decrease in expense during the three months ended was primarily related to the absence of approximately $3.6 million in liquidated damages expense, the absence of approximately $1.3 million in other gains, the absence of approximately $0.4 million related to the gain on the remeasurement of derivative liabilities, offset by an increase of approximately ~~$11,831,000 or 307.0%. This increase is overwhelming attributable~~$0.6 million in other expenses.

-34-

Comparison of the six months ended June 30, 2023 to the six months ended June 30, 2022.

The table below sets forth, for the periods presented, certain historical financial information. The six months ended June 30, 2022, includes Converge activity from the acquisition ~~of Converge Direct LLC and affiliates on~~date March 22, 2022 who recognized a total of $10,053,000 in revenue. The other $1,778,000 increase in revenue is the result of the generation of new business at the US subsidiary of Mission-Media Holdings Limited ($1,172,000) and Troika Design ($325,000).

~~The costs of revenue exclusive of operating expenses~~to 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)	%

Revenue


	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	%

Revenues for the ~~three~~six months ended ~~March 31, 2022 and 2021~~June 30, 2023, were ~~$11,738,000 and $1,941,000 respectively,~~approximately $117.7 million, an increase of ~~$9,797,000, or 504.7%.~~approximately $16.7 million as compared to the prior year period. The net increases in managed services and performance solutions revenues were driven primarily by the timing of the Converge Acquisition on March 21, 2022 in the prior year period. These increases were partially offset by decreased reimbursable revenue in our managed services revenue stream generated by our insurance sector customers, coupled with a decrease in other revenue related to Troika and Mission subsidiaries.

Costs of revenue

For the six months ended June 30, 2023, cost of revenue increased by approximately $23.5 million to approximately $103.2 million, as compared to the prior year period. The increase was driven by the timing of the Converge Acquisition on March 21, 2022 in the prior year period. This increase ~~is also attributable~~was slightly offset by a decrease in spend related to certain managed service customers and in other cost of revenue related to Troika and Mission subsidiaries.

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Gross profit

For the six months ended June 30, 2023, gross profit decreased approximately $6.9 million to approximately $14.5 million, as compared to the prior year period. The decrease is primarily due to margin compression as a result of lower response rates, higher customer acquisition costs and the absence of ~~Converge Direct LLC~~other revenue and ~~affiliates who recognized a total~~cost of ~~$9,232,000~~revenues as discussed above. The absence of gross profit on the legacy Troika subsidiaries also had an impact in ~~costs of revenue.~~the current year periods. The ~~remaining $565,000 increase~~decrease in ~~costs of~~margin related to managed service was less impactful despite the significant decrease in managed services revenue isduring the three and six month periods, due to the ~~US subsidiary~~proportion of ~~Mission-Media Holdings Limited which experienced~~revenue generated that is largely reimbursable costs.

Selling, general, and administrative expenses

For the six months ended June 30, 2023, selling, general, and administrative expenses decreased approximately $8.1 million, to approximately $23.1 million, as compared to the prior year period. The decrease in selling, general, and administrative expenses was primarily driven by decreases from the prior year period in personnel costs of approximately $10.0 million, decrease in miscellaneous selling, general, and administrative costs of approximately $1.0 million, and a decrease in travel and entertainment costs of approximately $0.2 million. These decreases were offset by an increase from the prior period in professional fees of ~~$496,000~~approximately $2.1 million, an increase in public company costs of ~~revenue directly correlated to servicing the aforementioned~~approximately $0.9 million, and an increase in ~~revenue~~office expenses of $0.1 million.

The decrease of approximately $10.0 million in personnel costs was primarily driven by a $10.2 million decrease in stock-based compensation expense related to the Redeeem disposition and restricted stock units granted to executives during 2022, coupled with a decrease of approximately $0.7 million in employee compensation, inclusive of employee-related benefits, taxes and fees related to the decrease in headcount from the prior year. These decreases were offset by non-recurring employee and executive retention bonuses granted during the current period of approximately $0.9 million.

The decrease in miscellaneous selling, general, and administrative expenses of approximately $1.0 million was primarily driven by a decrease of approximately $0.8 million in business acquisition costs and other miscellaneous costs related to the Converge Acquisition and a decrease of approximately $0.2 million in corporate tax expenses.

The increase in professional fees of approximately $2.1 million was driven by increases of approximately $2.6 million in consulting fees, and approximately $0.4 million in legal fees, related primarily to the Company's efforts in organizational restructuring, optimization of its capital structure, and exploration of strategic alternatives. These increases were partially offset by a decrease of approximately $0.9 million in audit and accounting fees as a result of higher audit and advisory fees related to the Converge Acquisition in the prior year period.

The increase of approximately $0.9 million in public company costs were partially driven by the increase in Board of Director fees of approximately $0.4 million. The remaining increase in public company costs was driven by an increase in legal fees related to public company compliance matters of approximately $0.3 million and an increase in other public company costs, including software costs, of approximately $0.2 million.

Selling, general, and administrative expenses during the six months ended June 30, 2023, contained certain non-recurring, one-time costs associated with the Company's efforts in reducing its debt service and stabilizing its capital structure. These one-time costs included approximately $2.8 million related to personnel costs, approximately $5.8 million related to legal and consulting fees, approximately $0.6 million related to other financing matters, approximately $0.1 million related to the reverse stock split costs, and approximately $0.5 million related to additional Board of Director fees for the Special Committee. These amounts were included in the adjusted EBITDA calculation below.

Depreciation and amortization

For the six months ended June 30, 2023, depreciation and amortization expense increased approximately $1.4 million to approximately $4.1 million, as compared to the prior year period. The ~~gross profit margin for~~increase was primarily attributable to higher amortization expense in the ~~three~~current six month period related to intangible assets purchased through the Converge Acquisition.

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Restructuring and other related charges

For thesix months ended ~~March 31,~~June 30, 2023, the Company recorded restructuring credits of approximately $0.1 million, a decrease of approximately $5.7 million as compared to the prior year period. The decrease was primarily driven by decreases in severance related charges of approximately $3.0 million, which was inclusive of credits related to employee severance and benefit payments of approximately $0.3 million and approximately $0.3 million related to a reclassification of future severance payments to selling, general, and administrative expenses and settlement charges of approximately $3.3 million. These decreases were partially offset by approximately $0.6 million in charges for legal expenses. See Note 7 to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions on the restructuring program.

Impairment and other (losses) gains, net

For the six months ended June 30, 2022, impairment and ~~2021 decreased to 25.2%~~other (losses) gains, net of approximately $8.9 million were a result of impairment charges of approximately $9.2 million, partially offset by other gains of approximately $0.3 million. The impairment charges of approximately $9.2 million included goodwill impairment charges of approximately $6.7 million from ~~49.6%~~Mission UK as a result of the ~~acquisition~~Sale Agreement entered into on August 1, 2022, goodwill impairment charges of ~~Converge Direct LLC~~approximately $2.0 million related to the Redeeem entity, and ~~affiliates which,~~impairment charges of intangible assets of approximately $0.4 million related to the Redeeem entity. The other gains consisted of approximately a $0.2 million gain on rent abatement. There were no such amounts recorded for the six months ended June 30, 2023.

Interest expense

For the six months ended June 30, 2023, interest expense increased approximately $4.0 million to approximately $6.9 million, as ~~anticipated, recognized a gross profit margin of 8.2%. Excluding Converge Direct LLC and affiliates, the gross profit margin increased slightly~~compared to ~~55.5% from 49.6% from~~ the prior period.

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~~Table of Contents~~

The ~~operating costs for~~increase 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 increase~~the addition of ~~$10,089,000 or 134.1%. The driver of this increase was the recognition of $8,110,000~~a two (2%) percent default interest fee that began in ~~stock-based compensation~~October 2022) primarily related to the ~~vested share~~Company'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 issued~~this Quarterly Report on Form 10-Q for more information on the Company's Credit Facility.

Miscellaneous expense

For the six months ended June 30, 2023, miscellaneous expense decreased approximately $1.9 million to approximately $0.6 million, as ~~incentive compensation~~compared to ~~executive officers, directors and employees not recognized in~~ the prior period. ~~Additional drivers of this increase was an increase of $2,441,000~~The decrease in ~~professional fees and an increase of $204,000 in office expenses.~~

~~The Company recognized a $201,000 gain in derivative liabilities resulting from~~expense 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 three~~six 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.

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~~Table of Contents~~

~~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 capital~~2023, 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.

Adjusted Earnings Before Interest, Tax, Depreciation, and Amortization (“Adjusted EBITDA”)

The Company evaluates its performance based on several factors, of which the key financial measure is Adjusted Earnings Before Interest Taxes Depreciation & Amortization ("Adjusted EBITDA"). Adjusted EBITDA is defined as our net income (loss) before (i) interest expense, net (ii) income tax expense, (iii) depreciation, amortization, and impairments of property and equipment, goodwill and other intangible assets, (iv) stock-based compensation expense or benefit, (v) restructuring charges or credits, (vi) gains or losses on dispositions of businesses and associated settlements, and (vii) certain other non-recurring or non-cash items.

Management believes that the exclusion of stock-based compensation expense or benefit allows investors to better track the performance of the Company's business without regard to the settlement of an obligation that is not expected to be made in cash. Adjusted EBITDA and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company's performance. The Company uses revenues and Adjusted EBITDA measures as its most important indicators of its business performance, and evaluates managements effectiveness with specific reference to these indicators. Adjusted EBITDA should be viewed as a supplement to and not a substitute for net income (loss), cash flows from operating activities, and other measures of ~~$280,000 for~~performance and/or liquidity presented in accordance with GAAP. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, this measure may not be

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comparable to similar titles used by other companies. The Company has presented the ~~nine months ended March 31, 2021.~~

~~Non-GAAP Measures~~

components that reconcile net loss, the most directly comparable GAAP financial measure, to adjusting operating income (loss).

The following table sets forth the reconciliation of Net Income/(Loss), a GAAP measure, to Adjusted ~~Earnings Before Interest Taxes Depreciation~~EBITDA:

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 EBITDA of approximately negative $0.8 million for the three months ended June 30, 2023, decreased by approximately $7.4 million as compared with the prior year period of approximately $6.6 million. The decrease of approximately $7.4 million is primarily attributable to the decrease in gross profit of approximately $11.7 million. The Company improved its operating loss and net loss by approximately $5.3 million and $5.8 million, respectively, in the current period. These improvements are offset by the absence of one-time charges related to acquisition activities in the prior year period.

Adjusted EBITDA of approximately $1.4 million for the six months ended June 30, 2023, decreased by approximately $4.9 million from approximately $6.3 million, in the prior year period. The decrease of approximately $4.9 million is primarily attributable to a decrease in gross profit of approximately $6.9 million. The Company improved its operating loss and net loss by approximately $14.5 million and $12.3 million, respectively, in the current period. These improvements are offset by the decrease in restructuring activities, coupled with the absence of prior year period impairment charges, and partial liquidated damages costs incurred.

LIQUIDITY & ~~Amortization (“Adjusted EBITDA”)~~CAPITAL RESOURCES

Overview

Our primary sources of liquidity are cash, cash equivalents, and cash flows from the operations of our businesses. Our principal uses of cash include working capital-related items (including funding our operations), debt service, investments, and related loans and advances that we may fund from time to ~~Net Income (Loss):~~

~~Adjusted Earnings before Interest, Taxes, Depreciation~~time, and ~~Amortization (“Adj. EBITDA”):~~

liabilities from prior acquisitions. The ~~adjusted EBITDA metric is most helpful when used in determining~~Company’s use of its available liquidity will be based upon the ~~value~~ongoing review of the funding needs of the business, its view of a ~~company for transactions such as mergers, acquisitions~~favorable allocation of cash resources, and the timing of cash flow generation.

At the present time, we do not have arrangements to raise additional capital, and we may need to identify potential investors and negotiate appropriate arrangements with them. We may not be able to arrange enough investment within the time the investment is required or ~~raising capital.~~

~~The adjustments made~~that if it is arranged, that it will be on favorable terms. If we cannot obtain the needed

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capital, we may not be able to ~~a company’s EBITDA can vary quite a bit from one company~~become profitable and may have to curtail or cease our operations. Additional equity financing, if available, may be dilutive to the ~~next, but the goal is the same. Adjusting the EBITDA metric aims~~holders of our capital stock. Debt financing may involve significant cash payment obligations, covenants and financial ratios that may restrict our ability to ~~“normalize” the figure so that it is somewhat generic, meaning it contains essentially the same line-item expenses that any other, similar company in its industry would contain.~~

~~We believe that~~operate and grow our business.

Going Concern

The accompanying unaudited condensed consolidated financial statements ~~and~~of the ~~other financial data included,~~Company have been prepared assuming the Company will continue as a going concern and in accordance with GAAP. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern, the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its obligations as they become due within one year from the date that financial statements are issued. In performing this evaluation as of the date of the filing of this 10-Q, the Company has determined that the Company may not have sufficient liquidity under its cash flow forecasts to fund commitments for the twelve months following the date of the filing of this 10-Q.

The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

Cash Flow Discussion


	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

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2023, increased approximately $3.9 million to approximately $7.6 million, as compared to the prior period. The increase in operating cash used is largely attributable to an increase in payments for professional services related to exploring strategic alternatives partially offset by a decrease in net loss of approximately $12.3 million.This lead to positive cash flow of net $8.5 million.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2023, decreased by approximately $82.7 million to approximately $0.1 million as compared with the prior period. The decrease is a result of the absence of the cash paid in the prior year period related to the Converge acquisition.

Financing Activities

Net cash used in financing activities for the six months ended June 30, 2023, was approximately $1.9 million compared to net cash provided by financing activities of approximately $112.2 million for the prior period. The decrease of approximately $114.2 million in cash provided by financing activities in the current period was primarily due to the absence of net proceeds received from bank loan of $69.7 million and preferred stock of $44.4 million related to the Converge Acquisition.

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Financing Agreements

On March 21, 2022, the Company entered into the Financing Agreement. This $76.5 million Credit Facility was used in part to fund the purchase price of the Converge Acquisition, as well as, for working capital and general corporate purposes.

The Credit Facility provides for: (i) a Term Loan in the amount of $76.5 million; (ii) an interest rate of the LIBOR Rate Loan of three months; (iii) a four-year maturity amortized 5.0% per year, payable quarterly; (iv) a one (1.0%) percent commitment fee and an upfront fee of two (2.0%) percent of the Credit Facility paid at closing, plus an administrative agency fee of $250,000 per year; (v) a first priority perfected lien on all property and assets including all outstanding equity of the Company’s subsidiaries; (vi) 1.5% fully-diluted penny warrant coverage in the combined entity; (vii) mandatory prepayment for fifty (50%) percent of excess cash flow and 100% of proceeds from various transactions; (viii) customary affirmative, negative and financial covenants; (ix) delivery of audited financial statements of Converge; and (x) customary closing conditions. The Company agreed to customary restrictive covenants in the Credit Facility and leverage ratios, fixed charge coverage ratios, and maintaining liquidity of at least $6.0 million at all times.

On September 22, 2023, the Company and Blue Torch entered into the First Amendment to Financing Agreement by adding provisions for the use of secured overnight financing rate loans in place of LIBOR rate loans. See the Company’s Current Report on Form 8-K filed with the SEC on September 27, 2023, the contents of which are incorporated by reference herein.

The Company and each of its subsidiary Guarantors entered into the Security Agreement dated as of March 21, 2022, as a requirement with the Credit Facility. Each Guarantor pledged and assigned to the Collateral Agreement and granted the Collateral Agent with a continuing security interest in all Collateral and all proceeds of the Collateral. All equity of the Guarantors was pledged by the Borrower.

On March 21, 2022, each of the Company’s Subsidiaries, as Guarantors, entered into the ISA with the Collateral Agent. Under the ISA, each obligor agreed to the subordination of such indebtedness of each other obligor to such other obligations.

On March 21, 2022, the Company entered into the Escrow Agreement with Blue Torch and Alter Domus (US) LLC, as Escrow Agent. The Escrow Agreement provides for the escrow of $29.1 million of the $76.5 million proceeds, under the Credit Facility to be held until the audited financial statements of Converge Direct LLC and affiliates for the years ended December 31, 2020 and 2019, are delivered to Blue Torch, which were delivered during fourth quarter of fiscal year 2022. As of June 30, 2023, Blue Torch has not authorized the release of the funds in escrow.

Although the Company believes that the Converge Sellers’ recourse is 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.

At any time on or after March 21, 2022, and on or prior to March 21, 2026, the Lender have the right to subscribe for and purchase from the Company, up to 77,178 shares of Common Stock, subject to adjustment. The number was adjusted to 177,178 of common shares effective December 9, 2022. The exercise price per share of Common Stock under this Warrant shall be $.01 per share. If at any time when this Warrant becomes exercisable and a related Registration Statement is not in effect the Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise”.

The Company has made principal repayments aggregating to approximately $4.8 million through June 30, 2023, under the Financing Agreement. As of June 30, 2023, there was approximately $71.7 million principal and accrued interest outstanding under the Credit Facility's term loan.

In connection with the Credit Facility, the Company recorded deferred financing and issuance costs totaling approximately $9.2 million, including a $1.5 million upfront fee. The costs will be amortized over the life of the note using the effective interest rate method. During the three months ended June 30, 2023, the Company recorded approximately $0.6 million in amortization expense and made principal payments totaling approximately $1.0 million. During the three months ended June 30, 2022, the Company did not recognize amortization expense related to the note payable and did not make any principal payments.

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On October 14, 2022, Blue Torch and the Company entered into the Original Limited Waiver. The Original Limited Waiver was initially scheduled to expire on October 28, 2022, if not terminated earlier by Blue Torch, but the Original Waiver Period was subsequently extended through February 10, 2023 by the First Amendment to Limited Waiver to Financing Agreement dated as of October 28, 2022, the Second Amendment to the Limited Waiver to Financing Agreement dated as of November 11, 2022, the Third Amendment to the Limited Waiver to Financing Agreement dated as of November 25, 2022, the Fourth Amendment to the Limited Waiver to Financing Agreement dated as of December 9, 2022, the Fifth Amendment to the Limited Waiver to Financing Agreement dated as of December 23, 2022, the Sixth Amendment to the Limited Waiver to Financing Agreement dated as of January 13, 2023, and the Seventh Amendment to the Limited Waiver to the Financing Agreement dated January 31, 2023, and the Eight Amendment to the Limited Waiver to the Financing Agreement dated as of February 7, 2023.

On February 10, 2023, Blue Torch and the First A&R Limited Waiver of the Specified Events of Default under the Financing Agreement, which amended and restated the Original Limited Wavier. The First A&R Limited Waiver provided that, among other things, during the First A&R Waiver Period, the Company would comply with certain sale and refinancing milestones and refrain from engaging in any “Permitted Acquisition” under the Financing Agreement or making certain post-closing payments to Converge Sellers. The First A&R Limited Waiver would have expired on the earliest of (x) the occurrence of an Event of Default under the Financing Agreement that is not a Specified Event of Default, (y) a failure by the Company to comply with certain sale and refinancing milestones set forth in a ~~manner that complies, in all material respects, with generally accepted accounting principles~~side letter agreed by the Company and the Lenders and (z) June 30, 2023, subject to potential extension of up to sixty 60 days to obtain regulatory and/or shareholder approval in the ~~United States (“GAAP”~~event the Company is pursuing a sale transaction.

On April 14, 2023 and April 28, 2023, Blue Torch and the Company entered into the Extension Letters that extended the Applicable Milestones.

On May 8, 2023, the Company and Blue Torch entered into the First Amendment to First A&R Limited Waiver and an amended and restated letter agreement that, in each case, superseded the Prior Waiver Documents, and pursuant to which the Company affirmed its commitment to work in good faith to consummate a sale of the Company’s business or assets or a refinancing transaction before the expiration of the First A&R Waiver Period, and Blue Torch agreed to remove the Applicable Milestones and to extend the Outside Date from June 30, 2023 to July 14, 2023, subject to a potential extension if a definitive written agreement is delivered on or prior to July 14, 2023 that provides for cash repayment in full of all obligations owed to Blue Torch or which is otherwise acceptable to Blue Torch. In addition, under the First Amendment to the First A&R Limited Waiver, the Company agreed to pay Blue Torch an “exit fee” equal to five (5%)~~. However,~~ percent of the aggregate outstanding principal balance of the Company’s indebtedness with Blue Torch as of the date of the First Amendment to the First A&R Limited Waiver, plus accrued interest, subject to reduction or waiver if such Blue Torch indebtedness is repaid in full in cash by the dates specified therein. The foregoing summary does not purport to be complete and is subject to, and qualified in its entirety by, Amendment No. 1 to the A&R Limited Waiver attached as Exhibit 10.2 to this Quarterly Report on Form 10-Q. See also "Subsequent Events" of this Quarterly Report on Form 10-Q for a description of Amendments Two, Three, and Four to the First A&R Limited Waiver, the First Amendment to the Financing Agreement and the Second A&R Limited Waiver and the First Amendment to the Second A&R Limited Waiver.

Contractual Obligations

As of June 30, 2023, we had non-cancelable operating lease commitments of approximately $8.0 million, long-term debt with a $71.7 million principal balance, acquisition liabilities related to the Converge sellers of $9.3 million, liquidation damages related to the Preferred Series-E holders of $0.9 million, and restructuring liabilities of $0.1 million. For the three months ended June 30, 2023, the Company funded its operations using available cash.

In addition, see Notes 7. Credit Facilities and 8. Leases to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for the ~~reasons discussed below, we have presented certain non-GAAP measures herein.~~

~~We have presented~~principal 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:~~

	∙	~~our capital expenditures or future requirements for capital expenditures or mergers and acquisitions;~~
	∙	~~the interest expense or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;~~

~~-41-~~

~~Table of Contents~~

	∙	depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, or any cash requirements for the replacement of assets;
	∙	~~changes in cash requirements for our working capital needs; or~~
	∙	changes in fair value of contingent earn-out liabilities, warrant liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold) and transition costs from acquisitions.

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 bulk~~maturities of the ~~adjustments are often different types~~Company's operating lease liabilities, respectively.

Recently Issued Accounting Pronouncements Not Yet Adopted and Critical Accounting Policies

Recently Issued Accounting Pronouncements Not Yet Adopted

See Note 2 to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of ~~expenses that are added back~~this Quarterly Report on Form 10-Q for information regarding recently issued accounting pronouncements not yet adopted.

-41-

Critical Accounting Policy & Estimates

There have been no material changes to ~~EBITDA. The resulting adjusted EBITDA often reflects a higher earnings level because of~~ the ~~reduced expenses.~~

~~EBITDA Adjustments~~ ~~included below:~~

	∙	~~Unrealized gains or losses~~
	∙	~~Non-cash expenses (depreciation, amortization)~~
	∙	~~Litigation expenses~~
	∙	~~Non-operating related management bonuses~~
	∙	~~Gains or losses on foreign exchange~~
	∙	~~Goodwill impairments~~
	∙	~~Non-operating income~~
	∙	~~Stock-based compensation~~

~~Non-GAAP Financial Measures~~

Three Months Ended March 31,

2022

2021

Non-GAAP Measures (Un-Audited)

Un-Audited

Un-Audited

NET LOSS

$ (14,388,000 )

$ (4,679,000 )

Related Acquisition & Related Professional costs

2,658,000

-

Non-cash expenses (depreciation, amortization)

429,000

574,000

Interest expenses

100,000

-

Bad Debt Expense - One Time

85,000

-

Stock-based compensation non-cash expense

9,901,000

2,698,000

Legal Settlement One Time

59,000

47,000

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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Issuer is not required to provide the information called for in this item due to its status as a Smaller Reporting Company.

~~-42-~~

~~Table of Contents~~

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

~~The term “disclosure~~

An evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and ~~procedures” is~~procedures (as defined in Rules ~~13(a)-15e~~13a-15(e) and ~~15(d) - 15(e) of~~15d-15(e) under the Securities Exchange Act of 1934 ~~as amended~~ (the “Exchange Act”)~~. The Company’s principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures~~) as of ~~March 31, 2022. They have~~the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that ~~as of March 31, 2022,~~ our disclosures, controls and procedures were not ~~effective to ensure that:~~

	~~(1)~~	Information required to be disclosed by the Company in reports that it files or submits under the act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; and

	~~(2)~~	Controls and procedures are designed by the Company to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management including the principal executive and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding financial disclosure.

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.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting or in any other factors that could significantly affect these controls during the ~~quarter~~three months ended ~~March 31, 2022~~June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~The Company is in the process of consolidating~~

Management has continued to take steps to improve its ~~bank accounts into one institution, investigating a consolidated general ledger system,~~controls and procedures, including but not limited to, formalizing policies and procedures, ~~which, upon~~and enhancing month-end close processes and account reconciliations. Upon their implementation, ~~should~~these internal controls will dramatically improve ~~internal controls. The Company is also considering employing additional accounting staff which will improve segregation of duties. The Company intends to implement these controls~~ in the near future ~~in order~~our ability to prevent and detect mistakes, noncompliance and potential fraud.

~~-43-~~

~~Table of Contents~~

Limitations on Effectiveness of Control and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time the Company may become involved in legal proceedings or may be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that a negative final outcome of matter listed below could have a material adverse effect on its business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. To estimate whether a loss contingency should be accrued by a charge to income, we evaluate, among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. We do not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated The Company is not a party to any material pending legal proceedings or a proceeding being contemplated by a governmental authority nor is any of the Company’s property the subject of any pending legal proceedings or a proceeding being contemplated by a governmental authority except as set forth in our ~~Annual~~Transition Report on Form ~~10-K~~10-K/T for the ~~fiscal year~~transition period ended ~~June 30, 2021,~~December 31, 2022.

-42-

On July 17, 2023, the Converge Sellers in their capacities as the sellers of Converge filed the Complaint in the Supreme Court of the State of New York, New York County against the Defendants. The Defendants have not yet been served with a Summons or the Complaint. On July 28, 2023, Mr. Toama, who was Chief Executive Officer of the Company, informed the Company that he intended to withdraw from ~~which there have been no material changes.~~

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.

The Complaint generally alleges that the Defendants owe sums to the Converge Sellers under the MIPA. The Complaint seeks, among other things, a judgment that the Defendants breached the MIPA and damages relating to the purported breach. Nothing in this Quarterly Report on Form 10-Q shall be deemed an admission of liability in respect of the Action.

Item 1A. Risk Factors.

~~None.~~

Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our Transition Report on Form 10-KT (as amended by Form 10-KT/A) for the six month transition period ended December 31, 2022, the occurrence of any one of which could have a material adverse effect on our actual results.

We have concluded that there is substantial doubt about the Company's ability to meet its obligations as they become due.

The costs of and distractions caused by restructuring, pursuing a Potential Transaction, negotiating amendments to the Financing Agreement, and servicing the Blue Torch debt, have materially depleted liquidity and negatively impacted performance of the Company. Consequently, management has concluded that there is substantial doubt about the Company’s ability to fund ongoing operations and meet debt service obligations over the ensuing twelve month period. If we are not able to continue as a going concern, or if there is continued doubt about our ability to do so, the value of your investment would be materially and adversely affected.

We require additional capital to implement our business plan, and it may not be available on acceptable terms, if at all, creating substantial doubt as to perform.

The growth and health of our Performance Solutions business depends on our ability to take risks by investing in new lead generation activities. Given the Company's inability to consummate a Potential Transaction to, among other things, add additional capital to the Company's balance sheet to fund operations and the uncertainty about the ability of the Company to continue to operate as a going concern, we may not be able to invest in these opportunities which may have a material adverse effect on the Company and its financial condition.

The Company is currently operating under a Limited Waiver of certain Events of Default under the Financing Agreement. Failure to comply with the terms of the Limited Waiver or to cure the Events of Default could have a material adverse effect on the Company.

On September 29, 2023, Blue Torch and the Company entered into the Second A&R Limited Waiver of certain Specified Events of Default under the Financing Agreement, as amended by the First Amendment. The Company and Blue Torch entered into the Second A&R Limited Wavier to, among other things, (i) waive certain Specified Events of Default including any failure of the Company to make the quarterly principal and interest payments due to be paid on or about September 30, 2023 under the Financing Agreement; and (ii) extend the Outside Date. The Second A&R Limited Waiver will expire at the end of the Current Wavier Period.

The Second A&R Limited Waiver concerns events of default that relate to the Company’s existing and anticipated failures to satisfy certain financial and non-financial covenants under the Financing Agreement. If the Company is unsuccessful in curing the continuing events of default by the expiration of the Current Waiver Period, the Company intends to seek further extensions of the Current Waiver Period with Blue Torch and the Lenders, although we cannot assure you that Blue Torch and the Lenders would be willing to grant extensions. If the Company failed to obtain an extension, the Company would

-43-

be in default under the Financing Agreement and the Lenders would be able to exercise remedies available to them under the Financing Agreement. Any such action would likely have a material adverse effect on the Company and its financial condition and the value of your investment.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

~~The Company’s registration statement~~

Note 11 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form ~~S-1 (Nos. 333-255328 and 333-255353) was declared effective~~10-Q is incorporated by the SEC on April 19, 2021. The offering commenced on April 19, 2021 and was completed on April 22, 2021. The Company’s co-managing underwriters were EF Hutton (f/k/a Kingswood Capital Markets), a division of Benchmarks Investments, Inc., and Westpark Capital, Inc.

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.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not Applicable.

Item 5. Other Information

~~None.~~

~~-44-~~

~~Table of Contents~~

Not Applicable.

-44-

Item 6. Exhibits

~~Exhibit~~ ~~Number~~	~~Exhibit Title~~
Exhibit Number		Exhibit Title
~~31.1~~3.1		Amended and Restated Certificate of Designation of Series E Convertible Preferred Stock

4.1		Form of Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on September 27, 2022).

4.2		Form of Exchange Agreement (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on September 27, 2022).

4.3		Certificate of Withdrawal of Designations of Series B Preferred Stock (incorporated herein by reference to Exhibit 4.3 to the Current Report on Form 8-K filed on May 1 7, 202 3 ).

4.4		Certificate of Withdrawal of Designations of Series C Preferred Stock (incorporated herein by reference to Exhibit 4.4 to the Current Report on Form 8-K filed on May 17, 202 3 ).

4.5		Certificate of Withdrawal of Designations of Series D Preferred Stock (incorporated herein by reference to Exhibit 4.5 to the Current Report on Form 8-K filed on May 17, 202 3 ).

4.6		Certificate of Change of the Company, dated May 31, 2023 and effective June 1, 2023 (incorporated herein by reference to Exhibit 4.6 to the Current Report on Form 8-K filed on May 31, 2023).

10.1		At Market Issuance Sales Agreement, dated May 24, 2023, between the Company and B. Riley Securities, Inc. (incorporated herein by reference to Exhibit 10 .1 to the Current Report on Form 8-K filed on May 24, 2023).

10.2		Amendment No. 1 to Amended and Restated Limited Waiver dated May 8 2023, between the Company and Blue Torch (incorporated herein by reference to Exhibit 10.2 to the Transition Report on Form 10 -K T/A (Am e n d ment 2) filed on May 15 , 2023).

10.3 †		Employment Agreement by and between the Company and Sadiq Toama, dated as of May 26, 2023, including the Restrictive Covenant Agreement (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on June 2, 2023)

31.1*		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2~~31.2*		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

101.INS * 101.INS*		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).

-45-



101.SCH * 101.SCH*						Inline XBRL Taxonomy Extension Schema Document.

101.CAL * 101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF * 101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB * 101.LAB*						Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE * 101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

~~104~~ 104*						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~~

*Filed or furnished ~~and not filed.~~

Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

~~-45-~~

~~Table of Contents~~

herewith.

† Management contract or compensatory plan or arrangement.

-46-

SIGNATURES

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


	Troika Media Group, Inc.
	(Registrant)

		/s/ ~~Christopher Broderick~~	Eric Glover
		(Signature)

Date: ~~May 23, 2022~~ October 20, 2023	Name:	~~Christopher Broderick~~	Eric Glover
	Title:	Chief Financial Officer
		(Principal Financial Officer)

~~-46-~~

-47-

	March 31, 2022			June 30, 2021
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	42,396,000		$	12,066,000
Accounts receivable, net		32,461,000			1,327,000
Prepaid expenses		221,000			670,000
Other assets – short term portion		150,000			1,000
Total current assets		75,228,000			14,064,000

Other assets -long term portion		1,447,000			626,000
Property and equipment, net		642,000			343,000
Operating lease right-of-use assets		9,543,000			6,887,000
Intangible assets, net		72,864,000			2,603,000
Goodwill		60,896,000			19,368,000
Total assets	$	220,620,000		$	43,891,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	40,808,000		$	8,363,000
Convertible notes payable		50,000			50,000
Note payable - related party - short term portion		120,000			200,000
Due to related parties		0			41,000
Contract liabilities		21,057,000			5,973,000
Operating lease liability - short term portion		3,781,000			3,344,000
Bank loan net of debt discount – short term portion		1,461,000			0
Derivative liabilities		1,000			13,000
Taxes payable		100,000			62,000
Stimulus loan programs- short term portion		0			22,000
Total current liabilities		67,378,000			18,068,000

Long term liabilities:
Operating lease liability - long term portion		10,514,000			5,835,000
Preferred stock liability		15,998,000			0
Warrant liability		30,639,000			0
Bank loan net of debt discount – long term portion		65,824,000			0
Acquisition liability		5,000,000			0
Stimulus loan programs - long term portion		0			547,000
Rental deposits		124,000			119,000
Other long-term liabilities		0			477,000
Liabilities of discontinued operations - long term portion		107,000			107,000

Total liabilities		195,584,000			25,153,000

Stockholders’ equity:
Preferred stock, $0.01 par value: 15,000,000 shares authorized		-			0
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)		7,000			7,000
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)		5,000			0
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)		64,000			40,000
Additional paid-in-capital		232,836,000			204,788,000
Stock payable		0			1,210,000
Accumulated deficit		(207,526,000	)		(186,889,000	)
Other Comprehensive Loss		(350,000	)		(418,000	)
Total stockholders’ equity		25,036,000			18,738,000
Total liabilities and stockholders’ equity	$	220,620,000		$	43,891,000

	Three Months Ended March 31,						Nine Months Ended March 31,
	2022			2021			2022			2021

Project revenues, net	$	15,685,000		$	3,854,000		$	31,028,000		$	12,437,000
Cost of revenues		11,738,000			1,941,000			20,158,000			6,360,000
Gross profit		3,947,000			1,913,000			10,870,000			6,077,000

Operating expenses:
Selling, general and administrative expenses		14,606,000			6,813,000			27,835,000			14,864,000
Professional fees		2,577,000			136,000			3,445,000			1,274,000
Depreciation expense		33,000			34,000			91,000			95,000
Amortization expense of intangibles		396,000			540,000			739,000			1,619,000
Total operating expenses		17,612,000			7,523,000			32,110,000			17,852,000
Loss from operations		(13,665,000	)		(5,610,000	)		(21,240,000	)		(11,775,000	)

Other income (expense):
Business acquisition costs		(827,000	)		0			(827,000	)		0
Income from government grants		0			831,000			262,000			2,535,000
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		0			0			(3,000	)		0
Gain in derivative liabilities		201,000			0			213,000			0
Other income		35,000			122,000			1,220,000			378,000
Other expenses		0			1,000			0			154,000
Total other income (expense)		(690,000	)		954,000			693,000			2,575,000

Net loss from continuing operations before income tax		(14,355,000	)		(4,656,000	)		(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	)

Basic earnings (loss) per share
Net loss attributable to common stockholders	$	(0.30	)	$	(0.31	)	$	(0.47	)	$	(0.55	)

Weighted average basic shares		48,051,751			15,110,400			44,325,690			16,784,773

	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


	June 30,		December 31,
	2023		2022
Accounts receivable	$	15,197,469	$	10,801,299

Deferred revenue	$	9,316,686	$	6,209,442

	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

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

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

	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	)

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

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

FY 2022	$	956,250
2023		3,825,000
2024		3,825,000
2025		3,825,000
2026		64,068,750
	$	76,500,000

	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

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

	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

	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

		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

	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

		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

	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

		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

	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

	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

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