UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,December 31, 2021
OR
☐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: 000-55591
LOOP MEDIA, INC.
(Exact name of registrant as specified in its charter)
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Nevada | | 47-3975872 |
(State or other jurisdiction of incorporation) | | (IRS Employer Identification Number) |
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700 N. Central Ave. Glendale, CA 91203 | ||
(Address of principal executive offices) (Zip Code) | ||
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(818) 823-4801 | ||
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None
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 shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Yes☐Yes ☒No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒No
As of August 6, 2021,February 14, 2022, the registrant had 127,680,014133,470,141 shares of common stock issued and outstanding.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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36 | ||||
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Unregistered |
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1
PART I — FINANCIAL INFORMATION
Item 1Financial Statements.
LOOP MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | |
| June 30, |
| December 31, | December 31, |
| September 30, | ||||
| 2021 | | 2020 | 2021 | | 2021 | ||||
ASSETS | (UNAUDITED) |
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| (UNAUDITED) |
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Current assets | |
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Cash | $ | 929,403 | | $ | 838,161 | $ | 1,662,098 | | $ | 4,162,548 |
Accounts receivable, net |
| 810,594 | |
| 669,679 |
| 2,924,484 | |
| 1,571,226 |
Inventory |
| 27,096 | |
| 90,300 |
| 114,723 | |
| 223,048 |
Prepaid expenses and other current assets |
| 516,354 | |
| 64,765 |
| 465,590 | |
| 1,645,037 |
Prepaid income tax |
| 20,028 | |
| 21,689 |
| 19,648 | |
| 17,806 |
License content assets - current | | 1,147,853 | | | 1,723,569 | | 539,208 | | | 850,263 |
Note receivable - current |
| — | |
| 10,215 | |||||
Total current assets |
| 3,451,328 | |
| 3,418,378 |
| 5,725,751 | |
| 8,469,928 |
Non-current assets |
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Deposits |
| 15,649 | |
| 15,649 |
| 63,879 | |
| 34,289 |
License content assets - non current | | 336,360 | | | 371,041 | | 365,360 | | | 365,360 |
Equipment, net |
| 18,212 | |
| 24,146 |
| 34,644 | |
| 38,936 |
Operating lease right-of-use assets |
| 274,687 | |
| 347,075 |
| 198,539 | |
| 237,094 |
Intangible assets, net |
| 4,741,550 | |
| 3,169,266 |
| 674,667 | |
| 702,778 |
Note receivable |
| — | |
| 96,498 | |||||
Equity method investments | | — | | | 1,613,479 | |||||
Goodwill |
| 6,412,808 | |
| 583,086 |
| 1,970,321 | |
| 1,970,321 |
Total non-current assets |
| 11,799,266 | |
| 6,220,240 |
| 3,307,410 | |
| 3,348,778 |
Total assets | $ | 15,250,594 | | $ | 9,638,618 | $ | 9,033,161 | | $ | 11,818,706 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable and accrued liabilities | $ | 648,502 | | $ | 964,276 | $ | 3,287,903 | | $ | 2,215,906 |
Payable on acquisition |
| 250,125 | |
| 250,125 |
| 250,125 | |
| 250,125 |
License content liabilities - current | | 1,024,500 | | | 1,251,500 | | 404,000 | | | 985,000 |
Note payable - current | | — | | | 314,829 | | — | | | 25,714 |
Deferred Income |
| 195,164 | |
| 128,622 |
| 178,549 | |
| 191,331 |
Convertible debt related party - current, net |
| 599,456 | |
| 279,705 |
| 2,305,211 | |
| 530,226 |
Convertible debt – current, net |
| 71,578 | |
| 393,943 |
| 446,251 | |
| — |
Lease liability - current |
| 161,662 | |
| 145,271 |
| 170,533 | |
| 167,101 |
Total current liabilities |
| 2,950,987 | |
| 3,728,271 |
| 7,042,572 | |
| 4,365,403 |
Non-current liabilities |
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Convertible debt – related party, less current portion, net |
| 1,317,501 | |
| 1,223,768 |
| 726,838 | |
| 1,619,398 |
Convertible debt, less current portion, net |
| 225,994 | |
| 160,165 |
| — | |
| 1,243,115 |
Note payable – non-current |
| 486,638 | |
| 258,671 |
| — | |
| 460,924 |
License content liabilities - non current | | — | | | 385,000 | |||||
Derivative liability | | 959,888 | | | 1,058,633 | |||||
Lease liability |
| 119,178 | |
| 208,625 |
| 32,749 | |
| 75,530 |
Total non-current liabilities |
| 2,149,311 | |
| 2,236,229 |
| 1,719,475 | |
| 4,457,600 |
Total liabilities |
| 5,100,298 | |
| 5,964,500 |
| 8,762,047 | |
| 8,823,003 |
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Commitments and contingencies (Note 10) |
| — | |
| — | |||||
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Stockholders’ equity | | | | | | | | | | |
Series B Convertible Preferred stock, $0.0001 par value, 3,333,334 shares authorized, 200,000 and 200,000 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively. Liquidation preference of $1.00 per share before any payment to Series A Preferred or Common stock | | 20 | | | 20 | |||||
Series A Convertible Preferred stock, $0.0001 par value, 16,666,667 shares authorized, 0 and 30,667 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively. Liquidation preference of $0.10 per share. |
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| 3 | |||||
Common Stock, $0.0001 par value, 316,666,667 shares authorized, 127,316,716 and 118,128,008 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively |
| 12,732 | |
| 11,813 | |||||
Common stock subscribed and not yet issued |
| — | |
| 485,144 | |||||
Series B Convertible Preferred stock, $0.0001 par value, 3,333,334 shares authorized, 200,000 and 200,000 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively. Liquidation preference of $1.50 per share before any payment to Series A Preferred or Common stock | | 20 | | | 20 | |||||
Common Stock, $0.0001 par value, 316,666,667 shares authorized,133,470,020 and 133,470,020 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively |
| 13,345 | |
| 13,345 | |||||
Additional paid in capital |
| 63,853,146 | |
| 44,721,282 |
| 71,374,160 | |
| 69,824,754 |
Accumulated deficit |
| (53,715,602) | |
| (41,544,144) |
| (71,116,411) | |
| (66,842,416) |
Total stockholders' equity |
| 10,150,296 | |
| 3,674,118 |
| 271,114 | |
| 2,995,703 |
Total liabilities and stockholders' equity | $ | 15,250,594 | | $ | 9,638,618 | $ | 9,033,161 | | $ | 11,818,706 |
See the accompanying notes to the unaudited condensed consolidated financial statements
2
LOOP MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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| | Three months ended June 30, | | Six months ended June 30, | | Three months ended December 31, | ||||||||||||
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| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
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Revenue | | $ | 1,160,793 | | $ | 635,740 | | $ | 1,954,836 | | $ | 1,462,128 | | $ | 2,996,034 | | $ | 705,168 |
Cost of revenue | |
| 763,359 | |
| 172,661 | |
| 1,487,937 | |
| 384,920 | |
| 1,444,977 | |
| 462,042 |
Gross profit | |
| 397,434 | |
| 463,079 | |
| 466,899 | |
| 1,077,208 | |
| 1,551,057 | |
| 243,126 |
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Operating expenses | |
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Selling, general and administrative | |
| 4,269,169 | |
| 1,638,038 | |
| 12,175,453 | |
| 4,696,691 | |
| 5,909,680 | |
| 3,036,298 |
Impairment of goodwill and intangibles | | | — | | | 2,390,799 | ||||||||||||
Total operating expenses | |
| 4,269,169 | |
| 1,638,038 | |
| 12,175,453 | |
| 4,696,691 | |
| 5,909,680 | |
| 5,427,097 |
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Loss from operations | |
| (3,871,735) | |
| (1,174,959) | |
| (11,708,554) | |
| (3,619,483) | |
| (4,358,623) | |
| (5,183,971) |
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Other income (expense) | |
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Interest income | |
| — | |
| 1,175 | |
| 5,657 | |
| 2,459 | |
| 200 | |
| 2,996 |
Interest expense | |
| (632,094) | |
| (245,104) | |
| (1,048,012) | |
| (492,545) | |
| (504,117) | |
| (395,905) |
Income from equity investment | |
| — | |
| — | |
| 1,551 | |
| — | ||||||
Gain on extinguishment of debt | | | 579,486 | | | | | | 579,486 | | | — | ||||||
Inducement expense | |
| — | |
| — | |
| — | |
| (3,793,406) | ||||||
Other income | |
| — | |
| 10,000 | |
| — | |
| 10,000 | ||||||
Gain on extinguishment of debt, net | | | 490,051 | | | 13,900 | ||||||||||||
Loss on settlement of obligation | | | — | | | (15,000) | ||||||||||||
Change in fair value of derivatives | |
| 98,745 | |
| — | ||||||||||||
Total other income (expense) | |
| (52,608) | |
| (233,929) | |
| (461,318) | |
| (4,273,492) | |
| 84,879 | |
| (394,009) |
Income tax expense | |
| — | |
| — | |
| (1,586) | |
| — | ||||||
Income tax (expense)/benefit | |
| (251) | |
| (98,244) | ||||||||||||
Net loss | | $ | (3,924,343) | | $ | (1,408,888) | | $ | (12,171,458) | | $ | (7,892,975) | | $ | (4,273,995) | | $ | (5,676,224) |
Deemed dividend | |
| — | |
| — | |
| — | |
| (3,800,000) | ||||||
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Net loss attributable to common stockholders | | $ | (3,924,343) | | $ | (1,408,888) | | $ | (12,171,458) | | $ | (11,692,975) | | $ | (4,273,995) | | $ | (5,676,224) |
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Basic and diluted net loss per common share | | $ | (0.03) | | $ | (0.01) | | $ | (0.10) | | $ | (0.11) | | $ | (0.03) | | $ | (0.05) |
Weighted average number of common shares outstanding | |
| 124,965,420 | |
| 112,131,578 | | | 122,572,955 | | | 110,424,073 | ||||||
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Weighted average number of basic and diluted common shares outstanding | | | 133,470,020 | | | 116,800,982 |
See the accompanying notes to the unaudited condensed consolidated financial statements
3
LOOP MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30,DECEMBER 31, 2021 and 2020
(UNAUDITED)
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| | Preferred Stock Series B | | Common Stock | | Additional Paid | | Accumulated | | | | ||||||||
| | Shares | | Amount | | Shares | | Amount | | in Capital | | Deficit | | Total | |||||
Balances, September 30, 2021 |
| 200,000 |
| $ | 20 |
| 133,470,018 |
| $ | 13,345 |
| $ | 69,824,754 |
| $ | (66,842,416) |
| $ | 2,995,703 |
Stock-based compensation | | — | | | — | | — | | | — | | | 1,549,406 | | | — | | | 1,549,406 |
Net loss |
| — |
| | — |
| — |
| | — |
| | — |
| | (4,273,995) | | | (4,273,995) |
Balances, December 31, 2021 |
| 200,000 | | $ | 20 |
| 133,470,018 | | $ | 13,345 | | $ | 71,374,160 | | $ | (71,116,411) | | $ | 271,114 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock Series B | | Preferred Stock Series A | | Common Stock | | Common stock | Additional Paid | | Accumulated | | | | |||||||||||||
| | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | subscriptions | in Capital | | Deficit | | Total | ||||||||
BALANCES, December 31, 2020 |
| 200,000 |
| $ | 20 |
| 30,667 |
| $ | 3 |
| 118,128,008 |
| $ | 11,813 |
| $ | 485,144 |
| $ | 44,721,282 |
| $ | (41,544,144) |
| $ | 3,674,118 |
Issuance of common stock subscribed |
| — |
| | — |
| — |
| | — |
| 497,429 |
| | 49 |
| | (485,144) |
| | 485,095 |
| | — |
| | — |
Conversion of convertible debenture |
| — |
| | — |
| — |
| | — |
| 1,003,618 |
| | 100 |
| | — |
| | 376,256 |
| | — |
| | 376,356 |
Shares issued for cash |
| — |
| | — |
| — |
| | — |
| 1,564,000 |
| | 156 |
| | — |
| | 1,954,844 |
| | — |
| | 1,955,000 |
Stock-based compensation |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| | — |
| | 5,419,800 |
| | — |
| | 5,419,800 |
Warrants issued in conjunction with debenture |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| — | |
| 43,654 | |
| — | |
| 43,654 |
Beneficial conversion feature of convertible debenture |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| | — |
| | 306,346 |
| | — |
| | 306,346 |
Net loss |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| | — |
| | — |
| | (8,247,115) |
| | (8,247,115) |
BALANCES, March 31, 2021 |
| 200,000 | | $ | 20 |
| 30,667 | | $ | 3 |
| 121,193,055 | | $ | 12,118 | | $ | — | | $ | 53,307,277 | | $ | (49,791,259) | | $ | 3,528,159 |
Shares issued for cash |
| — | |
| — |
| — | |
| — |
| 960,000 | |
| 96 | |
| — | |
| 1,199,904 | |
| — | |
| 1,200,000 |
Stock-based compensation |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| — | |
| 1,482,746 | |
| — | |
| 1,482,746 |
Shares issued for consulting fees | | — | | | — | | — | | | — | | 79,051 | | | 8 | | | — | | | 199,992 | | | — | |
| 200,000 |
Shares issued for acquisition | | — | | | — | | — | | | — | | 2,003,435 | | | 200 | | | — | | | 5,689,555 | | | — | | | 5,689,755 |
Warrants issued for severance | | — | | | — | | — | | | — | | — | | | — | | | — | | | 82,000 | | | — | | | 82,000 |
Payment in kind interest stock issuance | | — | | | — | | — | | | — | | 14,475 | | | 3 | | | — | | | 41,976 | | | — | | | 41,980 |
Beneficial conversion feature of convertible debenture | | — | | | — | | — | | | — | | — | |
| — | | | — | | | 1,705,709 | | | — | | | 1,705,709 |
Warrants issued in conjunction with debenture | | — | | | — | | — | | | — | | — | |
| — | | | — | | | 144,291 | | | — | | | 144,291 |
Conversion of series A convertible stock to common stock | �� | — | | | — | | (30,667) | | | (3) | | 3,066,700 | | | 307 | | | — | | | (304) | | | — | | | — |
Net loss |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| (3,924,343) | |
| (3,924,343) |
BALANCES, June 30, 2021 |
| 200,000 | | $ | 20 |
| — | | $ | — |
| 127,316,716 | | $ | 12,732 | | $ | — | | $ | 63,853,146 | | $ | (53,715,602) | | $ | 10,150,296 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Preferred Stock B | | Preferred Stock A | | Common Stock | | Common stock | Additional Paid | | Accumulated | | | | |||||||||||||
| | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | subscriptions | | in Capital | | Deficit | | Total | |||||||
Balances, September 30, 2020 |
| | 200,000 |
| $ | 20 | | 30,667 |
| $ | 3 |
| 114,320,911 |
| $ | 11,432 |
| $ | 135,144 |
| $ | 36,669,899 |
| $ | (35,867,920) | | $ | 1,156,299 |
Shares issued for cash | |
| | |
| | | — | |
| — | | 757,333 | |
| 75 | |
| — | |
| 899,925 | |
| — | |
| 900,000 |
Cash received for common stock subscribed | | | | | | | | — | | | — | | — | | | — | | | 330,000 | | | — | | | — | | | 330,000 |
Issuance of common stock subscribed | | | | | | | | | | | | | (53,333) | | | (5) | | | 20,000 | | | (19,995) | | | | | | — |
Shares issued in connection with reverse merger |
| | | | | | | — | | | — | | — | | | — | | | — | | | (1) | | | — | | | (1) |
Shares issued for asset purchase | | | | | | | | — | | | — | | 1,369,863 | | | 137 | | | — | | | 2,671,096 | | | — | | | 2,671,233 |
Beneficial conversion feature of convertible debt | | | | | | | | — | | | — | | — | | | — | | | — | | | 750,000 | | | — | | | 750,000 |
Stock-based compensation | | | | | | | | — | | | — | �� | — | | | — | | | — | | | 134,253 | | | — | | | 134,253 |
Warrants issued to consultant | | | | | | | | — | | | — | | — | | | — | | | — | | | 492,000 | | | — | | | 492,000 |
Shares issued for debt settlement | | | | | | | | — | | | — | | 97,891 | | | 10 | | | — | | | 194,793 | | | — | | | 194,803 |
Shares issued for license content assets | | | | | | | | | | | | | 1,180,880 | | | 118 | | | | | | 2,065,878 | | | — | | | 2,065,996 |
Shares issued for investment in unconsolidated entity | | | | | | | | — | | | — | | 454,463 | | | 46 | | | — | | | 863,434 | | | — | | | 863,480 |
Net loss |
|
| | |
| | | — | |
| — | | — | |
| — | |
| — | |
| — | |
| (5,676,224) | |
| (5,676,224) |
Balances, December 31, 2020 |
| $ | 200,000 | | $ | 20 | | 30,667 | | $ | 3 | | 118,128,008 | | $ | 11,813 | | $ | 485,144 | | $ | 44,721,282 | | $ | (41,544,144) | | $ | 3,881,839 |
See the accompanying notes to the unaudited condensed consolidated financial statements
4
LOOP MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Preferred Stock B | | Preferred Stock A | | Common Stock | | Common stock | Additional Paid | | Accumulated | | | | |||||||||||||
| | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | subscriptions | in Capital | | Deficit | | Total | ||||||||
BALANCES, December 31, 2019 |
| | — |
| $ | — | | — |
| $ | — |
| 101,882,647 |
| $ | 10,188 |
| $ | 150,144 |
| $ | 26,038,546 |
| $ | (26,125,252) |
| $ | 73,626 |
Shares issued for cash | |
| — | |
| — | | — | |
| — | | 1,040,000 | |
| 104 | |
| — | |
| 389,896 | |
| — | |
| 390,000 |
Cash received for common stock subscribed | | | — | | | — | | — | | | — | | — | | | — | | | 20,000 | | | — | | | — | | | 20,000 |
Common stock subscribed issued | |
| — | |
| — | | — | |
| — | | 40,000 | |
| 4 | |
| (15,000) | |
| 14,996 | |
| — | |
| — |
Shares issued for consulting fees | | | — | | | — | | — | | | — | | 4,000,000 | | | 400 | | | — | | | 1,499,600 | | | — | | | 1,500,000 |
Shares issued in connection with reverse merger |
| | — | | | — | | 30,667 | | | 3 | | 5,168,931 | | | 517 | | | — | | | (264,496) | | | — | | | (263,976) |
Shares issued for cash |
|
| 100,000 | |
| 10 | | — | |
| — | | — | |
| — | |
| — | |
| 4,799,990 | |
| — | |
| 4,800,000 |
Shares issued for debt settlement |
| | 100,000 | | | 10 | | — | | | — | | — | | | — | | | — | | | 4,799,990 | | | — | | | 4,800,000 |
Warrants issued for settlement of debt to related party |
|
| — | |
| — | | — | |
| — | | — | |
| — | |
| — | |
| 185,563 | |
| — | |
| 185,563 |
Deemed dividend |
|
| — | |
| — | | — | |
| — | | — | |
| — | |
| — | |
| (3,800,000) | |
| — | |
| (3,800,000) |
Net loss |
|
| — | |
| — | | — | |
| — | | — | |
| — | |
| — | |
| — | |
| (6,484,087) | |
| (6,484,087) |
BALANCES, March 31, 2020 |
| $ | 200,000 | | $ | 20 | | 30,667 | | $ | 3 | | 112,131,578 | | $ | 11,213 | | $ | 155,144 | | $ | 33,664,085 | | $ | (32,609,339) | | $ | 1,221,126 |
Stock-based compensation |
| | — |
| | — | | — | |
| — |
| — | | | — | | | — | | | 171,798 | | | — | |
| 171,798 |
Net loss |
| | — |
| | — | | — | |
| — |
| — | | | — | | | — | | | — | | | (1,408,888) | |
| (1,408,888) |
BALANCES, June 30, 2020 |
| $ | 200,000 | | $ | 20 | | 30,667 | | $ | 3 |
| 112,131,578 | | $ | 11,213 | $ | $ | 155,144 | | $ | 33,835,883 | | $ | (34,018,227) | | $ | (15,964) |
See the accompanying notes to the unaudited condensed consolidated financial statements
54
LOOP MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | | |
| | Six months ended June 30, | | Three months ended December 31, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
| |
|
| |
|
| |
|
| |
|
Net loss | | $ | (12,171,458) | | $ | (7,892,975) | | $ | (4,273,995) | | $ | (5,676,224) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
|
| |
|
| |
|
| |
|
|
Amortization of debt discount | |
| 770,546 | |
| 302,104 | |
| 358,248 | |
| 183,533 |
Depreciation and amortization expense | |
| 733,651 | |
| 118,363 | |
| 32,403 | |
| 338,260 |
Amortization of license contract assets | | | 610,397 | | | — | | | 311,055 | | | 173,169 |
Amortization of right-of-use assets | |
| 72,388 | |
| 66,165 | |
| 38,555 | |
| 34,860 |
Bad debt expense | | | 146,637 | | | — | | | 20,000 | | | 62,154 |
Gain on extinguishment of debt | | | (579,486) | | | — | | | (490,051) | | | (13,900) |
Warrants issued for severance | | | 82,000 | | | — | ||||||
Change in fair value of derivative | | | (98,745) | | | — | ||||||
Warrants issued for consulting services | | | — | | | 492,000 | ||||||
Stock-based compensation | |
| 6,902,547 | |
| 1,671,798 | |
| 1,549,406 | |
| 134,253 |
Inducement expense | |
| — | |
| 3,793,406 | ||||||
Equity method investment income | |
| (1,551) | |
| — | ||||||
Change in operating assets and liabilities: | |
| | |
|
| ||||||
Loss on settlement of obligations | | | — | | | 15,000 | ||||||
Impairment of intangible assets | |
| — | |
| 2,390,799 | ||||||
Accounts receivable | |
| (180,839) | |
| 74,896 | |
| (1,373,259) | |
| 49,106 |
Prepaid income tax | | | 1,661 | | | — | | | (1,842) | | | 98,244 |
Inventory | |
| 63,204 | |
| (48,215) | |
| 108,325 | |
| (51,225) |
Prepaid expenses | |
| (251,588) | |
| (70,609) | |
| (70,555) | |
| 15,954 |
Prepaid income tax | |
| — | |
| (260) | ||||||
Deposit | |
| (29,590) | |
| 4,182 | ||||||
Accounts payable and accrued liabilities | |
| (217,595) | |
| 68,491 | |
| 1,075,413 | |
| 42,294 |
License content liability | |
| (612,000) | |
| — | |
| (581,000) | |
| 955,500 |
License contract asset | | | — | | | (227,000) | | | — | | | (1,567,500) |
Operating lease liabilities | |
| (73,056) | |
| (64,735) | |
| (39,349) | |
| (34,502) |
Deferred income | |
| (8,458) | |
| (49,251) | |
| (12,782) | |
| 27,009 |
NET CASH USED IN OPERATING ACTIVITIES | |
| (4,713,000) | |
| (2,257,822) | |
| (3,477,763) | |
| (2,327,034) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
|
| |
|
| |
|
| |
|
|
Acquisition of EON Media Group, net of cash acquired | |
| (749,937) | |
| — | |
| — | |
| (750,000) |
Purchase of equipment | | | — | | | (10,599) | | | — | | | 2,752 |
Collection of note receivable | |
| — | |
| 2,872 | |
| — | |
| 1,477 |
NET CASH USED IN INVESTING ACTIVITIES | |
| (749,937) | |
| (7,727) | |
| — | |
| (745,771) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
|
| |
|
| |
|
| |
|
|
Proceeds from issuance of common stock | | | 3,155,000 | | | 390,000 | | | 1,250,000 | | | 880,000 |
Proceeds from issuance of preferred stock | | | — | | | 1,000,000 | ||||||
Proceeds from PPP loan | | | 486,638 | | | 573,500 | ||||||
Principal payment of convertible debt | | | (36,078) | | | — | ||||||
Proceeds from issuance of convertible debt | | | 2,200,000 | | | — | | | — | | | 750,000 |
Repayment of stockholder loans | |
| (251,380) | |
| — | |
| (272,687) | |
| (40,956) |
Reverse merger cost | |
| — | |
| (80,134) | ||||||
Proceeds from issuing common stock subscribed | |
| — | |
| 20,000 | |
| — | |
| 350,000 |
| | | | | | | | | | | | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| 5,554,179 | |
| 1,903,366 | |
| 977,313 | |
| 1,939,044 |
| | | | | | | | | | | | |
Change in cash and cash equivalents | |
| 91,242 | |
| (362,183) | |
| (2,500,450) | |
| (1,133,761) |
| | | | | | | | | | | | |
Cash, beginning of the year | |
| 838,161 | |
| 1,011,445 | ||||||
Cash, beginning of period | |
| 4,162,548 | |
| 1,971,923 | ||||||
| | | | | | | | | | | | |
Cash, end of the year | | $ | 929,403 | | $ | 649,262 | ||||||
Cash, end of period | | $ | 1,662,098 | | $ | 838,162 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW STATEMENTS | |
|
| |
|
| |
|
| |
|
|
Cash paid for interest | | $ | 192,632 | | $ | 27,175 | | $ | 43,130 | | $ | 152,479 |
Cash paid for income taxes | | $ | — | | $ | 260 | | $ | 251 | | $ | 1,600 |
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES | |
|
| |
|
| |
|
| |
|
|
Shares issued in connection with reverse merger | | $ | — | | $ | 517 | ||||||
Preferred stock issued in connection with reverse merger | | $ | — | | $ | 3 | ||||||
Preferred stock issued for debt settlement | | $ | — | | $ | 20 | ||||||
Conversion of convertible debenture to common stock | | $ | 376,356 | | $ | — | ||||||
Common stock issued for acquisition | | $ | 5,689,755 | | $ | — | ||||||
Debt and accrued interest exchanged as part of debt settlement | | $ | — | | $ | 1,006,594 | ||||||
Accrued interest rolled into convertible note | | $ | — | | $ | 150,411 | ||||||
Shares issued for asset purchase | | $ | — | | $ | 2,671,233 | ||||||
Beneficial conversion feature of convertible debt | | $ | — | | $ | 750,000 | ||||||
Shares issued for debt settlement | | $ | — | | $ | 194,803 | ||||||
Shares issued for license content assets | | $ | — | | $ | 2,065,878 | ||||||
Shares issued for investment in unconsolidated entity | | $ | — | | $ | 863,434 |
See the accompanying notes to the consolidated financial statements
65
Assumption of lease by related party | | $ | — | | $ | 20,825 |
Assumption of debt as part of reverse merger | | $ | — | | $ | 183,842 |
Warrants issued to extinguish debt with related party | | $ | — | | $ | 185,563 |
Payment in kind common stock payment | | $ | 41,979 | | $ | — |
Warrants issued as debt discount on convertible debenture | | $ | 187,945 | | $ | — |
Beneficial conversion feature recorded as debt discount | | $ | 2,012,055 | | $ | — |
Prepaid common stock paid to consultant | | $ | 200,000 | | $ | — |
Conversion of Preferred Class A stock to common stock | | $ | 307 | | $ | — |
Shares issued for common stock subscribed | | $ | 485,144 | | $ | 15,000 |
Deemed dividend | | $ | — | | $ | 3,800,000 |
See the accompanying notes to the unaudited condensed consolidated financial statements
7
LOOP MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,DECEMBER 31, 2021
(UNAUDITED)
NOTE 1 – BUSINESS
Loop Media Inc. (the “Company” and; formerly Interlink Plus, Inc.) is a Nevada corporation. The Company wasWe were incorporated under the laws of the State of Nevada on May 11, 2015. On February 5, 2020, the Company and the Company’s wholly owned subsidiary, Loop Media Acquisition, Inc. (“Merger Sub”), a Delaware corporation, closed the Agreement and Plan of Merger (the “Merger Agreement”) with Loop Media, Inc. (“Loop”), a Delaware corporation. Pursuant to the Merger Agreement, Merger Sub merged with and into Loop with Loop as surviving entity and becoming a wholly-owned subsidiary of the Company (the “Merger”).
Pursuant to the Merger Agreement, the Company acquired 100% of the outstanding shares of Loop in exchange for 152,823,970 shares of the Company’s common stock at an exchange ratio of 1:1. Loop was incorporated on May 18, 2016 under the laws of the State of Delaware. As a result of such acquisition, the Company’s operations now are focused on premium short-form video for businesses and consumers.
We are a multichannel digital video platform media company that offers self-curated, premiumuses marketing technology, or “MarTech,” to generate our revenue and fuel our services. Our technology and vast library of videos and licensed content enable us to curate and deliver short-form videos to our out-of-home (“OOH”) dining, hospitality, retail and other customers to enable them to inform, entertain and engage their customers. Our technology provides OOH customers and third-party advertisers with a targeted marketing and promotional tool for their products and services and allows us to measure the number of potential viewers of such advertising and promotional materials. In addition to providing services to OOH venue operators, we provide our services direct to consumers (“D2C”) in OOH venuestheir homes and D2C on their personal in home and mobile devices.
We deliver highly curatedoffer self-curated music video content licensed from major and independent record labels, as well as movie, television and televisionvideo game trailers, kid-friendly videos, viral videos, drone footage, news headlines, and lifestyle and atmospheric channels, kid friendly content, sports highlights and news clips.channels. We believe we are the only service in the United States licensed bythat has OOH and D2C licenses with all three major music labelslabels. These licenses allow us to provide music video content in both the OOH and D2C markets. Our OOH services are complimented by our mobile app (the “Loop App”), which allows users to follow each other, share their locations and playlists, view activity, and signal support for a music video.
We curate content seeking to create a compelling user experience by, among other things, curating our carefully selected Playlists Playlistsinto playlists for OOH venueslocations and thoughtfully developedinto streaming channels (“Channels”) for delivery to our OTTover-the-top (“OTT”) platform partnerscustomers and to users of our mobile application.application users. Our digital platform service seeks to surround and engage consumers with a diverse offering of video content on their chosen digital screen wherever they are located. We believe we are the only company offeringOur services include both an ad-supported service, which offers content on a digital out of home (“DOOH”)free or unpaid advertising supported basis, and a subscription service, that also haswhich offers content on a consumer mobile application, which increases the connectivity and interactivity of our OOH services.
We operate a “freemium” business model, offering our Service on either a Premium or Ad-Supportedpaid subscription basis. We deliver our Serviceservices to OOH venueslocations primarily through our proprietary Loop Media-designed Loop Player“small-box” streaming Android media player (the “Loop Player”) and direct to consumers primarily through our fully functional and operational Loop App and across OTT streaming platforms on CTVs. The underlying content that we curate and deliver through our service is predominantly licensed from third parties and consists primarily of music videos. We also offer an increasing range of non-music video content that we are acquiring through additional licenses and producing internally in our Loop Media Studios business division. This additional and diversified content offering is a large part of our business model going forward. We operate almost exclusively in the United States but are looking at further overseas expansion, primarily in Latin America and Asia.
We are an early-stage media operating company, with limited historical revenue and negative cash flow from operations. Our revenue is generated by advertisers who pay for our ad inventory in order to have their advertisements viewed by the end users of our Ad-Supported Service and by business owners and users who pay a subscription fee to access our Subscription Service without advertisements. Our revenue for the fiscal year ended December 31, 2020, consisted almost entirely of revenue from our historic ScreenPlay business, which is a subscription-based OOH focused business, with little to no advertising revenue and no consumer users, and which does not fully reflect revenues expected from our more recent product and Service offerings and business model. We have begun to record increased revenue share for the six months ended June 30, 2021, as our advertising business model has more recently been deployed and operating more fully.
connected TVs.
Going Concernconcern and Management’s Plansmanagement’s plans
As of June 30,December 31, 2021, the Company reported awe had cash balance of $929,403$1,662,098 and an accumulated deficit of $ (53,715,602)($71,116,411). During the sixthree months ended June 30,December 31, 2021, the Companywe used net cash in operating activities of
8
($4,713,000) $(3,477,763). The Company hasWe have incurred net losses since inception. These conditions raise substantial doubt about the Company’sour ability to continue as a going concern within one year from the issuance date of these unaudited condensed consolidated financial statements.
The Company’sOur primary source of operating funds since inception has been cash proceeds from debt and equity financing transactions. TheOur ability of the Company to continue as a going concern is dependent upon itsour ability to generate sufficient revenue and itsour ability to raise additional funds by way of itsour debt and equity financing efforts.
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or classification of the liabilities that might be necessary should the Company beif we are unable to continue as a going concern. TheOur ability of the Company to continue as a going concern is dependent on management’s further implementation of the Company’sour on-going and strategic plans, which include continuing to raise funds through equity and/or debt raises. Should the Company beIf we are unable to raise adequate funds, certain aspects of the on-going and strategic plans may require modification. Management is in the process of identifying sources of capital via strategic partnerships, debt refinancing and equity investments through one or more private placements.
6
COVID-19
The continuing spread of a novel strain of coronavirus (COVID-19)COVID-19 around the world beginningis affecting the United States and global economies and has affected our operations and those of third parties on which we rely, including disruptions in staffing, order fulfillment and demand for the product. In addition, the COVID-19 pandemic has in the first halfpast and may affect our revenue significantly in the future. Additionally, while the potential economic impact brought by, and the duration of 2020 has caused significant volatility in U.S.the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and international markets. Whilelong-term liquidity. The continuing impact of the COVID-19 pandemic is highly uncertain and subject to change.
As COVID-19 continues to evolve, the extent to which the coronavirus impacts operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat its impact. We continue to monitor the pandemic and, the extent to which the continued spread of the virus adversely affects our customer base and therefore revenue. As the COVID-19 pandemic is complex and rapidly evolving, our plans as described above may change. At this point, we cannot reasonably estimate the duration and severity of this pandemic, which could ultimately lead tohave a material adverse impact on the business, results of operations, financial position, and financial condition of the Company, at the time of issuance, the extent of the impact is uncertain. Due to the rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company's future operations and liquidity is uncertain as of the date of filing this report.cash flows.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The following (a) condensed consolidated balance sheet as of December 31, 2020,September 30, 2021, which has been derived from our audited financial statements, and (b) theour unaudited condensed consolidated interim financial statements of the Company for the sixthree months ended June 30,December 31, 2021, have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X of the Securities Act of 1933. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the sixthree months ended June 30,December 31, 2021, are not necessarily indicative of results that may be expected for the year ending December 31, 2021.September 30, 2022.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020September 30, 2021, included in the Company’sour Annual Report on Form 10-K10-KT filed with the Securities and Exchange Commission ("SEC") on April 15, 2021.January 21, 2022.
Basis of Presentation and Principles of Consolidationpresentation
The unaudited condensed consolidated financial statements are prepared using the accrual basis of accounting in accordance with US GAAP. All intercompanyinter-company transactions and balances have been eliminated on consolidation.
Business Combinations
The Company recognizes separately from goodwill the assets acquired and the liabilities assumed in a business combination at the acquisition date fair value. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. The Company uses best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date,
9
however, estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to the condensed consolidated statement of operations.
The Company issues cash, equity, or a combination thereof as consideration when consummating business combinations. The Company evaluates the nature of the consideration given and any restrictions on use to determine the appropriate accounting treatment. Cash consideration and equity awards without performance conditions are generally accounted for in accordance with ASC 805, Business Combinations.
Equity method investments
The Company accounts for investments in unconsolidated entities under the equity method of accounting if it could exercise significant influence over the operating and financial policies of an entity but does not have a controlling financial interest. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the net income (loss) resulting from these investments are reported under the line-item captioned equity method investment income in our condensed consolidated statements of operations. The carrying value of our equity method investments is reported in equity method investments in the condensed consolidated balance sheets. The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any. The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable.
Use of Estimatesestimates
The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions used in the fair value of stock-based compensation, the fair value of other equity and debt instruments, fair value of intangible assets and recoverability of license content assets.
Business combinations
We account for business acquisitions under Accounting Standards Codification (“ASC”) 805, Business Combinations. The total purchase consideration for an acquisition is measured as the fair value of the assets given, equity
7
instruments issued and liabilities assumed on the acquisition date. Costs that are directly attributable to the acquisition are expenses as incurred. Identifiable assets (including intangible assets), liabilities assumed (including contingent liabilities) and noncontrolling interests in an acquisition are measured initially at their fair values on the acquisition date. We recognize goodwill if the fair value of the total purchase consideration and any noncontrolling interest is in excess of the net fair value of the identifiable assets and useful livesthe liabilities assumed. The results of assets.operations of the acquired business are included in the consolidated financial statements beginning on the acquisition date.
Variable interest entities (“VIE”)
Variable interests are contractual, ownership or other monetary interests in an entity that change with fluctuations in the fair value of the entity’s net assets exclusive of variable interests. A VIE can arise from items such as lease agreements, loan arrangements, guarantees or service contracts. An entity is a VIE if (a) the entity lacks sufficient equity or (b) the entity’s equity holders lack power or the obligation and right as equity holders to absorb the entity’s expected losses or to receive its expected residual returns.
If an entity is determined to be a VIE, the entity must be consolidated by the primary beneficiary. The primary beneficiary is the holder of the variable interests that has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and has the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. Therefore, we must identify which activities most significantly impact the VIE’s economic performance and determine whether it, or another party, has the power to direct those activities. As of December 31, 2021, and September 30, 2021, we had 0 investments that qualify as VIE.
License Content AssetsSegment reporting
We report as 1 reportable segment because we do not have more than 1 operating segment. Our business activities, revenues and expenses are evaluated by management as 1 reportable segment.
Cash
Cash and cash equivalents include all highly liquid monetary instruments with original maturities of three months or less when purchased. These investments are carried at cost, which approximates fair value. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash deposits. We maintain our cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”). At times, our cash and cash equivalent balances may be uninsured or in amounts that exceed the FDIC insurance limits. We have not experienced any loses on such accounts. On December 31, 2021, and September 30, 2021, we had 0 cash equivalents.
As of December 31, 2021, and September 30, 2021, approximately $1,162,098 and $3,655,716 of cash exceeded the FDIC insurance limits, respectively.
Accounts receivable
Accounts receivable represent amounts due from customers. We assess the collectability of receivables on an ongoing basis. A provision for the impairment of receivables involves significant management judgment and includes the review of individual receivables based on individual customers, current economic trends and analysis of historical bad debts. As of December 31, 2021, and September 30, 2021, we recorded an allowance for doubtful accounts of $446,812 and $216,238, respectively.
Concentration of credit risk
We grant credit in the normal course of business to our customers. Periodically, we review past due accounts and makes decisions about future credit on a customer by customer basis. Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to discharge an obligation.
Our concentration of credit risk was not significant as of December 31, 2021, and September 30, 2021.
8
License Content Asset
On January 1, 2020, the Companywe adopted the guidance in Accounting Standards Update (“ASU”)ASU 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials, on a prospective basis. The Company capitalizesWe capitalize the fixed content fees and itsour corresponding liability when the license period begins, the cost of the content is known, and the content is accepted and available for streaming. The Company amortizesIf the licensing fee is not determinable or reasonably estimable, no asset or liability is recorded, and licensing costs are expensed as incurred. We amortize licensed content assets into cost of revenue, using the straight-line method over the contractual period of availability. The liability is paid in accordance with the contractual terms of the arrangement.
Goodwill and other intangible assets
Fair ValueGoodwill represents the excess of Financial Instruments
The Company determinesthe purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill and other intangible assets determined to have an indefinite useful life are not amortized but are subject to impairment tests. We conduct our annual impairment tests or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. We conducted the annual impairment test on September 30, 2021.
When evaluating goodwill and indefinite-lived intangible assets for impairment, we may first perform an assessment of qualitative factors to determine if the fair value of the reporting unit or the intangible asset is more-likely-than-not greater than the carrying amount. Significant factors considered in this assessment include, but are not limited to, macro-economic conditions, market and industry conditions, cost considerations, the competitive environment, overall financial performance, and results of past impairment tests. If, based on a review of the qualitative factors, we determine it is more-likely-than-not that the fair value is greater than the carrying value, we may bypass a quantitative test for impairment.
In performing the quantitative test for impairment of goodwill, we compare the fair value of each reporting unit with it carrying amount, including goodwill, in order to identify a potential impairment. Measurement of the fair value of a reporting unit is based on a fair value measure using the sum of the discounted estimated future cash flows. Estimates of forecasted cash flows involve measurement uncertainty, and it is therefore possible that reductions in the carrying value of goodwill may be required in the future because of changes in management’s future cash flow estimates. When the fair value of a reporting unit is less than it carrying amount, goodwill of the reporting unit is considered to be impaired. Effective January 1, 2020, we adopted the guidance in Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment, which measures impairment amount as the excess of a reporting unit’s carrying amount over its fair value as determined by the quantitative test.
Operating leases
We determine if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the consolidated balance sheet.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. For lease agreements with terms less than 12 months, we have elected the short-term lease measurement and recognition exemption, and recognize such lease payments on a straight-line basis over the lease term.
9
Fair value measurement
We determine the fair value of our assets and liabilities using a hierarchy established by the accounting guidance that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The three levels of valuation hierarchy are defined as follows:
● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
10
● | Level 2 inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
● | Level 3 inputs to the valuation methodology is one or more unobservable inputs which are significant to the fair value measurement. |
The carrying amount of the Company’sour financial instruments, including cash, accounts receivable, deposits, short-term portion of notes receivable and notes payable, and current liabilities approximate fair value due to their short-term nature. The Company doesWe do not have financial assets or liabilities that are required under US GAAP to be measured at fair value on a recurring basis. The Company hasWe have not elected to use fair value measurement option for any assets or liabilities for which fair value measurement is not presently required.
The Company recordsWe record assets and liabilities at fair value on nonrecurring basis as required by US GAAP. Assets recognized or disclosed at fair value in the condensed consolidated financial statements on a nonrecurring basis include items such as property and equipment, operating lease assets, goodwill, and other intangible assets, which are measured at fair value if determined to be impaired.
The following table summarizes changes in fair value measurements of the Derivative Liability during the three months ended December 31, 2021:
Net Loss per Share
| | | | | | | | | | | |
| | Quoted Prices in | | | |
| | Significant |
| | |
| | Active Markets | | | Significant Other | | | Unobservable | | | |
| | For Identical Items | | | Observable Inputs | | | Inputs | | | |
| | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total |
Derivative liabilities | | — | | | — | | | 959,888 | | | 959,888 |
Total | $ | — | | $ | — | | $ | 959,888 | | $ | 959,888 |
The Company accountsfollowing table summarizes changes in fair value measurements of the Derivative Liability during the three months ended September 30, 2021:
| | | | | | | | | | | |
| | Quoted Prices in | | | |
| | Significant |
| | |
| | Active Markets | | | Significant Other | | | Unobservable | | | |
| | For Identical Items | | | Observable Inputs | | | Inputs | | | |
| | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total |
Derivative liabilities | | — | | | — | | | 1,058,633 | | | 1,058,633 |
Total | $ | — | | $ | — | | $ | 1,058,633 | | $ | 1,058,633 |
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The following table summarizes changes in fair value measurements of the Derivative Liability during the three months ended December 31, 2021:
| | | | |
|
| |
| |
| | | | |
Balance as of September 30, 2021 | | $ | 1,058,633 | |
Change in fair value | |
| (98,745) | |
Balance as of December 31, 2021 | | $ | 959,888 | |
The following table summarizes the unobservable inputs used in the valuation of the derivatives during the three months ended December 31, 2021:
| |
| |
Expected term | 0.92 - 2 years |
| |
Discount rate | 7.12% - 11.09% |
| |
Volatility | 75% - 110.0% |
Convertible debt and derivative treatment
When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock, and b) classified in shareholders’ equity in its statement of financial position.
If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using the Monte Carlo Method upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt.
Convertible debt and beneficial conversion features
If the conversion feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF”). A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible and is recorded as additional paid in capital and as a debt discount in the consolidated balance sheets. We amortize the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.
If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt.
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Advertising costs
We expense all advertising costs as incurred. Advertising and marketing costs for the three months ended December 31, 2021, and 2020 were $1,198,000 and $780,000, respectively.
Revenue recognition
We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers, when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration we expect to receive in exchange for those products. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Revenues are recognized under Topic 606 in a manner that reasonably reflects the delivery of our products and services to customers in return for expected consideration and includes the following elements:
● | executed contracts with our customers that it believes are legally enforceable; |
● | identification of performance obligations in the respective contract; |
● | determination of the transaction price for each performance obligation in the respective contract; |
● | allocation of the transaction price to each performance obligation; and |
● | recognition of revenue only when we satisfy each performance obligation. |
Performance obligations and significant judgments
Our revenue streams can be categorized into the following performance obligations and recognition patterns:
o | Delivery of streaming services including content encoding and hosting. We recognize revenue over the term of the service based on bandwidth usage. |
o | Delivery of subscription content services in customized formats. We recognize revenue over the term of the service. |
o | Delivery of hardware for ongoing subscription content delivery through software. We recognize revenue at the point of hardware delivery. |
o | Revenue share arrangements, where platform providers distribute our licensed content and providers pay us a portion of the usage-based advertising revenues. |
Transaction prices for performance obligations are explicitly outlined in relevant agreements; therefore, we do not believe that significant judgments are required with respect to the determination of the transaction price, including any variable consideration identified.
Customer acquisition costs
We record commission expense associated with subscription revenue. Commissions are included in operating expenses. We have elected the practical expedient that allows us to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.
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Cost of revenue
Cost of revenue represents the cost of the delivered hardware and related bundled software and is recognized at the time of sale. For ongoing licensing and hosting fees, cost of sales is recognized over time based on usage patterns.
Deferred income
We bill subscription services in advance of when the service period is performed. The deferred income recorded at December 31, 2021, and September 30, 2021, represents our accounting for the timing difference between when the subscription fees are received and when the performance obligation is satisfied.
Net loss per share
We account for net loss per share in accordance with Accounting Standards Codification (“ASC”) ASC subtopic 260-10, Earnings Per Share (“ASC 260-10”), which requires presentation of basic and diluted earnings per share ("EPS"(“EPS”) on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during each period. It excludes the dilutive effects of any potentially issuable common shares.
Diluted net loss per share is calculated by including any potentially dilutive share issuances in the denominator.
The following securities are excluded from the calculation of weighted average diluted shares at June 30,December 31, 2021, and December 31, 2020, respectively, because their inclusion would have been anti-dilutive.
| | | | | | | | |
|
| June 30, |
| June 30, |
| December 31, |
| December 31, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Options to purchase common stock |
| 17,708,356 |
| 8,312,307 |
| 18,638,806 |
| 8,312,306 |
Warrants to purchase common stock |
| 8,891,240 |
| 8,217,376 |
| 15,464,700 |
| 8,585,558 |
Series A preferred stock |
| — |
| 3,066,700 |
| — |
| 3,066,700 |
Series B preferred stock |
| 20,000,000 |
| 20,000,000 |
| 20,000,000 |
| 20,000,000 |
Convertible debentures |
| 6,854,219 |
| 6,788,027 |
| 5,393,685 |
| 7,079,622 |
Total common stock equivalents |
| 53,453,815 |
| 46,384,410 |
| 59,497,191 |
| 47,044,186 |
ApplicationStock-based compensation
Share-based compensation issued to employees is measured at the grant date, based on the fair value of New Accounting Standards
In December 2019, the FASBaward, and is recognized as an expense over the requisite service period. We measure the fair value of the share-based compensation issued ASU 2019-12, Income Taxes (Topic 740): Simplifyingto non-employees using the Accounting for Income Taxesstock price observed in the trading market (for stock transactions) or the fair value of the award (for non-stock transactions), which were more reliably determinable measures of fair value than the value of the services being rendered. The measurement date is intendedthe earlier of (1) the date at which commitment for performance by the counterparty to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions toearn the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidanceequity instruments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company elected adoption of this standard on its condensed consolidated financial statements and related disclosures effective January 1, 2021.
reached, or (2) the date at which the counterparty’s performance is complete.
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Recent Accounting Pronouncements
In September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for fiscal years beginning after December 15, 2022. While the Company is currently evaluating the impact that the adoption of this guidance will have on its condensed consolidated financial statements, it does not expect the adoption to have a material impact on its condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock. As well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related EPS guidance. The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for periods beginning after December 15, 2020. Adoption of the ASU can either be on a modified retrospective or full retrospective basis. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.
NOTE 3 – BUSINESS COMBINATION
Business acquisition of EON Media Group
The Company obtained control of EON Media Group through two investments, which ASC 805 refers to as a “business combination achieved in stages.” On December 1, 2020, the Company acquired from Ithaca EMG Holdco LLC (Ithaca) 1,350 ordinary shares and 1,084 preference shares issued by EON Media Group Pte. Ltd (EON Media Group). The first stage of the transaction resulted in Company acquiring a 20% equity interest in EON Media Group, and was recorded as an equity method investment. The purchase price consideration for the acquired shares consisted of $750,000 in cash and 454,463 shares of the Company’s common stock valued at $863,480. For the six months ended June 30, 2021, the Company recognized equity method income of $1,551.
On April 27, 2021, the Company acquired from Far West Entertainment 3,650 ordinary shares, from a private individual 3,650 ordinary shares and from Ithaca EMG Holdco LLC (Ithaca) 1,350 ordinary shares and 1,084 preference shares issued by EON Media Group Pte. Ltd (EON Media Group). The second stage of the transaction resulted in the Company acquiring the remaining 80% equity interest in EON Media Group. The purchase price consideration for the acquired shares consisted of $750,000 in cash and 2,003,435 shares of the Company’s common stock valued at $5,689,755.
The allocation of the purchase consideration is as follows:
| | | |
|
| April 27, | |
| | 2021 | |
Fair value of shares issued | | $ | 5,689,755 |
Cash consideration | |
| 750,000 |
Fair value of prior investment in EON Media Group | |
| 1,615,030 |
Total consideration paid | | $ | 8,054,785 |
| | | |
For the period ended June 30, 2021, the Company incurred transaction costs of $42,507, included in Selling, general and administrative expense on the unaudited condensed consolidated statement of operations. Certain estimated values for the acquisition, including intangible assets, goodwill and deferred taxes are not yet finalized.
12
The preliminary purchase price allocation is as follows:
| | | |
|
| April 27, | |
| | 2021 | |
Cash and cash equivalents | | $ | 63 |
Goodwill | |
| 5,829,722 |
Brand name intangible asset | |
| 2,300,000 |
Current liabilities | | | (75,000) |
Total purchase price allocation | | $ | 8,054,785 |
The proforma disclosures were not materially different from the historical results of the Company.
NOTE 43 – GOODWILL AND OTHER INTANGIBLE ASSETSINVENTORY
As of June 30, 2021, and December 31, 2020, the balance of goodwill was $6,412,808 and $583,086, respectively. On April 27, 2021, the EON Media Group acquisition value of goodwill was $5,754,785 (see Note 3). EON Media Group’s post-acquisition adjustments were $74,937.
The Company’s other intangible assetsOur finished goods inventory consisted of the following at June 30,on December 31, 2021, and December 31, 2020:September 30, 2021:
| | | | | | | | |
| | | | June 30, |
| December 31, | ||
|
| Useful life |
| 2021 |
| 2020 | ||
Screenplay brand | | not applicable | | $ | — | | $ | 130,000 |
Customer relationships | | nine years | |
| 1,012,000 | |
| 1,012,000 |
Content library | | two years | |
| 198,000 | |
| 198,000 |
Brand name | | twenty years | | | 2,300,000 | | | — |
Technology | | two years | | | 2,671,233 | | | 2,671,233 |
Total intangible assets, gross | | | |
| 6,181,233 | |
| 4,011,233 |
| | | | | | | | |
Less: Impairment of intangible assets | | | |
| — | |
| (130,000) |
Less: accumulated amortization | | | |
| (1,439,683) | |
| (711,967) |
Total intangible accumulated amortization | | | |
| (1,439,683) | |
| (841,967) |
Total intangible assets, net | | | | $ | 4,741,550 | | $ | 3,169,266 |
| | | | | | |
|
| December 31, |
| September 30, | ||
| | 2021 | | 2021 | ||
Computers | | $ | 6,535 | | $ | 6,881 |
Hasp keys | |
| 3,416 | |
| 3,581 |
Loop player | |
| 104,772 | |
| 212,586 |
Total inventory | | $ | 114,723 | | $ | 223,048 |
Amortization
NOTE 4 – LICENSE CONTENT ASSETS
License Content Assets
To stream video content to the users, we generally secure intellectual property rights to such content by obtaining licenses from, and paying royalties or other consideration to, rights holders or their agents. The licensing arrangements can be for a fixed fee, variable fee, or combination of both. The licensing arrangements specify the period when the content is available for streaming. The license content assets are two years in duration and include prepayments to distributors for customer subscription revenues, per play usage fees, and ad supported fees.
As of December 31, 2021, license content assets were $539,208 recorded as License content asset, net – current and $365,360 recorded as License content asset, net – noncurrent. On December 30, 2020, we issued common shares capitalized as License content asset and we subsequently deemed the equity portion of the consideration paid was not recoverable and not recoupable and therefore impaired the License content asset for the value of the capitalized shares for $2,260,799 on December 31, 2020.
We recorded amortization expense charged to operations amounted to $373,933of $311,055 and $56,292 respectively,$170,682 for the three months ended June 30,December 31, 2021, and 2020, and $727,715 and $112,583, respectively, in cost of revenue, in the consolidated statements of operations, related to capitalized license content assets. The amortization expense for the sixnext two years for capitalized license content assets as of December 31, is $746,722 in 2022, and $157,846 in 2023.
License Content Liabilities
On December 31, 2021, we had $404,000 of obligations comprised of $404,000 in License content liability – current and $0 in License content liability – noncurrent on the Consolidated Balance Sheets. Payments for content liabilities for the three months ended June 30,December 31, 2021, and 2020.were $581,000. The expected timing of payments for these content obligations is $404,000 payable in fiscal year 2022. Certain contracts provide for recoupment of payments on minimum obligations during the term of the contracts.
NOTE 5 – LICENSE CONTENT5. GOODWILL AND OTHER INTANGIBLE ASSETS
License Content Assets
To stream video content to the users, the Company generally secures intellectual property rights to such content by obtaining licenses from, and paying royalties or other consideration to, rights holders or their agents. The licensing arrangements can be for a fixed fee, variable fee, or combination of both. The licensing arrangements specify the period when the content is available for streaming. The license content assets are two years in duration and include prepayments to distributors for customer subscription revenues, per play usage fees, and ad supported fees.
As of JuneDecember 31, 2021, and September 30, 2021, license contentthe balance of goodwill was $1,970,321 and $1,970,321, respectively.
Our other intangible assets, were $1,484,213 classifiedeach definite lived assets, consisted of the following as $1,147,853 License content asset, net – current and $336,360 recorded as License content asset, net – noncurrent.
The Company recorded amortization expense of $610,397 and $0 for the periods ended June 30,December 31, 2021, and 2020, respectively, in cost of revenue, in the condensed consolidated statements of operations, related to capitalized licenseSeptember 30, 2021:
| | | | | | | | |
| | | | December 31, | September 30, |
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|
| Useful life |
| 2021 |
| 2021 | ||
Customer relationships | | nine years | | $ | 1,012,000 | | $ | 1,012,000 |
Content library | | two years | |
| 198,000 | |
| 198,000 |
Total intangible assets, gross | | | |
| 1,210,000 | |
| 1,210,000 |
| | | | | | | | |
Less: accumulated amortization | | | |
| (535,333) | |
| (507,222) |
Total | | | |
| (535,333) | |
| (507,222) |
Total intangible assets, net | | | | $ | 674,667 | | $ | 702,778 |
content assets. The amortization
Amortization expense charged to operations amounted to $32,403 and $335,078, respectively, for the remaining sixthree months ended December 31, 2021, is $627,353 and for yearthe three months ended December 31, 2022,2020.
Annual amortization expense for the next five years and thereafter is $856,860.
License Content Liabilities
At June 30, 2021,estimated to be $80,041 (remaining in 2022), $112,444, $112,444, $112,444, $112,444, and $112,444, respectively. The weighted average life of the Company had $1,024,500 of obligations comprised of $1,024,500 in License content liability – current and $0 in License content liability – noncurrentintangible assets subject to amortization is 6 years on the condensed consolidated balance sheets. The expected timing of payments for these content obligations is $639,500 payable in 2021 and $385,000 payable by June 30, 2022 or thereafter.December 31, 2021.
NOTE 6 – LEASES
Operating leases
The Company hasWe have operating leases for office space.space and office equipment. Many leases include one or more options to renew, some of which include options to extend the leases for a long-term period, and some leases include options to terminate the leases within 30 days. In certain of the Company’sour lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for capital area maintenance, utilities, inflation and/or changes in other indexes.
Lease liability is summarized below:
| | | | | | | | | | | | |
|
| June 30, |
| December 31, |
| December 31, |
| September 30, | ||||
| | 2021 | | 2020 | | 2021 | | 2021 | ||||
Short term portion | | $ | 161,662 | | $ | 145,271 | | $ | 170,533 | | $ | 167,101 |
Long term portion | |
| 119,178 | |
| 208,625 | |
| 32,749 | |
| 75,530 |
Total lease liability | | $ | 280,840 | | $ | 353,896 | | $ | 203,282 | | $ | 242,631 |
Maturity analysis under these lease agreements are as follows:
| | | | | | |
|
| | |
| | |
Six months ending December 31, 2021 |
| $ | 84,390 | |||
2022 | |
| 170,185 | | $ | 185,834 |
2023 | |
| 53,233 | |
| 37,584 |
Total undiscounted cash flows | |
| 307,808 | |
| 223,418 |
Less: 10% Present value discount | |
| (26,968) | |
| (20,136) |
Lease liability | | $ | 280,840 | | $ | 203,282 |
| | | | | | |
| | | ||||
| | Three months ended December 31. | ||||
|
| 2021 |
| 2020 | ||
Operating lease expense | | $ | 44,444 | | $ | 44,444 |
Short-term lease expense | |
| 2,100 | |
| 3,033 |
Total lease expense | | $ | 46,544 | | $ | 47,477 |
Lease expense for the six months ended June 30, 2021 and 2020 was comprised of the following:
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | ||||
|
| 2021 |
| 2020 | ||
Operating lease expense | | $ | 88,888 | | $ | 88,888 |
Short-term lease expense | |
| 8,398 | |
| 4,587 |
Total lease expense | | $ | 97,286 | | $ | 93,475 |
LeaseOperating lease expense is included in selling, general and administration expenses in the condensed consolidated statement of operations.
For the six months ended June 30, 2021, cash payments against lease liabilities totaled $90,121, accretion on lease liability of $17,065.
For the six months ended June 30, 2020, cash payments against lease liabilities totaled $87,976, accretion on lease liability of $23,242 and non-cash transactions totaled $20,825 to recognize assumption of lease by a related party.
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For the three months ended December 31, 2021, cash payments against lease liabilities totaled $45,238, accretion on lease liability of $5,889.
For the three months ended December 31, 2020, cash payments against lease liabilities totaled $44,086, accretion on lease liability of $9,584.
Weighted-average remaining lease term and discount rate for operating leases are as follows:
| | | |
Weighted-average remaining lease term |
|
| |
Weighted-average discount rate |
| 10 | % |
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of June 30,December 31, 2021, and December 31, 2020:September 30, 2021:
| | | | | | | | | | | | |
|
| June 30, |
| December 31, |
| December 31, |
| September 30, | ||||
| | 2021 | | 2020 | | 2021 | | 2021 | ||||
Accounts payable | | $ | 422,484 | | $ | 683,845 | | $ | 1,465,271 | | $ | 1,147,585 |
Interest payable | |
| 43,482 | |
| 59,818 | |
| 201,818 | |
| 106,631 |
Accrued liabilities | |
| 162,596 | |
| 193,500 | |
| 1,600,564 | |
| 941,440 |
Payroll liabilities | |
| 19,940 | |
| 27,113 | |
| 20,250 | |
| 20,250 |
Total accounts payable and accrued expenses | | $ | 648,502 | | $ | 964,276 | | $ | 3,287,903 | | $ | 2,215,906 |
NOTE 8 – NOTE PAYABLE
PPP loan round 1
On May 10,December 28, 2021, the Companywe received a notification from the Small Business Association for the full forgiveness of the PPP loan of $573,500$486,638 received on April 27, 2020.26, 2021. The first round of PPP loansloan forgiven consisted of $573,500$486,638 principal and $5,986$3,413 accrued interest;interest, which are included in other income for the periodthree months ending June 30,December 31, 2021.
PPP loan round 2
On April 26, 2021, the Company received the proceeds from a loan in the amount of $486,638, pursuant to the Paycheck Protection Program of the CARES Act (“PPP”). The loan matures on April 19, 2026, and bears interest at a rate of 1% per annum. The loan is evidenced by a promissory note, dated as of April 19, 2021, which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. All or a portion of the loan may be forgiven by the U.S. Small Business Administration (the “SBA”) upon application by the Company beginning 8 weeks but not later than 24 weeks (“covered period”) after loan approval and upon documentation of expenditures in accordance with the SBA requirements. The loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Repayment begins 10 months after the covered period (any length between eight and 24 weeks) with payments to begin July 31, 2022. The current portion of the loan is $0, assuming payments will begin on July 31, 2022. Principal payments are $0 in 2021, $57,330 in 2022, $127,295 in 2023, $128,566 in 2024, and $173,447 in 2025 and thereafter. Interest expense for the period ending June 30, 2021, is $960.
In the event the loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. While the Company intends to apply for the forgiveness of the loan, there is no assurance that the Company will obtain forgiveness of the loan in whole or in part. The Company intends to use the proceeds from the loan for qualifying expenses.
The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to consider its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria.
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NOTE 9 – CONVERTIBLE DEBENTURES PAYABLE
| | | | | | | | | |
Convertible debentures as of June 30, 2021: | | | | | | | | | |
| | | | Unpaid | Contractual | | | | |
| | Net Carrying Value | Principal | Interest Rates | Contractual | | Warrants | ||
Related party convertible debentures: | | Current | Long Term | Balance | Cash | PIK | Maturity Date | | issued |
$3,000,000 convertible debenture amended October 23, 2020 | (1) | $ 599,456 | $ 920,567 | $ 2,980,855 | 10% | | 12/1/2023 | | 3,550,709 |
$750,000 convertible debenture, December 1, 2020 | (2) | - | 216,781 | 750,000 | 4% | 6% | 12/1/2022 | | 68,182 |
$800,000 convertible debenture, April 1, 2021 | (2) | - | 118,227 | 800,000 | 4% | 6% | 12/1/2022 | | 72,727 |
$400,000 convertible debenture, May 1, 2021 | (2) | - | 41,451 | 400,000 | 4% | 6% | 12/1/2022 | | 36,364 |
| (2) | - | 20,475 | 400,000 | 4% | 6% | 12/1/2022 | | 36,364 |
$400,000 convertible debenture, June 2, 2021 | | $ 599,456 | $ 1,317,501 | $ 5,330,855 | | | | | |
| | | | | | | | | |
Convertible debentures: | | | | | | | | | |
$287,000 convertible debenture amended October 22, 2020 | (3) | $ 71,578 | $ 123,383 | $ 209,967 | 10% | | 12/1/2023 | | |
$400,000 convertible debenture converted January 8, 2021 | (4) | - | - | - | 11% | | 1/8/2021 | | |
$350,000 convertible debenture, January 12, 2021 | (2) | - | 85,974 | 350,000 | 4% | 6% | 12/1/2022 | | 87,500 |
$250,000 convertible debenture, May 21, 2021 | (2) | - | 16,637 | 250,000 | 4% | 6% | 12/1/2022 | | 22,727 |
Total convertible debentures, net | | $ 71,578 | $ 225,994 | $ 809,967 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Convertible debentures as of December 31, 2020: | | | | | | | | | |
| | | | Unpaid | Contractual | | | | |
| | Net Carrying Value | Principal | Interest Rates | Contractual | | Warrants | ||
Related party convertible debentures: | | Current | Long Term | Balance | Cash | PIK | Maturity Date | | issued |
$3,000,000 convertible debenture amended October 23, 2020 | (1) | $ 279,705 | $ 1,192,946 | $ 3,232,235 | 10% | | 12/1/2023 | | 3,550,709 |
$750,000 convertible debenture, December 1, 2020 | (2) | - | 30,822 | 750,000 | 4% | 6% | 12/1/2022 | | 68,182 |
Total related party convertible debentures, net | | $ 279,705 | $ 1,223,768 | $ 3,982,235 | | | | | |
| | | | | | | | | |
Convertible debentures: | | | | | | | | | |
$287,000 convertible debenture amended October 22, 2020 | (3) | $ 67,800 | $ 160,165 | $ 246,044 | 10% | | 12/1/2023 | | |
$400,000 convertible debenture amended August 20, 2019 | (4) | 326,143 | - | 326,143 | 11% | | 1/8/2021 | | |
Total convertible debentures, net | | $ 393,943 | $ 160,165 | $ 572,187 | | | | | |
| | | | | | | | | | | | | | | | |
Convertible debentures as of December 31, 2021: | | | | | | | | | | | | | | | | |
| | | | | | | | Unpaid | | Contractual | | | | | ||
| | Net Carrying Value | | Principal | | Interest Rates | | Contractual | | Warrants | ||||||
Related party convertible debentures: | | Current | | Long Term | | Balance | | Cash | PIK | | Maturity Date | | issued | |||
$3,000,000 convertible debenture amended October 23, 2020 | (1) | $ | 558,689 |
| $ | 726,839 | | $ | 2,442,896 | | 10% | | | 12/1/2023 | | 3,550,709 |
$750,000 convertible debenture, December 1, 2020 | (2) | | 582,256 | | | — | | | 750,000 | | 4% | 6% | | 12/1/2022 | | 68,182 |
$800,000 convertible debenture, April 1, 2021 | (2) | | 591,090 | | | — | | | 800,000 | | 4% | 6% | | 12/1/2022 | | 72,727 |
$400,000 convertible debenture, May 1, 2021 | (2) | | 289,407 | | | — | | | 400,000 | | 4% | 6% | | 12/1/2022 | | 36,364 |
$400,000 convertible debenture, June 2, 2021 | (2) | | 283,769 | | | — | | | 400,000 | | 4% | 6% | | 12/1/2022 | | 36,364 |
Total related party convertible debentures, net | | $ | 2,305,211 | | $ | 726,839 | | $ | 4,792,896 | | | | | | | |
| | | | | | | | | | | | | | | | |
Convertible debentures: | | | | | | | | | | | | | | | | |
$350,000 convertible debenture, January 12, 2021 | (2) | | 266,384 | | | — | | | 350,000 | | 4% | 6% | | 12/1/2022 | | 87,500 |
$250,000 convertible debenture, May 21, 2021 | (2) | | 179,867 | | | — | | | 250,000 | | 4% | 6% | | 12/1/2022 | | 22,727 |
Total convertible debentures, net | | $ | 446,251 | | $ | — | | $ | 600,000 | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Convertible debentures as of September 30, 2021: | | | | | | | | | | | | | | | | |
| | | | | | | | Unpaid | | Contractual | | | | | ||
| | Net Carrying Value | | Principal | | Interest Rates | | Contractual | | Warrants | ||||||
Related party convertible debentures: | | Current | | Long Term | | Balance | | Cash | PIK | | Maturity Date | | issued | |||
$3,000,000 convertible debenture amended October 23, 2020 | (1) | $ | 530,226 | | $ | 876,256 | | $ | 2,715,582 | | 10% | | | 12/1/2023 | | 3,550,709 |
$750,000 convertible debenture, December 1, 2020 | (2) | | — | | | 536,508 | | | 750,000 | | 4% | 6% | | 12/1/2022 | | 68,182 |
$800,000 convertible debenture, April 1, 2021 | (2) | | — | | | 534,114 | | | 800,000 | | 4% | 6% | | 12/1/2022 | | 72,727 |
$400,000 convertible debenture, May 1, 2021 | (2) | | — | | | 259,246 | | | 400,000 | | 4% | 6% | | 12/1/2022 | | 36,364 |
$400,000 convertible debenture, June 2, 2021 | (2) | | — | | | 252,070 | | | 400,000 | | 4% | 6% | | 12/1/2022 | | 36,364 |
Total related party convertible debentures, net | | $ | 530,226 | | $ | 2,458,194 | | $ | 5,065,582 | | | | | | | |
| | | | | | | | | | | | | | | | |
Convertible debentures: | | | | | | | | | | | | | | | | |
$350,000 convertible debenture, January 12, 2021 | (3) | | — | | | 243,579 | | | 350,000 | | 4% | 6% | | 12/1/2022 | | 87,500 |
$250,000 convertible debenture, May 21, 2021 | (4) | | — | | | 160,741 | | | 250,000 | | 4% | 6% | | 12/1/2022 | | 22,727 |
Total convertible debentures, net | | $ | — | | $ | 404,320 | | $ | 600,000 | | | | | | | |
1) Unsecured convertible debentures (at $0.60 per common share) issued to related parties, amended October 23, 2020, interest at 10% per annum beginning November 1, 2020, monthly payments of unpaid interest accrued at 12.5% per annum will be paid in arrears through March 31, 2021, beginning April 1, 2021, the Companywe began paying equal monthly installments of principal and interest at 10% per annum through December 1, 2023. The debentures are convertible at any time prior to the maturity in whole or in parts into common shares of the Company at a price of $0.60 per common share. The Company issued 3,550,709 common share
1617
maturity in whole or in parts into our common shares at a price of $0.60 per common share. We issued 3,550,709 common share purchase warrants, with each warrant exercisable at $0.86 for a period of 10 years. The beneficial conversion feature totaled $612,313 and was recorded as a debt discount. The CompanyWe also recorded the allocated fair value of the warrants $2,387,687 as additional debt discount.
(2) On December 1, 2020, the Companywe offered, in a private placement, the aggregate offering amount of up to $3,000,000 of Senior Secured Promissory Debentures, with a minimum subscription amount of $250,000 and common stock warrants with an aggregate exercise price of $750,000 and aggregate exercisable warrant shares of 272,727 shares.
We treated the conversion feature as a derivative instrument. At the option of the Senior Secured Promissory Note holders, the notes are convertible at the earlier of a change of control event, a Qualified IPO, both of which are defined in the Promissory Note Agreement or the maturity date of December 1, 2022. If the conversion takes place at the maturity date, the note will be converted in whole or in parts (which cannot be less than 50% of the amount due under the note) into an amount of shares equal to the amount due divided by the average of the VWAP of common stock during each trading day during the thirty trading day period ending one trading day prior to the maturity date. If the conversion takes place at the change of control date, the note will be converted into an amount of shares equal to the amount due divided by the average of the VWAP of common stock during each trading day during the ten trading day period ending one trading day prior to the change of control effective date. In the event of a Qualified IPO, but subject to the closing of such Qualified IPO, the amount due shall convert in full on the closing date of such Qualified IPO into a number of shares equal to the amount due on such closing date divided by the applicable IPO conversion price, as defined in the Promissory Note Agreement.
The Senior Secured Promissory Debentures under the offering accrue cash interest at 4% per annum and payment in kind (PIK) interest at 6% payable in the Company’sour common stock, determined on a 360-day basis. Cash interest is payable in advance for the period from the issue date to November 30, 2021, and then is payable six months in arrears on June 1, 2022, then six months in arrears on December 1, 2022. The accrued PIK interest is payable in shares of common stock in an amount equal to the amount of PIK Interest accrued as of such date, divided by the volume weighted average price (VWAP) of common stock during each trading day during the ten-trading day period ending one trading day prior to the PIK Interest Payment due dates of June 1, 2021, December 1, 2021, June 1, 2022, and December 1, 2022. The debenture discount for each tranche was initially recorded as follows:proceeds received upon issuing the Senior Secured Promissory Debentures were first allocated to the fair value of the embedded features with the remainder to the debt host instrument.
● | $750,000 December 1, 2020 debenture the |
● | $350,000 January 12, 2021 debenture the |
● | $800,000 April 1, 2021 debenture the |
● | $400,000 May 1, 2021 debenture the |
● | $250,000 May 21, 2021 debenture the |
● | $400,000 June 2, 2020 debenture the |
(3) Convertible debentures (at $0.60 per common share) issued to a former officer of the Company, interest at 10% per annum, amended as of October 22, 2020, provides those monthly payments of $7,939 including principal and interest are to be made beginning December 1, 2020 through its maturity date of December 1, 2023; secured by 5,000,000 shares of the Company’s common stock which are owned by the Company’s Chief Executive Officer. At the option of the debenture holder, the debenture is convertible at any time prior to December 1, 2023 in whole or in parts into common stock of the Company at a price of $0.60 per common share. As the effective conversion rate based on the principal $287,000 was $0.60 per share which was less than the Company’s stock price on the date of issuance, a beneficial conversion feature was present at the issuance date. The beneficial conversion feature totaled $30,996 and was recorded as a debt discount.
(4) Secured convertible debenture (primary interest in all Company assets), interest at 11% per annum, accrued monthly and the outstanding principal and unpaid accrued interest was due January 8, 2021. $326,143 total debenture and $50,213 of unpaid accrued interest was converted into 1,003,618 shares of common stock on January 8, 2021. The lender received 1,003,618 shares of common stock from this conversion and the Company recognized no gain or loss.
1718
The following table presents the interest expense related to the contractual interest coupon and the amortization of debt discounts on the convertible debentures:
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | Three months ended December 31, | |||||||||||
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | 2021 | | | 2020 |
Interest expense | $ | 142,066 | | $ | 93,001 | | $ | 274,463 | | $ | 189,387 | $ | 145,869 | | $ | 212,372 |
Amortization of debt discounts | | 488,440 | | | 151,052 | | | 770,546 | | | 302,104 | | 358,248 | | | 183,533 |
Total | $ | 630,506 | | $ | 244,053 | | $ | 1,045,009 | | $ | 491,491 | $ | 504,117 | | $ | 395,905 |
| | | |
|
| | |
For the nine months remaining 2022 | | $ | 859,518 |
2023 | |
| 4,200,761 |
2024 | |
| 332,616 |
Convertible debentures payable, related and non related party | |
| 5,392,895 |
Less: Debt discount on convertible debentures payable | |
| (1,914,595) |
Total convertible debentures payable, related and non related party, net | | $ | 3,478,300 |
Maturity analysis as of June 30, 2021 under total convertible debentures, net are as follows:
| | | |
Six months remaining 2021 | | $ | 667,873 |
2022 | |
| 4,202,270 |
2023 | |
| 1,270,681 |
Convertible debentures payable, related and non related party | |
| 6,140,824 |
Less: Debt discount on convertible debentures payable | |
| (3,926,294) |
Total convertible debentures payable, related and non related party, net | | $ | 2,214,530 |
1819
NOTE 10 – COMMITMENTS AND CONTINGENCIES
The CompanyWe may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. There are no0 such loss contingencies that are included in the financial statements as of June 30,December 31, 2021.
NOTE 11 – RELATED PARTY TRANSACTIONS
Related parties are natural persons or other entities that have the ability, directly or indirectly, to control another party or exercise significant influence over the party making financial and operating decisions. Related parties include other parties that are subject to common control or that are subject to common significant influences.
The CompanyWe borrowed funds for business operations from a certain shareholdersstockholder and board member through convertible debenture agreements and hashave remaining balances, including accrued interest amounting to $5,370,729$3,130,834 and $3,988,693$2,448,871 as of JuneDecember 31, 2021, and September 30, 2021, respectively. We incurred interest expense, including amortization of debt discount for these convertible debentures in the amounts of $223,818 and $21,708 for the three months ended December 31, 2021, and 2020, respectively. See Note 9 for convertible debentures discussion.
NOTE 12 –STOCKHOLDERS’ EQUITY (DEFICIT)
Convertible Preferred Stock
Of the 16,666,667 shares of preferred stock authorized, we had designated (i) 3,333,334 shares of preferred stock as Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and (ii) 3,333,334 shares of preferred stock as Series B Convertible Preferred Stock (the “Series B Preferred Stock.” As of December 31, 2021, and December 31, 2020, we had 0 and 30,667 shares of Series A Preferred Stock issued and outstanding, respectively. The Company incurred interest expense for these convertible notes in the amountsAs of $125,251 and $78,130 for the three months ended June 30,December 31, 2021, and December 31, 2020, respectively,we had 200,000 and in the amounts200,000 shares of $243,368Series B Preferred Stock issued and $152,925 for the six months ended June 30, 2021 and 2020,outstanding, respectively.
NOTE 12 –STOCKHOLDERS’ EQUITY
ConvertibleEach share of Series B Preferred Stock
The Company is authorized to issue 16,666,667 shares of its $0.0001 par value preferred stock. The Series A convertible preferred stock have has a liquidation preference of $0.10$1.50 per share, have super voting rights ofis entitled to 100 votes per share and each share of Series A may be converted into 100 shares of common stock.
The Series B Convertible Preferred Stock is convertible at any time at the discretion of the holder thereof into 100 shares of common stock. We evaluated the features of the Convertible Preferred Stock under ASC 480 and classified them as permanent equity because the Convertible Preferred stock is not mandatorily or contingently redeemable at the stockholder’s option and the liquidation preference that exists does not fall within the guidance of SEC Accounting Series Release No. 268 – Presentation in Financial Statements of “Redeemable Preferred Stocks” (“ASR 268”).
Common stock
Our authorized capital stock consists of 316,666,667 shares of common stock, at a conversion rate$0.0001 par value per share, and 16,666,667 shares of one hundred (100)preferred stock, $0.0001 par value per share. As of December 31, 2021, and December 31, 2020, there were 133,470,020 and 116,800,982, respectively, shares of common stock issued and outstanding.
Three months ended December 31, 2021
See Note 13 – Stock Options and Warrants for stock compensation discussion.
Three months ended December 31, 2020
During the three months ended December 31, 2020, we issued an aggregate of 704,000 shares of common stock for every one (1) share of Series B Convertible Preferred Stock. Furthermore, the holders of Series B Convertible Preferred Stock have the right to cast one hundred (100) votes for each one (1) share of Series B Convertible Preferred Stock held of record on all matters submitted to a vote of holders of the common stock, including the election of directors, and all other matters as required by law.
On January 31, 2020, the Company filed a certificate of designation with the Nevada Secretary of State and designated 3,333,334 shares of Series B Convertible Preferred Stock. The terms of the Series B Convertible Preferred Stock are substantially similar to those of the Series A Convertible Preferred Stock, except that in the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of the Series B Convertible Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, an amount equal to $1.00 per share of Series B Convertible Preferred Stock before any payment shall be made or any assets distributed to the holders of common stock or Series A Convertible Preferred Stock.
In May, shareholders owning 30,667 shares of series A convertible preferred stock converted the shares into 3,066,700 shares of the Company’s common stock. As a result, the Company had 0 shares of Series A convertible preferred stock outstanding as of June 30, 2021. As of December 31, 2020, the Company had 30,667 shares of Series A convertible preferred stock issued and outstanding.
As of June 30, 2021, and December 31, 2020, the Company had 200,000 and 200,000 shares of Series B convertible preferred stock issued and outstanding, respectively.
19
Change in Number of Authorized and Outstanding Shares
On June 8, 2020, a 1 for 1.5 reverse stock split of the Company’s common stock became effective. All share and per share information in the accompanying unaudited condensed consolidated financial statements and footnotes was retroactively adjusted for the effects of the reverse split for all periods presented.
Common stock
The Company is authorized to issue 316,666,667 shares of its $0.0001 par value common stock. As of June 30, 2021 and December 31, 2020, there were 127,316,716 and 118,128,008, respectively, shares of common stock issued and outstanding
Six months ended June 30, 2021
The Company issued an aggregate of 2,524,000 shares of its common stock for gross cash proceeds of $3,154,935. The Company recorded no offering costs.
The Company issued 497,429 shares of its common stock in satisfaction of a common stock subscription of $485,144.
The Company converted a convertible note plus accrued interest in the amount of $376,356 into 1,003,618 shares of its common stock.
The Company issued 2,003,435 shares of its common stock with a value of $5,689,755 for the purchase of remaining 80% ownership in EON Media Group.
The Company issued 3,066,700 shares of its common stock in connection with the conversion of series A convertible preferred stock.
The Company issued 14,475 shares of its common stock for $41,978 payment in kind interest payable in the Company’s common stock.
The Company issued 79,051 shares of its common stock for consulting services valued at $200,000.
Six months ended June 30, 2020
The Company issued an aggregate of 1,040,000 shares of its common stock for gross cash proceeds of $390,000. The Company recorded no offering costs.
The Company issued 40,000 shares of its common stock to satisfy common stock subscribed of $15,000.
The Company issued 4,000,000 shares of its common stock for consulting services valued at $1,500,000.
The Company issued 5,168,931 shares of its common stock and 30,667 shares of Preferred A shares as part of the merger with Interlink. The Company also assumed debt to a related party of $180,000 and accrued interest of $3,842 and charged $80,134 of legal expenses related to the reverse merger to additional paid in capital.
The Company issued 200,000 shares of its Series B convertible preferred stock in exchange for (i) $1,000,000 in cash and (ii) cancellation of loan and accrued interest of $1,006,594. The fair value of the common stock into which the Series B convertible preferred stock is convertible was $9,600,000 on the date of issuance.
The allocated fair value of the Series B convertible preferred stock exceeded the $1,000,000 cash proceeds by $3,800,000 which was recorded by the Company as a deemed dividend.$880,000.
20
The CompanyDuring the three months ended December 31, 2020, we received $20,000$350,000 for common stock subscribedpayable.
During the three months ended December 31, 2020, we issued 1,369,863 shares of 53,333 shares.our common stock with a value of $2,671,096 for the purchase certain intangible assets.
During the three months ended December 31, 2020, we issued 97,891 shares of our common stock with a value of $194,803 as a debt settlement.
During the three months ended December 31, 2020, we issued warrants valued at $492,000.
During the three months ended December 31, 2020, we issued 1,180,880 shares of our common stock, valued at $2,065,878 capitalized as license content assets.
During the three months ended December 31, 2020, we issued 454,463 shares of our common stock with a value of $863,480 for the purchase of 20% ownership in EON.
NOTE 13 – STOCK OPTIONS AND WARRANTS
Options
Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from using the Company’sour historical stock prices. The Company accountsWe account for the expected life of options based on the contractual life of options for non-employees. For employees, the Companyour accounts for the expected life of options in accordance with the "simplified"“simplified” method, which is used for "plain-vanilla"“plain-vanilla” options, as defined in the accounting standards codification. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.
The following table summarizes the stock option activity for the sixthree months ended June 30,December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted | | Weighted Average | | | | | | | Weighted | | Weighted Average | | | | ||
| | | | Average | | Remaining | | Aggregate | | | | Average | | Remaining | | Aggregate | ||||
|
| Options |
| Exercise Price |
| Contractual Term |
| Intrinsic Value |
| Options |
| Exercise Price |
| Contractual Term |
| Intrinsic Value | ||||
Outstanding at December 31, 2020 |
| 8,312,307 | | $ | 0.76 |
| 8.03 | | $ | 20,397,450 | ||||||||||
Outstanding at September 30, 2021 |
| 17,833,356 | | $ | 1.04 |
| 8.30 | | $ | 25,478,339 | ||||||||||
Grants |
| 9,520,216 | | | 1.27 |
| 9.43 | | | 12,678,074 |
| 911,200 | | | 2.30 |
| 9.77 | | | — |
Exercised |
| — | |
| — |
| — | |
| — |
| — | |
| — |
| — | |
| — |
Expired |
| — | |
| — |
| — | |
| — |
| — | |
| — |
| — | |
| — |
Forfeited |
| (124,167) | |
| 1.10 |
| — | |
| — |
| (105,750) | |
| 1.10 |
| — | |
| (3,454,110) |
Outstanding at June 30, 2021 |
| 17,708,356 | | $ | 1.03 |
| 8.54 | | $ | 28,005,016 | ||||||||||
Exercisable at June 30, 2021 |
| 10,583,562 | | $ | 0.88 |
| 7.98 | | $ | 18,283,665 | ||||||||||
Outstanding at December 31, 2021 |
| 18,638,806 | | $ | 1.10 |
| 8.13 | | $ | 22,024,229 | ||||||||||
Exercisable at December 31, 2021 |
| 12,175,833 | | $ | 0.95 |
| 7.68 | | $ | 16,073,164 |
The aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on options with an exercise price less than the Company’sour stock price of $2.60$2.25 as of June 30,December 31, 2021, and $3.21 as of December 31, 2020, which would have been received by the option holders had those option holders exercised their options as of that date.
21
The following table presents information related to stock options at June 30,on December 31, 2021:
| | | | | | | | | | | | |
Options outstanding | Options outstanding | Options outstanding | ||||||||||
| | | | Weighted | | Options | | | | Weighted | | Options |
| | | | average | | exercisable | | | | average | | exercisable |
Exercise | | Number of | | remaining life | | number of | | Number of | | remaining life | | number of |
price |
| options |
| in years |
| options |
| options |
| in years |
| options |
$0.86 |
| 1,148,372 |
| 5.17 |
| 1,148,372 | ||||||
0.86 |
| 1,148,371 |
| 4.66 |
| 1,148,371 | ||||||
0.66 |
| 4,663,935 |
| 7.34 |
| 4,663,935 |
| 4,663,935 |
| 6.84 |
| 4,663,935 |
0.89 | | 2,500,000 | | 8.96 | | 1,504,000 | | 2,500,000 | | 8.46 | | 1,714,000 |
1.10 | | 7,915,299 | | 8.87 | | 3,669,990 | ||||||
0.57 | | 300,000 | | 9.67 | | 300,000 | | 300,000 | | 9.17 | | 300,000 |
1.10 | | 8,046,049 | | 9.37 | | 2,700,588 | ||||||
2.84 | | 450,000 | | 9.83 | | 250,000 | | 450,000 | | 9.33 | | 250,000 |
2.75 |
| 600,000 | | 9.85 | | 16,667 |
| 600,000 | | 9.34 | | 116,667 |
Total |
| 17,708,356 |
| 8.54 |
| 10,583,562 | ||||||
2.35 |
| 125,000 |
| 9.72 |
| 6,944 | ||||||
2.40 | | 50,000 | | 9.57 | | — | ||||||
2.50 | | 50,000 | | 9.59 | | 50,000 | ||||||
2.30 | | 836,200 | | 9.77 | | 255,925 | ||||||
| | 18,638,806 | | | | 12,175,833 |
Stock-based compensation
The Company recognizesWe recognize compensation expense for all stock options granted using the fair value-based method of accounting. During the sixthree months ended June 30,December 31, 2021, the Companywe issued 9,520,216911,200 options valued at $1.47$1.38 per option. As of December 31, 2021, the total compensation cost related to nonvested awards not yet recognized is $11,096,347 and the weighted average period over which expense is expected to be recognized in months is 27.41.
We calculated the fair value of options issued using the Black-Scholes option pricing model, with the following assumptions:
| | | | |
|
| December 31, 2021 |
| |
| | | | |
Weighted average fair value of options granted | | $ | 2.03 | |
Expected life | |
| 5.00 – 6.00 years | |
Risk-free interest rate | |
| 0.01 - 1.47 | % |
Expected volatility | |
| 55.80 - 69.60 | % |
Expected dividends yield | |
| 0 | % |
Forfeiture rate | |
| 0 | % |
The Company recorded stock-based compensation of $6,902,547expense related to option grants was $1,549,406 and $316,033, for the above options.
In Marchthree months ended December 31, 2021, the Company awarded 16,045,216 options under itsand 2020, Equity Incentive Compensation Plan to certain employees and non-employees hired before March 5, 2021. Subsequently, the total number of options awardedrespectively.
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was adjusted to 8,470,216. On April 27, 2021, the plan was approved by the Company’s shareholders and is fully effective and increased the underlying common stock of 14,600,000. Stock options cannot be exercised until nine months after the Company’s common stock is listed on a national exchange.
The Company calculated the fair value of options issued using the Black-Scholes option pricing model, with the following assumptions:
| | | | | |
|
| June 30, 2021 |
|
| |
| | | | | |
Weighted average fair value of options granted | | $ | 1.47 | | |
Expected life | |
| 5.00 – 10.00 years | | |
Risk-free interest rate | |
| 0.01 - 1.56 | % | |
Expected volatility | |
| 50.00 - 58.65 | % | |
Expected dividends yield | |
| 0 | % | |
Forfeiture rate | |
| 0 | % | |
The stock-based compensation expense related to option grants was $1,482,747 and $0 respectively for the three months ended June 30, 2021, and 2020, and $6,902,547 and $0 respectively for the six months ended June 30, 2021, and 2020.
Warrants
The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’sour common stock:
| | | | | | | | | | | | | | | | | | | | | | | | |
Warrants outstanding | Warrants outstanding | | Warrants exercisable | Warrants outstanding | | Warrants exercisable | ||||||||||||||||||
| | | | | Weighted | | | | | | | Weighted | | | | | Weighted | | | | | | | Weighted |
| | | | | average | | | | | | | average | | | | | average | | | | | | | average |
| | | | | remaining | | Weighted | | | | remaining | | | | | remaining | | Weighted | | | | remaining | ||
| | | | | contractual | | average | | | | contractual | | | | | contractual | | average | | | | contractual | ||
| | | Number | | life | | exercise | | Number | | life | | | Number | | life | | exercise | | Number | | life | ||
Exercise prices | Exercise prices |
| outstanding |
| (years) | | price |
| exercisable |
| (years) | Exercise prices |
| outstanding |
| (years) | | price |
| exercisable |
| (years) | ||
$ | 0.86 | | 3,850,709 | | 5.87 | | $ | 0.86 | | 3,850,709 | | 5.87 | 0.86 | | 3,850,709 | | 5.37 | | $ | 0.86 | | 3,850,709 | | 5.37 |
| 0.38 | | 2,000,000 | | 5.44 | | | 0.38 | | 2,000,000 | | 5.44 | 0.38 | | 2,000,000 | | 4.93 | | | 0.38 | | 2,000,000 | | 4.93 |
| 0.75 | | 2,666,667 | | 8.70 | | | 0.75 | | 2,666,667 | | 8.70 | 0.75 | | 2,666,667 | | 8.20 | | | 0.75 | | 2,666,667 | | 8.20 |
| 2.75 | | 323,864 | | 1.42 | | | 2.75 | | 323,864 | | 1.42 | 2.75 | | 323,864 | | 0.92 | | | 2.75 | | 323,864 | | 0.92 |
| 2.80 | | 50,000 | | 9.82 | | | 2.80 | | 50,000 | | 9.82 | 2.80 | | 50,000 | | 9.32 | | | 2.80 | | 50,000 | | 9.32 |
| | | | | | | | | | | | | 2.75 | | 6,573,460 | | 2.75 | | | 2.75 | | 6,573,460 | | 2.75 |
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table summarizes the warrant activity for the sixnine months ended June 30,December 31, 2021:
| | | | | | | | | | |
|
| |
| Weighted |
| |
| Weighted | ||
| | | | average | | | | average | ||
| | | | exercise | | | | exercise | ||
| | Number of | | price per | | Number of | | price per | ||
| | shares | | share | | shares | | share | ||
Outstanding at December 31, 2020 | | 8,585,558 | | $ | 0.73 | |||||
Outstanding at September 30, 2021 | | 15,464,700 | | $ | 1.63 | |||||
Issued | | 305,682 | | | 2.76 | | — | | | — |
Exercised | | — | | | — | | — | | | — |
Expired | | — | | | — | | — | | | — |
Outstanding at June 30, 2021 |
| 8,891,240 | | $ | 0.80 | |||||
Outstanding at December 31, 2021 |
| 15,464,700 | | $ | 1.63 |
There was no intrinsic value forWe record all warrants asgranted using the fair value-based method of June 30, 2021, and 2020, respectively.accounting.
22
During the sixthree months ended June 30,December 31, 2021, we issued 0 warrants. During the Companythree months ended December 31, 2020, we issued 110,22768,182 warrants in conjunction with the issuesissue of related party senior secured convertible debentures in the total amount of $600,000$750,000 and recorded the allocated fair values of the warrants of $59,212$26,770 as additional debt discounts. Further, the CompanyWe also issued 145,455 300,000 warrants in conjunction with the issues of related party senior secured convertible debentures in the total amount of $1,600,000to a company for consulting services and recorded the allocated fair valuesconsulting expense of the related party warrants of $128,733 as additional related party debt discounts. Finally, the Company issued 50,000 warrants with a fair value of $82,000, as severance.$492,000.
The CompanyWe calculated the fair value of warrants issued using the Black-Scholes option pricing model, with the following assumptions:
| | | | |
|
| June 30, 2021 |
| |
| | | | |
Weighted average fair value of warrants granted | | $ | 1.09 | |
Expected life | |
| 1.75 - 10 years | |
Risk-free interest rate | |
| 0.15% to 1.58% | |
Expected volatility | |
| 57.30% to 61.43% | |
Expected dividends yield | |
| 0 | |
Forfeiture rate | |
| 0 | |
| | | | |
|
| December 31, 2021 | ||
| | | | |
Weighted average fair value of warrants granted | | $ | 1.15 | |
Expected life | |
| 1.75 - 10 years | |
Risk-free interest rate | |
| 0.15% to 1.58% | |
Expected volatility | |
| 57.30% to 58.65% | |
Expected dividends yield | |
| 0 | % |
Forfeiture rate | |
| 0 | % |
23
NOTE 14 – INCOME TAXES
We calculate our interim income tax provision in accordance with ASC Topic 270, Interim Reporting and ASC Topic 740, Accounting for Income Taxes. At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary year to date earnings. In addition, the tax effects of unusual or infrequently occurring items including changes in judgment about valuation allowances and effects of changes in enacted tax laws are recognized discretely in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including the expected operating (loss) income for the year, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets generated in the current fiscal year. The accounting estimates used to compute income tax expense may change as new events occur or additional information is obtained.
For the three months ended December 31, 2021, we recorded an income tax provision of $251 related to state and local taxes. For the three months ended December 31, 2020, we recorded an income tax provision of $98,244 related to a true-up of prepaid taxes from 2019. The effective rate for both the three months ended December 31, 2021, and December 31, 2020, differ from the U.S. federal statutory rate of 21% as no income tax benefit was recorded for current year operating losses as we maintain a full valuation allowance on our deferred tax assets.
NOTE 1415 – SUBSEQUENT EVENTS
Securities private placement
On July 16, 2021,We have evaluated all subsequent events through the Company offered, in a private placement,date of filing, February 14, 2022, of this Report on Form 10-Q with the aggregate offering amountSEC, to ensure that this filing includes appropriate disclosure of up to $10,000,000 forevents both 8,000,000 common stock and 8,000,000 warrants, whereas the Company sells one share of common stock and one warrant excersiable at $2.75 for an aggregate purchase price of $1.25. As of August 5, 2021, the Company raised $2,750,000 from the offering.
Senior secured convertible promissory debentures
On December 1, 2020, the Company offered, in a private placement, the aggregate offering amount of up to $3,000,000 of Senior Secured Promissory Debentures, with a minimum subscription amount of $250,000 and common stock warrants with an aggregate exercise price of $750,000 and aggregate exercisable warrant shares of 272,727 shares. In April 2021, the Board of Directors increased the offering amount of the Senior Secured Promissory Debentures to $3,100,000 and the aggregate exercise price to $903,125 and the aggregate exercisable warrant shares to 328,409. The Company entered into a senior secured promissory debenture agreement with a related party under this offering on July 1, 2021,recognized in the amountfinancial statements as of $400,000. The related party received 36,364 warrantsDecember 31, 2021, and events which occurred after December 31, 2021, but which were not recognized in the financial statements. We have determined that there were no subsequent events which required recognition, adjustment to purchaseor disclosure in the Company’s common stock at $2.75 per share, in conjunction with the promissory debenture.
Convertible debenture conversion
On July 1, 2020, a convertible debenture holder (see (3) in Note 9) converted principal of $216,156 and accrued interest of $1,750 into 363,176 shares of common stock.
financial statements.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
STATEMENT ON FORWARD-LOOKING INFORMATION
This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs and risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.
The following discussion and analysis provides information which our management believes to be relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read together with our financial statements and the notes to the financial statements, which are included in this report.
Overview
Loop Media, Inc. (the “Company” or “Loop” and formerly Interlink Plus, Inc.) is a Nevada corporation. The Company was incorporated under the laws of the State of Nevada on May 11, 2015. On February 5, 2020, the Company and the Company’s wholly owned subsidiary, Loop Media Acquisition, Inc., a Delaware corporation (“Merger Sub”), closed the Agreement and Plan of Merger (the “Merger Agreement”) with Loop Media, Inc., a Delaware corporation (“Predecessor Loop”). Pursuant to the Merger Agreement, Merger Sub merged with and into Predecessor Loop with Predecessor Loop as surviving entity and becoming a wholly-owned subsidiary of the Company (the “Merger”).
Pursuant to the Merger Agreement, the Company acquired 100% of the outstanding shares of Predecessor Loop in exchange for 152,823,970 shares of the Company’s common stock at an exchange ratio of 1:1. Predecessor Loop was incorporated on May 18, 2016 under the laws of the State of Delaware. As a result of such acquisition, the Company’s operations now are focused on premium short-form video for businesses and consumers.
We are a multichannel digital video platform media company that offers self-curated, premiumuses marketing technology, or “MarTech,” to generate our revenue and fuel our services. Our technology and vast library of videos and licensed content enables us to curate and deliver short-form videos to our out-of-home (“OOH”) dining, hospitality, retail and other partners to enable them to inform, entertain and engage their customers. Our technology provides OOH customers and third-party advertisers with a targeted marketing and promotional tool for their products and services and allows us to measure the number of potential viewers of such advertising and promotional materials. In addition to providing services to OOH venue operators, we provide our services direct to consumers (“D2C”) in OOH venuestheir homes and D2C on their personal in home and mobile devices.
We deliver highly curatedoffer self-curated music video content from major and independent record labels, as well as movie, television and televisionvideo game trailers, kid-friendly videos, viral videos, drone footage, news headlines, and lifestyle and atmospheric channels, kid friendly content, sports highlights and news clips.channels. We believe we are the only service in the United States licensed bythat has OOH and D2C licenses with all three major music labels, Universal Music, Sony Music and Warner Music Group (collectively, the “Music Labels”). These licenses allow us to provide music video content in both the OOH and D2C markets. Our OOH services are complimented by our mobile app (the “Loop App”), which allows users to follow each other, share their locations and playlists, view activity, and signal support for a music video.
We curate content seeking to create a compelling user experience by, among other things, curating our carefully selected Playlists Playlistsinto playlists for OOH venueslocations and thoughtfully developedinto streaming channels (“Channels”) for delivery to our OTTover-the-top (“OTT”) platform partnerscustomers and to users of our mobile application.application users. Our digital platform service seeks to surround and engage consumers with a diverse offering of video content on their chosen digital screen wherever they are located. We believe we are the only company offeringOur services include both out ad-supported service, which offers content on a digital out of home (“DOOH”)free or unpaid advertising supported basis, and our premium service, that also haswhich offers content on a consumer mobile application, which increases the connectivity and interactivity of our OOH services.
We operate a “freemium” business model, offering our Service on either a Premium or Ad-Supportedpaid subscription basis. We deliver our Serviceservice to OOH venues primarily through our proprietary Loop Media-designed Loop Player“small-box” streaming Android media player (the “Loop Player”) and direct to consumers primarily through our fully functional and operational Loop App and across OTT streaming platforms on CTVs. The underlying content that we curate and deliver through our service is predominantly licensed from third parties and consists primarily of music videos. We also offer an increasing range of non-music video content that we are acquiring through
24
additional licenses and producing internally in our Loop Media Studios business division. This additional and diversified content offering is a large part of our business model going forward. We operate almost exclusively in the United States but are looking at further overseas expansion, primarily in Latin America and Asia.
We are an early-stage media operating company, with limited historical revenue and negative cash flow from operations. Our revenue is generated by advertisers who pay for our ad inventory in order to have their advertisements viewed by the end users of our Ad-Supported Service and by business owners and users who pay a subscription fee to access our Subscription Service without advertisements. Our revenue for the fiscal year ended December 31, 2020, consists almost entirely of revenue from our historic ScreenPlay business, which is a subscription-based OOH focused business, with little to no advertising revenue and no consumer users, and which does not fully reflect revenues expected from our more recent product and Service offerings and business model. We have begun to record increased revenue share for the six months ended June 30, 2021, as our advertising business model has more recently been deployed and operating more fully.
Off-Balance Sheet Arrangements
We have no off balance sheet arrangements.
Recent Developments
Impact of COVID-19
The spread of COVID-19 around the world is continuing to affect the United States and global economies and may affect our operations and those of third parties on which we rely, including by causing disruptions in staffing, order fulfillment, and demand for product. In addition, the COVID-19 pandemic may affect our revenue significantly in 2021, as it had in 2020. Additionally, while the potential ongoing negative economic impact brought by, and the duration of, the COVID-19 pandemic is still difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic in 2021 is highly uncertain and subject to change.
As COVID-19 continues to evolve, the extent to which COVID-19 continues to impact operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and changes in the severity of the outbreak, and the actions that may be required to try and contain COVID-19 or treat its impact. The Company continues to monitor the ongoing pandemic and, the extent to which the continued spread of the virus adversely affects our customer base and therefore revenue. As the COVID-19 pandemic is complex and rapidly evolving, the Company’s plans as described above may change. At this point, the Company cannot reasonably estimate the duration and severity of the COVID-19 pandemic in 2021, which could have a material adverse impact on the business, results of operations, financial position, and cash flows.
Critical Accounting Policies and Use of Estimates
Use of estimates and assumptions
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair value measurements
The Company determines the fair value of its assets and liabilities using a hierarchy established by the accounting guidance that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
25
measurements)Our Revenue Model
Our ad-supported and subscription-based services are separate offerings but work together to support our business. Given the expected growth in the digital OOH advertising market, coupled with the preferable economics to our ad-supported business model, we encourage our customers to choose our ad-supported services over our subscription services. While our ad-supported service is generally associated with higher margins, we provide our premium subscription service for OOH customers that are seeking an ad-free content offering.
MarTech
MarTech, the intersection of marketing and technology leverages data and analytics to expand our points of distribution and advertising revenue.
Distribution. Our current customer acquisition strategy is focused on marketing our Loop Player to businesses through social media and other online mediums. We seek to optimize our customer acquisition and the lowest prioritydistribution of our Loop Players by analyzing various data, including our return on marketing investments. When analyzing the success of our marketing investments, we examine the number of sales leads obtained from online platforms and the conversion of leads into high quality customers. We regularly analyze the engagement with, and success of, our creative advertising content and modify our messaging to valuations based upon unobservable inputsimprove customer acquisition.
Advertising Revenue. We intend to increase revenue by leading with programmatic advertising, an automated measurement process that aremanages the sales of our advertising inventory. Today, most digital advertising is programmatic advertising, with digital OOH advertising comprising a small portion of the overall market. While we strive to establish direct advertising deals with advertisers, a significant part of our current advertising revenue is purposely secured through programmatic advertising. Our yield optimization strategies look to leverage data analytic and other techniques to maximize the value of our digital advertising inventory. We intend to optimize the combination of our ad impressions, cost per impression and the percentage of our ad inventory filled by advertisers, while balancing our customers’ experience by limiting the number of ads delivered during any given period. Our Loop Player is designed to allow us to multiply OOH revenue in certain locations, as outlined below:
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Loop Player
The Loop Player is at the heart of our revenue model and its technology enables us to communicate and interact with OOH locations, advertisers, and OOH customers:
● | OOH Locations. The Loop Player allows OOH customers to program their in-store monitors and audio systems to schedule playlists depending on the time of day, promote their products or services through digital signage and deliver company-wide messages to staff in back-office locations. Business owners can filter content based on ratings or explicit language and can control the genres of videos in their programs. The Loop Player caches and encrypts our content, thereby supplying uninterrupted play for up to 12 hours in the event of an internet disruption. |
● | Advertising and Content Partners. Our Loop Player works with our technology, software and servers to determine the number of ad impressions available for programmatic advertising, which can be filled in real-time, seconds before ads are played. Our Loop Player delivers content and advertising to venues and our technology allows us to record and report video content played (for reporting to content providers) and advertising content played (for reporting to our advertising demand partners and advertisers). In particular, our technology allows us to track when, where and how long content is played, and measure approximately how many consumers were in position to view the content or advertisement. The Loop Player’s Wi-Fi and Bluetooth capabilities allow us to determine the number of potential viewers at a given location, which can provide us with a revenue multiplier, as we are able to increase advertising revenue at high-volume locations. This “multiplier effect” is possible due to the Loop Player’s ability to detect, using Bluetooth and Wi-Fi technology, the number of consumer mobile devices within reach of a Loop Player in an OOH location which provides advertisers with a proxy for the number of potential viewers of a particular ad at any given time. |
● | OOH Customers. We are seeking to further develop the interactivity between the Loop Player and the customers in OOH venues. This may take different forms, such as offering a simple thumbs up or thumbs down function, displaying the number of customer votes for a given piece of content, and downloading of menus from the screens and other functions. This will require further development of our mobile applications in the future. |
27
● | Loop Media. We are able to consistently monitor the preferences of the customers of our OOH customers and venue operators through our Loop Player. Our Loop Player allows us to collect specific information and data on content played, views, location, and location type, enabling us to effectively measure demand. These capabilities allow us to make informed decisions around which type of content to acquire or develop, as well as identify new market opportunities. |
Key Performance Indicators
We review our quarterly active users (“QAU”), among other key performance indicators, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We define an “active user” as (i) an ad-supported Loop Player (or OOH location using our ad-supported service through our “Loop for Business” application or using our OOH location-owned computer screening our content) that is online, playing content, and has checked into the Loop analytics system at least once in the 90-day period or (ii) an OOH location customer using our subscription service at any time during the 90-day period. We use “QAU” to refer to the valuation (Level 3 measurements). The three levelsnumber of valuation hierarchysuch active users during such period. Beginning October 1, 2021, we pre-activated almost all of our Loop Players prior to delivery to customers, in response to feedback from customers and in order to further streamline the installation process and simplify the use of the Loop Players in OOH locations. Pre-activated Loop Players are definedordered by third-party OOH locations and represent potential revenue for us when the Loop Players are installed in the OOH locations. As a result of these operational changes, for any period following September 30, 2021, we will include in our definition of “active user” any Loop Player that has been pre-activated and shipped by us to an OOH location customer for a period of 90 days post shipment, regardless of whether such customers utilize the Loop Player in their OOH location. After the 90-day period, these Loop Players will drop out of the QAU definition, unless they are otherwise online, playing content, and checked into the Loop analytics system at least once in any subsequent 90-day period. Prior to October 1, 2021, if a Loop Player was not activated by the OOH location operator it would not be counted as follows:an active user. Accordingly, our QAUs for periods subsequent to September 30, 2021, will not be strictly comparable to our September 30, 2021, or June 30, 2021, QAUs. Increases or decreases in our QAU may not correspond with increases or decreases in our revenue, and QAU may be calculated in a manner different than any similar key performance indicator used by other companies.
|
|
For the quarter ended December 31, 2021, QAU was 8,156, compared to 5,791 for the quarter ended September 30, 2021, a 41% increase.
For the quarter ended September 30, 2021, QAU was 5,791, compared to 4,296 for the quarter ended June 30, 2021, a 35% increase.
| ||
|
|
|
|
28
Seasonality
We have seen seasonality in our revenue and business related to advertising sales and the distribution of our Loop Player. This seasonality may not be reflected in our results of operations as we experienced overall growth in revenue in recent quarters and expect to continue to do so, which may obscure underlying seasonal trends. The underlying seasonality, nonetheless, may act to slow our revenue growth in any given period.
The carrying amountfirst quarter of the Company’s financial instruments, including cash, accounts receivable, deposits, short-term portioncalendar year (our second fiscal quarter) is traditionally the least profitable quarter in terms of notes receivablerevenue generation for ad publishers (such as us), as advertisers are holding and notes payable,planning their budgets for the year and current liabilities approximate fair value dueconsumers tend to spend less after the winter holiday season. This results in fewer ad demands and lower CPMs. The second quarter of the calendar year, from April to June (our third fiscal quarter), typically experiences increased ad demand and higher CPMs over the first quarter, as advertisers start to spend their short-term nature.budgets in greater amounts. The Company does not have financial assets or liabilities that are required underthird quarter of the US GAAPcalendar year, from July to September (our fourth fiscal quarter), typically sees a slight increase in CPMs and ad demands compared to the second quarter, even though consumers spend more time outdoors and less time online in the summer months. The fourth quarter of the calendar year, from October to December (our first fiscal quarter), is typically the most profitable quarter for publishers, as companies want their brands and products to be measured at fair value on a recurring basis. The Company has not elected to use fair value measurement option for any assets or liabilities for which fair value measurement is not presently required.
The Company records assets and liabilities at fair value on nonrecurring basis as required by the US GAAP. Assets recognized or disclosed at fair valueseen in the condensed consolidated financial statements onrun-up to the holidays season. This generally results in publishers receiving the highest CPMs and the greatest ad demand for their ad impressions during the fourth quarter. As a nonrecurring basis include items such as propertyresult of these market trends for digital advertising we generally expect to receive higher CPMs and equipment, operating lease assets, goodwill,greater ad fill rates during the fourth quarter of a calendar year (our first fiscal quarter) and other intangible assets, which are measured at fair value if determinedlower CPMs and reduced ad fill rates during the first quarter of a calendar year (our second fiscal quarter). We seek to be impaired.offset the reduction in CPMs and ad fill rates with increased Loop Player distribution and ad impressions across our ad-supported services.
Critical Accounting Policies and Use of Estimates
License Content Assets
On January 1, 2020, the Companywe adopted the guidance in ASU 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials, on a prospective basis. The Company capitalizesWe capitalize the fixed content fees and its corresponding liability when the license period begins, the cost of the content is known, and the content is accepted and available for streaming. If the licensing fee is not determinable or reasonably estimable, no asset or liability is recorded, and licensing costs are expenses as incurred. The Company amortizesWe amortize licensed content assets into cost of revenue, using the straight-line method over the contractual period of availability. The liability is paid in accordance with the contractual terms of the arrangement.
Revenue
Revenue generated from content and streaming services, including content encoding and hosting, are recognized over the term of the service based on bandwidth usage. The revenue generated from content subscription services in customized formats is recognized over the term of the service. The revenue generated from hardware for ongoing subscription content delivery is recognized at the point of the hardware delivery.
Impairment of goodwill and intangibles
Goodwill impairment occurs when the carrying amount of a goodwill asset is greater than its fair value. The amount of the impairment is the difference between the two figures. Goodwill is recorded as part of a corporate acquisition, representing the excess of the price paid over the value of the underlying assets and liabilities of the acquiree.
Income taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary
2629
differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We have no material uncertain tax positions for any of the reporting periods presented.
Results of Operations
For the three months ended June 30,December 31, 2021, compared to the three months ended June 30,December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, |
| 2021 |
| 2020 |
| $ variance |
| % variance |
| |||||||||||||
| | | | | | | | | | | | | | Three months ended | | Three months ended | | | | |
| |
Content and streaming services | | $ | 719,458 | | $ | 376,216 | | $ | 343,242 |
| 91 | % | ||||||||||
Content subscription services | |
| 409,984 | |
| 234,212 | |
| 175,772 |
| 75 | % | ||||||||||
Hardware for ongoing subscription content | |
| 31,351 | |
| 25,312 | |
| 6,039 |
| 24 | % | ||||||||||
| | December 31 | | December 31, | | | | |
| |||||||||||||
|
| 2021 |
| 2020 |
| $variance |
| % variance |
| |||||||||||||
Total revenue | |
| 1,160,793 | |
| 635,740 | |
| 525,053 |
| 83 | % |
| | 2,996,034 |
| 705,168 |
| 2,290,866 |
| 325 | % |
| | | | | | | | | | | | | ||||||||||
Cost of revenue | |
| 763,359 | |
| 172,661 | |
| 590,698 |
| 342 | % |
| | 1,444,977 |
| 462,042 |
| 982,935 |
| 213 | % |
| | | | | | | | | | | | | ||||||||||
Gross Profit | |
| 397,434 | |
| 463,079 | |
| (65,645) |
| (14) | % | ||||||||||
| | | | | | | | | | | | | ||||||||||
Operating expenses: | |
|
| |
|
| |
|
|
|
| | ||||||||||
Selling, general and administration | |
| 4,269,169 | |
| 1,638,038 | |
| 2,631,131 |
| 161 | % | ||||||||||
Total Operating expenses | |
| 4,269,169 | |
| 1,638,038 | |
| 2,631,131 |
| 161 | % | ||||||||||
| | | | | | | | | | | | | ||||||||||
Loss from Operations | |
| (3,871,735) | |
| (1,174,959) | |
| (2,696,776) |
| 230 | % | ||||||||||
Gross profit |
| | 1,551,057 |
| 243,126 |
| 1,307,931 |
| 538 | % | ||||||||||||
Total operating expenses |
| | 5,909,680 |
| 5,427,097 |
| 482,583 |
| 9 | % | ||||||||||||
Loss from operations |
| | (4,358,623) |
| (5,183,971) |
| 825,348 |
| (16) | % | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Other income (expense): | |
|
| |
|
| |
|
|
|
| |
| |
|
|
|
|
|
|
| |
Interest income | |
| — | |
| 1,175 | |
| (1,175) |
| (100) | % |
| | 200 |
| 2,996 |
| (2,796) |
| (93) | % |
Interest expense | |
| (632,094) | |
| (245,104) | |
| (386,990) |
| 158 | % |
| | (504,117) |
| (395,905) |
| (108,212) |
| 27 | % |
Other income | | | — | | | 10,000 | | | (10,000) |
| (100) | % | ||||||||||
Gain on extinguishment of debt | | | 579,486 | | | — | | | 579,486 | | 0 | % | ||||||||||
| | | | | | | | | | | | | ||||||||||
Total Other income (expense) | |
| (52,608) | |
| (233,929) | |
| 181,321 |
| (78) | % | ||||||||||
Change in fair value of derivatives |
| | 98,745 |
| — |
| 98,745 |
| N/A | % | ||||||||||||
Gain/(Loss) on extinguishment of debt, net |
| | 490,051 |
| 13,900 |
| 476,151 |
| 3,426 | % | ||||||||||||
Gain/(loss) on settlement of obligation |
| | — |
| (15,000) |
| 15,000 |
| (100) | % | ||||||||||||
Total other income (expense) |
| | 84,879 |
| (394,009) |
| 478,888 |
| (122) | % | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Provision for income taxes | |
| — | |
| — | |
| — |
| 0 | % |
| | (251) |
| (98,244) |
| 97,993 |
| 100 | % |
| | | | | | | | | | | | | ||||||||||
Net loss | | $ | (3,924,343) | | $ | (1,408,888) | | $ | (2,515,455) |
| 179 | % | | $ | (4,273,995) |
| (5,676,224) |
| 1,402,229 |
| (25) | % |
Revenues
Content and streaming servicesOur revenue increased $343,242 and 91% quarter over quarterfor the three months ended December 31, 2021, from 2020 by $2,290,866, or 325%, primarily due to advertisinghigher sales from the shift in mix from the in-home market to the new higher-margin OOH market strategy. Advertising revenue share of $365,835. Content subscription services increased $175,772 and 75% quarter over quarterwas higher in 2021 due to the introduction ofstrong Q1 seasonality in customer viewing patterns. Subscription revenue increased due to more active users, in part due to new customers from additional OOH locations and in part due to our decision to pre-activate Loop Stick revenues of $58,076 and the increase in ScreenCast subscription revenues of $140,813. In Q2 2021 two larger bar and gym chainPlayers prior to shipment so that new customers resulted in increase in ScreenCast subscription revenues.could begin using our content concurrent with installation.
Cost of revenue
The increase of $590,698 and 342% in Cost of revenues was due to $308,590 in license content asset amortization, not amortized in previous year, in addition to $110,791 in licensing cost actuals, as well as Loop player inventory costs of sales of $134,286.
Total Operating Expenses
Total operating expenses increased $2,631,131 Q2 21 vs Q2 20 primarily due to personnel costs along with increased marketing activities.
27
Other income and expenses
The interest expense increased $ (386,990) quarter over quarter due to the increase in convertible debenture borrowings period over period. The $579,486 gain on extinguishment is due to loan forgiveness on the first PPP loan (see Note 8).
For the six months ended June 30, 2021 compared to the six months ended June 30, 2020
| | | | | | | | | | | | |
Six months ended June 30, | | 2021 |
| 2020 |
| $ variance |
| % variance |
| |||
| | | | | | | | | | | | |
Content and streaming services | | $ | 1,094,873 | | $ | 759,757 | | $ | 335,116 |
| 44 | % |
Content subscription services | |
| 800,274 | |
| 645,241 | |
| 155,033 |
| 24 | % |
Hardware for ongoing subscription content | |
| 59,689 | |
| 57,130 | |
| 2,559 |
| 4 | % |
Total revenue | |
| 1,954,836 | |
| 1,462,128 | |
| 492,708 |
| 34 | % |
| | | | | | | | | | | | |
Cost of revenue | |
| 1,487,937 | |
| 384,920 | |
| 1,103,017 |
| 287 | % |
| | | | | | | | | | | | |
Gross Profit | |
| 466,899 | |
| 1,077,208 | |
| (610,309) |
| (57) | % |
| | | | | | | | | | | | |
Operating expenses: | |
|
| |
|
| |
|
|
| | |
Selling, general and administration | |
| 12,175,453 | |
| 4,696,691 | |
| 7,478,762 |
| 159 | % |
Total Operating expenses | |
| 12,175,453 | |
| 4,696,691 | |
| 7,478,762 |
| 159 | % |
| | | | | | | | | | | | |
Loss from Operations | |
| (11,708,554) | |
| (3,619,483) | |
| (8,089,071) |
| 223 | % |
| | | | | | | | | | | | |
Income from equity investment | |
| 1,551 | |
| — | |
| 1,551 |
| 100 | % |
Interest income | |
| 5,657 | |
| 2,459 | |
| 3,198 |
| 130 | % |
Interest expense | |
| (1,048,012) | |
| (492,545) | |
| (555,467) |
| 113 | % |
Gain on extinguishment of debt | | | 579,486 | | | — | | | 579,486 | | 100 | % |
Other income | | | — | | | 10,000 | | | (10,000) |
| (100) | % |
Inducement expense | |
| — | |
| (3,793,406) | |
| 3,793,406 |
| (100) | % |
Total Other income (expense) | |
| (461,318) | |
| (4,273,492) | |
| 3,812,174 |
| (89) | % |
| | | | | | | | | | | | |
Provision for income taxes | |
| (1,586) | |
| — | |
| (1,586) |
| — | % |
| | | | | | | | | | | | |
Net loss | | $ | (12,171,458) | | $ | (7,892,975) | | $ | (4,278,483) |
| 54 | % |
Revenues
The Company’s revenue increased for the six months ended June 30, 2021, from June 30, 2020, by $492,708 or 34%. Content and streaming services increased $335,116 and 44% driven by advertising revenue share of $365,835. The year over year increase of $155,033 and 24% in Content subscription services is due to Screencast subscription revenue increase due to bar and gym customer revenue growth and Loop stick subscription revenues of $42,506 verses $0 year over year.
Cost of revenue
The cost of revenue increased by 287% and $1,103,017213% from $462,042 in 2020 to $1,444,977 in 2021. The $982,935 increase in cost of revenues for the sixthree months ended June 30,December 31, 2021, compared to the same comparable period infrom 2020 was primarily due licenseas a result of increased usage of royalty content asset amortization, contractor costs, and inventory costs. Licenserecognition of higher fixed-fee content amortization was $610,397 verses $0 over the same period last year. Actual licensing costs increased $104,648 as well.stemming from the execution of additional content licensing contracts in 2021. In addition, 2021 included equipment, fulfillment, and installation costs relating to our Loop player equipment inventory costs increased $193,156 versus $0 period over period due to the introduction of the productPlayers that had yet not been introduced in Q3 2020.
2830
Total operating expenses
Operating Expenses
Total Selling, Generalexpenses increased by $482,583 in 2021 due to the combined effect of various expenses related to increased revenue. Share-based compensation and Administrationselling, general, and administrative costs (excluding share-based compensation) increased quarter over quarter by $923,153 and $1,950,229, respectively, largely due to the addition of operations staff and key management personnel, along with expanded marketing campaigns to support the growth of the OOH strategy and the new Loop Players. These increases in 2021 costs were offset by impairment costs recognized in 2020 in amount of $2,390,799 relating to the six months ended June 30, 2021, over the same comparable period in prior year by $7,478,762 or 159% becauseacquisition of significant increase in non-cash stock compensation expense and personnel costs.EON.
Other income and expenses
There was a decrease in otherOther income and expenses decreased by 122% or $478,888 from 2020 net expense of $3,812,174. This was(largely interest expense) quarter over quarter primarily due to recordingthe recognition of inducementgain on the extinguishment of debt related to PPP loans and change in the fair value of derivatives in 2021 of $490,051 and $98,745, respectively in 2021. These gains were partially offset by higher interest expense of $3,793,406 related$108,212 in 2021.
EBITDA
We believe that the presentation of EBITDA and Adjusted EBITDA, financial measures that are not part of U.S. Generally Accepted Accounting Principles, or U.S.GAAP, provides investors with additional information about our financial results. EBITDA and Adjusted EBITDA are important supplemental measures used by our board of directors and management to evaluate our operating performance from period-to-period on a consistent basis and as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations.
We define EBITDA as earnings before interest expense (income), income tax (expense)/benefit, depreciation and amortization.
We define Adjusted EBITDA as earnings before interest expense (income), income tax (expense)/benefit, depreciation and amortization, adjusted for stock-based compensation and other non-recurring income and expenses, if any.
EBITDA is not measured in accordance with, or an alternative to, measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, EBITDA has limitations in that it does not reflect all of the issuanceamounts associated with our results of Series B convertible preferred stockoperations as determined in accordance with U.S. GAAP. In particular:
● | EBITDA does not reflect the amounts we paid in interest expense on our outstanding debt; |
● | EBITDA does not reflect the amounts we received in interest income by our investors; |
● | EBITDA does not reflect the amounts we received in interest income on our investments; |
● | EBITDA does not reflect the amounts we paid in taxes or other components of our tax provision; |
● | EBITDA does not include depreciation expense from fixed assets; and |
● | EBITDA does not include amortization expense. |
Because of these limitations, you should consider EBITDA alongside other financial performance measures including net income (loss) and our financial results presented in accordance with U.S. GAAP.
The following table provides a reconciliation of net loss to EBITDA for casheach of the periods indicated:
31
The following table provides a reconciliation of net loss to EBITDA for each of the years indicated:
| | | | | | |
|
| Three months ended |
| Three months ended | ||
| | December 31, | | December 31, | ||
| | 2021 | | 2020 | ||
GAAP net loss | | $ | (4,273,995) | | $ | (5,676,224) |
Adjustments to reconcile to EBITDA: | |
|
| |
|
|
Interest expense | |
| 504,117 | |
| 395,905 |
Interest income | |
| (200) | |
| (2,996) |
Depreciation and Amortization expense* | |
| 343,458 | |
| 511,429 |
Income Tax expense/(benefit) | |
| (251) | |
| (98,244) |
| | | | | | |
EBITDA | | $ | (3,426,369) | | $ | (4,673,642) |
*Includes amortization of content license assets.
Adjusted EBITDA
Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. In particular:
● | Adjusted EBITDA does not reflect the amounts we paid in interest expense on our outstanding debt; |
● | Adjusted EBITDA does not reflect the amounts we paid in taxes or other components of our tax provision; |
● | Adjusted EBITDA does not include depreciation expense from fixed assets; |
● | Adjusted EBITDA does not include amortization expense; |
● | Adjusted EBITDA does not include the impact of stock-based compensation; and |
● | Adjusted EBITDA does not include the impact of non-recurring income and expenses. |
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures including net income (loss) and induced debt extinguishmentour financial results presented in 2020. Interest expense increased $ (555,467) and 113% dueaccordance with U.S. GAAP.
32
The following table provides a reconciliation of net loss to additional debt raised from a related party. The $579,486 gain on extinguishment is due to loan forgiveness onAdjusted EBITDA for each of the first PPP loan (see Note 8).periods indicated:
| | | | | | |
|
| Three months ended |
| Three months ended | ||
| | December 31, | | December 31, | ||
| | 2021 | | 2020 | ||
GAAP net loss | | $ | (4,273,995) | | $ | (5,676,244) |
Adjustments to reconcile to Adjusted EBITDA: | |
|
| |
|
|
Interest expense | |
| 504,117 | |
| 395,905 |
Interest income | |
| (200) | |
| (2,996) |
Depreciation and Amortization expense * | |
| 343,458 | |
| 511,429 |
Income tax expense (benefit) | |
| 251 | |
| 98,244 |
Stock-based compensation | |
| 1,549,406 | |
| 626,253 |
Impairment of intangible assets | |
| — | |
| 2,390,799 |
Gain on extinguishment of debt | |
| (490,051) | |
| (13,900) |
Loss on settlement of obligation | |
| — | |
| 15,000 |
Change in fair value of derivative | |
| (98,745) | |
| — |
Adjusted EBITDA | | $ | (2,465,759) | | $ | (1,655,490) |
*Includes amortization content license assets.
Liquidity and Capital Resources
As of June 30,December 31, 2021, the Companywe had cash of $929,403.approximately $1,662,098. The following table provides a summary of the Company’sour net cash flows from operating, investing, and financing activities.
| | | | | | | | | | | | |
| | Six months ended | | Three months ended | | Three months ended | ||||||
|
| June 30, |
| June 30, | | December 31, | | December 31, | ||||
| | 2021 | | 2020 |
| 2021 |
| 2020 | ||||
Net cash used in operating activities | | $ | (4,713,000) | | $ | (2,257,822) | | $ | (3,477,763) | | $ | (2,327,034) |
Net cash provided by investing activities | |
| (749,937) | |
| (7,727) | ||||||
Net cash used in investing activities | |
| — | |
| (745,771) | ||||||
Net cash provided by financing activities | |
| 5,554,179 | |
| 1,903,366 | |
| 977,313 | |
| 1,939,044 |
Change in cash | |
| 91,242 | |
| (362,183) | |
| (2,500,450) | |
| (1,133,761) |
| | | | | | | | | | | | |
Cash, beginning of period | |
| 838,161 | |
| 1,011,445 | |
| 4,162,548 | |
| 1,971,923 |
Cash, end of period | | $ | 929,403 | | $ | 649,262 | | $ | 1,662,098 | | $ | 838,162 |
The Company hasWe have historically sought and continuescontinue to seek financing from private sources to implement itsour business plans. In order toTo satisfy itsour financial commitments, the Company haswe have historically relied on private party financing, but that has inherent risks in terms of availability and adequacy of funding.
For the next twelve months, the Company anticipateswe anticipate that itwe will need to supplement itsour cash from revenues with additional cash raised from equity investment or debt transactions to ensure that the Companywe will have adequate cash to support itsour minimum operating cash requirements and thus to continue as a going concern.
There can be no guarantee or assurance that the Companywe can raise adequate capital from outside sources. If the Company iswe are unable to raise funds when required or on acceptable terms, itwe may have to significantly reduce, or discontinue itsour operations.
Net Cash Flow from Operating Activitiescash used in operating activities
Net cash flows used in operating activities for the sixthree months ended June 30,December 31, 2021, were $ (4,713,000)$3,477,763 primarily due to the net loss of $ (12,171,458)$4,273,995 offset by amortization of debt discount of $770,546,$358,248, depreciation and amortization of $733,651,$32,403, amortization of license contract assets of $610,397,$311,055, amortization of right-of-use assets of $72,388,$38,555, stock-based compensation expense of $6,902,547, bad$1,549,406, write off of $20,000, gain on extinguishment of debt expense of $146,637,$490,051, change in fair value of derivatives of $98,745 and net decrease in operating assets and liabilities of $1,278,671.
Net cash flows used in operating activities for the six months ended June 30, 2020, were $2,257,822 primarily due to the net loss of $7,892,975 offset by amortization of debt discount of $302,104, depreciation and amortization expense of $118,363, amortization of right-of-use assets of $66,165, stock-based compensation expense of $1,671,798, inducement expense of $3,793,406, and net decrease in operating assets and liabilities of $316,683.$924,639.
2933
Net Cash Flow from Investing Activitiescash flows used in operating activities for the three months ended December 31, 2020, were $2,327,034 primarily due to the net loss of $5,676,224 offset by amortization of debt discount of $183,533, depreciation and amortization expense of $338,260, amortization of license contract assets of $173,169, amortization of right-of-use assets of $34,860, stock-based compensation expense of $134,253, warrants issued for consulting services of $492,000, write off of $62,154, impairment of intangible assets of $2,390,799, net loss on settlement of obligations of $1,100 and net decrease in operating assets and liabilities of $460,938.
Net cash used in investing activities
Net cash flows used in investing activities for the sixthree months ended June 30,December 31, 2021, was $749,937$0 as compared to $745,711 primarily due to the cash portion of the acquisition forof EON Media Group.Group offset by equipment purchase of $2,752 and collections of note receivable of $1,477 for the same comparable period in 2020.
Net Cash Flowcash flow from Financing Activitiesfinancing activities
Net cash provided by financing activities for the sixthree months ended June 30,December 31, 2021, was $5,554,179 primarily$977,313 due to $3,155,000receipt of cash proceeds received from issuance of common$1,250,000 stock subscription offset by $272,687 repayment of $ (251,380) of a stockholder’s loan, and cash proceeds of $2,200,000 received for issuance of convertible promissory notes and $486,638 from the second PPP loan.
Net cash provided by financing activities for the sixthree months ended June 30,December 31, 2020, was $1,903,366$1,939,044 primarily due to $390,000$880,000 of cash proceeds received from issuance of common stock, cash paymentproceeds from issuance of reverse merger costsconvertible debt of $80,134,$750,000, cash proceeds of $20,000$350,000 received from issuance of common stock subscriptions, proceeds from the first PPP loanoffset by repayment of $573,500, and cash proceedsstockholder loans of $1,000,000 received for preferred shares.$40,956.
As a result of the above activities, the Company recorded a net increasedecrease in cash of $91,242$2,500,450 for the sixthree months ended June 30,December 31, 2021. The Company reported a cash balance of $929,403$1,662,098 at June 30,December 31, 2021.
Future Capital Requirements
Our current available cashWe have generated limited revenue, and cash equivalents are insufficient to satisfy our liquidity requirements. Our capital requirements for the fiscal year endingas of December 31, 2021, our cash totaled $1,662,098 and we had an accumulated deficit of ($71,116,411). We anticipate that we will depend on numerous factors, including management’s evaluationcontinue to incur net losses for the foreseeable future. However, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.
Historically, our principal sources of cash have included proceeds from the timingissuance of projectscommon and preferred equity and proceeds from the issuance of debt. Our principal uses of cash have included cash used in operations, payments for license rights and payments relating to pursue. Subject to our ability to generate revenuespurchases of property and equipment. We expect that the principal uses of cash flow fromin the future will be for continuing operations, and general working capital requirements. We expect that as our abilityoperations continue to grow, we will need to raise additional capital (including through possible joint ventures and/or partnerships),to sustain operations and growth.
Proposed Equity Offering filed on S-1
On January 28, 2022, we expect to incur substantial expenditures to carry out our business plan, as well as costs associated with our capital raising efforts and beingfiled a public company.
Our plans to finance our operations include seeking equity and debt financing, alliances or other partnership agreements, or other business transactions, that would generate sufficient resources to ensure continuationForm S-1 Registration Statement of our operations.
The saleSecurities under the Securities Act of additional equity or debt securities may result in additional dilution to our shareholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those1933. We are offering shares of our common stock, and could contain covenantswhich is currently quoted on the Pink Open Market operated by OTC Markets Group Inc. under the symbol “LPTV.” The last reported sale price of our common stock on January 27, 2022, was $2.60 per share.
Currently, there is a very limited market for our common stock. We have applied to list our common stock on the Nasdaq Capital Market under the symbol “LPTV.” There is no assurance that would restrict our operations. Any such required additional capital may notlisting application will be available on reasonable terms,approved by Nasdaq or, if at all.successful, that an active trading market for our common stock will develop or be sustained. If we wereare unable to obtain additional financing,list our common stock on the Nasdaq Capital Market, we may be requiredwill not consummate this offering.
We are a “smaller reporting company” under applicable Securities and Exchange Commission rules and are subject to reducereduced public company reporting requirements for the scopeprospectus and future filings.
34
Going Concern
The accompanying unaudited condensed financial statements have been prepared on a going concern basis. For the sixthree months ended June 30,December 31, 2021, we had a net loss of $ (12,171,458)4,273,995, had net cash used in operating activities of $(4,713,000),$3,477,763, had working capital of $500,341,$(1,316,821), and accumulated deficit of $ (53,715,602)(71,116,411). These matters raise substantial doubt about our ability to continue as a going concern for a period of one year from the date of this filing. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and to generate profitable operations in the future. Management plans to provide for our capital requirements by continuing to issue additional equity and debt securities. The outcome of these matters cannot be predicted at this time and there are no assurances that, if achieved, we will have sufficient funds to execute our business plan or generate positive operating results. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
30
Recent Accounting Pronouncements
See the Company’s discussion under Note 2-Significant Accounting Policies in its financial statements.We adopted no new recent accounting pronouncements.
Item 3.Quantitative and Qualitative Disclosure About Market Risk.
Not required.
Item 4.Controls and Procedures.
(i)Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30,December 31, 2021. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Based on this evaluation, and as a result of the material weaknesses described below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of June 30,December 31, 2021. Notwithstanding the material weaknesses that were identified and continued to exist at June 30,December 31, 2021, management believes that the financial statements included in this report present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Material Weaknesses and Management’s Remediation Plan
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’sour annual or interim financial statements will not be prevented or detected on a timely basis.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with US GAAP. The following material weaknesses in our internal control over financial reporting were identified in the normal course and continued to exist as of June 30,December 31, 2021:
We failed to maintain an effective control environment due to the following:
35
● |
|
| ||
● |
| |
● |
|
|
Management’s Remediation Initiatives
We have concluded that these material weaknesses arose because, as previously a private company, we did not have the necessary business processes, systems, personnel, and related internal controls. We began to undertake measures to address material weaknesses in our internal controls. We will continue to take steps to remediate these material weaknesses.
31
TableWe will strive to ensure that a proper, consistent tone is communicated throughout the organization, which emphasizes the expectation that previously existing deficiencies will be rectified through implementation of Contentsprocesses and controls to ensure strict compliance with accounting principles generally accepted in the United States and regulatory requirements.
We have conducted an evaluationretained a third–party consulting firm that specializes in internal audit work, and more specifically internal controls work. This firm will assist management with our risk assessment of third parties to assist us with formalizinginternal control over financial reporting as well as documentation and testing of our internal control documentationstructure and implementationevaluation of enhancementsmaterial weaknesses.
With oversight from the Audit Committee, management will design and implement remediation measures to address the material weaknesses described above and enhance our internal control over financial reporting.
There was a change in our internal control over financial reporting and have recently engaged a qualified firm who(as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during our most recent quarter that has started work in July, 2021.materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
|
(ii)Changes in Internal Controls over Financial Reporting
There were noOther than described above, there have not been any changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management intends to implement certain remediation steps to address the material weaknesses described above. However, management has not yet implemented those remediation steps and expects remediation efforts to continue through the remainder of fiscal year 2021.13a).
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PART II — OTHER INFORMATION
Item 1.Legal Proceedings
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of theour executive officers, of our Company, threatened against or affecting our Company,us, or our common stock, in which an adverse decision could have a material adverse effect.
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Item 1A. Risk Factors
There have been no material changes to the factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K10-KT for the year ended December 31, 2020.
September 30, 2021.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
For the sixthree months ended June 30,December 31, 2021, we sold and issued an aggregate of 2,524,0000 shares of our common stock at a price of $1.25 per share for an aggregate cash proceeds of $3,155,000. The offers, sales and issuances of such common stock were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering.
The recipients of securities in each of these transactions acquired the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof and represented to us that they could bear the risks of the investment and could hold the securities for an indefinite period of time, and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions represented to us in connection with their purchase that they were an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act.stock.
Item 3.Defaults Upon Senior Securities.
There were no material defaults regarding payments of principal and interest that exceeded 5% of theour total assets of the Company.assets.
Item 4.Mine Safety Disclosure.
Not applicable.
Item 5.Other Information.
None.
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Item 6. Exhibits
Exhibit |
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| Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | |
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| Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | |
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101.INS | | XBRL Instance Document -the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH | | XBRL Taxonomy Extension Schema |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
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104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, as amended, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned thereunto duly authorized on August 9, 2021.February 14, 2022.
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| Loop Media, Inc., a Nevada corporation | |
| (Registrant) | |
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| By: | /s/ Jon Niermann |
| | Jon Niermann |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
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| By: | /s/ |
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| | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
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