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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549		OMB APPROVAL
OMB Number: 3235-0070
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FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20222023

or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to_________
Commission File Number: 001-40329
Troika Media Group, Inc.
(Exact name of registrant as specified in its charter)
Nevada83-0401552
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
25 West 39th Street, 6th Floor, New York, NY10018
(Address of principal executive offices)(Zip Code)
(212) 213-0111
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange
 on which registered
Common Shares, $0.001 par valueTRKAThe Nasdaq Capital Market
Redeemable warrants to acquire Common StockTRKAWThe Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xo Yes ox No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). xo Yes ox 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 definitionsdefinitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated FilerxSmaller reporting companyx
Emerging growth companyo
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. o
Indicate by check mark whether the registrant is a shell company (as defineddefined in Rule 12b-2 of the Exchange Act). ☐ Yes x No
ClassOutstanding at November 11, 2022October 20, 2023
Common Stock, $.001 par value67,831,11616,676,762

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q (the “Form 10-Q”) that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q the words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” ���would,” “intend,” “targets,” “estimates,” “projects,” “plans,” and “potential,” and other similar words and expressions of the future, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements about the Company’s future financial and operating results and the Company’s plans, objectives, and intentions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to:

•the success of our transformational reorganization of strategy, governance and management following our acquisition of Converge Direct, LLC and its affiliates;
•our ability to adapt to a rapidly changing industry and new business model;
•our reliance on clients to make investments in our services;
•our ability to retain major clients;
•our lack of long-term agreements with our clients;
•the ability of our clients to work with our competitors;
•our reliance on our management team and other key employees;
•the impact of litigation on our management team, business, financial position and results of operations;
•the impact of seasonality on the business needs and investments of our clients;
•our ability to compete effectively against other digital and offline marketing alternatives or meet metrics required by our clients
•the market for offline customer acquisition services;
•our reliance on third-party digital and offline media sources, including strategic partners;
•revisions to digital algorithms and consumer engagement ecosystems;
•potential liability for the information we communicate to consumers;
•our ability to detect click-through or other fraud on advertisements;
•our long sales cycles and customer concentration;
•our ability to develop new offerings, achieve increased consumer adoption of those offerings or penetrate new markets
•online data privacy and security risks and our ability to maintain adequate safeguards to protect the security, confidentiality and integrity of personally identifiable information;
•our ability to protect our intellectual property; and
•general competitive, economic, political, and market conditions, including economic conditions in the markets where we operate.

Other factors not identified above, including those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended June 30, 2022, our quarterly reports on Form 10-Q, and current reports on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website at http://www.sec.gov, may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.


Troika Media Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
June 30,
2023		December 31,
2022
ASSETS 
Current assets:  
Cash and cash equivalents$18,325,055 $28,403,797 
Restricted cash447,285 — 
Accounts receivable, net15,197,469 10,801,299 
Prepaid expenses and other current assets2,313,242 1,388,084 
Total current assets36,283,051 40,593,180 
Other assets675,729 702,750 
Property and equipment, net323,850 618,699 
Right-of-use lease assets2,696,108 3,029,785 
Amortizable intangible assets, net60,686,111 64,761,111 
Goodwill45,518,505 45,518,505 
Total assets$146,183,354 $155,224,030 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$25,475,164 $14,270,063 
Accrued and other current liabilities6,031,766 8,390,196 
Accrued billable expenses7,510,508 7,810,126 
Deferred revenue9,316,686 6,209,442 
Current portion of long term debt, net of deferred financing costs1,611,444 1,551,211 
Convertible note payable60,006 60,006 
Note payable - related party, current— 30,000 
Operating lease liabilities, current1,598,693 1,506,534 
Acquisition liabilities9,346,504 9,293,402 
Contingent liability939,224 3,385,000 
Total current liabilities61,889,995 52,505,980 
Long-term liabilities:  
Long-term debt, net of deferred financing costs64,013,064 64,833,844 
Operating lease liabilities, non-current6,399,369 7,192,662 
Other long-term liabilities13,425 212,432 
Total liabilities132,315,853 124,744,918 
Commitments and Contingencies (Note 10)  
Stockholders’ equity:  
Preferred stock, $0.01 par value: 25,000,000 shares authorized— — 
Series E Preferred Stock ($0.01 par value: 500,000 shares authorized, 14 and 310,793 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively); redemption amount and liquidation preference $0.0 million and $31.1 million , as of June 30, 2023 and December 31, 2022, respectively— 3,107 
Common stock, ($0.001 par value: 32,000,000 shares authorized; 16,676,762 and 5,572,089 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)16,677 5,572 
Additional paid-in-capital269,350,052 265,806,976 
Accumulated deficit(255,499,228)(235,336,543)
Total stockholders’ equity13,867,501 30,479,112 
Total liabilities and stockholders’ equity$146,183,354 $155,224,030 

The accompanying notes are an integral part of these unaudited condensedconsolidated financial statements.
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Troika Media Group, Inc. and Subsidiaries
Condensed Consolidated Balance SheetsStatements of Operations and Comprehensive Loss
September 30,
2022		June 30,
2022
ASSETS(Unaudited) 
Current assets:  
Cash and cash equivalents$32,666,843 $32,673,801 
Accounts receivable, net37,282,536 9,421,497 
Prepaid expenses and other current assets2,303,838 1,289,183 
Contract assets328,936 23,586,036 
Total current assets72,582,153 66,970,517 
Other assets -long term portion2,613,957 2,124,832 
Property and equipment, net649,026 589,205 
Right-of-use lease assets6,158,667 8,965,426 
Amortizable intangible assets, net68,127,755 70,306,005 
Goodwill55,349,535 55,349,535 
Total assets$205,481,093 $204,305,520 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$24,995,046 $15,298,068 
Accrued and other current liabilities4,611,429 5,478,868 
Accrued billable expenses20,546,169 23,170,680 
Acquisition liabilities9,233,902 9,108,504 
Current portion of long term debt, net of deferred financing costs1,521,095 1,538,220 
Convertible note payable60,006 50,000 
Note payable - related party - short term portion60,000 100,000 
Deferred revenue9,132,043 11,321,159 
Operating lease liability - short term portion1,440,080 2,682,457 
Taxes payable, net220,610 689,882 
Derivative liabilities- financing warrants31,157,612 30,215,221 
Preferred stock liability15,720,227 15,996,537 
Contingent liability301,350 3,615,000 
Total current liabilities118,999,569 119,264,596 
Long term liabilities:  
Long-term debt, net of deferred financing costs65,233,435 65,581,203 
Operating lease liability - long term portion7,608,072 8,994,073 
Other long-term liabilities226,947 74,909 
Total liabilities192,068,023 193,914,781 
Stockholders’ equity:  
Preferred stock, $0.01 par value: 25,000,000 shares authorized— — 
Series A Preferred Stock ($0.01 par value: 5,000,000 shares authorized, none outstanding as of September 30, 2022 and June 30, 2022)— — 
Series B Preferred Stock ($0.01 par value: 3,000,000 shares authorized, none outstanding as of September 30, 2022 and June 30, 2022)— — 
Series C Preferred Stock ($0.01 par value: 1,200,000 shares authorized, none outstanding as of September 30, 2022 and June 30, 2022)— — 
Series D Preferred Stock ($0.01 par value: 2,500,000 shares authorized, none outstanding as of September 30, 2022 and June 30, 2022)— — 
Series E Preferred Stock ($0.01 par value: 500,000 shares authorized, 491,114 and 500,000 shares issued and outstanding as of September 30, 2022 and June 30, 2022, respectively)7,914 8,000 
Common stock, ($0.001 par value: 800,000,000 shares authorized; 66,368,616 and 64,209,616 shares issued and outstanding as of September 30, 2022 and June 30, 2022, respectively)45,819 43,660 
Additional paid-in-capital237,667,560 236,876,523 
Accumulated deficit(224,308,223)(225,582,006)
Accumulated other comprehensive loss— (955,438)
Total stockholders’ equity13,413,070 10,390,739 
Total liabilities and stockholders’ equity$205,481,093 $204,305,520 
(Unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Revenue$58,689,147 $85,381,703 $117,727,485 $101,066,703 
Cost of revenue52,945,735 67,969,498 103,229,453 79,707,498 
Gross profit5,743,412 17,412,205 14,498,032 21,359,205 
Operating expenses:   
Selling, general and administrative expenses12,114,352 13,991,857 23,051,346 31,174,857 
Depreciation and amortization2,065,753 2,267,780 4,129,048 2,696,780 
Restructuring and other related charges(324,907)5,590,932 (98,584)5,590,932 
Impairment and other losses (gains), net— 8,937,677 — 8,937,677 
Total operating expenses13,855,198 30,788,246 27,081,810 48,400,246 
Operating loss(8,111,786)(13,376,041)(12,583,778)(27,041,041)
Other income (expense):
Interest expense(3,449,052)(2,796,367)(6,889,708)(2,896,367)
Miscellaneous expense(680,087)(1,937,673)(632,199)(2,527,673)
Total other expense(4,129,139)(4,734,040)(7,521,907)(5,424,040)
Loss from operations before income taxes(12,240,925)(18,110,081)(20,105,685)(32,465,081)
Income tax (expense) benefit(21,030)54,075 (57,000)21,075 
Net loss(12,261,955)(18,056,006)(20,162,685)(32,444,006)
Foreign currency translation adjustment— (605,438)— (569,438)
Comprehensive loss$(12,261,955)$(18,661,444)$(20,162,685)$(33,013,444)
Loss per share:    
Basic$(0.73)$(6.60)$(1.51)$(13.41)
Weighted average number of shares outstanding:
Basic16,738,384 2,735,084 13,395,164 2,420,262 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Troika Media Group, Inc. and Subsidiaries
Condensed Consolidated Statements of OperationsStockholders’ Equity
For the Three and Comprehensive Income (Loss)Six Months Ended June 30, 2023 and 2022
(Unaudited)
 Three Months Ended September 30,
 20222021
Revenues$119,809,958 $8,349,000 
Cost of revenues101,055,664 4,837,000 
Gross margin18,754,294 3,512,000 
Operating expenses:  
Selling, general and administrative expenses9,305,955 6,803,000 
Depreciation and amortization2,232,509 202,000 
Restructuring and other related charges934,147 — 
Total operating expenses12,472,611 7,005,000 
Operating income (loss)6,281,683 (3,493,000)
Other income (expense):
Interest expense(2,835,588)(13,000)
Loss contingency on equity issuance(301,350)— 
Net gain on sale of subsidiary82,894 — 
Foreign exchange loss(944,416)(16,000)
(Loss) gain on change in fair value of derivative liabilities(942,390)12,000 
Miscellaneous income95,318 1,371,000 
Total other (expense) income(4,845,532)1,354,000 
Income (loss) from operations before income taxes1,436,151 (2,139,000)
Income tax expense(162,368)— 
Net income (loss)$1,273,783 (2,139,000)
Foreign currency translation adjustment— 31,000 
Comprehensive income (loss)$1,273,783 $(2,108,000)
Earnings (loss) per share:  
Basic$0.02 $(0.05)
Diluted$0.01 $(0.05)
Weighted average number of shares outstanding:
Basic65,289,116 41,422,781 
Diluted203,017,186 41,422,781 
Preferred Stock Series APreferred Stock Series E
Common Stock
Additional
Paid In
Capital
Accumulated
Deficit
Accumulated Comprehensive
Income (Loss)
 Stockholders’
Equity
AmountAmount
Amount
Balance - December 31, 2022$— $3,107 $5,572 $265,806,976 $(235,336,543)$— $30,479,112 
Stock-based compensation expense— — — 547,197 — — 547,197 
Cashless exercise of warrants for common shares— — 5,646 (5,646)— — — 
Conversion of Preferred Series E shares to common shares— (3,048)4,877 (1,829)— — — 
Partial liquidated damages settled in common shares— — 428 2,672,748 — — 2,673,176 
Net loss— — — — (7,900,730)— (7,900,730)
Balance - March 31, 2023$— $59 $16,523 $269,019,446 $(243,237,273)$— $25,798,755 
Rounding adjustment resulting from one (1) for twenty-five (25) reverse stock split— — 31 (31)— — — 
Stock-based compensation expense— — — 330,580 — — 330,580 
Conversion of Preferred Series E shares to common shares— (59)2 57 — — — 
Issuance of common stock via At-the-Market offering, net— — 121 — — — 121 
Net loss— — — — (12,261,955)— (12,261,955)
Balance - June 30, 2023$— $— $16,677 $269,350,052 $(255,499,228)$— $13,867,501 
Balance — December 31, 2021$7,000 $— $1,760 $208,127,240 $(193,138,000)$(386,000)$14,612,000 
Record vested deferred compensation relating to Redeeem employees— — — 805,000 — — 805,000 
Issuance of common stock related to Converge acquisition— — 480 14,874,520 — — 14,875,000 
Record preferred stock issued to PIPE— 5,000 — (5,000)— — — 
Stock-based compensation— — 320 9,095,680 — — 9,096,000 
Foreign currency translation reclassification— — — — — 36,000 36,000 
Net loss— — — — (14,388,000)— (14,388,000)
Balance - March 31, 2022$7,000 $5,000 $2,560 $232,897,440 $(207,526,000)$(350,000)$25,036,000 
Stock-based compensation— — — 4,204,534 — — 4,204,534 
Acquisition adjustments— — — 257,849 — — 257,849 
Redemption of Preferred Series A(7,000)— — (439,200)— — (446,200)
Foreign currency translation reclassification— — — — — (605,438)(605,438)
Net loss— — — — (18,056,006)— (18,056,006)
Balance - June 30, 2022$— $5,000 $2,560 $236,920,623 $(225,582,006)$(955,438)$10,390,739 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Troika Media Group, Inc. and Subsidiaries
Condensed Consolidated StatementStatements of Stockholders’ Equity
For the Three Months Ending September 30, 2022 and 2021Cash Flows
(Unaudited)

 Preferred Stock Series APreferred Stock Series E
Common Stock
Additional
Paid In
Capital
Stock
Payable
Accumulated
Deficit
Comprehensive
Income (Loss)
 Stockholders’
Equity
 AmountAmount
Amount
Balance - June 30, 2021$7,000 $— $40,000 $204,788,000 $1,210,000 $(186,889,000)$(418,000)$18,738,000 
Net Loss— — — — — (2,139,000)— (2,139,000)
Common stock issued related to Redeeem acquisition— — — 1,210,000 (1,210,000)— — — 
Record vested deferred compensation relating to Redeeem employees— — 4,000 801,000 — — — 805,000 
Stock-based compensation— — — 174,000 — — — 174,000 
Foreign currency translation reclassification— — — — — — 31,000 31,000 
Balance- September 30, 2021$7,000 $— $44,000 $206,973,000 $— $(189,028,000)$(387,000)$17,609,000 
`

Preferred Stock Series APreferred Stock Series E
Common Stock
Additional
Paid In
Capital
Stock
Payable
Accumulated
Deficit
Comprehensive
Income (Loss)
 Stockholders’
Equity
AmountAmount
Amount
Balance - June 30, 2022$— $8,000 $43,660 $236,876,523 $— $(225,582,006)$(955,438)$10,390,739 
Net income— — — — — 1,273,783 — 1,273,783 
Stock-based compensation expense— — — 516,800 — — — 516,800 
Conversion of preferred stock— (86)2,159 274,237 — — — 276,310 
Reclassification of foreign currency translation loss— — — — — — 955,438 955,438 
Balance- September 30, 2022$— $7,914 $45,819 $237,667,560 $— $(224,308,223)$— $13,413,070 

Six Months Ended
June 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss$(20,162,685)$(32,444,006)
Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation and amortization4,129,048 2,696,780 
Amortization of right-of-use assets333,677 728,455 
Amortization of deferred financing costs1,151,953 791,292 
Impairments and other losses (gains), net— 8,937,677 
Stock-based compensation877,778 13,300,534 
Accretion of interest on acquisition liabilities53,102 — 
Gain on derivative liabilities— (626,145)
Provision for bad debt(135,705)243,524 
Partial liquidated damages expense227,400 3,615,000 
Change in operating assets and liabilities:  
Accounts receivable(4,260,465)(10,612,057)
Prepaid expenses(925,158)(954,183)
Accounts payable and accrued expenses8,838,694 9,247,500 
Other assets27,021 17,269 
Operating lease liability(701,134)(2,904,470)
Due to related parties— (7,000)
Deferred revenue3,107,244 4,345,159 
Other long-term liabilities(199,009)(121,361)
Net cash used in operating activities(7,638,239)(3,746,032)
CASH FLOWS FROM INVESTING ACTIVITIES:  
Purchase of property and equipment(50,839)(70,638)
Net cash paid for acquisition of Converge— (82,730,000)
Net cash used in investing activities(50,839)(82,800,638)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Principal payments made for bank loan(1,912,500)(956,250)
Payments for note payable to related party(30,000)(50,000)
Proceeds from at-the-market offering, net121 — 
Proceeds from the issuance of preferred stock, net of offering costs— 44,405,000 
Proceeds from bank loan, net of debt issuance cost— 69,717,960 
Payments made for the redemption of Series A preferred stock— (446,400)
Payment of stimulus loan programs— (435,000)
Net cash (used in) provided by financing activities(1,942,379)112,235,310 
Effect of exchange rate on cash— 1,003,161 
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH$(9,631,457)$26,691,801 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — beginning of period28,403,797 5,982,000 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — end of period$18,772,340 $32,673,801 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:  
Cash paid during the period for:  
Interest expense$5,714,032 $1,998,958 
Income taxes$— $— 
Noncash investing and financing activities:
  
Conversion of Series E Preferred shares to common shares$31,078,000 $— 
Cashless exercise of warrants for common shares$34,690,000 $— 
Settlement of contingent liability in common shares$2,673,176 $— 
Write-off of property and equipment$291,641 $— 
Fair value of common stock issued relating to the Converge Acquisition$— $14,875,000 
Warrants issued relating to debt financing$— $2,232,000 
Warrants issued relating to equity financing$— $28,407,000 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Troika Media Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income (loss)$1,273,783 $(2,139,000)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:  
Depreciation and amortization2,232,509 202,000 
Amortization of right-of-use assets521,774 — 
Amortization of deferred financing costs591,357 — 
Stock-based compensation expense516,800 979,000 
Accretion of fair value liability125,398 — 
Net gain on sale of subsidiary(82,894)
Imputed interest for note payable10,006 
Loss contingency on equity issuance301,350 
Loss on early termination of operating lease202,150 3,000 
Loss (gain) on derivative liabilities942,390 (12,000)
Tax provision on income162,368 0
Provision (reversal) for bad debt61,671 (69,000)
Change in operating assets and liabilities:  
Accounts receivable(5,614,459)(580,000)
Contract assets(85,282)— 
Prepaid expenses(1,112,772)45,000 
Accounts payable and accrued expenses6,837,288 (969,000)
Other assets(787,900)(68,000)
Operating lease liability(583,058)(222,000)
Due to related parties— (34,000)
Contract liabilities(267,420)771,000 
Other long term liabilities177,271 (168,000)
Net cash provided by (used in) operating activities5,422,330 (2,261,000)
CASH FLOWS FROM INVESTING ACTIVITIES:  
Net cash received for sale of Mission UK(1,185)— 
Purchase of property and equipment(170,851)(68,000)
Net cash used in investing activities(172,036)(68,000)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Payments made for loss contingency on equity issuance(3,615,000)— 
Principal payments made for bank loan(956,250)— 
Payments for note payable to related party(40,000)(20,000)
Net cash used in financing activities(4,611,250)(20,000)
Effect of exchange rate on cash(646,002)35,000 
NET DECREASE IN CASH AND CASH EQUIVALENTS$(6,958)$(2,314,000)
CASH AND CASH EQUIVALENTS — beginning of period32,673,801 12,066,000 
CASH AND CASH EQUIVALENTS — end of period$32,666,843 $9,752,000 
   
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:  
Cash paid during the period for:  
Interest expense$2,077,285 $3,000 
Noncash investing and financing activities:
  
Right-of-use assets acquired through adoption of ASC 842$— $467,000 
Conversion of Series E Preferred shares to common stock$274,237 $— 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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TROIKA MEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. Description of Business and Basis of Presentation

Description of Business

Troika Media Group, Inc. (together with its subsidiaries, the “Company”(“Company”, “our” or “we”), incorporated in Nevada in 2003, is a professional services company that architects and builds enterprise value in consumer facing brands to generate scalable performance driven revenue growth through customer acquisition.growth. The Company delivers on three solutions'solutions pillars that CREATE brands and experiences and CONNECT consumers through emerging technology products and ecosystems to deliver PERFORMANCE-basedPERFORMANCE based measurable business outcomes.

On March 22, 2022, the Company, through its wholly owned subsidiary CD Acquisition Corp, executed a Membership Interest Purchase Agreement (“MIPA”) for the acquisition of all the equity of Converge Direct, LLC and its affiliates (“Converge”) and 40% of the equity of Converge Marketing Services, LLC, an affiliated entity, for an aggregate purchase price of $125.0 million valued at $114.9 million (the "Converge Acquisition"). The MIPA identifies the seller parties as the Converge Sellers.

On August 1, 2022 the Company sold the equity of Mission Media Limited and Mission Media Holdings Limited (collectively, Mission UK).Unaudited Interim Financial Statements

The Company operates and reports financial information in one segment. Substantially all revenues and assets of the Company are attributed to or located in the United States and are primarily concentrated in the New York City metropolitan area.
Unaudited Interim Financial Statements
The accompanying interim condensed consolidated unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X, and should be read in conjunction with the Company’s AnnualTransition Report on Form 10-K10-K/T (as amended by Form 10-KT/A) for the yearsix month transition period ended June 30,December 31, 2022. The financial statements as of SeptemberJune 30, 20222023 and for the three and six months ended SeptemberJune 30, 2022 and 20212023 presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2022, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.

Reverse Stock Split

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

Going Concern

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

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

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

As has been previously reported and as summarized below in Note 8. Credit Facilities, the Company agreed with its senior lender, Blue Torch Finance LLC ("Blue Torch"), to undertake a process with an investment banker to facilitate the repayment in full of Blue Torch debt either through an acquisition or disposition involving the Company, a refinancing, or
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some combination thereof (a “Potential Transaction”).As a result, in December 2022, the Company engaged Jefferies LLC (“Jefferies”), a leading global full-service investment banking and capital markets firm, and the Board of Directors of the Company (the "Board")formed a Special Committee to, among other things, oversee a Potential Transaction. In the absence of a Potential Transaction, the Company and Blue Torch have, in good faith, continued to negotiate to resolve ongoing issues. However, the Company can provide no assurance that it will be able to execute a Potential Transaction, or reach a final agreement with Blue Torch default. However, the Company will request additional waivers and seek further extensions, if required.

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

NOTE 2. Accounting Policies

Principles of Consolidation

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

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amount of revenues and expenses. Such estimates include the valuation of accounts receivable and the determination of the allowance for doubtful accounts, the valuation and useful life of capitalized equipment costs and long-lived assets, valuation of warrants and options, the determination of the useful lives and any potential impairment of long-lived assets such as intangible assets and goodwill, the allocation of purchase consideration to assets and liabilities due to the Converge Acquisition, stock-based
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compensation, and deferred tax assets. Management believes its use of estimates in the condensed consolidated financial statements to be reasonable.

Restricted cash

The Company defines restricted cash as cash that is legally restricted as to withdrawal or usage. Restricted cash of approximately $0.4 million as of June 30, 2023, consists of cash deposits received from the at-the-market ("ATM") issuance held by B.Riley Securities, Inc., our agent for sale of Common Stock under the ATM ("ATM Agent") and must be paid to Blue Torch in accordance with the terms of the Financing Agreement. There was no restricted cash balance as of December 31, 2022.

Recently Adopted Accounting Pronouncements

In August 2020,October 2021, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other and Derivatives and Hedging—Contracts in Entity’s Own Equity:2021-08, "Business Combinations (Subtopic 805), Accounting for Convertible InstrumentsContract Assets and Contract Liabilities from Contracts in an Entity’s Own Equity”with Customers” ("ASU 2021-08”), which simplifiesis intended to improve the accounting for convertible instrumentsacquired revenue contracts with customers in a business combination by removing the separation models for convertible debt with a cash conversion featureaddressing diversity in practice and convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The new guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020.inconsistency. The Company has adopted the guidance effective JulyJanuary 1, 2021.
In December 2019, the FASB issued amended guidance in the form of ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects2023. The adoption of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt allpronouncement did not have a material impact on the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company has adopted the guidance effective July 1, 2021.financial statements when adopted.

Recently Issued Accounting Pronouncements Not Yet Adopted

Not Applicable.

NOTE 3 – Converge Direct Acquisition

On June 16, 2016, the FASBMarch 22, 2022 (the "Closing Date"), the Company and CD Acquisition Corp. ("CD"), as purchasers, and Thomas Marianacci, Maarten Terry, Sadiq ("Sid") Toama and Michael Carrano, as sellers (the "Converge Sellers") closed on the acquisition of all the equity of Converge Direct LLC (together with its affiliates, "Converge") and 40% of the equity of Converge Marketing Services, LLC ("CMS") an affiliated entity, for a notional aggregate purchase price of $125.0 million,
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valued for accounting purposes at approximately $114.9 million pursuant to the Membership Interest Purchase Agreement, dated November 22, 2021 (the "MIPA").

Purchase Price

The cash portion of the purchase price consisted of $65.9 million paid on the date of the acquisition, $29.1 million held in escrow payable upon satisfaction of certain conditions, and another $5.0 million payable 12 months after the acquisition date contingent on the Company satisfying its bank covenants and at the option of the payee payment will be in the form of cash or common stock of the Company valued at $2.00 per share. The remaining $25.0 million was paid in the form of 12.5 million shares of the Company’s restricted common stock at a price of $2.00 per share, which for accounting purposes was valued at $1.19 per share for $14.9 million. All 12.5 million shares were subject to a nine (9) month lock-up period. Pursuant to the provisions of the MIPA dated as of November 22, 2021, as amended, an aggregate of $2.5 million (10%) or 1,250,000 shares of the Common Stock issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurementto the Sellers are held in escrow to secure against claims for indemnification. The escrowed shares will be held until the later of Credit Losses on Financial Instruments, which introduced an expected credit loss model(a) one year from the Closing Date, or (b) the resolution of indemnification claims. The escrowed shares have not yet been released. The Company is accounting for the impairmenttransaction under the purchase method of financial assets measured at amortized cost basis. This ASU replacesaccounting in accordance with the probable, incurred loss model for those assets. On November 15, 2019, the FASB delayed the effective date of FASB ASC Topic 326 for certain small public companies and other private companies. As amended, the effective dateprovisions of ASC Topic 326805 Business Combinations (ASC 805). On the Closing Date, Converge became a wholly-owned subsidiary.

At March 22, 2022 the Company recorded the $5.0 million payable due March 21, 2023, at its then net present value of $4.7 million. Further, pursuant to the MIPA, the Company recorded an additional liability totaling $4.3 million which represents the excess net working capital value received by the Company at the purchase date. Per the terms of the MIPA, this amount was delayed until fiscal years beginning after December 15, 2022, for SEC filers that are eligible to be smaller reporting companies underrepaid within 120 days of closing. As of June 30, 2023, a total of $9.3 million is included within acquisition liabilities on the SEC’s definition,condensed consolidated balance sheets.

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

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

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

On August 14, 2023, the Company terminated the employment of Mr. Toama for “Cause,” pursuant to the terms of the New Agreements. See the Company’s Current Report on Form 8-K filed with the Securities and not-for-profit entities. Exchange Commission ("SEC") on August 13, 2023, the contents of which are incorporated by reference herein. Mr. Marianacci resigned his employment with the Company on September 28, 2023. See "Subsequent Events" of this Quarterly Report on Form 10-Q for more information on the termination of the employment of Mr. Toama for "Cause" and the resignation of Mr. Marianacci.

Purchase Price Allocation

The Company is currently evaluatingnegotiated the impacts of this pronouncement and does not expect it to have a material impactpurchase price based on the financial statements.expected cash flows to be derived from their operations after integration into the Company’s existing distribution, production, and service networks. The acquisition purchase price is allocated based on the fair values of the assets acquired and liabilities assumed, which are based on management estimates and third-party appraisals. The Company engaged a valuation expert to provide guidance to management which was considered and in part relied upon in completing its purchase price allocation. The excess of the purchase price over the aggregate estimated fair value of net assets acquired was allocated to goodwill.

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The following table summarizes the allocation of the purchase price of the assets acquired related to the acquisition as of the closing date:

Current assets$33,856,000 
Fixed assets233,000 
Other non-current assets4,340,000 
Intangible assets71,100,000 
Goodwill45,519,000 
Current liabilities(34,904,000)
Other non-current liabilities(5,506,000)
Consideration$114,638,000 

Intangible Assets

The estimated fair values of the identifiable intangible assets acquired were calculated using an income valuation approach which requires a forecast of expected future cash flows either through the use of relief-from-royalty method or multi-period excess earnings methods ("MPEEM"). The estimated useful lives are based on the Company’s experience and expectations as to the duration of the time the Company expects to realize benefits of the assets.

The estimated fair values of the identifiable intangible assets acquired, estimated useful lives and related valuation methodology are as follows:

Intangible Assets:Preliminary Fair Value Life in YearsDiscount Rate Valuation Method
Customer relationships$53,600,000 1017.8%Income (MPEEM)
Technology10,400,000 517.8%Income (Relief-from-Royalty)
Tradename7,100,000 1018.8%Income (Relief-from-Royalty)
 $71,100,000    

The Company will amortize the intangible assets above on a straight line basis over their estimated useful lives.


UNAUDITED PRO FORMA OPERATING RESULTS

The following unaudited pro forma information presents the combined results of operations as if the acquisition of Converge had been completed on January 1, 2022.
For the six months ended
June 30, 2022
 Revenue$155,924,997 
 Cost of revenue128,643,653 
 Gross profit27,281,344 
 Operating expenses(50,638,734)
 Operating loss(23,357,390)
 Other expenses(6,668,896)
 Net loss$(30,026,286)



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NOTE 3.4. Revenue and Accounts Receivable

The Company generates revenues primarily by delivering both managed services and performance based marketing services to customers. The Company’s revenue recognition policies that describe the nature, amount, timing and uncertainty associated with each major source of revenue from contracts with customers are summarized below.

Managed and Professional Services

The Company provides a servicemanaged and professional services (such as, but not limited to, media planning, media buying, media ROI measurement, and media or marketing performance reporting). The Company is compensated for the delivery of services and/or goods to a client and the revenue includes both the anticipated costs to deliver the product or service as well as the Company’s margin, which is arranged in one of three ways (i) a predetermined retainerfixed fee amount (ii) cost plus margin or (iii) a predetermined commission percentage based on the total media spend executed by the Company on a client’s behalf.

As per ASC 606-10-25-31, the Company recognizes managed and professional service fees over time by measuring the progress toward complete satisfaction of a performance obligation by measuring its performance in transferring control of the services contractually delivered to a client by applying the input method. Revenue is recognized based on the extent of inputs expended toward satisfying a performance obligation and it was determined that the best judge of inputs is the costs consumed by a project in relation to its total anticipated costs. As part of the close process, the Company compiles a preliminary percentage of completion ("POC") for each project which is the ratio of incurred costs to date in relation to the anticipated costs from the production team’s approved budgets. The POC ratio is then applied to the contracted revenue and the pro-rated revenue is then recognized accordingly.
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Consultative service engagements typically do not incur a significant amount of direct costs; however, any costs are recognized as incurred. Professional services fees are recognized evenly throughout the term of the agreement.

Performance Solutions (“Pay Per Event”)

The Company provides to its clients the ability to pay for a marketing or sales event rather than incurring the media and services expense in a managed service engagement. The Company utilizes the same functions that it delivers in its managed services offering, but only charges a client for a predetermined marketing or sales outcome. The fees in this situation will typically be tied to a (i) cost per phone call, (ii) cost per web form lead, (iii) cost per consumer appointment, (iv) cost per qualified lead, and (v) cost per sale. There is a premium that is charged to the client for the Performance Solutions service due to the fact that the Company is taking on the cost risk associated with the services and media that it is executing without knowing that revenue will be generated. The risk is mitigated by the fact that the client has agreed to purchase the “work product’”product” (lead, call, etc.) at a predetermined cost and the Company charges higher margins associated with the service.

The Company recognizes revenues for performance advertising when a user engages with the advertisement, such as a click, a view, call, or a purchase. Generally, advertising revenues are reported on a gross basis, that is, the amounts billed to our customers are recorded as revenues, and amounts paid to suppliers are recorded as cost of revenues. Where we are the principal, we control the advertising and services before they are transferred to our customers. Our control is evidenced by our being primarily responsible to our customers and having a level of discretion in establishing pricing.

The Company’s payment terms vary by the type of customer. Generally, payment terms range from prepayment to sixty (60) days after revenue is earned.

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Principal versus Agent Revenue Recognition

Our customers reimburse us for expenses relating to the out-of-pocket costs associated with the provision of Managed Services engagements. This includes third party expenses such as media costs and administrative fees, technology fees, production expenses, data costs, and other third-party expenses that the Company incurs on behalf of a client that is needed to deliver the services. In accordance with ASC 606-10-25-31, the Company recognizes reimbursement income over time by measuring the progress toward complete satisfaction of a performance obligation by measuring its performance in transferring control of the services contractually delivered to a client by applying the input method. The revenue is recognized based on the extent of inputs expended toward satisfying a performance obligation and it was determined that the best judge of input is the costs incurred to date in relation to the anticipated costs. As a result, unless an overage or saving is identified, the reimbursement income equates to the reimbursement costs incurred. Given that the Company contracts directly with the majority of the vendors, and is liable for any overages, the Company is deemed a principal in this revenue transaction as they have control over the asset and transfer the asset themselves. As a result, this transaction is recorded gross rather than net. Accruals for costs incurred but not yet billed by third parties are recorded in accrued billable expenses on the condensed consolidated balance sheets.

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

Contract Balances from Contracts with Customers

An account receivable is recorded when there is an unconditional right to consideration based on a contract with a customer. For certain types of contracts with customers, the Company may recognize revenue in advance of the contractual right to invoicewhen the customer resulting in an amount recorded to contract assets.is issued the invoice. Once the Company has an unconditional right to consideration under these contracts, the contract assets are reclassifiedrecorded to accounts receivable.receivable on the condensed consolidated balance sheets.

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

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TableThe Company’s customer base is highly concentrated. Revenue may significantly decline if the Company were to lose one or more of Contents
its significant customers, or if the Company were not able to obtain new customers. For the six months ended June 30, 2023 and June 30, 2022 five (5) customers accounted for 82% and 67% of our revenues, respectively.

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

September 30,June 30,June 30,December 31,
2022202220232022
Accounts receivableAccounts receivable$37,282,536 $9,421,497 Accounts receivable$15,197,469 $10,801,299 
Contract assets328,936 23,586,036 
Deferred revenueDeferred revenue9,132,043 11,321,159 Deferred revenue$9,316,686 $6,209,442 

Accounts receivable is presented net of allowance for doubtful accounts. The Company analyzes receivables aging, customer specific risks, and other factors to estimate its allowance. The Company’s allowance for doubtful accounts was $449,000approximately $0.9 million and $552,000$1.0 million as of SeptemberJune 30, 20222023, and June 30,December 31, 2022, respectively.

The amount of revenue recognized during the three and sixmonths ended SeptemberJune 30, 2022,2023, relating to the deferred revenue recorded as of June 30,December 31, 2022, was $8.4 million.approximately $0.3 million and $0.4 million, respectively.

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NOTE 4.5. Property and Equipment

Property and equipment consist of the following as of September 30, 2022 and June 30, 2023, and December 31, 2022:
 September 30,
2022		June 30,
2022
Computer equipment$803,026 $841,205 
Website design6,000 6,000 
Office machine & equipment109,000 91,000 
Furniture & fixtures337,000 413,000 
Leasehold improvements428,000 379,000 
Total Property and equipment1,683,026 1,730,205 
Less: accumulated depreciation(1,034,000)(1,141,000)
Property and equipment, net$649,026 $589,205 

 June 30,
2023		December 31,
2022
Computer equipment$318,968 $820,000 
Website design— 6,000 
Office machine & equipment— 109,000 
Furniture & fixtures18,609 338,000 
Leasehold improvements154,383 436,000 
Total Property and equipment491,960 1,709,000 
Less: accumulated depreciation(168,110)(1,090,000)
Property and equipment, net$323,850 $619,000 

During the three months ended SeptemberJune 30, 20222023, and 2021,2022, depreciation expense was $52approximately $28 thousand and $30$56 thousand, respectively.

Note 5.During the six months ended June 30, 2023 and 2022, depreciation expense was approximately $54 thousand and $89 thousand, respectively.

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

NOTE 6. Amortizable Intangible Assets & Goodwill

The Company's intangible assets subject to amortization are as follows:
September 30,
2022		June 30,
2022		 June 30,
2023		December 31,
2022
Customer relationshipCustomer relationship$58,559,755 $58,559,995 Customer relationship$53,600,000 $53,600,000 
Non-core customer relationships760,000 760,010 
Non-compete agreements1,430,000 1,430,000 
TechnologyTechnology10,400,000 10,920,000 Technology10,400,000 10,400,000 
TradenameTradename7,510,000 7,570,000 Tradename7,100,000 7,100,000 
Workforce acquired2,125,000 2,125,000 
Total intangible assetsTotal intangible assets80,784,755 81,365,005 Total intangible assets71,100,000 71,100,000 
Less: accumulated impairment expense— (446,000)
Less: accumulated amortizationLess: accumulated amortization(12,657,000)(10,613,000)Less: accumulated amortization(10,413,889)(6,339,000)
Total Amortizable intangible assets, net$68,127,755 $70,306,005 
Total amortizable intangible assets, netTotal amortizable intangible assets, net$60,686,111 $64,761,000 
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Purchased intangible assets with finite useful lives are amortized over their respective estimated useful lives (using an accelerated method for customer relationships and trade names) to their estimated residual values, if any. The Company’s finite-lived intangible assets consist of customer relationships, contractor and resume databases, trade names, and internal use software and are being amortized over periods ranging from two to ten years. Purchased intangible assets are reviewed annually to determine if facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, recoverability is assessed by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts.

During the three months ended SeptemberJune 30, 20222023 and 2021,2022, amortization expense was $2,178,250approximately $2.0 million and $172,000,$2.2 million, respectively.

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

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

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Fiscal year ending December 31:
Remaining 2023$4,075,000 
20248,150,000 
20258,150,000 
20268,150,000 
20276,532,222 
Thereafter25,628,889 
Total$60,686,111 

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

Goodwill

As of June 30, 2023 and June 30, 2022, the balance of goodwill was approximately $45.5 million and $45.5 million, respectively. For the three months ended SeptemberJune 30, 2022, and 2021, the Company hadrecorded goodwill impairment charges of approximately $6.7 million and $2.0 million related to the Mission U.K. and Redeeem subsidiaries, respectively, as a result of the Company's annual impairment testing. There were no impairments.goodwill impairment charges recorded in the three and six months ended June 30, 2023.

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

NOTE 7. Restructuring

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

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

Based on the quantitative analysis of the six months ended December 31, 2022 results, the Company noted that the total revenues from these certain subsidiaries only constituted three point six (3.6%) percent of total consolidated revenues, one (1%) percent of the total consolidated assets, and seven percent (7%) of total consolidated liabilities. Based on this analysis the Company determined there was not a significant impact on the Company’s operations and financial results. Therefore, discontinued operations reporting was not required. 
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For the three months ended June 30, 2023 and 2022, the Company recorded approximately $0.3 million of net restructuring credits and $5.6 million in costs, respectively. Net restructuring credits for the three months ended June 30, 2023 primarily consisted of approximately $0.6 million of credits related to favorable settlements of executive and employee severance and benefit payments and the reclassification of approximately $0.3 million, of liabilities recorded in the first quarter 2023 related to potential severance payments, to accrued and other liabilities. These credits were partially offset by associated legal fees of approximately $0.6 million, which did not have a restructuring reserve liability.

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

The restructuring reserve liability is presented within the accrued and other current liabilities line within the consolidated balance sheets. The change in the restructuring reserve liability for the three and six months ended June 30, 2023 was as follows:
Severance and termination costsOther exit costsTotal
Balance as of December 31, 2022$496,599 $401,260 $897,859 
Charges327,000 — 327,000 
Payments(69,968)— (69,968)
Credits— (296,264)(296,264)
Balance as of March 31, 2023753,631 104,996 858,627 
Charges— — — 
Payments(135,435)— (135,435)
Credits(605,232)4,791 (600,441)
Balance as of June 30, 2023$12,964 $109,787 $122,751 

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

NOTE 8. Credit Facilities

Debt related to the Senior Secured Credit Facility, Convertible Note 6. DebtPayable, and Related Party Note Payable consisted of the following:
Effective Interest RateJune 30, 2023December 31, 2022
Senior Note due 2026 (1)
17.1 %$65,624,508 $66,385,055 
Convertible Note60,006 60,006 
Related Party Note— 30,000 
Total debt65,684,514 66,475,061 
Less: current portion1,671,450 1,641,217 
Long-term debt, excluding current portion$64,013,064 $64,833,844 
(1) Includes unamortized discount and issuance costs of approximately $6.1 million and $7.2 million, as of June 30, 2023 and December 31, 2022, respectively.

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Senior Secured Credit Facility

On March 21, 2022, Troika Media Group Inc., and each subsidiary of Troika Media Group Inc. as guarantors,the Company entered into athe Financing Agreement with Blue Torch Finance LLC (“Blue Torch”), as Administrative Agent and Collateral Agent.in connection with the Converge Acquisition. This $76.5 million First Lien Senior Secured Term Loan (the “Credit Facility”) formed the majority ofwas used in part to fund the purchase price of the Converge Acquisition, as well as, for working capital and general corporate purposes.

The Credit Facility provides for: (i) a Term Loanterm loan in the amount of $76,500,000;$76.5 million; (ii) an interest rate of the LiborLIBOR Rate Loan of three (3) months; (iii) a four-year maturity amortized 5.0% per year, payable quarterly; (iv) a 1.0%one (1.0%) percent commitment fee and an upfront fee of 2.0%two (2.0%) percent ($1.5 million) of the Credit Facility paid at closing, plus an administrative agency fee of $250,000 per year; (v) a first priority perfected lien on all property and assets including all outstanding equity of the Company’s subsidiaries; (vi) 1.5%one point five (1.5%) fully-diluted penny warrant coverage in the combined entity; (vii) mandatory prepayment for 50%fifty (50%) percent of excess cash flow and 100% of proceeds from various transactions; (viii) customary affirmative, negative and financial covenants; (ix) delivery of audited financial statements of Converge; and (x) customary closing conditions. The Company agreed to customary restrictive covenants in the Credit Facility and leverage ratios, fixed charge coverage ratios, and maintaining liquidity of at least $6,000,000$6.0 million at all times.
As of
On September 30, 2022,22, 2023, the Company was in default onand Blue Torch entered into the First Amendment to Financing Agreement due toby adding provisions for the use of secured overnight financing rate loans in place of LIBOR rate loans. See the Company’s failure to satisfy certain financialCurrent Report on Form 8-K filed with the Securities and non-financial covenants underExchange Commission ("SEC") on September 27, 2023, the Financing Agreement. The Company currently is and has been addressing these items and is working in good faith with Blue Torch on an amendment to the loan. On October 14, 2022, Blue Torch and the Company entered into a Limited Waivercontents of all events of default thatwhich are continuing under the Financing Agreement dated March 21, 2022.incorporated by reference herein.

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

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

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

Although the Company believes that the Converge Sellers’ recourse is solely to the escrow account, it is possible that the Converge Sellers could make claims against the Company for the deferred amount. In the event that the Converge Sellers were to make and be successful in such claims, the Company believes that a court would likely order Blue Torch to release the escrowed funds to satisfy such claims

In connection with the aforementioned note,Credit Facility, the Company recorded debt discount and issuance costs totaling $9.2 million. As of September 30, 2022, the debt issuance costs was approximately $7.8 million, consisting of the current portion of approximately $2.3 million and the long-term portion of approximately $5.5$9.2 million. The discount and issuance costs will be amortized over the life of the note using the effective interest rate method. The company recognized approximately $0.6 million inFor the three and six months ended June 30, 2023, amortization of debt discount fordeferred financing costs was approximately $0.6 million and $1.2 million, respectively. For the three and six months ended SeptemberJune 30, 2022, amortization of deferred financing costs were approximately $0.6 million and $0.8 million, respectively.

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

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Table of Contents
At SeptemberJune 30, 2022,2023, the principal payments required under the Term Loan Facility are as follows:
Remainder of fiscal year ending June 30, 2023$2,868,750 
Fiscal year ending June 30, 20243,825,000 
Fiscal year ending June 30, 20253,825,000 
Fiscal year ending June 30, 202664,068,750 
Total$74,587,500 
Fiscal year ending December 31:
Remaining 2023$1,912,500 
20243,825,000 
20253,825,000 
202662,156,250 
Total maturities$71,718,750 
At any time on or after March 21, 2022, and on or prior to March 21, 2026, the lender hasLenders have the right to subscribe for and purchase from Troika Media Group, Inc.,the Company, up to 1,929,439initially 77,178 shares of Common Stock, subject to adjustment. During the six months ended December 31, 2022, the number of shares increased to 177,178. The exercise price per share of Common Stock under this Warrant shall be $.01$0.01 per share. If at any time when this Warrant becomes exercisable and thea related Registration Statement is not in effect, thisthe Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise”. The shares have been adjusted to reflect the one (1) for twenty-five (25) reverse stock split.
Using the Black-Scholes model,As ofJune 30, 2023, the fair market value of long-term debt is considered to approximate its stated value of $71.7 million.

Blue Torch Extensions, Waivers and Amendments

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

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

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

On May 8, 2023, the Company and Blue Torch entered into a first amendment to the First A&R Limited Waiver (the “First Amendment to First A&R Limited Waiver”) and an amended and restated letter agreement that, in each case, superseded
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the Prior Waiver Documents, and pursuant to which the Company affirmed its commitment to work in good faith to consummate a sale of the Company’s business or assets or a refinancing transaction before the expiration of the First A&R Waiver Period, and Blue Torch agreed to remove the Applicable Milestones and to extend the Outside Date from June 30, 2023 to July 14, 2023, subject to a potential extension if a definitive written agreement is delivered on or prior to July 14, 2023 that provides for cash repayment in full of all obligations owed to Blue Torch or which is otherwise acceptable to Blue Torch. In addition, under the First Amendment to the First A&R Limited Waiver, the Company agreed to pay Blue Torch an “exit fee” equal to five (5%) percent of the aggregate outstanding principal balance of the Company’s indebtedness with Blue Torch as of the date of the First Amendment to the First A&R Limited Waiver, plus accrued interest, subject to reduction or waiver if such Blue Torch indebtedness is repaid in full in cash by the dates specified therein. The foregoing summary does not purport to be $31.2 millioncomplete and $30.2 millionis subject to, and qualified in its entirety by, Amendment No. 1 to the A&R Limited Waiver attached as Exhibit 10.2 to this Quarterly Report on September 30, 2022Form 10-Q. See also "Subsequent Events" of this Quarterly Report on Form 10-Q for a description of Amendments Two, Three, and June 30, 2022, respectively, as a warrant liabilityFour to the First A&R Limited Waiver, the First Amendment to the Financing Agreement, the Second A&R Limited Waiver and a $0.9 million loss on derivative liabilities as recorded in the three months ending September 30, 2022.First Amendment to the Second A&R Limited Waiver.
Convertible Note Payable
As of September 30, 2022 and June 30, 2022, there was a total of $60 thousand and $50 thousand, respectively, in convertible notes payable outstanding. The Company recorded $10 thousand and $1 thousand in interest expense relating to convertible note payables during the three months ended September 30, 2022 and 2021, respectively.
Note Payable
As of September 30, 2022 and June 30, 2022, the Company owed the founder and former CEO of Troika Design Group, Inc., Dan Pappalardo, approximately $60 thousand and $100 thousand, respectively. During the three months ending September 30, 2022 and 2021, the Company made payments of $40 thousand and $20 thousand in principal, respectively.
Note 7.NOTE 9. Leases

The Company has various operating leases for office space. Some leases include options to extend the lease term, generally at the Company's discretion. The leases generally provide for fixed annual rentals plus certain other costs. The Company's lease agreements do not include any material residual value guarantees or material restrictive covenants. Since the Company's leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate as of the lease commencement date to determine the present value of future lease payments. Upon the adoption of ASC Topic 842, Leases, the Company used the incremental borrowing rate on July 1, 2019 for all operating leases that commenced prior to that date.
Lease costs were approximately $0.7 million and $0.3 million for
During the three months ended SeptemberJune 30, 2023, and 2022, lease expense was approximately $0.3 million and 2021,$0.4 million, respectively.
In September 2022, the Company terminated the lease of one of their office facilities in Englewood Cliffs, NJ. As part of company-wide restructuring, the Company made the decision to cease using this space as of September, 2022, and has no foreseeable plans to occupy it in the future. As of September 30, 2022 the company has made a $100 thousand payment and accrued an additional $100 thousand, which was paid on October 28, 2022. Further, the company derecognized the associated right of use asset, and lease liability, and recorded a loss on the early termination of the lease, which is recognized on the Statement of Operations on the line restructuring charges.

-13-During the six months ended June 30, 2023, and 2022, lease expense was were approximately $0.6 million and $0.8 million, respectively.
Table of Contents
The following table summarizes the weighted-average remaining lease term and discount rate for operating leases:
Undiscounted Cash Flows Undiscounted Cash Flows
Weighted-average discount rate for operating leases5.50%
Weighted-average remaining operating lease term in years3.2 years
Weighted average remaining lease term in yearsWeighted average remaining lease term in years2.7 years
Weighted average discount rateWeighted average discount rate5.50%
As of September 30, 2022, the maturities of the Company's operating lease liabilities are as follows:
As of June 30, 2023, the maturities of the Company's operating lease liabilities are as follows:As of June 30, 2023, the maturities of the Company's operating lease liabilities are as follows:
 
Remainder of fiscal year ending June 30, 2023$1,658,000
 
Remainder of fiscal year ending December 31, 2023Remainder of fiscal year ending December 31, 2023$1,016,167
202420241,998,00020241,954,575
202520251,706,00020251,449,060
202620261,436,00020261,453,734
202720271,378,00020271,117,060
ThereafterThereafter2,463,152 Thereafter2,354,471 
Total undiscounted operating lease paymentsTotal undiscounted operating lease payments10,639,152Total undiscounted operating lease payments9,345,067
Less: Imputed interestLess: Imputed interest(1,591,000)Less: Imputed interest(1,347,005)
Total operating lease liabilitiesTotal operating lease liabilities9,048,152Total operating lease liabilities7,998,062
Less: current portion of operating lease liabilitiesLess: current portion of operating lease liabilities1,440,080Less: current portion of operating lease liabilities(1,598,693)
Non-current operating lease liabilitiesNon-current operating lease liabilities$7,608,072Non-current operating lease liabilities$6,399,369

Note 8NOTE 10 – Commitments and Contingencies

Commitments
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As discussedof June 30, 2023, commitments of the Company in ourthe normal course of business in excess of one year are as follows:

Payments Due by Period
Remaining 2023Years 2-3Years 4-5>5 YearsTotal
Operating lease obligations (a)
$1,016,167 $3,403,635 $2,570,794 $2,354,471 $9,345,067 
Debt repayment (b)
1,912,500 7,650,000 62,156,250 — 71,718,750 
Restructuring liabilities (c)
122,751 — — — 122,751 
Acquisition liabilities (d)
9,346,504 — — — 9,346,504 
Total$12,397,922 $11,053,635 $64,727,044 $2,354,471 $90,533,072 
(a) Operating lease obligations primarily represent future minimum rental payments on various long-term noncancellable leases for office space. Lease obligations related to excess facilities associated with the Company wide restructuring plan are included within the operating lease obligations line.
(b) Debt repayments consists of principal repayments required under the Company's Credit Facility.
(c) Restructuring liabilities relate primarily to future severance payments and other exit costs
(d) Acquisition liabilities recorded on the balance sheet consist of the Company's obligations to the Converge Sellers arising from the Converge Acquisition. See Note 3 - Converge Direct Acquisition

Contingencies

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

Partial Liquidated Damages

For the three months ended June 30, 2022, Annual Report, we have guaranteed certain obligations relating principally to operating leases,approximately $3.6 million of partial liquidated damages charges were recorded and lines of credit. As of Septemberthere were no such charges recorded for the three months ended June 30, 20222023. For the six months ended June 30, 2023 and June 30, 2022, the amount of Company guarantees on lease obligations wasrecorded approximately $10.6$0.2 million and $13.9$3.6 million, respectively, of partial liquidated damages expense which was recorded within miscellaneous expenses on the amountcondensed consolidated statements of operations and comprehensive loss. As of June 30, 2023 and December 31, 2022, the Company guarantees relating to credit facility obligations washad approximately $74.6$0.9 million and $75.5$3.4 million, respectively.respectively, related to the outstanding partial liquidated damages, which is presented within the line contingent liability on the condensed consolidated balance sheets. As of June 30, 2023, approximately $3.6 million of liquidated damages were paid in cash and approximately $2.7 million was settled in common shares.

On March 21, 2023, the Company disclosed on Form 8-K its intent to engage in negotiations with stockholders ("Series E Holders") of the Company's Series E Convertible Preferred Stock, par value $.01 per share ("Series E Preferred Stock") to waive certain provisions of the Securities Purchase Agreement (the "Series E Purchase Agreement') and the related Registration Rights Agreement each entered into on March 16, 2022 with the Series E Holders (the "Series E Registration Rights Agreement"), and to settle Series E Holders' claims for liquidated damages owed, if any, under the Series E Registration Rights Agreement. The Company provided each Series E Holder the same opportunity to enter into Settlement Agreements (the "Series E Settlement Agreements") on substantially identical terms. However, certain Series E Holders elected not to enter into Series E Settlement Agreements, notwithstanding the effective termination of the Series E Purchase Agreement and related documents (other than certain rights surviving under the Series E Registration Rights Agreement, to which all Series E Holders continue to be equally entitled). The maximum liquidated damages before interest was capped at $7.0 million. See Note 611 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for more information related to the partial liquidated damages.

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401K Matters

In the calendar year 2022, the Company discovered that it had not made the safe harbor non-elective employer contributions to the Troika Design 401k plan in 2017 pursuant to its 3% formula under plan terms, and the Company corrected that contribution for the principal repayments required underaffected participants, with earnings, in 2022.

The Company also discovered that it did not make the Company's Credit Facility. See Note 7three (3%) percent safe harbor non elective employer contributions to the 401k plan for plan years 2018 through 2022. When the minimum lease payments requirederror was discovered in 2022, the Company attempted to be madecorrect the error by performing the Company.applicable non-discrimination tests and by making qualified non-elective contributions ("QNECs") to affected participant accounts. However, as the administration of the 401k plan did not conform to the plan terms with respect to the three (3%) percent employer contribution, additional correction is required. Although the Company is evaluating the appropriate corrective approach, the Company has accrued approximately $1.2 million related to the safe harbor 2018 – 2022 contributions, as of June 30, 2023.

Legal Matters

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

Note 9. Fair Value MeasurementsMachinist Litigation

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

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


NOTE 11. Equity

Common Stock

The fair value hierarchy is basedCompany filed a shelf registration statement on inputsForm S-3 (referred to valuation techniques that are usedherein as the “Shelf Registration Statement”) (file no. 333-271189) with the SEC on April 7, 2023 which was amended on April 28, 2023 and declared effective by the SEC on May 23, 2023. Under the Shelf Registration Statement, the Company may from time to measure fair value that are either observabletime sell any combination of securities described therein in one or unobservable. Observable inputs are developed using market data, such as publicly available information about actual events or transactions, and reflect the assumptions that market participants would use when pricing the asset or liability. Unobservable inputs are inputs for which market data is not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.more offering up to a total dollar amount of $150 million.

The fair value hierarchy consistsCompany also filed a registration statement on Form S-3 (File no. 333-271889) with the SEC on May 12, 2023, which was declared effective on May 26, 2023, to register the resale of 427,708 shares of Common Stock issued to certain current and former Series E Holders under the following three levels:
•Level I — Quoted prices for identical instruments in active markets.
•Level II — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level III — Instruments whose significant value drivers are unobservable.

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Table of Contents
The following table presents for each of these hierarchy levels, the Company’s liabilities that are measured at fair value on a recurring basis:

September 30, 2022
Level 1Level 2Level 3Total
Liabilities
Warrant liability$— $— $31,157,612 $31,157,612 

The estimated fair value of the warrant liability at September 30, 2022 was determined using Level 3 inputs. Inherent in a Black-Scholes options pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate, dividend yield. The Company estimates the volatility of its ordinary shares based on projected volatility of comparable public companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

The following table provides quantitative information regarding Level 3 fair value measurements as of September 30, 2022 and June 30, 2022:

As of September 30, 2022As of June 30, 2022
Exercise price$0.37$0.76
Unit price$0.55$2.00
Volatility70.00 %63.60 %
Expected life4.5 years5.0 years
Risk-free rate4.06 %2.42 %
Dividend yield— %— %

The change in the fair value of the derivative warrant liabilities for the three months ended September 30, 2022 is summarized as follows:
Warrant liability at June 30, 2022$30,215,221 
Change in fair value of warrant liabilities942,390 
Warrant liabilities at September 30, 2022$31,157,611

Investment in Nonconsolidated EntitySeries E Settlement Agreements.

On March 22, 2022,May 24, 2023, the Company acquired 40%entered into an At Market Issuance Sales Agreement ("ATM Sales Agreement"), with B. Riley Securities, Inc., to sell shares of our Common Stock, with aggregate gross proceeds of $70 million through an "at-the-market" equity offering program under which the ATM Agent agreed to act as sales agent or principal from time to time. Under the ATM Sales Agreement, the ATM Agent may sell shares of Common Stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. The ATM Agent will use commercially reasonable efforts to sell the shares of Common Stock from time to time, based upon instructions from the Company. Any shares of Common Stock sold under the ATM Sales Agreement will be issued pursuant to the Company’s Shelf Registration Statement (file no. 333-271189), as supplemented by the prospectus
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supplement dated May 24, 2023. A copy of the equityprospectus supplement may be obtained on the SEC’s website at www.sec.gov. The foregoing description of Converge Marketing Services, LLC ("CMS"), an affiliatethe material terms of Converge,the ATM Sales Agreement is qualified in its entirety by reference to the full ATM Sales Agreement, a copy of which is accounted for under the equity method of accounting. The Company’s investment in CMS does not have a readily determinable fair value. As of September 30, 2022filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and June 30, 2022, the Company's carrying amount of the investment was insignificant.which is incorporated herein by reference.

For the period ended June 30, 2023, the Company sold a total of 120,628 shares of Common Stock under the ATM Sales Agreement for aggregate gross proceeds of approximately $0.5 million at an average selling price of $4.19 per share, resulting in net proceeds of approximately $0.0 million after deducting commissions and other transaction costs of approximately $0.5 million. The cash deposits received from the ATM issuance are held by the ATM Agent and must be paid to Blue Torch in accordance with the terms of the Financing Agreement.
Note 10. Equity
On June 20, 2023, the Nasdaq staff notified the Company that the Company had regained compliance with the Minimum Bid Price Rule based on the closing bid price of Common Stock having been at $1.00 per share or greater for 10 consecutive business days. For additional detail, see the Company’s Current Reports on Form 8-K filed with the SEC on May 18, 2023 and June 21, 2023.

Reverse stock split

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

Stock Compensation

See Note 1415 to the consolidated financial statements included in the Company’s AnnualTransition Report on Form 10-K10-KT (as amended by Form 10-KT/A) for the yearsix months ended June 30,December 31, 2022 for more information regarding (i) 2021 Employee, Director & Consultant Equity Incentive Plan (the “2021 Plan”), and (ii) Troika Media Group, Inc. 2015 Employee, Director and Consultant Equity Incentive Plan, as amended (the “2017 Equity Plan” and together with the 2021 Plan, the "Equity Incentive Plan"). Share-based compensation expense, presented within selling, general and administrative expenses and direct operating expenses, was $516,800approximately $0.3 million and $979,000$0.6 million for the three months ended SeptemberJune 30, 2023 and 2022, respectively. Share-based compensation expense was approximately $0.9 million and 2021,$13.3 million for the six months ended June 30, 2023 and 2022, respectively.

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

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

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

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The following table summarizes activity relating to holders of the Company’s NQSOs for the six months ended June 30, 2023:
Number of:
Nonperformance based vesting NQSO'sWeighted average exercise priceWeighted Average remaining contractual term (in years)Aggregate Intrinsic value
Balance:
December 31, 2022198,849 $23.28 1.14$— 
June 30, 2023102,517 $20.05 0.97$— 
Exercisable at:
December 31, 2022127,013 $24.26 0.30$— 
June 30, 202343,675 $18.74 0.44$— 

For the three and six months ended June 30, 2023 the Company recognized stock compensation expense for options of approximately $0.0 million and $0.1 million, respectively.For the three and six months ended June 30, 2022 the Company recognized stock compensation expense for options of approximately $0.2 million and $0.5 million, respectively. For the three months ended SeptemberJune 30, 2022:2023, approximately eighty thousand options were forfeited.
Number of:
Nonperformance based vesting NQSO'sWeighted average exercise priceWeighted Average remaining contractual term (in years)Aggregate Intrinsic value
Balance:
June 30, 20223,657,833 $1.04 0.6$1,824,232 
September 30, 20225,848,387 $1.17 1.33$— 
Exercisable at:
June 30, 20222,997,972 $1.04 0.14$1,806,539 
September 30, 20223,261,681 $1.07 0.29$— 

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

Restricted Share Units Award Activity

Pursuant to the Company’s 2021 Plan the Company issues Restricted Share Units ("RSUs") in consideration for employee and consultant services. RSUs issued under the Plan may be exercised in accordance with the applicable grant notice. The Company has also issued RSUs outside of the Plan in accordance with the Converge transaction to certain Converge Sellers, these RSUs may also be exercised in accordance with the applicable grant notice. The Company records stock-based compensation based on the grant date fair value of the awards. The Company recognizes the fair value of restricted stock awards that do not contain a performance condition as expense using the straight-line method over the requisite service period of the award. The Company accounts for forfeitures as they occur; therefore, stock-based compensation expense has been calculated based on actual forfeitures in the Company's consolidated statements of comprehensive loss.
The following table summarizes activity relating to holders of the Company’s RSUs issued under the Plan for the threesix months ended SeptemberJune 30, 2022:2023:
Number of:Number of:
Nonperformance based vesting RSU'sWeighted-Average
Fair Value Per Share
At Date of Grant		Nonperformance based vesting RSU'sWeighted-Average
Fair Value Per Share
At Date of Grant
Outstanding award balance as of June 30, 20221,100,000 $1.02 
Outstanding award balance at December 31, 2022Outstanding award balance at December 31, 202242,000 $23.75 
GrantedGranted100,000 0.74Granted— — 
ExercisedExercised——Exercised— — 
Outstanding award balance as of September 30, 20221,200,000 $1.00 
ForfeitedForfeited— — 
Outstanding award balance at June 30, 2023Outstanding award balance at June 30, 202342,000 $23.75 
VestedVested450,000 1.07Vested32,000 $25.84 
UnvestedUnvested750,000 1.17Unvested10,000 $37.40 

During the three and six months ended June 30, 2023 the Company recognized stock compensation expense related to restricted stock units of approximately $0.3 million and $0.7 million, respectively. For the three and six months ended June 30, 2022 the Company recognized stock compensation expense related to restricted stock units of approximately $0.4 million and $8.5 million, respectively. Further, during the six months ended June 30, 2023, certain executives of Converge vested 46,667 restricted stock units that were issued outside of the 2021 Equity Incentive Plan. As of June 30, 2023, there was 93,333 unvested restricted stock units associated with the Converge executives who were issued restricted
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stock units outside of the 2021 Equity Incentive Plan. As of June 30, 2023, total unrecognized share-based compensation related to unvested restricted stock units was approximately $2.2 million, and the weighted-average remaining vesting period for the awards is approximately one year and one month.

Earnings per shareShare

Net income (loss) per common share is calculated in accordance with ASC Topic: 260 Earnings per Share. Basic earningsincome (loss) per share is computed by dividing net income (loss) by the weighted-averageweighted average number of common shares of Common Stock outstanding during the period. Diluted earningsThe computation of diluted net loss per share is computed by dividing net income bydoes not include dilutive Common Stock equivalents in the weighted-average number of common shares and dilutive potential commonweighted average shares outstanding duringas they would be anti-dilutive. In periods where the period.Company has a net loss, all dilutive securities are excluded.

The following are dilutive Common Stock equivalents as of June 30, 2023 and 2022, which were not included in the calculation of loss per share, since the Company had a net loss from continuing operations and a net loss:

June 30, 2023June 30, 2022
Convertible preferred stock224 15,253 
Stock options43,675 144,673 
Stock warrants163,213 270,849 
Financing warrants4,600 2,810,801 
Restricted stock units135,333 178,000 
Total347,045 3,419,576 

Series E Preferred Shares
On March 16, 2022, the Company entered into the Series E Purchase Agreement with certain institutional investors to issue and sell in a private offering an aggregate of $50.0 million of securities, consisting of shares of Series E Preferred Stock and warrants to purchase (100% coverage) shares of Common Stock ("Series E Warrants"). Under the terms of the Series E Purchase Agreement, the Company agreed to sell 500,000 shares of its Series E Preferred Stock and Series E Warrants to purchase up to 1,333,333 shares of the Common Stock. Each share of the Series E Preferred Stock has a stated value of $100 per share and is convertible into shares of Common Stock at a reconciliationconversion price of $37.5 per share subject to adjustment. The Series E Preferred Stock is perpetual and has no maturity date. The Series E Preferred Stock is not subject to any mandatory redemption or other similar provisions. All future shares of other Company preferred tock shall rank junior to the Series E Preferred Stock, except if at least a majority of the Series E Preferred Stock expressly consent, to the creation of the parity stock of senior preferred stock.

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

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

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

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

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

In addition, as reported pursuant to the Information Statement field on Schedule 14C on March 14, 2022 with the SEC, the Majority Stockholders approved the amendment to Article Three of the Articles of Incorporation to reflect an increase in the number of authorized shares used inof all classes of stock which the calculation Company shall have the authority to issue from 36,600,000 shares to 57,000,000 shares, such shares being designated as follows: (i) 32,000,000 shares of basic earningsCommon Stock, and (ii) 25,000,000 shares of preferred stock, par value $0.01 per shareshare. The foregoing does reflect changes to the authorized and diluted earnings per share forissued shares from the three months ended September 30, 2022, and September 30, 2021:
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For the three months ended September 30,
20222021
Net income (loss)$1,273,783 $(2,139,000)
Weighted-average number of common shares outstanding at 9/30/202265,289,116 41,422,781 
Warrants to purchase common stock (Blue Torch)3,475,611 — 
Convertible preferred stock134,252,459 — 
Diluted weighted-average number of common shares outstanding at 9/30/2022203,017,186 41,422,781 
Net earnings (loss) per share:
Basic$0.02 $(0.05)
Diluted$0.01 $(0.05)
Series E Private PlacementReverse Stock Split which occurred on June 1, 2023.

On September 26, 2022, we entered into an Exchange Agreement (the “Exchange Agreement”) with each holder of our Series E Preferred Stock (each a “Series E Holder”), pursuant to which (i) each Series E Holder will exchangeexchanged its existing warrant to purchase our common stock,Common Stock, dated March 16, 2022 (the “Old Warrants”), for new warrants to purchase our common stockCommon Stock (the “New Warrants”), and (ii) each Series E Holder consented to changes in the terms of the private investment in public equity (“PIPE”) placement effected by the Company on March 16, 2022 (the “New PIPE Terms”), including an amendment and restatement of the terms of our Series E convertible preferred stock, par value $0.01 per share (the “Series E Preferred Stock”).

In consideration for the issuance of the New Warrants and the other New PIPE Terms, we will filefiled an amended and restated certificate of designation for the Series E Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada on September 27, 2022 to effect certain changes contemplated by the Exchange Agreement.

The New PIPE Terms effecteffected the following changes, among others, to the rights Series E Holders:

a.•New Warrant Exercise Price: The New Warrant exercise price per share of common stockCommon Stock is $0.55,$13.75, provided that if all shares of Series E Preferred Stock issued pursuant to the Certificate o fof Designation are not repurchased by the Company on or prior to November 26, 2022, on such date, theexercise price per share of the New Warrants will revert to $2.00,$50.00, subject to further adjustment as set forth in the New Warrant. In general, such further adjustments provide that, subject to acceleration by the holder thereof, after the Subsequent Adjustment Period, the exercise price is adjusted to the lesser of the exercise price then in effect or the greater of (i) the average of the ten (10) lowest daily volume-weighted average prices ("VWAPs") during the Subsequent Adjustment Period and (ii) $6.25.
b.
•Series E Conversion Price: The conversion price for the Series E Preferred Stock shall initially equal $0.40$10.00 per share, andso long as the arithmetic average of the daily volume-weighted average prices ("VWAPs")VWAPs of the Common Stock for the calendar week prior to each of the following respective dates is lower than the Conversion Price at that time, the Conversion Price shall be downwardly adjusted by $0.01$6.25 on each of October 24, 2022, October 31, 2022, November 7, 2022, November 14, 2022, and November 21, 2022. The conversion price is subject to further adjustments upon conclusion of the Subsequent Adjustment Period, subject to acceleration by the holder thereof, to the lesser of the conversion price then in effect or the greater of (i) the average of the ten (10) lowest daily VWAPs during the Subsequent Adjustment Period and (ii) $6.25.
c.
•Standstill Period: The Series E Holders agreed to a 60-day standstill period ending on November 26, 2022 (the “Standstill Period”), during which each Series E Holder may convert not more than fifty (50%) percent of the Series E Preferred Stock held by such holder at the beginning of the Standstill Period.
d.
•Series E Buyout. During the Standstill Period the Company will use commercially reasonable efforts to raise funds to repurchase all outstanding shares of Series E Preferred Stock held by the Series E Holders at a purchase price of $100 per share, subject to the provisions of the Certificate of Designation.
e.
•Limitation on Sales: During the Standstill Period, the Purchasers agreed not to sell shares of the Company’s common stockCommon Stock for a price less than $0.30$7.50 per share.
f.
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•Liquidated Damages: The Company agreed to pay to the Purchasers all liquidated damages owed through September 21, 2022 (including any pro-rated amounts), which totaled approximately $3.6 million, all of which was paid during the three months ended SeptemberJune 30, 2022. The Company accrued an additional $301 thousand at September$0.2 million for the six months ended June 30, 20222023 which is recorded in loss contingency on equity issuancemiscellaneous income (expense) on the statements of operations and comprehensive income (loss). See below for additional detail.
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The Company paid to the Series E Holders all liquidated damages owed through September 21, 2022 (including any pro-rated amounts), which totaled approximately $3.6 million, all of which has been paid.

On March 31, 2023, the Company entered into Settlement Agreements (the “Settlement Agreements”) with certain former holders of its Series E Preferred Stock (the “Purchasers”) who constituted the registered or beneficial owners of more than 50.1% of the Registrable Securities under, and defined in, the Registration Rights Agreement, and more than 50.1% of the Series E Preferred Stock originally purchased under the Purchase Agreement. As such, in accordance with the terms of the Registration Rights Agreement and thePurchase Agreement, as applicable, as of March 31, 2023 (the “Effective Date”), each such agreement and all rights and obligations thereunder were terminated and deemed of no further force and effect as of such date. In addition, effective as of the Effective Date, the Settlement Agreements contain a release of any and all claims against the Company and its subsidiaries that such Purchaser (or its affiliates) may have purported to have against the Company or its subsidiaries under such agreements; provided, however, that the Purchasers will maintain their respective “Piggy-Back Registration Rights” under Section 6(d) of the Registration Rights Agreement.In exchange for the release by the Purchasers of any and all claims for liquidated damages under the Registration Rights Agreement, the Company delivered to each Purchaser a number of shares of Common Stock equal to the dollar amount of liquidated damages purportedly owed to each such Purchaser multiplied by four (4). The Company agreed to prepare and file with the SEC a resale registration statement on Form S-3 covering such Common Stock (the “Resale Registration Statement”),which was declared effective on May 26, 2023 (file no. 333-271889).

As of June 30, 2023, the Company had settled with the Purchasers and issued common shares. For the six months ended June 30, 2023, 304,838 shares of Series E Preferred Stock were converted into approximately 4.9 million shares of Common Stock, at a conversion price of $6.25. The Company recorded the $2.7 million share settlement as equity within its condensed consolidated balance sheets. The foregoing reflects changes to the authorized and issued shares from the Reverse Stock Split which occurred on June 1, 2023.

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

All Other Preferred shares

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

Note 11.NOTE 12. Related Party
Related Party TransactionsConverge Sellers

During thirdthe quarter fiscal yearended June 30, 2022, in connection with the Converge Acquisition, the Company incurred amounts due to the Converge Sellers totaling $9.2$9.3 million. The Converge Sellers include Sadiq "Sid"Mr. Toama CEO of Troika, Tomand Mr. Marianacci, Mike Carrano, Head of Acquisition and Performance,Supply Solutions of the Converge subsidiaries, wholly owned subsidiariesand Maarten Terry, employee and sixty (60%) percent
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owner of Troika and Mike Carrano, Executive Director, Acquisition and PerformanceCMS, all are all party to the amounts due. The Converge subsidiaries are wholly owned subsidiaries of the Company. As of September 30, 2022 and June 30, 2023, and December 31, 2022, $9.2$9.3 million iswas outstanding and included on the balance sheet under acquisition liabilities.
Business Dispositions
Media Resource Group ("MRG")

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

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

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

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

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

Converge Marketing Services ("CMS")

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

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

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

As of June 30, 2023, and December 31, 2022, the Company recorded approximately $2.6 million and $3.7 million, respectively, as amounts due from CMS within the accounts receivable line on its condensed consolidated balance sheets.

At the acquisition date and as of June 30, 2023, the Company's carrying amount of the investment was insignificant. The Company reflects its share of gains and losses of the investment in other income and expenses in the condensed consolidated statements of operations and comprehensive loss using the most recently available earnings data at the end of the period.

Union Ventures Limited purchase of Mission-Media Holdings Limited

On August 1, 2022, Troika-Mission Holdings, Inc. ("TMH” or “Seller", (“TM Holdings"), a subsidiary of the Company, entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Union Ventures Limited, (“UVL”), a company organized under the 2006 Companies Act in the United Kingdom (“Buyer”law of England and Wales ("UVL"). Thomas Ochocki (a Troika Director), and Daniel Jankowski (a former Troika Director), are affiliated with Buyer through their ownership ofUVL is a company owned by Union Investments Management Limited, UVL’s parent. Subsequent to the sale date,which is a stockholder of the Company and Mission UK may continue to operate
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affiliated with some shared services. As such, transactions betweenDaniel Jankowski, a former director of the Company, and Mission UK will no longer be eliminated in consolidation and will be treated as related party transactions.

PerThomas Ochocki, a current Director of the Purchase Agreement, BuyerCompany. UVL purchased from Seller,TM Holdings, all of Seller’sTM Holdings’ right, title, and interest in and to the shares (the "Mission UK Shares") of Mission-Media Holdings Limited, a private limited company incorporated under the Lawslaws of England and Wales and a wholly-owned(“Mission Holdings”), including Mission UK’s subsidiary, of Seller ("Mission UK") for $1,000 USD. The Company recognized a net gain on sale of approximately $0.1 million, which is recorded within net gain on sale of subsidiary on the Consolidated Statements of Operations and Comprehensive Income (Loss). For further discussion see Note 13 Restructuring.

Note 12. Concentrations of Credit Risk

As of September 30, 2022 and June 30, 2022 three (3) customers made up 60.1% and 75.9%, respectively, of the net receivable balance. For the three months ended September 30, 2022 and 2021, five (5) customers accounted for 78.5% and 59.65%, of our net revenues, respectively. The Company believes there is minimal risk; however, it will continue to monitor.

Note 13. Restructuring

Restructuring actions were initiated in the fourth quarter of 2022, as disclosed in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022. The Company has implemented a cost reduction program, as known as restructuring actions, to lower its operating expenses and to accelerate the transformation of the business in accordance with managements new strategic direction. The Company has incurred certain professional and business expenses as part of ongoing restructuring efforts to streamline business functions and operations, leases, debt and equity commitments.
For the three months ended September 30, 2022, our restructuring activities totaling approximately $0.9 million, included an early lease termination for our New Jersey location, employee severance and other related benefit costs associated with the sale of our Mission UK subsidiary (See Note 14 for further discussion), certain professional fees associated with restructuring activities and support. Such costs are recorded in restructuring and other related charges on the Consolidated Statements of Operations and Comprehensive Loss.
The Company will report restructuring costs when it incurs one-time or infrequent expenses in the process of reorganizing its operations to improve its long-term profitability and efficiency. Restructuring costs are reported as operating charges and aren’t expected to recur in the future. The Company expects to complete its restructuring activities during the three months ended December 31, 2022.
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The components of the restructuring charges related to restructuring are listed below.
Three months ended September 30,
2022
Loss on early termination of operating lease$202,000 
Severance and termination costs136,000 
Professional fees356,000 
MUK restructuring costs240,000 
$934,000
There were no such amounts recorded for the three months ended September 30, 2021.

Note 14. Mission Media Ltd Equity Purchase Agreement

On August 1, 2022 Troika Mission Holdings (seller) entered into an equity purchase agreement with Union Ventures Limited (buyer). The buyer purchased from seller, all of the seller's right, title, and interest in and to sellers respective Mission UK shares, including any and all liabilities and assets on as is basis. The buyer shall pay the seller an aggregate purchase price of $1,000. At the closing the seller shall cause a nonrefundable infusion of no less than 500,000 GBP ($609,000 USD) to the buyer for working capital.
The Company sold 100% of its Mission UK subsidiary business to Union VenturesMission-Media Limited, a UK limited liability company formedorganized under the laws of England and Wales (registered no. 14169163)(“Mission Media UK”). As consideration for all the Mission UK Shares, UVL paid TM Holdings an aggregate purchase price of $1,000 and deconsolidated its investment . The net gain onUSD. Mr. Ochocki recused himself from the deconsolidation was approximately $0.1 million as reported gain on sale of subsidiary indecision to sell the Statement of Operations in the company's financial statements.
Mission UK Shares to UVL.

Note 15.Union Eight Limited and Mission Media Limited

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

Ochocki Director Letter

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

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

NOTE 13. Income Taxes

On Septembereach of June 30, 2022,2023, and September 30, 2021,December 31, 2022, the accompanying condensed consolidated Balance Sheet includesbalance sheets include a tax liability of $0.2$0.1 million and $0.7 million, respectively.included on the condensed consolidated balance sheets within accrued expenses. The Company recorded income tax expense of $0.2$0.1 million for the three and six months ended SeptemberJune 30, 2023 and 2022. There was no expense recorded for the three months ended September 30, 2021.

The effective incomeCompany's tax rates forrate differs from the three-month periods ended September 30, 2022statutory rate of 21.0% due to the effects of state taxes, effects of permanent nondeductible expense, and 2021, were 11.3% and 0%, respectively. In addition to state income taxes, nondeductible loss on change in fair value of derivatives, and nondeductible stock-based compensation increased the rate.valuation allowance. The Company's utilization of its NOL generated post December 31, 2017 is expected to be limited to 80%eighty (80%) percent of taxable income.

See Note 1517 to the consolidated financial statements for the yeartransition period ended June 30,December 31, 2022, included in Item 8. Financial Statements and Supplementary Data of the AnnualCompany’s Transition Report on Form 10-K for more information on income taxes.10-KT.
Note 16.NOTE 14. Subsequent Events
Senior Secured Facility
On July 14, 2023, the Company and Blue Torch entered into a second amendment to the First A&R Limited Waiver under(the “Second Amendment to First A&R Limited Waiver”) pursuant to which Blue Torch agreed to extend the Outside Date from July 14, 2023, to July 28, 2023, subject to potential extension if a definitive written agreement was delivered on or prior to July 28 2023 providing for cash repayment in full of all obligations owed to Blue Torch or which was otherwise acceptable to Blue Torch.

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

On August 22, 2023, the Company and Blue Torch entered into a fourth amendment to the First A&R Limited Waiver effective as of August 18, 2023 (the “Fourth Amendment to First A&R Limited Waiver”) pursuant to which Blue Torch agreed to extend the Outside Date from August 28, 2023 to September 29, 2023, subject to potential extension if a
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definitive written agreement is delivered on or prior to September 29, 2023 providing for cash repayment in full of all obligations owed to Blue Torch or which is otherwise acceptable to Blue Torch.

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

On October 14, 2022,September 29, 2023, Blue Torch and the Company entered into a Second Amended and Restated Limited Waiver (the “Second A&R Limited Waiver”) of all eventscertain Specified Events of default that are continuingDefault under the Financing Agreement, dated March 21, 2022,as amended by the First Amendment. The Second A&R Limited Waiver amends and amongrestates the First A&R Limited Waiver. The Company the lenders from time to time party thereto (the "Lenders"), and Blue Torch as collateral agent and administrative agent forentered into the Lenders (the “Financing Agreement”). TheSecond A&R Limited Waiver expired was setWavier to, expire on October 28, 2022. On October 28, 2022, Blue Torch andamong other things, (i) waive certain Specified Events of Default including any failure of the Company entered into a furtherto make the quarterly principal and interest payments due to be paid on or about September 30, 2023 under the Financing Agreement; and (ii) extend the Outside Date. The Second A&R Limited Waiver which will expire on November 11, 2022, ifthe earliest of (x) the occurrence of an Event of Default under the Financing Agreement that is not terminated earliera Specified Event of Default, (y) a failure by Blue Torch (“the Company to comply with certain sale and refinancing milestones set forth in a side letter agreed by the Company and the Lenders and (z) a revised Outside Date of October 13, 2023 (the “Current Waiver Period”).

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

The Second A&R Limited Waiver concerns events of default that relate to the Company’s failureexisting and anticipated failures to satisfy certain financial and non-financial covenants under the Financing Agreement. The Company is currently engaged in good faith negotiations with Blue Torch, as agent for the Lenders, to amend the Financing Agreement and cure the events of default, although we cannot assure you that we will be successful in doing so. If the Company is unsuccessful in renegotiating the Financing
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Agreement and curing the continuing events of default by the expiration of the Current Waiver Period, the Company intends to seek further Limited Waiversextensions of the Current Waiver Period with Blue Torch and the Lenders, although we cannot assure you that Blue Torch and the Lenders would be willing to grant additional waivers.
Election to change the Company's fiscal year end
On October 20, 2022, the Board of Directors ofextensions. If the Company approved a change in fiscal year end offailed to obtain an extension, the Company from June 30thwould be in default under the Financing Agreement and the Lenders would be able to December 31st. The Board’s decisionexercise remedies available to changethem under the fiscal year end is to align with that of its wholly owned subsidiary, Converge Direct, LLC,Financing Agreement. Any such action would likely have a material adverse effect on the Company and its affiliates, which has a December 31st fiscal year end.financial condition.

Following such change,The foregoing summaries do not purport to be complete and is subject to, and qualified in its entirety by, the date ofSecond Amendment to First A&R Limited Waiver, the Company’s next fiscal year end is December 31, 2023. Consequently, the Company will file a transitional annual reportThird Amendment to First A&R Limited Waiver and Fourth Amendment to A&R Limited Waiver filed with our Current Reports on Form 10-K for8-K filed with the six-month period startingSEC on July 1, 2022,17, 2023, July 28, 2023 and ending December 31, 2022,August 28, 2023, respectively, the First Amendment to cover such transition period.Financing Agreement filed with our Current Reports on Form 8-K filed with the SEC on September 27, 2023, the Second A&R Limited Waiver filed with our Current Reports on Form 8-K filed with the SEC on October 4, 2023 the First Amendment to Second A&R Limited Waiver filed with our Current Reports on Form 8-K with the SEC on October 18, 2023.

Separation with Andrew BressmanConverge Sellers

On October 26, 2022, Andrew Bressman (“Bressman”), former strategic advisor toJuly 17, 2023, the former CEOConverge Sellers in their capacities as the sellers of TMG, Robert Machinist, entered intoConverge filed a separation agreement withcomplaint (the “Complaint”) under the Company with respect to his employment agreement datedcaption Carrano et al. v. Troika Media Group, Inc. and entered into on March 16, 2022 (effective from January 1, 2022). As part of Bressman’s employment agreement, he was entitled to severance equal to thirty-six (36) months at his current salary and certain other benefits which were incorporated into a severance agreement on a substantially discounted basis.CD Acquisition Corporation, In lieuCase No. 653449/2023 (the “Action”) in the Supreme Court of the cash severance payments, Bressman agreed to take 800,000 RSUs in complete satisfactionState of the severance obligations under his employment agreement and payments of $51,500 by way of payroll wages and $45,319 by way of accrued paid time off. Mr. Bressman also agreed that he would not trade any converted RSUs until April 21, 2023.The Company also agreed to pay for Mr. Bressman’s healthcare coverage until December 31, 2023. The Company and Bressman exchanged mutual releases and waivers of claimsNew York, New York County against each other. The above separation terms are independent of the Separation Agreement between the Company and SAB Management, LLCCD (together, the “Defendants”). On August 8, 2023, Mr. Toama, who was Chief Executive Officer of the Company, withdrew from the Action without prejudice. Mr. Toama recused himself from all deliberations by the Board concerning the Action. The Board also formed a Special Litigation Committee composed of Board members Randall Miles, Grant Lyon, Jeffrey Stein, and BressmanWendy Parker with delegated full power to evaluate, investigate, review, and analyze the facts and circumstances surrounding the Action.

The Complaint generally alleges that the Defendants owe sums to the Converge Sellers under the MIPA. The Complaint seeks, among other things, a judgment that the Defendants breached the MIPA and damages relating to the purported breach.

Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that a negative final outcome of this matter could have a material adverse effect on its business, operating results, financial
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condition or cash flow. Nothing in this Quarterly Report on Form 10-Q shall be deemed an admission of liability in respect of the Action.

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

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

Effective August 14, 2023, the Company appointed Grant Lyon, a current member of the Board, as the Company’s Interim Chief Executive Officer and Eric Glover as the Company’s Interim Chief Financial Officer. The Company entered into an engagement letter (the “Areté Engagement Letter”) with Areté Capital Partners, LLC (“Areté”), a consulting firm founded and owned by Mr. Lyon pursuant to which Areté will make Messrs. Lyon and Glover available to serve as the Interim Chief Executive Officer and Interim Chief Financial Officer, respectively. The foregoing summary of the Areté Engagement Letter does not purport to be complete and is subject to, and qualified in its entirety by the Areté Engagement Letter filed with our Current Reports on FebruaryForm 8-K filed with the SEC on August 15, 2023.

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

Notice of Non-Compliance

On August 22, 2023, the “Company received a delinquency notification letter from Nasdaq stating that the Company was not in compliance with Nasdaq Listing Rule 5250(c)(1) because it had not timely filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the “Q2 2023 Form 10-Q”). Nasdaq has informed the Company that the Company must submit a plan of compliance (the “Plan”) within sixty (60) days (the "Plan Deadline") addressing how it intends to regain compliance with Nasdaq’s listing rules or otherwise file the Q2 2023 Form 10-Q before the expiration of such sixty (60) day period. Because the Company has filed this Quarterly Report on 10-Q for the quarter ended June 30, 2023 before the Plan Deadline, the Company will not be required to submit a Plan to Nasdaq by the Plan Deadline.
MRG
On July 26, 2023, the Company informed MRG of its intent to cease all future business with MRG. It is expected that the Company will be able to source the same services from alternative vendors and that current orders with MRG will be completed by mid-October 2023.
Resignation of Thomas Marianacci
On September 28, 2021.2023, Thomas Marianacci submitted his resignation to the Company. Mr. Marianacci claims to have resigned with "Good Reason" under the terms of his employment agreement. The Company does not agree and views Mr. Marianacci's resignation as voluntary.
2023 Incentive Plan
On October 18, 2023 the Company approved the 2023 Incentive Plan, which is designed to provide financial and equity incentives to reward employees for performance that will be critical to build a profitable business and drive value to shareholders. As of the date of this report, no equity has been granted under the plan.


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

The following management’s discussion and analysis should be read in conjunction with the Company’s historicalcondensed consolidated financial statements and the related notes thereto included in our audited financial statements for the year ended June 30, 2022, and the notes thereto (the “Form 10-K”).this Quarterly Report on Form 10-Q. The management’s discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. See "Cautionary Statement Regarding Forward-Looking Statements" above. Please read Part II, Item 1A. “Risk Factors"You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends, or results as of this report for a discussionthe date they are made. These forward-looking statements can be identified by the use of factorsterminology such as “anticipate,” “believe," "estimate," "expect," "intend," "project," "will," or the negative thereof or other variations thereon or comparable terminology. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our expectations.actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those contained in this and our other Quarterly Reports on Form 10-Q, as well as the disclosures made in the Company's Transition Report on Form 10-KT for the transition period ended December 31, 2022 filed on March 7, 2023 (as amended, the "2022 Form 10-KT") including without limitation, those discussed in Item 1A. "Risk Factors." in part I. of the 2022 Form 10-KT, and other filings we make with the Securities and Exchange Commission (the "SEC"). We do not undertake any obligation to update forward-looking statements, except as required by law. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

IntroductionFactors Affecting Results of Operations

MD&ASeasonality

The revenue in our three and six months ended June 30, 2023, is provided asreflective of the seasonality in the business which is driven by our sector and revenue stream mix where we typically see lower customer acquisition investments (in relative terms) by our clients in Q1 and Q4.

Restructuring Programs

During the year ended June 30, 2022 the Company initiated an intensive, what was expected to be a supplementyear long organizational restructuring program in order to fully optimize the operations of the post-acquisition consolidated company. The restructuring program resulted in costs not expected to recur that were incurred primarily for (1) workforce reductions of over 100 employees across multiple business functions and should be read in conjunction with,subsidiaries, (2) abandoned or excess facilities relating to lease terminations and non-cancelable lease costs and (3) other charges, which include but are not limited to legal fees, regulatory/compliance expenses, and contractual obligations. See Note 7 to the unauditedcondensed consolidated financial statements and notes thereto included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q as well asfor discussions on restructuring charges.

During the six months ended June 30, 2023 the Company leveraged the previously completed restructuring effort to begin the latter phases of its organizational restructuring which included various efforts related to the recapitalization of its Balance Sheet. On February 22, 2023 the Company announced that it retained leading Investment Banking firm Jefferies to assist in optimizing its capital structure and to explore strategic alternatives. Last quarter, the Company announced that it had executed the First A&R Limited Waiver with Blue Torch to provide the Company with time to explore different avenues and opportunities to enhance stockholder value. We continue to explore our Annualoptions with Blue Torch and have extended the waiver through October _20, 2023. See Note 8 to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-K10-Q for discussions on the year ended June 30, 2022 to help provide an understanding of our financial condition, changes in financial condition and results of operations.

Our MD&A is organized as follows:
Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.Blue Torch financing.

ResultsAdditionally, on March 31, 2023, the Company and certain former Series E Holders entered into the Series E Settlement Agreements. Under the terms of Operations. This section provides an analysisthe Series E Settlement Agreements, the parties thereto agreed to terminate the Series E Registration Rights Agreement and the Series E Purchase Agreement and all rights respectively thereunder (other than certain rights surviving under the Series E Registration Rights Agreement, to which all Series E Holders continue to be equally entitled) and to release any and all claims for liquidated damages under the Series E Registration Rights Agreement, in exchange for shares of our unaudited consolidated resultsCommon Stock in the amounts set forth in the Settlement Agreements. See “Item 1A Risk Factors” of operationsthe 2022 Form 10-KT for the three months ended September 30, 2022, as comparedadditional detail on certain risks associated with the three months ended September 30, 2021.

LiquiditySettlement Agreements and Capital Resources. This section provides a discussion of our financial condition and liquidity, as well as an analysis of our cash flows for the three months ended September 30, 2022, as compared with the three months ended September 30, 2021. The discussion of our financial condition and liquidity includes summaries of our primary sources of liquidity, our contractual obligations, and off balance sheet arrangements that may have existed at September 30, 2022.

Recently Issued Accounting Pronouncements Not Yet Adopted and Critical Accounting Policies. This section cross-references a discussion of accounting policies considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of managementResale Registration Statement filed in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are discussed in the notes to our consolidated and combined financial statement included in our Annual Report on Form 10-K for the year ended June 30, 2022, under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements Not Yet Adopted and Critical Accounting Policies — Critical Accounting Policies” and in the notes to the consolidated financial statements included therein.
Business Overview

Description of our Business

Converge Acquisition

On March 22, 2022 (the “Closing Date”), the Company, through its wholly owned subsidiary CD Acquisition Corp, executed a Membership Interest Purchase Agreement (“MIPA”) for the acquisition of all the equity of Converge Direct, LLC and its affiliates (“Converge”) and 40% of the equity of Converge Marketing Services, LLC, an affiliated entity, for an aggregate purchase price of $125.0 million valued at approximately $114.9 million. The MIPA identifies the seller parties as the Converge Sellers.

connection therewith.
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Revenue

The Corporate restructuring program, the Blue Torch financing matters, and the Series E Equity matters have contributed to additional expenses for the Company has two material revenue streams:

Managed Services

The Company’s Managed Services are typically orientated around the management of a customer’s marketing, data, and/or creative program. The Company’s deliverables relate to the planning, designing,such as costs for professional fees, legal and activating of a solution program or set of work products. The Company executes this revenue stream by leveraging internal and external creative, technical or media-based resources, third party AdTech solutions, proprietary business intelligence systems, data delivery systems,financial experts, special board committee members and other key services required undercosts that are not in the termsordinary course of a scope of work with a client. Our feesbusiness. These costs will continue to our clients are billed in a variety of ways, which can consist of a percentage of a customer’s total budget, media spend, or retainer.

Performance Solutions

The Company’s Performance Solutions are typically orientated around the delivery of a predetermined event or outcome to a client. Typically, the revenue associated with the event (as agreed upon in a scope of work) is based on a click, lead, call, appointment, qualified event, case, sale, or other defined business metric. The Company engages in a myriad of consumer engagement tactics, ecosystems, and methods to generate and collect a consumer’s interest in a particular service or good. Our fees associated with these clients are billed based on the occurrence of a click, lead, call, appointment, qualified event, case, sale, or other defined business metric.

Revenue Categories

A key focus of our revenue architecture and growth is how we generate from two Product Lines across all of our revenue streams. Our approach to growth has been to expand our Internal Brand and Data capabilities, which allow us to provide broader consumer outreach for all our clients and optimization of the cost of the customer engagement expense. Our sectors are curated to have consumer linkages that promote our ability to introduce consumers within our engagement ecosystems to our client programs for secondary benefit to us and our clients using the first-party data that we generate.

Client-Brand

Under the Client Brand product line, revenues are earned from the fees we charge to our customers when we advertise directly for them. In servicing our clients under this reportable segment, the consumer interacts directly with our client and does not interface withbe incurred until the Company at any point during theconcludes a suitable transaction process.

Internal-Brandto reduce its debt service and Data

Under the Internal-Brand product line, we earn revenues from the fees we charge to our customers when we engage with consumers under our internally owned and operated brand names. The end consumer interfaces directly with our brand and may be redirected to our customer based on information obtained during the transaction process or whose details may be passed on to a client for future engagement with a particular consumer. We generate rich first party datastabilize its capital structure. These costs are primarily recorded within this product line that can be monetized across a mix of customer acquisition campaigns and incremental revenue streams. Our innovative internal brands are capable of being utilized for an array of customer awareness and acquisition programs.

Costs of Revenue

Cost of revenues consists of the payments made to third parties, such as media costs and administrative fees (Google, Meta, The Trade Desk, etc.), technology fees (The Trade Desk, Invoca, LiveRamp, etc.), production expenses (printing, logistics, etc.), data costs, and other third-party expenses that the Company incurs on behalf of a client that is needed to deliver the services.

General and Administrative Expenses

The Company’s selling, general and administrative expenses primarily consistcosts, unless otherwise specified, within the Condensed Consolidated Statements of administrative costs, including employee compensation and benefits, professional fees, as well as sales and marketing costs.Operations.
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Income Taxes

See Note 15 to the consolidated financial statements for the year ended June 30, 2022, included in Item 8. Financial Statements and Supplementary Data of the Annual Report on Form 10-K for more information on income taxes.
RESULTS OF OPERATIONS
Comparison of the three months ended SeptemberJune 30, 20222023 to the three months ended SeptemberJune 30, 2021.2022.
The table below sets forth, for the periods presented, certain historical financial information.information (in thousands):
Three Months Ended September 30,
20222021
Revenues$119,809,958 $8,349,000 
Cost of revenues101,055,664 4,837,000 
Gross margin18,754,294 3,512,000 
Operating expenses:
Selling, general and administrative expenses9,305,955 6,803,000 
Depreciation and amortization2,232,509 202,000 
Restructuring and other related charges934,147 — 
Total operating expenses12,472,611 7,005,000 
Operating income (loss)6,281,683 (3,493,000)
Other income (expense):
Interest expense(2,835,588)(13,000)
Loss contingency on equity issuance(301,350)— 
Net gain on sale of subsidiary82,894 — 
Foreign exchange loss(944,416)(16,000)
(Loss) gain on change in fair value of derivative liabilities(942,390)12,000 
Miscellaneous income95,318 1,371,000 
Total other (expense) income(4,845,532)1,354,000 
Income (loss) from operations before income taxes1,436,151 (2,139,000)
Income tax expense(162,368)— 
Net income (loss)$1,273,783 $(2,139,000)
Revenues
Three Months Ended September 30,
20222021
Managed Services$47,476,973 $— 
Performance Solutions63,441,990 — 
Other8,890,995 8,349,000 
Total$119,809,958 $8,349,000 
Three Months Ended June 30,
20232022Change ($)Change (%)
Revenue$58,689 $85,381 $(26,692)(31)%
Cost of revenue52,946 67,969 (15,023)(22)%
Gross profit5,743 17,412 (11,669)(67)%
Operating expenses:
Selling, general and administrative expenses12,114 13,992 (1,878)(13)%
Depreciation and amortization2,066 2,268 (202)(9)%
Restructuring and other related charges(325)5,591 (5,916)(106)%
Impairment and other losses (gains), net— 8,937 (8,937)(100)%
Total operating expenses13,855 30,788 (16,933)(55)%
Operating loss(8,112)(13,376)5,264 (39)%
Other income (expense):
Interest expense(3,449)(2,796)(653)23 %
Miscellaneous income (expense)(680)(1,938)1,258 (65)%
Total other expense(4,129)(4,734)605 (13)%
Loss from operations before income taxes(12,241)(18,110)5,869 (32)%
Income tax (expense) benefit(21)54 (75)(139)%
Net loss$(12,262)$(18,056)$5,794 (32)%

Revenue

Three Months Ended June 30,
20232022Change ($)Change (%)
Managed Services$28,466,605 $45,782,516 $(17,315,911)(38)%
Performance Solutions30,222,542 34,372,526 (4,149,984)(12)%
Other— 5,226,661 (5,226,661)(100)%
Total$58,689,147 $85,381,703 $(26,692,556)(31)%

Revenues for the three months ended SeptemberJune 30, 2022 and 2021,2023 were approximately $119.8$58.7 million, and $8.3 million, respectively, an increasea decrease of approximately $111.5$26.7 million or 1,335%.from the comparable prior year period. The increasedecrease in the current year period was primarily attributable to a decrease in the Managed Services managed services and Performance Solutionsperformance solutions revenue streams, as a direct resultand the absence of the Converge Acquisition. These revenues were driven by organic growth from existing clients, and substantial growth, most notably, in Performance Solutions revenues. The growth in the Performance Solutions stream was led by the Internal-Brand product line, which is revenue generated from the fees we charge to our clients for consumer leads and sales generated through the Company’s owned and operated brands and intellectual property.
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other revenue.

The Convergedecrease in managed services revenue streams contributedof approximately $110.9$17.3 million was primarily the result of decreased spending by the Company’s insurance clients, due to an increase in their costs, including car repair and insurance claims costs, which resulted in lower advertising spend. The decrease in performance solutions revenue forof approximately $4.1 million was the three months ended September 30, 2022, which is representativeresult of 93.2%a decline related to legal services clients of the Company's total revenue
Costs of revenues
The costs of revenues, exclusive of operating expenses, for the three months ended September 30, 2022 and 2021 were $101.1approximately $2.7 million and $4.8 million, respectively, an increasea net decrease in home services clients of $96.2 million, or 1,989%.approximately $1.3 million. The increasedecrease in legal services clients was primarily attributable to the additional activity from Converge, which was acquired during Q3 2022. During the three months ended September 30, 2022, our cost of revenues were primarily driven by an increase in spendingcompetition to acquire leads, which drove down response rates from existingcertain tort campaigns. As compared to the prior period, legal services clients experienced higher borrowing costs, which also led to a decline in their overall marketing spend. The decline related to home services clients was driven by a decline in response rates in media campaigns as compared to the prior year period. During the quarter, client retention was not an issue and growth in Performance Solutions.management believes future revenues could increase if budget and inflationary pressures become more favorable.

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Costs of revenue

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

Gross marginprofit

For the three months ended SeptemberJune 30, 2022,2023, gross marginprofit was approximately $18.8 $5.7 million, a decrease of approximately $11.7 million, as compared to $3.5 million in the comparable prior year period. The increase is primarily dueGross profit of approximately $5.7 million was comprised of approximately $2.3 million and $3.4 million, related to the increasemanaged services and performance solutions revenue streams, respectively. As performance solutions require spend commitments by the company with no guarantee on the amount of revenue generated, underperformance in revenuesa certain campaign or medium can cause a disproportionate decline to gross profit. Managed services gross profit is derived on a fixed fee and/or commission basis and does not have a direct correlation to decreases or increases in revenue.

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

The decline in gross profit generated from the increase in costmanaged services revenue stream of revenues relatedapproximately $2.3 million was primarily attributable to the Converge Acquisition as discussed above. The $18.8 million gross margin as of September 30, 2022 was approximately 16% of revenues fordecreased spend by the period.insurance sector clients.

Sales,Selling, general, and administrative expenses
Sales,
For the three months ended June 30, 2023, selling, general, and administrative expenses fordecreased approximately $1.9 million, to $12.1 million, as compared to the three months ended September 30, 2022 and 2021 were approximately $9.3 million and $6.8 million respectively, an increase of $2.5 million or 37%. During the three months ended September 30, 2022, the increaseprior year period. The decrease in sales,selling, general, and administrative expenses was primarily driven by a decrease in personnel costs of approximately $2.1 million, a decrease in miscellaneous selling, general, and administrative expenses of approximately $1.1 million, a decrease in travel and entertainment costs of approximately $0.2 million, a decrease in information technology costs of approximately $0.1 million, and a decrease in facilities and occupancy costs of approximately $0.1 million. These decreases were offset by an increase in professional fees of approximately $1.4 million and an increase in public company costs of approximately $0.3 million.

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

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

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

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

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

Depreciation and amortization
Depreciation and amortization expenses for the three months ended September 30, 2022, increased to approximately $2.2 million from $0.2 million in the prior year quarter. The increase of $2.0 million was primarily attributable to amortization of intangible assets and fixed assets acquired as a part of the Converge Acquisition.

Restructuring and Other Related Charges
For the three months ended SeptemberJune 30, 2023, depreciation and amortization expense decreased approximately $0.2 million, to approximately $2.1 million, as compared to the prior year period. The decrease was primarily attributable to the absence of depreciation and amortization expense of the Troika, Mission, and Redeeem entities as a result of the impairment of their intangible assets and write-off of fixed assets during the fiscal year ending June 30, 2022 and transition period ending December 31, 2022.

Restructuring and other related charges

For thethree months ended June 30, 2023, the Company recorded credits of approximately $0.9$0.3 million, a decrease of restructuringapproximately $5.9 million as compared to the prior year period. The decrease was primarily driven by the absence of severance related charges of approximately $3.2 million, which was inclusive of credits related to employee severance and benefit payments of approximately $0.3 million and $0.3 million related to a reclassification of future severance payments to selling, general, and administrative expenses, and driven by settlement charges of approximately $3.3 million in the prior year period, partially offset by legal fees of approximately $0.6 million in the current year period. See Note 7 to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions on the restructuring program.
Impairment and other employee related benefits,(losses) gains, net

For the disposalthree months ended June 30, 2022, impairment and other (losses) gains, net of approximately $8.9 million were a result of impairment charges of approximately $9.2 million, offset by other gains of approximately $0.3 million. The impairment charges of $9.2 million included goodwill impairment charges of approximately $6.7 million from Mission UK andas a result of the professional costs incurredSale Agreement entered into on August 1, 2022, goodwill impairment charges of approximately $2.0 million related to restructuring matters.the Redeeem entity, and impairment charges of intangible assets of approximately $0.4 million related to the Redeeem entity. The other gains of approximately $0.3 million consisted of a gain on rent abatement. There were no such amounts recorded infor the prior year quarter.three months ended June 30, 2023.
Net gain on sale of subsidiary
Interest expense

For the three months ended SeptemberJune 30, 2022, there was a net gain on the sale of a subsidiary, Mission UK, of2023, interest expense increased approximately $0.1 million. During the three months ended September 30, 2022, the gain on sale of subsidiary was driven by the difference between the Mission UK net book value, the purchase price received by the Company, and a working capital payment made by the Company$0.7 million to Mission UK. This gain was offset by the outstanding intercompany balances between Mission UK and the other consolidated TMG entities.
Interest expense
Interest expense of approximately $2.8$3.4 million, for the three months ended September 30, 2022, was an increase of approximately $2.8 million fromas compared to the prior year quarter. Thisperiod. The increase during the three month period is related to rising interest rates (15.83% compared to 9.50% as of June 30, 2023 and June 30, 2022, respectively and the addition of a two (2%) percent default interest fee that began October 2022) primarily related to the Company's Senior Secured credit facility, which was entered into in March 2022 to finance the Converge Acquisition (see "Liquidity and Capital Resources - Financing Agreements"). See Note 128 – Credit Facilities to the condensed consolidated financial statements included in “Part I — Item 8.1. Financial Statements and Supplementary DataStatements” of this Quarterly Report on Form 10-Q for more information on the Company's Credit Facility.
Miscellaneous expense

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

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Comparison of the Annual Report as ofsix months ended June 30, 2023 to the six months ended June 30, 2022.

The table below sets forth, for the periods presented, certain historical financial information. The six months ended June 30, 2022, includes Converge activity from the acquisition date March 22, 2022 to June 30, 2022 (in thousands):

Six Months Ended June 30,
20232022Change ($)Change (%)
Revenue$117,727 $101,067 $16,660 16 %
Cost of revenue103,229 79,707 23,522 30 %
Gross profit14,498 21,360 (6,862)(32)%
Operating expenses:
Selling, general and administrative expenses23,051 31,175 (8,124)(26)%
Depreciation and amortization4,129 2,697 1,432 53 %
Restructuring and other related charges(99)5,591 (5,690)(102)%
Impairment and other losses (gains), net— 8,938 (8,938)(100)%
Total operating expenses27,081 48,401 (21,320)(44)%
Operating loss(12,583)(27,041)14,458 (53)%
Other income (expense):
Interest expense(6,890)(2,896)(3,994)138 %
Miscellaneous income (expense)(632)(2,528)1,896 (75)%
Total other expense(7,522)(5,424)(2,098)39 %
Loss from operations before income taxes(20,105)(32,465)12,360 (38)%
Income tax (expense) benefit(57)21 (78)(370)%
Net loss$(20,162)$(32,444)$12,282 (38)%


Revenue
Six Months Ended June 30,
20232022Change ($)Change (%)
Managed Services$64,229,389 $50,076,258 $14,153,131 28 %
Performance Solutions53,498,096 40,178,974 13,319,122 33 %
Other— 10,811,471 (10,811,471)(100)%
Total$117,727,485 $101,066,703 $16,660,782 16 %

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

Costs of revenue

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

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Gross profit

For the six months ended June 30, 2023, gross profit decreased approximately $6.9 million to approximately $14.5 million, as compared to the prior year period. The decrease is primarily due to margin compression as a result of lower response rates, higher customer acquisition costs and the absence of other revenue and cost of revenues as discussed above. The absence of gross profit on the legacy Troika subsidiaries also had an impact in the current year periods. The decrease in margin related to managed service was less impactful despite the significant decrease in managed services revenue during the three and six month periods, due to the proportion of revenue generated that is largely reimbursable costs.

Selling, general, and administrative expenses

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

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

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

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

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

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

Depreciation and amortization

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

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Restructuring and other related charges

For thesix months ended June 30, 2023, the Company recorded restructuring credits of approximately $0.1 million, a decrease of approximately $5.7 million as compared to the prior year period. The decrease was primarily driven by decreases in severance related charges of approximately $3.0 million, which was inclusive of credits related to employee severance and benefit payments of approximately $0.3 million and approximately $0.3 million related to a reclassification of future severance payments to selling, general, and administrative expenses and settlement charges of approximately $3.3 million. These decreases were partially offset by approximately $0.6 million in charges for legal expenses. See Note 7 to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-K10-Q for discussions on the restructuring program.

Impairment and other (losses) gains, net

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

Interest expense

For the six months ended June 30, 2023, interest expense increased approximately $4.0 million to approximately $6.9 million, as compared to the prior period. The increase during the six month period is related to rising interest rates during the six month period ending June 30, 2023 compared to June 30, 2022 (15.83% compared to 9.50% and the addition of a two (2%) percent default interest fee that began in October 2022) primarily related to the Company's Senior Secured credit facility, which was entered into in March 2022 to finance the Converge Acquisition (see "Liquidity and Capital Resources - Financing Agreements"). See Note 8 – Credit Facilities to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for more information on the Company's Credit Facility.

Foreign exchange loss
For the three months ended September 30, 2022, there was a foreign exchange loss of approximately $0.9 million compared to a foreign exchange loss of $0.02 million in the comparable prior year period. During the three months ended September 30, 2022, the foreign exchange loss was primarily driven by the sale of a foreign subsidiary, Mission UK, which resulted in the foreign currency translation loss previously accounted for in accumulated other comprehensive income being reclassified to the Statement of Operations.Miscellaneous expense

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Loss on Change in Fair Value of Derivative Liabilities
For the threesix months ended SeptemberJune 30, 2022, the Company recognized a loss of2023, miscellaneous expense decreased approximately $0.9$1.9 million from the change in fair value of derivative liabilities. The derivative liabilities are associated with the debt and equity financing relatedto approximately $0.6 million, as compared to the Converge acquisitionprior period. The decrease in expense during Q3 2022. There were no such amounts recorded for the threesix months ended SeptemberJune 30, 2021.

Miscellaneous income (loss)
For the three months ended September 30, 2022 and 2021, the Company recognized approximately $0.1 million of miscellaneous income and $1.4 million of miscellaneous income, respectively. The decrease during the three months ended September 30, 2022,2023, was primarily related to a decrease of approximately $3.4 million in liquidated damages expenses, partially offset by the absence of legal settlements totaling $0.9approximately $0.6 million of a gain on derivative liabilities, and income from government grantsthe absence of $0.3approximately $0.6 million recorded in the prior year period.other income.

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

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

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

The following table sets forth the reconciliation of Net Income/(Loss), a GAAP measure, to Adjusted EBITDA:
Three months ended September 30,
20222021
Net income (loss)$1,273,783 $(2,139,000)
Interest expense2,835,588 13,000 
Income tax expense162,368 — 
Depreciation and amortization2,232,509 202,000 
EBITDA6,504,248 (1,924,000)
Net gain on sale of subsidiary(82,894)— 
Restructuring and other related charges934,147 — 
Stock-based compensation expense516,800 979,000 
Loss contingency on equity issuance301,350 — 
Loss (gain) on derivative liability942,390 (12,000)
Foreign exchange loss944,416 16,000 
Adjusted EBITDA$10,060,457 $(941,000)

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net loss$(12,261,955)$(18,056,006)$(20,162,685)$(32,444,006)
Depreciation and amortization2,065,753 2,267,780 4,129,048 2,696,780 
Interest expense3,449,052 2,796,367 6,889,708 2,896,367 
Income tax expense (benefit)21,030 (54,075)57,000 (21,075)
EBITDA(6,726,120)(13,045,934)(9,086,929)(26,871,934)
Stock-based compensation expense330,580 1,184,000 877,778 13,300,534 
Non-recurring expenses related to debt financing matters (1)
5,777,344 — 9,256,168 — 
Non-recurring expenses related to equity matters (2)
72,888 — 155,159 — 
Reverse stock split charges53,744 — 53,744 
Restructuring and other related charges(324,907)5,590,932 (98,584)5,590,932 
Partial liquidated damages expense3,615,000 227,400 3,615,000 
Related acquisition & related professional costs— 320,000 — 1,683,000 
Impairments and other (gains) losses, net— 8,937,677 — 8,937,677 
Adjusted EBITDA$(816,471)$6,601,675 $1,384,736 $6,255,209 

1)Costs primarily relate to Blue Torch financing matters. Costs are recorded in selling, general, and administration expenses.
2)Costs primarily relate to the Preferred Series E equity matters.
Adjusted EBITDA of approximately negative $0.8 million for the three months ended SeptemberJune 30, 2022, increased2023, decreased by approximately $11.0 million, to $10.1$7.4 million as compared with the prior year period of approximately $6.6 million. The decrease of approximately $7.4 million is primarily due to (as discussed previously) the increase in revenues dueattributable to the Converge Acquisition, combined withdecrease in gross profit of approximately $11.7 million. The Company improved its operating loss and net loss by approximately $5.3 million and $5.8 million, respectively, in the offsetting of several non-recurring costs incurred as a result of the ongoing restructuring and transformational efforts by management as well as non-cash charges during thecurrent period. These itemsimprovements are
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partially offset by the increases costabsence of salesone-time charges related to acquisition activities in the prior year period.

Adjusted EBITDA of approximately $1.4 million for the six months ended June 30, 2023, decreased by approximately $4.9 million from approximately $6.3 million, in the prior year period. The decrease of approximately $4.9 million is primarily attributable to a decrease in gross profit of approximately $6.9 million. The Company improved its operating loss and selling, generalnet loss by approximately $14.5 million and administrative expenses (excluding stock-based compensation expense) all largely as a result$12.3 million, respectively, in the current period. These improvements are offset by the decrease in restructuring activities, coupled with the absence of the Converge Acquisition.prior year period impairment charges, and partial liquidated damages costs incurred.

LIQUIDITY & CAPITAL RESOURCES

Overview

Our primary sources of liquidity are cash, cash equivalents, and cash flows from the operations of our businesses. Our principal uses of cash include working capital-related items (including funding our operations), debt service, investments, and related loans and advances that we may fund from time to time, and liabilities from prior acquisitions. The Company’s use of its available liquidity will be based upon the ongoing review of the funding needs of the business, its view of a favorable allocation of cash resources, and the timing of cash flow generation.

At the present time, we do not have arrangements to raise additional capital, and we may need to identify potential investors and negotiate appropriate arrangements with them. We believemay not be able to arrange enough investment within the time the investment is required or that if it is arranged, that it will be on favorable terms. If we cannot obtain the needed
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capital, we may not be able to become profitable and may have to curtail or cease our operations. Additional equity financing, if available, may be dilutive to the holders of our capital stock. Debt financing may involve significant cash payment obligations, covenants and financial ratios that may restrict our ability to operate and grow our business.

Going Concern

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

Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern, the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its obligations as they become due within one year from the date that financial statements are issued. In performing this evaluation as of the date of the filing of this 10-Q, the Company has determined that the Company may not have sufficient liquidity including approximately $32.7 million inunder its cash and cash equivalents, as of September 30, 2022, and anticipated future operating cash flows,flow forecasts to fund our businesscommitments for the twelve months following the date of the filing of this 10-Q.

The costs of and distractions caused by restructuring, pursuing a Potential Transaction, negotiating amendments to the Financing Agreement, and servicing the Blue Torch debt, have materially depleted liquidity and negatively impacted performance of the Company. Consequently, management has concluded that there is substantial doubt about the Company’s ability to fund ongoing operations and meet debt service obligations over the credit facility (see “Financing Agreements” below) during the nextensuing twelve months and foreseeable future. See Note 12, Credit Facilities to themonth period.

The unaudited condensed consolidated financial statements includeddo not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in Item 8operation.

Cash Flow Discussion

Six Months Ended
June 30,
20232022
(unaudited)(unaudited)
Net cash used in operating activities$(7,638,239)$(3,746,032)
Net cash used in investing activities$(50,839)$(82,800,638)
Net cash (used in) provided by financing activities$(1,942,379)$112,235,310 

Operating Activities

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

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2023, decreased by approximately $82.7 million to approximately $0.1 million as compared with the prior period. The decrease is a result of the Annual Report on Form 10-K for a discussionabsence of the Credit Facility.cash paid in the prior year period related to the Converge acquisition.

Financing Activities

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

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Financing Agreements

On March 21, 2022, Troika Media Group Inc., and each subsidiary of Troika Media Group, Inc. as guarantors,the Company entered into athe Financing Agreement with Blue Torch Finance LLC (“Blue Torch”), as Administrative Agent and Collateral Agent.Agreement. This $76.5 million First Lien Senior Secured Term Loan (the “Credit Facility”) formed the majority ofCredit Facility was used in part to fund the purchase price of the Converge Acquisition, as well as, for working capital and general corporate purposes.

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

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

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

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

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

Although the Company believes that the Converge Sellers’ recourse is solely to the escrow account, it is possible that the Converge Sellers could make claims against the Company for the deferred amount. In the event that the Converge Sellers were to make and be successful in such claims, the Company believes that a court would likely order Blue Torch to release the escrowed funds to satisfy such claims.

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

The Company has made principal repayments aggregating to $1.9approximately $4.8 million through SeptemberJune 30, 2022,2023, under the Financing Agreement. As of June 30, 2023, there was approximately $71.7 million principal and accrued interest outstanding under the Credit Agreement.Facility's term loan.

In connection with the Credit Facility, the Company recorded deferred financing and issuance costs totaling approximately $9.2 million, including a $1.5 million upfront fee. The Term Loan Facilitycosts will be amortized quarterlyover the life of the note using the effective interest rate method. During the three months ended June 30, 2023, the Company recorded approximately $0.6 million in accordance with its terms. As of September 30, 2022, there was $74.6 million outstanding underamortization expense and made principal payments totaling approximately $1.0 million. During the Term Loan Facility.
As of Septemberthree months ended June 30, 2022, the Company was in default on the Financing Agreement duedid not recognize amortization expense related to the Company’s failure to satisfy certain financialnote payable and non-financial covenants under the Financing Agreement. The Company currently is and has been addressing these items and is working in good faith with Blue Torch on an amendment to the loan. did not make any principal payments.

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

On February 10, 2023, Blue Torch and the First A&R Limited Waiver of all eventsthe Specified Events of default that are continuingDefault under the Financing Agreement, dated March 21, 2022.which amended and restated the Original Limited Wavier. The First A&R Limited Waiver provided that, among other things, during the First A&R Waiver Period, the Company would comply with certain sale and refinancing milestones and refrain from engaging in any “Permitted Acquisition” under the Financing Agreement or making certain post-closing payments to Converge Sellers. The First A&R Limited Waiver would have expired on the earliest of (x) the occurrence of an Event of Default under the Financing Agreement that is not a Specified Event of Default, (y) a failure by the Company to comply with certain sale and refinancing milestones set forth in a side letter agreed by the Company and the Lenders and (z) June 30, 2023, subject to potential extension of up to sixty 60 days to obtain regulatory and/or shareholder approval in the event the Company is pursuing a sale transaction.

See Note 6On April 14, 2023 and April 28, 2023, Blue Torch and the Company entered into the Extension Letters that extended the Applicable Milestones.

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

Series E Private Placement

On September 26, 2022, we entered into an ExchangeFirst A&R Limited Waiver, the First Amendment to the Financing Agreement (the “Exchange Agreement”) with each holder of our Series E Preferred Stock (each a “Series E Holder”), pursuant to which (i) each Series E Holder will exchange its existing warrant to purchase our common stock, dated March 16, 2022 (the “Old Warrants”), for new warrants to purchase our common stock (the “New Warrants”), and (ii) each Series E Holder consented to changes in the terms of the private investment in public equity (“PIPE”) placement effected by the Company on March 16, 2022 (the “New PIPE Terms”), including an amendment and restatement of the terms of our Series E convertible preferred stock, par value $0.01 per share (the “Series E Preferred Stock”).

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In consideration for the issuance of the New Warrants and the other New PIPE Terms, we will file an amendedSecond A&R Limited Waiver and restated certificate of designation for the Series E Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to effect certain changes contemplated by the Exchange Agreement.

The New PIPE Terms effect the following changes, among others,First Amendment to the rights Series E Holders:

a.New Warrant Exercise Price: The New Warrant exercise price per share of common stock is $0.55, provided that if all shares of Series E Preferred Stock issued pursuant to the Certificate of Designation are not repurchased by the Company on or prior to November 26, 2022, on such date, theexercise price per share of the New Warrants will revert to $2.00, subject to further adjustment as set forth in the New Warrant.
b.Series E Conversion Price: The conversion price for the Series E Preferred Stock shall initially equal $0.40 per share, andso long as the arithmetic average of the daily volume-weighted average prices ("VWAPs") of the Common Stock for the calendar week prior to each of the following respective dates is lower than the Conversion Price at that time, the Conversion Price shall be downwardly adjusted by $0.01 on each of October 24, 2022, October 31, 2022, November 7, 2022, November 14, 2022, and November 21, 2022.
c.Standstill Period: The Series E Holders agreed to a 60-day standstill period ending on November 26, 2022 (the “Standstill Period”), during which each Series E Holder may convert not more than fifty (50%) percent of the Series E Preferred Stock held by such holder at the beginning of the Standstill Period.
d.Series E Buyout. During the Standstill Period the Company will use commercially reasonable efforts to raise funds to repurchase all outstanding shares of Series E Preferred Stock held by the Series E Holders at a purchase price of $100 per share, subject to the provisions of the Certificate of Designation.
e.Limitation on Sales: During the Standstill Period, the Purchasers agreed not to sell shares of the Company’s common stock for a price less than $0.30 per share.
f.Liquidated Damages: The Company agreed to pay to the Purchasers all liquidated damages owed through September 21, 2022 (including any pro-rated amounts), which totaled approximately $3.6 million, all of which was paid during the three months ended September 30, 2022.Second A&R Limited Waiver.

Contractual Obligations

Refer to Note 11As of June 30, 2023, we had non-cancelable operating lease commitments of approximately $8.0 million, long-term debt with a $71.7 million principal balance, acquisition liabilities related to the consolidated financial statements included inConverge sellers of $9.3 million, liquidation damages related to the Company’s Annual Report on Form 10-K forPreferred Series-E holders of $0.9 million, and restructuring liabilities of $0.1 million. For the yearthree months ended June 30, 2022,2023, the Company’s contractual obligations not reflected on the consolidated balance sheet.Company funded its operations using available cash.

In addition, see Notes 67. Credit Facilities and 78. Leases to the condensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for the principal repayments required under the Company’s Term Loan Facility and maturities of the Company's operating lease liabilities, respectively.

Cash Flow Discussion

Operating Activities

Net cash provided by operating activities for the three months ended September 30, 2022, increased by approximately $7.7 million to $5.4 million as compared with the prior year period. The increase in cash provided was primarily the result of an increase in operating income of approximately $9.8 million, partially offset by a net change in working capital of approximately $1.4 million and foreign exchange loss of approximately $0.9 million.

Net cash used in operating activities for the three months ended September 30, 2021, increased by $1.1 million to $2.3 million as compared with the prior year period. The increase was the result of an decrease in working capital and payments for contract liabilities relating to government grants.

Investing Activities

Net cash used in investing activities for the three months ended September 30, 2022, increased by 0.1 million to $0.2 million as compared with the prior year period primarily related to payments for the purchase of fixed assets.

Net cash used in investing activities for the three months ended September 30, 2021, increased by $61 thousand to $68 thousand as compared with the prior year period primarily related to payments for the purchase of fixed assets.

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Financing Activities

Net cash used in financing activities for the three months ended September 30, 2022, increased by approximately $4.6 million to $4.6 million as compared with the prior year period primarily due to payments made totaling of approximately $3.6 million related to partially liquidated damages in connection with our series E private placement , for more information on the series E private placement see above in addition to an approximately $1.0 million in principal payments made for our credit facility.

Net cash used financing activities for the three months ended September 30, 2021, were approximately $20 thousand. This was a decrease from cash provided by of approximately $715 thousand in the prior year as a result of the absence of approximately $565 thousand in proceeds from stimulus loan programs and approximately $150 thousand in proceeds from convertible note payables in the comparable prior year period.
Recently Issued Accounting Pronouncements Not Yet Adopted and Critical Accounting Policies

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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Critical Accounting Policy & Estimates

There have been no material changes to the Company’s critical accounting policies from those set forth in our AnnualTransition Report on Form 10-K10-K/T (as amended by Form 10-KT/A) for the yearsix month transition period ended June 30,December 31, 2022.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosures, controls and procedures were not effective.

Changes in Internal Control over Financial Reporting

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

Management has takencontinued to take steps to improve its controls and procedures, including but not limited to, consolidating its bank accounts into one institution, implementing a consolidated general ledger system, formalizing policies and procedures, and employing additional qualifiedenhancing month-end close processes and competent accounting staff which will improve segregation of duties and technical accounting knowledge.account reconciliations. Upon their implementation, these internal controls will dramatically improve in the near future our ability to prevent and detect mistakes, noncompliance and potential fraud.

Limitations on Effectiveness of Control and Procedures

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

PART II. OTHER INFORMATION


Item 1. Legal Proceedings

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From time to time the Company may become involved in legal proceedings or may be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that thea negative final outcome of these ordinary course matters will notmatter listed below could have a material adverse effect on its business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. To estimate whether a loss contingency should be accrued by a charge to income, we evaluate, among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. We do not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated The Company is not a party to any material pending legal proceedings or a proceeding being contemplated by a governmental authority nor is any of the Company’s property the subject of any pending legal proceedings or a proceeding being contemplated by a governmental authority except as set forth in our AnnualTransition Report on Form 10-K10-K/T for the fiscal yeartransition period ended June 30, 2022,December 31, 2022.

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On July 17, 2023, the Converge Sellers in their capacities as the sellers of Converge filed the Complaint in the Supreme Court of the State of New York, New York County against the Defendants. The Defendants have not yet been served with a Summons or the Complaint. On July 28, 2023, Mr. Toama, who was Chief Executive Officer of the Company, informed the Company that he intended to withdraw from which there have been no material changes.the Action without prejudice. Mr. Toama recused himself from all deliberations by the Board concerning the Action. The Board also formed a Special Litigation Committee composed of Board members Randall Miles, Grant Lyon, Jeffrey Stein, and Wendy Parker with delegated full power to evaluate, investigate, review, and analyze the facts and circumstances surrounding the Action.

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

Item 1A. Risk Factors.

Except asOur business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth below, there have been no material changes to the risk factors described in the sections captioned “Risk Factors,” in our AnnualTransition Report on Form 10-K10-KT (as amended by Form 10-KT/A) for the six month transition period ended December 31, 2022, the occurrence of any one of which could have a material adverse effect on our actual results.

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

Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern, the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its obligations as they become due within one year ended June 30, 2022.from the date that financial statements are issued. In additionperforming this evaluation as of the date of the filing of this 10-Q, the Company has determined that the Company may not have sufficient liquidity under its cash flow forecasts to fund commitments for the twelve months following the date of the filing of this 10-Q.

The costs of and distractions caused by restructuring, pursuing a Potential Transaction, negotiating amendments to the other information set forth in this report, you should carefully considerFinancing Agreement, and servicing the factors discussed inBlue Torch debt, have materially depleted liquidity and negatively impacted performance of the sections “Risk Factors” inCompany. Consequently, management has concluded that there is substantial doubt about the Company’s ability to fund ongoing operations and meet debt service obligations over the ensuing twelve month period. If we are not able to continue as a going concern, or if there is continued doubt about our Annual Report on Form 10-K forability to do so, the year ended June 30, 2022, which couldvalue of your investment would be materially affectand adversely affected.

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

The growth and health of our Performance Solutions business depends on our ability to take risks describedby investing in our Annual Report on Form 10-K fornew lead generation activities. Given the year ended June 30, 2022Company's inability to consummate a Potential Transaction to, among other things, add additional capital to the Company's balance sheet to fund operations and the uncertainty about the ability of the Company to continue to operate as a going concern, we may not be able to invest in this report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial alsothese opportunities which may have a material adverse effect on our business, financial condition, and/or operating results.

The exercise of our outstanding Convertible Series E Preferred stock and warrants will depress our stock price and dramatically dilute shareholders. Delay and failure of the Company to register up to 400,000,000 million common shares pursuant to the Convertible Series E Preferred will incur financial penalties.

As previously disclosed, on March 22, 2022, the Company issued and sold 500,000 shares of Series E Convertible Preferred Stock, $0.01 par value, with a stated value of $100 per share or an aggregate of $50.0 million pursuant to the terms of a Securities Purchase Agreement, dated March 16, 2022 (the “Purchase Agreement”), by and among the Company and certain institutional investors (the “Purchasers”). The Series E Preferred Stock were originally convertible into Common Stock at $1.50 per share, subject to adjustment. The Company issued accompanying Common Stock Purchase Warrants (the “Warrants”) originally exercisable for five (5) years at $2.00 per share, subject to adjustment as described in the Purchase Agreement, to purchase an aggregate of 33,333,333 shares of Common Stock.

The shares of Series E Preferred Stock and Warrants and the shares of Common Stock issuable upon conversion of the Series E Preferred Stock and the exercise of the Warrants (collectively, the “Securities”) were not initially registered under the Securities Act of 1933, as amended. Pursuant to a Registration Rights Agreement with the Purchasers dated March 16, 2022 (the “Registration Rights Agreement”), the Company committed to file with the Securities and Exchange Commission (the “SEC”) an initial Registration Statement concerning the Securities within ten (10) business days of the March 21, 2022, closing date, which initial Registration Statement is required to be declared effective within forty-five (45) days of the filing date or ninety (90) days if there is a “full review by the SEC”.

While the Company has filed with the SEC a Registration Statement on Form S-1 (the “Form S-1”) concerning the Securities to satisfy the requirements of the Registration Rights Agreement, the Form S-1 has not been declared effective by the SEC as of September 28, 2022, and within the period required under the terms of the Registration Rights Agreement. As a result, the Company is required under the terms of the Registration Rights Agreement to pay to the Purchasers a partial liquidated damages penalty for failure to meeting the effectiveness date requirement, which is determined to be the product of 2.0% multiplied by the aggregate subscription amount paid by each Purchaser under the terms of the Purchase Agreement, with the partial liquidated damages to be capped at 14% of the subscription amount. Such partial liquidated damages are owed to the investors within seven (7) days of the failure to meet the requirements for effectiveness, and will be owed monthly to the Purchasers until the Form S-1 is declared effective by the SEC. This will result in a payment by the Company of approximately $1.0 million per month (with prorated payments for partial months) to the Purchasers until the Form S-1 is declared effective by the SEC, resulting in up to a maximum of $7.0 million in payments.

On September 26, 2022, we entered into an Exchange Agreement (the “Exchange Agreement”) with the Purchasers, pursuant to which (i) each Purchaser exchanged its Warrants for new warrants to purchase our common stock (the “New Warrants”) and (ii) each Purchaser consented to an amendment and restatement of the terms of our Series E convertible preferred stock, par value $0.01 per share (the “Series E Preferred Stock”) as well as other changes in the terms of the private placement effected by the Company on March 16, 2022 (collectively, the “New PIPE Terms”).

We then filed an amended and restated certificate of designation for the Series E Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to effect certain changes contemplated by the Exchange Agreement.
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The New PIPE Terms effect the following changes, among others, to the rights of the Series E Holders:

a.New Warrant Exercise Price: The New Warrant exercise price per share of common stock is $0.55, provided that if all shares of Series E Preferred Stock are not repurchased by the Company on or prior to November 26, 2022, on such date, the exercise price per share of the New Warrants will adjust to $2.00, subject to further adjustment as set forth in the New Warrant.
b.Series E Conversion Price: The conversion price for the Series E Preferred Stock shall initially equal $0.40 per share, and so long as the arithmetic average of the daily volume-weighted average prices of the Common Stock for the calendar week prior to each of the following respective dates is lower than the conversion price at that time, the conversion price was downwardly adjusted by $0.01 on each of October 24, 2022, October 31, 2022, November 7, 2022 and November 14, 2022, and shall be further downwardly adjusted by $0.01 on November 21, 2022.
c.Standstill Period: The Purchasers agreed to a 60-day standstill period ending on November 26, 2022 (the “Standstill Period”), during which each Series E Holder may convert not more than 50% of the Series E Preferred Stock held by such holder at the beginning of the Standstill Period.
d.Series E Buyout. During the Standstill Period the Company will use commercially reasonable efforts to raise funds to repurchase all outstanding shares of Series E Preferred Stock held by the Purchasers at a purchase price of $100 per share, subject to the provisions of the Certificate of Designation (the “Series E Buyout”).
e.Limitation on Sales: During the Standstill Period, the Purchasers agreed not to sell shares of the Company’s common stock for a price less than $0.30 per share.
f.Liquidated Damages: The Company agreed to pay to the Purchasers all liquidated damages owed through September 21, 2022 (including any pro-rated amounts).

There is no guarantee that we will be able to raise funds, on commercially reasonable terms or at all, to effect the Series E Buyout.financial condition.

The Company is in negotiationscurrently operating under a Limited Waiver of certain Events of Default under the Financing Agreement. Failure to comply with its Senior Secured Lender to revise the terms of its Financing Agreement relatingthe Limited Waiver or to cure the Credit Facility.

The Company’s shareholders are subject to dilutionEvents of their common stock given the prospect of the Series E Preferred with the possibility of the registration of 400,000,000 shares. The Company’s shares outstanding as of November 11, 2022, was 67,831,116 and shareholders face the risk of substantial dilution. The costs of and occasioned by the delay in the effectiveness of the registration statement will impact the Company’s financial performance and creates substantial financial risk.

Covenants in our Credit Facility impose restrictions that may limit our operating and financial flexibility. The Financing Agreement contains many significant restrictions, negative and affirmative covenants that may limit our operating and financial flexibility. The Financing Agreement presentsDefault could have a risk of default.

The Company entered a Credit Facility on March 21, 2022, concerning a first lien term loan of $76.5 million with a senior secured lender. The Financing Agreement contains negative covenants that, among other things, limit our ability to:

•Incur indebtedness;
•Grant liens on its assets;
•Make certain investments;
•Incur certain expenses and limits;
•Engage in mergers or acquisitions;
•Dispose of assets;
•Enter certain transactions; and
•Make certain restricted payments.

The Financing Agreement contains certain affirmative covenants and customary events of default provisions, including, subject to thresholds and grace periods, among others, payment default, covenant default, and judgment default. Each of these limitations are subject to various conditions.

In addition, the Financing Agreement contains financial covenants, which require us to maintain minimum total leverage ratios and fixed charge coverage ratios. The applicable interest ratematerial adverse effect on the facility may increase which would result in our interest expenses going up.


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These covenants could materially adversely affect our ability to finance our future operations or capital needs. Furthermore, they may restrict our ability to expand and pursue our business strategies and otherwise conduct our business. Our ability to comply with these covenants may be affected by circumstances and events beyond our control, such as prevailing economic conditions and changes in regulations, and we cannot provide any assurance that we will be able to comply with such covenants. These restrictions also limit our ability to obtain future financings or to withstand a future downturn in our business or the economy in general. In addition, complying with these covenants may also cause us to take actions that may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.Company.

On September 29, 2022, we failed2023, Blue Torch and the Company entered into the Second A&R Limited Waiver of certain Specified Events of Default under the Financing Agreement, as amended by the First Amendment. The Company and Blue Torch entered into the Second A&R Limited Wavier to, meetamong other things, (i) waive certain Specified Events of Default including any failure of the Company to make the quarterly principal and interest payments due to be paid on or about September 30, 2023 under the Financing Agreement; and (ii) extend the Outside Date. The Second A&R Limited Waiver will expire at the end of the Current Wavier Period.

The Second A&R Limited Waiver concerns events of default that relate to the Company’s existing and anticipated failures to satisfy certain financial and non-financial covenants under the Financing Agreement and received a limited waiverAgreement. If the Company is unsuccessful in curing the continuing events of default from our lender in orderby the expiration of the Current Waiver Period, the Company intends to avoid an eventseek further extensions of default.the Current Waiver Period with Blue Torch and the Lenders, although we cannot assure you that Blue Torch and the Lenders would be willing to grant extensions. If we fail to meet any covenant in the future, we may not be ableCompany failed to obtain a waiver from our lender, which has total discretion in deciding whether to grant a waiver, and we may incur an event of default.extension, the Company would
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A default, if not waivedbe in full or limited basis, could result in an acceleration of the debt outstandingdefault under the Financing Agreement and in a default with respect to, and an acceleration of, the debt outstanding under other debt agreements. If that occurs, we may notLenders would be able to make allexercise remedies available to them under the required interestFinancing Agreement. Any such action would likely have a material adverse effect on the Company and capital payments or borrow sufficient funds to refinance such debt. Even if new financing were available at such time, it may not be on terms that are acceptable to us or terms as favorable as our current agreements. If our debt is in default for any reason, our business,its financial condition and resultsthe value of operations could be materially and adversely affected.

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

On September 26, 2022, we entered into an Exchange Agreement (the “Exchange Agreement”) with each holder of our Series E Preferred Stock (each a “Series E Holder”), pursuant to which (i) each Series E Holder will exchange its existing warrant to purchase our common stock, dated March 16, 2022 (the “Old Warrants”), for new warrants to purchase our common stock (the “New Warrants”) and (ii) each Series E Holder consented to changes in the terms of the private placement effected by the Company on March 16, 2022 (the “New PIPE Terms”), including an amendment and restatement of the terms of our Series E Preferred Stock.

At the closing of the exchange agreement, we issued an aggregate of 33,333,333 New WarrantsNote 11 to the Series E Holders. The issuancecondensed consolidated financial statements included in Item 1 of New Warrants was exempt from registration under the Securities Act pursuant to Section 3(a)(9) thereof.this Quarterly Report on Form 10-Q is incorporated by reference herein.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not Applicable.

Item 5. Other Information

Board Size Increase and Director Appointments

On November 8, 2022, our board of directors (the “Board”), based on the recommendation of our Nominating and Governance Committee, approved increasing the size of the Board from six (6) to eight (8) directors and appointing each of Jeffrey Stein and Grant Lyon to the Board to fill the vacancies created thereby.

a.Mr. Stein is Founder and Managing Partner of Stein Advisors LLC, a financial advisory firm that provides consulting services to public and private companies and institutional investors. Previously, Mr. Stein was a Co-Founder and Principal of Durham Asset Management LLC, a global event driven distressed debt and special situations equity asset management firm. From January 2003 through December 2009, Mr. Stein served as Co-Director of Research at Durham responsible for the identification, evaluation, and management of investments for the various Durham portfolios. Mr. Stein was a member of the Executive and Investment Committees at Durham responsible for oversight of the management company and investment funds, development and execution of the investment strategy, portfolio composition and risk management. Launched in 2003 with $50.0 million in assetsNot Applicable.
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under management Durham successfully grew to $1.5 billion in total assets under management across its core hedge fund and collateralized loan obligation strategies. Mr. Stein is 53 years old.

b.Mr. Lyon has over thirty (30) years of experience in corporate restructuring, expert testimony and corporate governance. Mr. Lyon has served as Co-founder and managing partner of Arete Capital Partners, LLC, a special situation advisory firm, since July 2020. He previously served as founder and managing director of Atera Capital, LLC, a Fiduciary and Financial Advisory Firm, from June 2017 to June 2020. Mr. Lyon also served as managing director of KRyS Global USA, a restructuring advisory and distressed investment consulting firm, from 2014 to June, 2017. Mr. Lyon has served as the financial advisor to the Government of the Commonwealth of the Bahamas. Mr. Lyon has served numerous times as a Chapter 11 Trustee, state-court receiver, chief executive officer, chief financial officer and chief restructuring officer. Mr. Lyon has testified many times in numerous jurisdictions, including bankruptcy court, federal district court and state court. Mr. Lyon has a Masters of Business Administration degree and a Bachelor of Science degree in Accounting from Brigham Young University. Mr. Lyon is 59 years old.

Messrs. Stein and Lyon will each stand for election to the Board at the Company’s upcoming annual meeting of stockholders. The Board has determined that Messrs. Stein and Lyon are independent under applicable Nasdaq rules. Messrs. Stein and Lyon will receive $40,000 per month (pro-rated for November) for their service on the Board and the Special Committee (defined below), and a $5,000 per diem for testimony or similar activity in connection with litigation. The Company anticipates entering into customary indemnification agreements with Messrs. Stein and Lyon in connection with their appointments to the Board and Special Committee.

There is currently no arrangement or understanding between the Company or any other person and either of Messrs. Stein or Lyon pursuant to which either of Messrs. Stein or Lyon was appointed to the Board, and the Company is unaware of any transaction involving Messrs. Stein or Lyon that would be reportable under Item 404(a) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended.

Special Committee

On November 8, 2022, the Board approved establishing a special committee of directors (the “Special Committee”) authorized to, among other things, oversee negotiations with the lender under our credit facility and the holders of our Series E Preferred Stock. The Special Committee will be comprised of Randall Miles, Jeffrey Stein and Grant Lyon, each of whom has been determined to be disinterested and independent from any conflicted directors, significant stockholders and/or management. The Company does not intend to comment on or disclose further developments regarding the Special Committee’s work unless and until it deems further disclosure is appropriate or required.

Amendment No. 2 to Limited Waiver

On November 11, 2022, Blue Torch Finance LLC (“Blue Torch”) and the Company entered into a Second Amendment to the Limited Waiver to Financing Agreement (the “Limited Waiver”) extending the waiver of all events of default that are continuing under the Financing Agreement dated March 21, 2022, by and among the Company, the lenders from time to time party thereto (the “Lenders”), and Blue Torch as collateral agent and administrative agent for the Lenders (the “Financing Agreement”). The Limited Waiver will expire on November 25, 2022, if not terminated earlier by Blue Torch (the “Waiver Period”).

The Limited Waiver concerns events of default that relate to the Company’s failure to satisfy certain financial and non-financial covenants under the Financing Agreement. The Company is currently engaged in good faith negotiations with Blue Torch, as agent for the Lenders, to amend the Financing Agreement and cure the events of default, although we cannot assure you that we will be successful in doing so. If the Company is unsuccessful in renegotiating the Financing Agreement and curing the continuing events of default by the expiration of the Waiver Period, the Company intends to seek further Limited Waivers with Blue Torch, although we cannot assure you that Blue Torch would be willing to grant additional waivers. For further information on the terms of the Financing Agreement please refer to our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on September 28, 2022.
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Item 6. Exhibits
Exhibit
Number		Exhibit Title
31.131.1*
Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002.
31.231.2*
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*32.2*
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
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101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104104*Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
*FurnishedFiled or furnished herewith.
†    Management contract or compensatory plan or arrangement.
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Troika Media Group, Inc.
(Registrant)
/s/ Erica NaidrichEric Glover
(Signature)
Date: November 14, 2022October 20, 2023Name:Erica NaidrichEric Glover
Title:Chief Financial Officer
(Principal Financial Officer)
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