This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of COVID-19 on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "suggests," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
We discuss many of these risks in other filings we make from time to time with
the
Investors should read this Quarterly Report on Form 10-Q and the documents that
we reference in this report and have filed with the
Overview
The Company's experienced team of marketing and technology veterans has
developed the
The Company also provides unique capabilities with its proprietary pre-bid ad fraud detection & prevention, Kubient Artificial Intelligence ("KAI"), which has the ability to stop fraud in the critical 300 millisecond window before an advertiser spends their budget on fraudulent ad space. The technology is powered by deep learning algorithms, the latest advancement in machine learning, which allows the Company to ingest vast amounts of data, find complex patterns in the data and make accurate predictions. Most importantly, it's self-learning, getting smarter and more accurate over time. This provides advertisers a powerful tool capable of preventing the purchase of ad fraud.
13
Table of Contents
The Company believes that its
Russian Sanctions
The current invasion of
COVID-19
The novel coronavirus ("COVID-19") pandemic continues to impact global economic conditions, as well as the Company's operations. COVID-19 had a meaningful negative impact on our financial condition, cash flows and results of operations during 2020, as revenues declined and we reduced spending in light of COVID-19 uncertainty. Although we continued to experience disruption and volatility during 2021, which could continue to have an adverse effect on our revenues and earnings in 2022, the ultimate economic impact of the pandemic remains fluid, as there continue to be periods of COVID-19 resurgence in various parts of the world. The extent of the impact of the COVID-19 pandemic in 2022 on our operational and financial performance will depend on a variety of factors, some of which are outside our control, including the duration and spread of COVID-19 and its variants, and its impact on our clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted.
Similarly, the economic uncertainty caused by the COVID-19 pandemic has made and may continue to make it difficult for us to forecast revenue and operating results and to make decisions regarding operational cost structures and investments. We have committed, and we plan to continue to commit, resources to grow our business, employee base, and technology development, and such investments may not yield anticipated returns, particularly if worldwide business activity continues to be impacted by the COVID-19 pandemic. The duration and extent of the impact from the COVID-19 pandemic depend on future developments that cannot be accurately predicted at this time, and if we are not able to respond to and manage the impact of such events effectively, our business may be harmed.
There can be no assurance that precautionary measures, whether adopted by us or imposed by others, will be effective, and such measures could negatively affect our sales, marketing, and client service efforts, delay and lengthen our sales cycles, decrease our employees', clients', or partners' productivity, or create operational or other challenges, any of which could harm our business and results of operations.
14 Table of Contents Results of Operations
Three Months Ended
The following table presents the results of operations for the three months
ended
For the Three Months Ended March 31, 2022 2021 Net Revenues$ 1,245,304 $ 707,757 Costs and Expenses: Sales and marketing 1,333,010 756,950 Technology 1,155,699 519,755 General and administrative 2,182,549 1,255,572 Loss accrual on customer contract 789,605 - Total Costs and Expenses 5,460,863 2,532,277 Loss From Operations (4,215,559) (1,824,520) Other (Expense) Income: Interest expense (3,872) (1,634) Interest income 2,291 29,309 Change in fair value of contingent consideration 589,622 - Other income 26 233 Total Other Income 588,067 27,908 Net Loss$ (3,627,492) $ (1,796,612) Net Revenues
For the three months ended
See Loss Accrual on Customer Contract for a discussion of an estimated loss
accrual recorded during the three months ended
Sales and Marketing
For the three months ended
Technology
For the three months ended
15 Table of Contents General and Administrative
For the three months ended
Loss Accrual on Customer Contract
During the three months ended
Other Income
For the three months ended
Non-GAAP Measures
Adjusted EBITDA
The Company defines EBITDA as net income (loss) before interest, taxes and depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, further adjusted to eliminate the impact of certain non-recurring items and other items that we do not consider in our evaluation of our ongoing operating performance from period to period. These items will include stock-based compensation, restructuring and severance costs, transaction costs, acquisition costs, certain other non-recurring charges and gains that the Company does not believe reflects the underlying business performance.
For the three months endedMarch 31, 2022 and 2021, EBITDA and Adjusted EBITDA consisted of the following: For the Three Months Ended March 31, 2022 2021 Net Loss$ (3,627,492) $ (1,796,612) Interest expense 3,872 1,634 Interest income (2,291) (29,309) Depreciation and amortization 162,221 77,379 EBITDA (3,463,690) (1,746,908) Adjustments: Stock-based compensation expense 432,656 241,214 Change in fair value of contingent consideration (589,622) - Adjusted EBITDA$ (3,620,656) $ (1,505,694) Adjusted Loss Per Share$ (0.25) $ (0.12) Weighted Average Common Shares Outstanding - Basic and Diluted 14,256,159 12,617,171
EBITDA and Adjusted EBITDA is a financial measure that is not calculated in
accordance with accounting principles generally accepted in
16 Table of Contents
core operating results over time (such as stock-based compensation expense),
this measure provides investors with additional useful information to measure
the Company's financial performance, particularly with respect to changes in
performance from period to period. The Company's management uses EBITDA and
Adjusted EBITDA (a) as a measure of operating performance, (b) for planning and
forecasting in future periods, and (c) in communications with the Company's
board of directors concerning the Company's financial performance. The Company's
presentation of EBITDA and Adjusted EBITDA are not necessarily comparable to
other similarly titled captions of other companies due to different methods of
calculation and should not be used by investors as a substitute or alternative
to net income or any measure of financial performance calculated and presented
in accordance with
Although Adjusted EBITDA is frequently used by investors and securities analysts
in their evaluations of companies, Adjusted EBITDA has limitations as an
analytical tool, and investors should not consider it in isolation or as a
substitute for, or more meaningful than, amounts determined in accordance with
Liquidity and Capital Resources
We measure our liquidity in a number of ways, including the following:
March 31 ,December 31, 2022 2021 (unaudited)
Cash and cash equivalents
$ 19,027,861 $ 22,676,301
Availability of Additional Funds
As a result of its public offerings and the related note conversions, the Company believes its current cash on hand is sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.
Cash Flows
Three Months Ended
Our sources and uses of cash were as follows:
Cash Flows From Operating Activities
We experienced negative cash flows from operating activities for the three
months ended
17
Table of Contents
Cash Flows From Investing Activities
Net cash used in investing activities for the three months ended
Cash Flows From Financing Activities
Net cash used in financing activities for the three months ended
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contractual Obligations
As a smaller reporting company, we are not required to provide the information required by paragraph (a)(5) of this Item.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in
Revenue Recognition
The Company maintains a contract with each customer and supplier, which specifies the terms of the relationship. The Company provides a service to its customers (the buy-side ad networks who work for advertisers) by connecting advertisers and publishers. For this service, the Company earns a percentage of the amount that is paid by the advertiser, who wants to run a digital advertising campaign, which, in some cases, is reduced by the amount paid to the publisher, who wants to sell its ad space to the advertiser.
The transaction price is determined based on the consideration to which the Company expects to be entitled, including the impact of any implicit price concessions over the course of the contract. The Company's performance obligation is to facilitate the publication of advertisements. The performance obligation is satisfied at the point in time that the ad is placed. Subsequent to a bid being won, the associated fees are generally not subject to refund or adjustment. Historically, any refunds and adjustments have not been material. The revenue recognized is the amount the Company is responsible to collect from the customer related to the placement of an ad (the "Gross Billing"), less the amount the Company remits to the supplier for the ad space (the "Supplier Cost"), if any. The determination of whether the Company is the principal or agent, and hence whether to report revenue on a gross basis equal to the Gross Billing or on a net basis for the difference between the Gross Billing and Supplier Cost, requires judgment. The Company acts as an agent in arranging via its platform for the specified good (the ad space) to be purchased by the advertiser, as it does not control the goods or services being transferred to the end customer, it does not take responsibility for the quality or acceptability of the ad space, it does not bear inventory
18
Table of Contents
risk, nor does it have discretion in establishing price of the ad space. As a result, the Company recognizes revenue on a net basis for the difference between the Gross Billing and the Supplier Cost.
The Company invoices customers on a monthly basis for the amount of Gross
Billings in the relevant period. Invoice payment terms, negotiated on a
customer-by- customer basis, are typically between 45 to 90 days. However, for
certain agency customers with sequential liability terms as specified by the
From time to time, the Company records loss accruals for estimated costs that
exceed estimated revenue related to its contracts with customers. During the
three months ended
Business Combinations
Business combinations are accounted for using the acquisition method and, accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any contingent consideration are recorded at their acquisition date fair values. The Company's fair value measurement of the contingent consideration is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company's own assumptions in measuring fair value.
Intangible Assets
Intangible assets are comprised of costs to acquire and develop computer software, including the costs to acquire third-party data which is used to improve the Company's artificial intelligence platform for client use, as well as costs to acquire customer lists, customer contracts and related customer relationship and restrictive covenant agreements. The intangible assets have estimated useful lives of two years for the computer software, five years for the capitalized data, seven years for the customer lists and three years for the restrictive covenant agreements. Once placed into service, the Company amortizes the cost of the intangible assets over their estimated useful lives on a straight-line basis.
Impairment of Long-lived Assets
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. An impairment would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
Stock-Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares. The Company accrues for any equity awards at fair value that have been contractually earned but not yet issued.
© Edgar Online, source