LOOP MEDIA, INC. STATEMENT ON FORWARD-LOOKING INFORMATION
This Transition Report contains certain forward-looking statements. All statements other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements. These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our financial statements which have been prepared in conformity with accounting principles generally accepted inthe United States of America . It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.
Overview
We are a multichannel digital video platform media company that uses marketing technology, or "MarTech ," to generate our revenue and offer our services. Our technology and vast library of videos and licensed content enables us to curate and deliver short-form videos to our out-of-home ("OOH") dining, hospitality, retail and other customers to enable them to inform, entertain and engage their customers. Our technology provides OOH customers and third-party advertisers with a targeted marketing and promotional tool for their products and services and allows us to measure the number of potential viewers of such advertising and promotional materials. In addition to providing services to OOH venue operators, we provide our services direct to consumers in their homes and on their mobile devices. We offer self-curated music video content licensed from major and independent record labels, as well as movie, television and video game trailers, kid-friendly videos, viral videos, drone footage, news headlines, and lifestyle and atmospheric channels. We believe we are the only service inthe United States that has OOH and D2C licenses with all three major music labels,Universal Music ,Sony Music and Warner Music Group (collectively, the "Music Labels"). These licenses allow us to provide music video content in both the OOH and D2C markets. Our OOH services are complimented by our mobile app (the "Loop App"), which allows users to follow each other, share their locations and playlists, view activity, and signal support for a music video. We curate content into playlists for OOH locations and into streaming channels for delivery to our over-the-top ("OTT") platform customers and our mobile application users. Our digital platform service seeks to surround and engage consumers with a diverse offering of video content on their chosen digital screen wherever they are located. Our services include both out ad-supported service, which offers content on a free or unpaid advertising supported basis, and our premium service, which offers content on a paid subscription basis. We deliver our service to OOH venues primarily through our proprietaryLoop Media -designed "small-box" streaming Android media player (the "Loop Player") and direct to consumers primarily through our fully functional and operational Loop App and across OTT streaming platforms on connected TVs ("CTVs"). 51
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recent Developments
Impact of COVID-19
The spread of COVID-19 around the world is continuing to affectthe United States and global economies and has affected our operations and those of third parties on which we rely, including by causing disruptions in staffing, order fulfillment, and demand for product. In addition, the COVID-19 pandemic has and may continue to affect our revenue significantly in 2022. In particular, many OOH venues have closed or limited their public capacity, which may impact their willingness to invest in on-site entertainment, such as our services. Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The continuing impact of the COVID-19 pandemic in 2022 is highly uncertain and subject to change. As COVID-19 continues to evolve, the extent to which COVID-19 impacts operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to try and contain COVID-19 or treat its impact. We continue to monitor the pandemic and, the extent to which the continued spread of the virus adversely affects our customer base and therefore revenue. As the COVID-19 pandemic is complex and rapidly evolving, our plans as described above may change. At this point, we cannot reasonably estimate the duration and severity of this pandemic, which could have a material adverse impact on our business, results of operations, financial position and cash flows.
Our Revenue Model
Our ad-supported and subscription-based services are separate offerings but work together to support our business. Given the expected growth in the digital OOH advertising market, coupled with the preferable economics to the Company of an ad-supported business model, we encourage our customers to choose our ad-supported services over our subscription services. While our ad-supported service is generally associated with higher margins, we provide our premium subscription service for OOH customers that are seeking an ad-free content offering.
Distribution. Our current customer acquisition strategy is focused on marketing
our Loop Player to businesses through social media and other online mediums. We
seek to optimize our customer acquisition and the distribution of our Loop
Players by analyzing various data, including our return on marketing
investments. When analyzing the success of our marketing investments, we examine
the number of sales leads obtained from online platforms and the conversion of
leads into high quality customers. We regularly analyze the engagement with, and
success of, our creative advertising content and modify our messaging to improve
customer acquisition.
Advertising Revenue. We intend to increase revenue by leading with programmatic
advertising, an automated measurement process that manages the sales of our
advertising inventory. Today, most digital advertising is programmatic
advertising, with digital OOH advertising comprising a small portion of the
overall market. While we strive to establish direct advertising deals with
advertisers, a significant part of our current advertising revenue is purposely
secured through programmatic advertising. Our yield optimization strategies look
to leverage data analytic and other techniques to maximize the value of our
digital advertising inventory. We intend to optimize the combination of our ad
impressions, cost per impression and the percentage of our ad inventory filled
by advertisers, while balancing our customers' experience
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by limiting the number of ads delivered during any given period. Our Loop Player is designed to allow us to multiply OOH revenue in certain locations, as outlined below:
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Loop Player
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Description
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The Loop Player is at the heart of our revenue model and its technology enables us to communicate and interact with OOH locations, advertisers, and OOH customers:
OOH Locations. The Loop Player allows OOH customers to program their in-store
monitors and audio systems to schedule playlists depending on the time of day,
promote their products or services through digital signage and deliver
? company-wide messages to staff in back-office locations. Business owners can
filter content based on ratings or explicit language and can control the genres
of videos in their programs. The Loop Player caches and encrypts our content,
thereby supplying uninterrupted play for up to 12 hours in the event of an
internet disruption.
Advertising and
software and servers to determine the number of ad impressions available for
programmatic advertising, which can be filled in real-time, seconds before ads
are played. Our Loop Player delivers content and advertising to venues and our
technology allows us to record and report video content played (for reporting
to content providers) and advertising content played (for reporting to our
advertising demand partners and advertisers). In particular, our technology
allows us to track when, where and how long content is played, and measure
? approximately how many consumers were in position to view the content or
advertisement. The Loop Player's Wi-Fi and Bluetooth capabilities allow us to
determine the number of potential viewers at a given location, which can
provide us with a revenue multiplier, as we are able to increase advertising
revenue at high-volume locations. This "multiplier effect" is possible due to
the Loop Player's ability to detect, using Bluetooth and Wi-Fi technology, the
number of consumer mobile devices within reach of a Loop Player in an OOH
location which provides advertisers with a proxy for the number of potential
viewers of a particular ad at any given time.
OOH Customers. We are seeking to further develop the interactivity between the
? Loop Player and the customers in OOH venues. This may take different forms,
such as offering a simple thumbs up or thumbs down function, displaying the
number of customer votes for a given piece of content, and downloading of
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menus from the screens and other functions. This will require further
development of our mobile application in the future.
Loop Media . We are able to consistently monitor the preferences of thecustomers of our OOH customers and venue operators through our Loop Player. Our
Loop Player allows us to collect specific information and data on content
? played, views, location, and location type, enabling us to effectively measure
demand. These capabilities allow us to make informed decisions around which
type of content to acquire or develop, as well as identify new market
opportunities.
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Key Performance Indicator
We review our quarterly active users ("QAU"), among other key performance
indicators, to evaluate our business, measure our performance, identify trends
affecting our business, formulate financial projections and make strategic
decisions. We define an "active user" as a Loop Player (or OOH venue-owned
computer screening our content), using either the ad-supported or subscription
service, that is online, playing content, and has checked into the Loop
analytics system at least once in the past 90-day period; and QAU refers to the
number of such users that were online during the such period. Increases or
decreases in our QAU may not correspond with increases or decreases in our
revenue, and QAU may be calculated in a manner different than any similar key
performance indicator used by other companies.
For the quarter ended September 30, 2021 , QAU was 5,791, compared to 4,296 for
the quarter ended June 30, 2021 , a 34% increase. We did not record QAUs prior to
June 30, 2021 .
Components of results of operations
Revenue
Revenue generated from content and streaming services, including content encoding and hosting, are recognized over the term of the service based on bandwidth usage. The revenue generated from content subscription services in customized formats is recognized over the term of the service. The revenue generated from hardware for ongoing subscription content delivery is recognized at the point of the hardware delivery.
Cost of Revenue
Cost of revenue consists of expenses related to licensing, content delivery and customer support.
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Significant expenses include employee compensation and related costs for support
team members, including salaries, benefits, and stock-based compensation, as
well as hardware costs, certain data center and facility costs.
Operating Expenses
Operating expenses support the general overhead related to all the products and services that we provide to our customers and, as a result, they are presented in an aggregate total.
Sales, General and Administrative Expenses
Sales and marketing expenses consist primarily of employee compensation and related costs associated with our sales and marketing staff, including salaries, benefits, bonuses, commissions as well as costs relating to our marketing and business development. We intend to continue to invest resources in our sales and marketing initiatives to drive growth and extend our market position. General and administrative expenses consist of employee compensation and related costs for executive, finance, legal, human resources, recruiting, and employee-related information technology and administrative personnel, including salaries, benefits, bonuses and, depreciation, facilities, recruiting and other corporate services.
Impairment of goodwill and intangibles
Other Income/Expense
Interest expense
Interest expense consists of interest expense on our outstanding indebtedness and amortization of debt issuance costs.
Income taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes. ASC
740 requires a company to use the asset and liability method of accounting for
income taxes, whereby deferred tax assets are recognized for deductible
temporary differences, and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion, or all of, the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effect of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is "more
likely than not" that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount recognized is the
largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the "more likely than not" test,
no tax benefit is recorded. We have no material uncertain tax positions for any
of the reporting periods presented.
See our discussion in "Note 2 - Summary of Significant Accounting Policies" in
our Consolidated Financial Statements included in Item 15 of this Transition
Report.
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Change in Fiscal Year
On November 12, 2021 , our Board of Directors approved a change in our fiscal
year end from December 31 to September 30 . As a result, our results of
operations, cash flows and all transactions impacting shareholders equity
presented in this Transition Report are for the nine months ended September 30,
2021 , and our fiscal year 2020 are for the twelve months ended December 31,
2020 , unless otherwise noted. As such, our fiscal year 2021, or fiscal 2021,
refers to the period from January 1, 2021 , to September 30, 2021 . This
Transition Report also includes an unaudited consolidated statement of
operations for the comparable stub period of January 1, 2020 to September 30,
2020 . See our discussion in "Note 2 - Summary of Significant Accounting
Policies" in our Consolidated Financial Statements included in Item 15 of this
Transition Report for additional information. The discussion below provides a
comparison for the nine-month transition period ended September 30, 2021 , to the
nine-month stub period ended September 30, 2020 . All information for the
nine-month period ended September 30, 2020 , is unaudited.
Consolidated Results of Operations
The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results:
Nine months ended Nine months ended
September 30, September 30,
2021 2020 $variance % variance
Total revenue 4,363,982 2,088,913 2,275,069 109 %
Cost of revenue 3,910,744 647,337 3,263,407 504 %
Gross profit 453,238 1,441,576 (988,338) (69) %
Total operating expenses 25,908,026 6,456,975 19,451,051 301 %
Loss from operations (25,454,788) (5,015,399) (20,439,389) 408 %
Other income (expense):
Interest income 7,127 3,556 3,571 100 %
Interest expense (1,294,648) (739,698) (554,950) 75 %
Inducement expense - (3,793,406) 3,793,406 (100) %
Deemed dividend - (3,800,000) 3,800,000 (100) %
Change in fair value of derivatives 159,017 - 159,017 N/A %
Gain/(Loss) on extinguishment of
debt, net 564,481 - 564,481 N/A %
Other income - 10,000 (10,000) (100) %
Gain/(loss) on foreign currency
translation 4,279 - 4,279 N/A %
Total other income (expense) (559,744) (8,319,548) 7,759,804 (93) %
Provision for income taxes 716,260
- 716,260 N/A %
Net loss $ (25,298,272) $ (13,334,947) $ (11,963,325) 90 %
Revenues
The Company's revenue increased for the nine months ended September 30, 2021 ,
from 2020 by $2,275,069 , or 109%, primarily due to an additional three months of
revenue and an increase in advertising revenue because of the adoption of our ad
supported OOH business strategy and an increase in the number of players
installed. Subscription revenues also increased due to new customer activation
and customers reopening from the pandemic.
Cost of revenue
Cost of revenue increased 504% from$647k in 2020 to$3.9m in 2021. The$3,263,407 increase in cost of revenues for the nine months endedSeptember 30, 2021 , from 2020 was primarily due to an increase in licensing costs as a result of increased use of royalty content and usage.7 The Company's content license costs were recognized in the nine 57
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months ended
Total operating expenses Operating expenses increased$19,451,051 due to various expenses, including stock compensation of$8,158,013 . Amortization was$1,109,834 due to intangibles, primarily due to the acquisition of Eon (see "Note 3 - Business Combination" to our Consolidated Financial Statements).The Spkr Inc. technology intangible and the Eon brand name intangible remaining net amortizable value was charged to impairment for$1,405,142 and$2,251,513 , respectively, during the nine months endedSeptember 30, 2021 . The Company charged$4,442,487 to goodwill impairment for the nine months endedSeptember 30, 2021 .
Other income and (expenses)
Other income and expenses decreased 93%,$7,759,804 primarily due to the deemed dividend and inducement expense from the prior period. For the nine months endedSeptember 30, 2020 , we recognized an inducement expense equal to the excess of the allocated fair value of the Series B Convertible preferred stock and the carrying value of the loan payable as of the date the inducement offers were accepted. The excess of the fair value of the Series B Convertible preferred stock over the carrying value of the loan payable was$3,793,406 . There was a deemed dividend in 2020 of$3,800,000 . See Note 2 - Summary of Significant Accounting Policies and Note 12 Convertible Debentures, for discussion regarding derivatives. EBITDA and Adjusted EBITDA We believe that the presentation of EBITDA and Adjusted EBITDA, financial measures that are not part ofU.S. Generally Accepted Accounting Principles, or U.S.GAAP, provides investors with additional information about our financial results. EBITDA and Adjusted EBITDA are important supplemental measures used by our board of directors and management to evaluate our operating performance from period-to-period on a consistent basis and as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations.
We define EBITDA as earnings before interest expense (income), income tax (expense)/benefit, depreciation and amortization.
We define Adjusted EBITDA as earnings before interest expense (income), income tax (expense)/benefit, depreciation and amortization, adjusted for stock-based compensation and other non-recurring income and expenses, if any. EBITDA is not measured in accordance with, or an alternative to, measures prepared in accordance withU.S. GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance withU.S. GAAP. In particular:
? EBITDA does not reflect the amounts we paid in interest expense on our
outstanding debt;
? EBITDA does not reflect the amounts we received in interest income by our
investors;
? EBITDA does not reflect the amounts we received in interest income on our
investments;
? EBITDA does not reflect the amounts we paid in taxes or other components of our
tax provision;
? EBITDA does not include depreciation expense from fixed assets; and
? EBITDA does not include amortization expense.
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Because of these limitations, you should consider EBITDA alongside other
financial performance measures including net income (loss) and our financial
results presented in accordance with
The following table provides a reconciliation of net loss to EBITDA for each of the periods indicated:
The following table provides a reconciliation of net loss to EBITDA for each of
the years indicated:
Nine months ended Nine months ended
September 30, 2021 September 30, 2020
GAAP net loss $ (25,298,272) $ (13,334,947)
Adjustments to reconcile to EBITDA:
Interest expense $ 1,294,648 $ 739,698
Interest income $ (7,127) $
(3,556)
Amortization and Depreciation expense* $ 2,046,532 $
728,990
Income Tax expense / (benefit) $ (716,260) $
-
EBITDA $ (22,680,479) $ (11,869,815)
*Includes amortization of content license assets.
Adjusted EBITDA
Adjusted EBITDA is not measured in accordance with, or an alternative to,
measures prepared in accordance with
? Adjusted EBITDA does not reflect the amounts we paid in interest expense on our
outstanding debt;
? Adjusted EBITDA does not reflect the amounts we paid in taxes or other
components of our tax provision;
? Adjusted EBITDA does not include depreciation expense from fixed assets;
? Adjusted EBITDA does not include amortization expense;
? Adjusted EBITDA does not include the impact of stock-based compensation; and
? Adjusted EBITDA does not include the impact of non-recurring income and
expenses.
Because of these limitations, you should consider Adjusted EBITDA alongside
other financial performance measures including net income (loss) and our
financial results presented in accordance with
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The following table provides a reconciliation of net loss to Adjusted EBITDA for each of the periods indicated:
Nine months ended Nine months ended
September 30, 2021 September 30, 2020
GAAP net loss $ (25,298,272) $ (13,334,947)
Adjustments to reconcile to Adjusted EBITDA:
Interest expense $ 1,294,648 $ 739,698
Interest income $ (7,127) $ (3,556)
Amortization and Depreciation expense * $ 2,046,532 $ 728,990
Income Tax expense / (benefit) $ (716,260) $ 0
Stock-based compensation $ 8,158,013 $ 1,816,034
Non recurring (income) / expense $ 8,818,830 $
0
Adjusted EBITDA $ (5,703,636) $ (10,053,781)
*Includes amortization content license assets.
Liquidity and Capital Resources
As of
Nine months ended Twelve months ended
September 30, December 31,
2021 2020
Net cash used in operating activities $ (7,162,546) $ (5,933,667)
Net cash provided by investing activities (774,937) (752,027)
Net cash provided by financing activities 11,261,871 6,512,410
Change in cash 3,324,387 (173,284)
Cash, beginning of period 838,161 1,011,445
Cash, end of period $ 4,162,548 $ 838,161
The Company has historically sought and continues to seek financing from private
sources to implement its business plans. To satisfy its financial commitments,
the Company has historically relied on private party financing, but that has
inherent risks in terms of availability and adequacy of funding.
For the next twelve months, the Company anticipates that it will need to
supplement its cash from revenues with additional cash raised from equity
investment or debt transactions to ensure that the Company will have adequate
cash to support its minimum operating cash requirements and thus to continue as
a going concern.
There can be no guarantee or assurance that the Company can raise adequate capital from outside sources. If the Company is unable to raise funds when required or on acceptable terms, it may have to significantly reduce, or discontinue its operations.
Net cash used in operating activities
There was approximately$1,258,818 more cash used in operations in the nine months endedSeptember 30, 2021 , than in the twelve months ended 2020. Net loss increased ($10,523,323 ) year over year. Non-cash add backs increased$6,487,126 year over year and net change in operating assets and liabilities decreased ($135,704 ) over the comparable period.
Net cash used in investing activities
Cash used in investing activities is primarily due to the EON acquisition of
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Net cash flow from financing activities
There was net cash increase from financing activities of$4,779,400 , for the nine months endedSeptember 30, 2021 , and twelve months 2020. In the nine months endedSeptember 30, 2021 , the Company raised$5,966,825 in new capital to support and build our operations. We issued convertible debt of$2,200,000 , offset by convertible debt repayments of ($516,653 ).
In the nine months ended
Future Capital Requirements We have generated limited revenue, and as ofSeptember 30, 2021 , our cash totaled$4,162,548 and we had an accumulated deficit of ($66,842,416 ). We anticipate that we will continue to incur net losses for the foreseeable future. However, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control. Historically, our principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. Our principal uses of cash have included cash used in operations, payments for license rights and payments relating to purchases of property and equipment. We expect that the principal uses of cash in the future will be for continuing operations, and general working capital requirements. We expect that as our operations continue to grow, we will need to raise additional capital to sustain operations and growth. The 2023 Notes We have borrowed funds for business operations from two of our stockholders,Dreamcatcher, LLC andRunning Wind, LLC , each of which is a beneficial holder of more than 5% of our common stock, through convertible debt agreements. Each Convertible Promissory Note was originally issued onDecember 5, 2018 , on identical terms in the principal amount of$1,500,000 , and each was amended and restatedOctober 31, 2019 , andOctober 23, 2020 . The 2023 Notes carry interest at 10% per annum beginning onNovember 1, 2020 , with monthly payments of unpaid interest accrued at 12.5% per annum to be paid in arrears throughMarch 31, 2021 , and mature onDecember 1, 2023 . BeginningApril 1, 2021 , we began paying equal monthly installments of principal and interest on the 2023 Notes at 10% per annum. The 2023 Notes have aggregate remaining balances, including accrued interest, amounting to approximately$2.72 million and$3.23 million as of the nine months endedSeptember 30, 2021 , and the twelve months endedDecember 31, 2020 , respectively. We incurred interest expense for the 2023 Notes in the amounts of approximately$0.247 million and$0.300 million for the nine months endedSeptember 30, 2021 , and the twelve months endedDecember 31, 2020 , respectively. The 2023 Notes are convertible at any time prior to the maturity in whole or in part into shares of our common stock at a price of$0.60 per share. As ofDecember 27, 2021 , a total of$2,534,995 in principal and interest on the 2023 Notes was outstanding.
In
The 2022 Notes
FromDecember 1, 2020 toJune 1, 2021 , we sold in a private placement, (i)$3,000,000 in aggregate principal amount of Senior Secured Promissory Notes and (ii) warrants to purchase 272,727 shares of our common stock at an exercise price of$2.75 per share. The investors in this offering included entities controlled byMr. Cassidy , who is a member of our board of directors. In connection with the offering, the entities controlled byMr. Cassidy purchased an aggregate of$2,350,000 principal amount of the 2022 Notes and warrants to purchase an aggregate of 213,637 shares of our common stock at$2.75 per share. The warrants have a term of 10 years. The 2022 Notes mature onDecember 1, 2022 . The 2022 Notes accrue interest in two different ways: (A) at the rate of 4% per annum, payable in cash, from the date of issuance of each note as follows: (1) interest from the issue date toNovember 30, 2021 is payable in advance on the date the note was executed; (2) six months of cash interest is payable in arrears onJune 1, 2022 ; and (3) six months of 61
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cash interest is payable in arrears on the maturity date; and (B) at the rate of 6% per annum, payable in shares of our common stock in arrears onJune 1, 2021 ,December 1, 2021 ,June 1, 2022 , and the maturity date. As ofDecember 27, 2021 , a total of$3,105,884 in principal and interest was outstanding on the 2022 Notes.
The 2020 and 2021 Share Offering
In 2020 and 2021, we offered and sold in a private placement to accredited investors,$6,705,000 of shares of common stock at a price of$1.25 per share. The investors in this offering included an entity controlled byMr. Cassidy , who is a member of our board of directors, which invested$1.2 million for a total of 960,000 shares of common stock.
The 2021 Share and Warrant Offering
OnSeptember 30, 2021 , we entered into securities purchase agreements with accredited investors pursuant to which we sold, in a private offering (i) an aggregate of 5,773,460 shares of our common stock and (ii) warrants to purchase up to an aggregate of 6,573,460 shares of common stock. Each investor was entitled to purchase one share of common stock and one warrant to purchase one share of common stock for an aggregate purchase price of$1.25 . The warrants were immediately exercisable, have a three-year term and an exercise price of$2.75 per share. The investors in the offering included an entity controlled byMr. Cassidy , who is a member of our board of directors. The entity controlled byMr. Cassidy purchased 320,000 shares of common stock and warrants to purchase 320,000 shares of common stock in the offering, for gross proceeds of$400,000 . Other investors in this offering were entities controlled byJeremy Boczulak , who, as a result of these investments, became a beneficial holder of more than 5% of our common stock. Pursuant to the terms of this offering, an investor who purchased more than 50% of the total offering amount was entitled to receive warrants to purchase to purchase an additional 800,000 shares of common stock. That investor was an entity controlled byMr. Boczulak . In total, the entities controlled byMr. Boczulak purchased 5,453,460 shares of common stock and warrants to purchase 6,253,460 shares of common stock in the offering, for
gross proceeds of$6,816,825 .
Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:
? Our ability to attract and retain management with experience in digital media
including digital video music streaming, and similar emerging technologies;
Our ability to negotiate, finalize and maintain economically feasible
? agreements with the major and independent music labels, publishers and
performance rights organizations;
Our expectations regarding market acceptance of our products in general, and
? our ability to penetrate the digital video music streaming market in
particular;
? The scope, validity and enforceability of our and third-party intellectual
property rights;
? Our ability to comply with governmental regulation;
? The intensity of competition;
The effects of the ongoing pandemic caused by the spread of COVID-19 and our
? business customers ability to service their customers in out of home venues,
especially considering government-imposed business shutdowns and capacity
limitations;
? Changes in the political and regulatory environment and in business and fiscal
conditions in
? Our ability to attract prospective users and to retain existing users;
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? Our dependence upon third-party licenses for sound recordings and musical
compositions;
? Our lack of control over the providers of our content and their effect on our
access to music and other content;
? Our ability to comply with the many complex license agreements to which we are
a party;
? Our ability to accurately estimate the amounts payable under our license
agreements;
? The limitations on our operating flexibility due to the minimum guarantees
required under certain of our license agreements;
Our ability to obtain accurate and comprehensive information about music
? compositions in order to obtain necessary licenses or perform obligations under
our existing license agreements;
? Potential breaches of our security systems;
? Assertions by third parties of infringement or other violations by us of their
intellectual property rights;
? Competition for users and user listening time;
? Our ability to generate sufficient revenue to be profitable or to generate
positive cash flow on a sustained basis;
? Our ability to accurately estimate our user metrics;
? Risks associated with manipulation of stream counts and user accounts and
unauthorized access to our services;
? Changes in legislation or governmental regulations affecting us;
? Ability to hire and retain key personnel;
? Our ability to maintain, protect and enhance our brand;
? Risks associated with our international expansion, including difficulties
obtaining rights to stream music on favorable terms;
? Risks relating to the acquisition, investment and disposition of companies or
technologies;
? Dilution resulting from additional share issuances;
? Tax-related risks;
? The concentration of voting power among our founders who have and will continue
to have substantial control over our business;
? International, national, or local economic, social or political conditions, and
? Risks associated with accounting estimates, currency fluctuations and foreign
exchange controls.
We have evaluated and expect to continue to evaluate a wide array of strategic
transactions as part of our plan to acquire or license and develop additional
products and services to augment our current business operations. Strategic
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transaction opportunities that we may pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, services or companies to expand our operations, or for general corporate purposes. Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement. We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, licensing or similar strategic business transaction. If we raise additional funds by issuing equity securities, our stockholder will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our stockholder.
PPP Loan Round 1
OnMay 10, 2021 , we received a notification from theU.S. Small Business Association (the "SBA") for the full forgiveness of the Paycheck Protection Program of the CARES Act ("PPP") loan of$573,500 received onApril 27, 2020 . The first round of the PPP loans forgiven consisted of$573,500 of principal and$5,986 of accrued interest. PPP Loan Round 2 OnApril 26, 2021 , we received the proceeds from a PPP loan in the amount of$486,638 . The loan matures onApril 19, 2026 and bears interest at a rate of 1% per annum. The loan is evidenced by a promissory note, dated as ofApril 19, 2021 , which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. All or a portion of the loan may be forgiven by the SBA upon our application beginning eight weeks (but not later than 24 weeks ("covered period")) after loan approval and upon documentation of expenditures in accordance with the SBA's requirements. We may prepay this PPP loan at any time prior to maturity with no prepayment penalties. Repayment begins ten months after the covered period, with payments beginning onJuly 31, 2022 . In the event the loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. While we intend to apply for the forgiveness of the PPP loan, there is no assurance that we will obtain forgiveness of this PPP loan in whole or in part. We intend to use the proceeds from the loan for qualifying expenses.
Going Concern
As ofSeptember 30, 2021 , the Company had cash of$4,162,548 and an accumulated deficit of$ (66,842,416) . During the nine months endedSeptember 30, 2021 , the Company used net cash in operating activities of$ (7,162,546) . The Company has incurred net losses since inception. These conditions raise substantial doubt about the Company's ability to continue as a going concern within one year from the issuance date of these consolidated financial statements. The Company's primary source of operating funds since inception has been cash proceeds from debt and equity financing transactions. The ability of the Company to continue as a going concern is dependent upon its ability to generate sufficient revenue and its ability to raise additional funds by way of its debt and equity financing efforts. There can be no assurance that adequate financing will be available in a timely manner, on acceptable terms, or at all. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management's further implementation of the Company's on-going and strategic plans, which include continuing to raise funds through equity and/or debt raises. Should the Company be unable to raise adequate funds, certain aspects of the on-going and strategic plans may require modification. 64
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Recent Accounting Pronouncements
See our discussion in "Note 2 - Summary of Significant Accounting Policies" in our Consolidated Financial Statements included in Item 15 of this Transition Report.
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