Exhibit
99.2
Audited Consolidated Financial Statements
of Mobcrush Streaming, Inc. as of December 31, 2020 and 2019,
and the Notes Related Thereto
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Mobcrush Streaming,
Inc.
Consolidated Financial
Statements
Periods
Ended December 31, 2020 and 2019
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Mobcrush Streaming, Inc.
Contents
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Report
of Independent Registered Public Accounting Firm
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E-4
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Consolidated
Financial Statements
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Consolidated Balance
Sheets
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E-5
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Consolidated Statements of
Operations
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E-6
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Consolidated Statements of
Stockholders’ Equity (Deficit)
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E-7
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Consolidated Statements of
Cash Flows
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E-8
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Notes to the Consolidated
Financial Statements
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E-9 – E-24
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Report of Independent Registered Public Accounting
Firm
To the Stockholders and the Board of Directors of Mobcrush
Streaming, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Mobcrush Streaming Inc. and its subsidiaries (the Company) as of
December 31, 2020 (Successor) and 2019 (Predecessor), the related
consolidated statements of operations, stockholders' equity and
cash flows for the period from May 4, 2020 to December 31, 2020
(Successor), the period from January 1, 2020 to May 3, 2020
(Predecessor), and the year ended December 31, 2019 (Predecessor),
and the related notes to the consolidated financial
statements (collectively, the financial statements). In our
opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31,
2020 (Successor) and 2019 (Predecessor), and the results of its
operations and its cash flows for the for the period from May 4,
2020 to December 31, 2020 (Successor), the period from January 1,
2020 to May 3, 2020 (Predecessor), and the year ended December 31,
2019 (Predecessor), in conformity with accounting principles
generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 3 to the financial statements, the Company has suffered
recurring losses from operations and negative cash flows from
operations. This raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in
regard to these matters also are described in Note 3. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ Baker Tilly US, LLP
We have served as the Company's auditor since 2021.
Irvine, California
April 19, 2021
Mobcrush Streaming, Inc.
Consolidated
Balance Sheets
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Assets
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Current Assets
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Cash
and cash equivalents
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$1,712,103
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$2,865,694
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Accounts
receivable
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1,134,216
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947,001
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Prepaid
expenses
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215,647
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324,962
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Unbilled
revenue
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-
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7,600
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Total
current assets
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3,061,966
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4,145,257
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Property and equipment - Net
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21,035
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43,009
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Intangible Assets
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2,500,952
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-
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Goodwill
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1,115,919
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-
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TOTAL ASSETS
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$6,699,872
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$4,188,266
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Liabilities and Stockholders’ Equity
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Current Liabilities
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Accounts
payable
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$934,111
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$655,017
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Accrued
expenses
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1,323,175
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1,204,581
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Deferred
revenue
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180,000
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18,661
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Convertible
note due to stockholder
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-
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3,127,543
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Total
current liabilities
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2,437,286
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5,005,802
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Commitments and Contingencies (Note 9)
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Stockholders’ Equity (Deficit)
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Series
Seed preferred stock, $0.0001 par value; 3,036,264 shares
authorized, issued and outstanding at December 31, 2019;
liquidation preference of $2,600,258 at December 31
2019
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2,600,258
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Series Seed-1 preferred
stock, $0.0001 par value; 1,569,961 shares authorized, issued and
outstanding at December 31, 2019; liquidation preference of
$2,999,993 at December 31 2019
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2,299,993
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Series A
preferred stock, $0.0001 par value; 15,979,351 and 3,267,496 shares
authorized, issued and
outstanding at December 31, 2020 and 2019; liquidation preference
of $15,979,351 and $13,252,964 at December 31 2020 and
2019
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3,414,972
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11,249,989
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Series
A-1 preferred stock, $0.0001 par value; 7,263,341 shares
authorized, 4,539,605 shares issued and outstanding at Decembeer
31, 2020; liquidation preference of $4,999,921 at December 31,
2020
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4,891,283
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-
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Series B
preferred stock, $0.0001 par value; 3,917,958 shares authorized,
3,917,949 shares issued and outstanding at Decembeer 31, 2019;
liquidation preference of $19,999,954 at December 31,
2019
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19,808,899
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Common stock, $0.01 and
$0.0001 par value at December 31, 2020 and 2019; 27,237,530 and
20,000,000 shares authorized at December 31, 2020 and 2019; 1,000
and 4,442,399 shares issued and outstanding at December 31, 2020
and 2019
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10
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40,901
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Additional paid-in
capital
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66,445
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915,429
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Accumulated
deficit
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(4,110,124)
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(37,733,005)
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Total stockholders’ equity
(deficit)
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4,262,586
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(817,536)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
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$6,699,872
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$4,188,266
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The accompanying notes are an integral part of these consolidated
financial statements.
Mobcrush Streaming, Inc.
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Consolidated Statements of Operations
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Period form May 4, 2020 to December 31, 2020
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Period from
January 1, 2020 to May 3, 2020
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Year ended
December 31, 2019
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Revenues
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$4,456,992
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$2,070,483
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$3,973,876
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Cost
of sales
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2,967,036
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1,201,850
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2,823,994
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Gross Profit
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1,489,956
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868,633
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1,149,882
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Operating Expenses
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Selling
and marketing expenses
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1,211,419
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1,001,255
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1,992,673
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Research
and development expenses
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2,117,869
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1,432,701
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3,712,227
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General
and administrative expenses
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2,262,548
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1,721,947
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3,053,139
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Loss from Operations
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(4,101,880)
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(3,287,270)
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(7,608,157)
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Other Income (Expense)
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Interest
income
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9,323
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51,518
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Interest
expense
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(53,591)
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(12,560)
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Other
income (expense)
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(8,244)
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(2,960)
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(14,422)
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Total Other Income (Expense)
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(8,244)
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(47,228)
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24,536
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Net Loss
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$(4,110,124)
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$(3,334,498)
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$(7,583,621)
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The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Stockholders' Equity
(Deficit)
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Series Seed
Preferred Stock
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Series Seed-1
Preferred Stock
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Predecessor
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Balance at January 1,
2019
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3,036,264
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$2,600,258
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1,569,961
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$2,299,993
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3,267,496
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$11,249,989
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3,917,949
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$19,808,899
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4,422,399
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$40,901
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$546,168
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$(30,149,384)
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$6,396,824
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Stock-based
compensation expense
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-
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-
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-
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-
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-
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-
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-
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-
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-
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-
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369,261
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-
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369,261
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Net
loss
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-
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-
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(7,583,621)
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(7,583,621)
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Balance at December 31,
2019
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3,036,264
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$2,600,258
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1,569,961
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$2,299,993
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3,267,496
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$11,249,989
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3,917,949
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$19,808,899
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4,422,399
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$40,901
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$915,429
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$(37,733,005)
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(817,536)
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Stock-based
compensation expense
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-
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-
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-
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-
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-
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-
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-
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-
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-
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-
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132,826
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-
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132,826
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Net
loss
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-
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-
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-
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(3,334,498)
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(3,334,498)
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Balance at May 3,
2020
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3,036,264
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$2,600,258
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1,569,961
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$2,299,993
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3,267,496
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$11,249,989
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3,917,949
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$19,808,899
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4,422,399
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$40,901
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$1,048,255
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$(41,067,503)
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$(4,019,208)
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Series A-1
Preferred Stock
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Accumulated
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Successor
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Balance at May 4,
2020
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-
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$-
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-
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$-
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-
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$-
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$-
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$-
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$-
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Issuance of common
stock
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-
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-
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-
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-
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1,000
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10
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-
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10
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Issuance of Series
A preferred stock for cash and ssignment of note
receivable
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15,979,351
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3,414,972
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-
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-
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-
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-
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-
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-
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3,414,972
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Issuance of Series
A-1 preferred stock, net of issuance costs of
$108,638
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4,539,605
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4,891,283
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4,891,283
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Stock-based
compensation expense
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-
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-
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-
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-
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-
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-
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66,445
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-
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66,445
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Net
loss
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-
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-
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-
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-
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-
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-
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(4,110,124)
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(4,110,124)
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Balance at December 31,
2020
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15,979,351
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$3,414,972
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4,539,605
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$4,891,283
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1,000
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$10
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$66,445
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$(4,110,124)
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$4,262,586
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The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statement of Cash Flows
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Period from May 4, 2020 to December 31, 2020
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Period from
January 1, 2020 to May 3, 2020
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Year ended
December 31, 2019
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Cash Flows From Operating Activities
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Net
loss
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$(4,110,124)
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$(3,334,498)
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$(7,583,621)
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Adjustments
to reconcile net loss to net cash
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used
in operating activities:
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Depreciation
and amortization
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356,061
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12,121
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44,256
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Loss
(gain) on disposal of fixed assets
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(521)
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-
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1,010
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Stock-based
compensation expense
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66,445
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132,826
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369,261
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Non-cash
interest expense
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-
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53,591
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12,561
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Increase
(decrease) in cash resulting from changes in:
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Accounts
receivable
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(706,865)
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519,650
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249,832
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Prepaid
expenses
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(39,321)
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148,636
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(97,720)
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Unbilled
receivables
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4,516
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3,084
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544,600
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Accounts
payable
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45,991
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233,103
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543,268
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Accrued
expenses
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723,107
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(599,220)
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127,553
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Deferred
revenue
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180,000
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(18,661)
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18,661
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Net
cash used in operating activities
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(3,480,711)
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(2,849,368)
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(5,770,339)
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Cash Flows From Investing Activities:
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Purchases
of property and equipment
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(12,137)
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(13,268)
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(16,698)
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Proceeds
from disposal of fixed assets
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10,610
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-
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-
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Net
cash used in investing activities
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(1,527)
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(13,268)
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(16,698)
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Cash Flows From Financing Activities
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Proceeds
from issuance of common and preferred stock, net of $108,638
offering costs
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5,191,283
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-
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-
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Principal
borrowings from the CARES Act loan
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-
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546,810
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-
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Principal
repayments on the CARES Act loan
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-
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(546,810)
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-
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Proceeds
from issuance of convertible promissory notes
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-
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-
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3,114,982
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Net
cash (used in) provided by financing activities
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5,191,283
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-
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3,114,982
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Net (Decrease) Increase in Cash and Cash
Equivalents
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1,709,045
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(2,862,636)
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(2,672,055)
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Cash and Cash Equivalents at Beginning of Period
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3,058
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2,865,694
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5,537,749
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Cash and Cash Equivalents at End of Period
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$1,712,103
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$3,058
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$2,865,694
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Supplemental Disclosures of Cash Flow
Information:
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Cash paid
during the year for:
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Interest
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$-
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$-
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$-
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Income
taxes
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$8,765
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$2,959
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$14,422
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Non-cash investment and financing activities
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Issuance
of preferred stock in exchange for assignment of note
receivable
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$3,114,982
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$-
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$-
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Noncash
assets and liabilities acquired from Mobcrush, Inc.
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$3,114,982
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$-
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$-
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The accompanying notes are an integral part of these consolidated
financial statements.
Mobcrush
Streaming, Inc.
Notes to the Consolidated Financial
Statements
1.
Organization and Business
Nature
of operations
Mobcrush Streaming, Inc. (“the
Company”) was formed on April 1, 2020. The Company provides
mobile livestreaming services. On May 4, 2020, the Company acquired
the assets of Mobcrush, Inc., which was formed on July 17, 2014.
Among the assets acquired were the wholly owned stock of INPvP,
LLC. The financial results of this wholly owned subsidiary are
included in these consolidated financial statements. All
intercompany balances and transactions have been eliminated in
consolidation.
2. Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements have been prepared
on the accrual basis in accordance with generally accepted
accounting principles (“GAAP”) as promulgated in the
United States of America. As a result of the change in control of
the Company on May 4, 2020, Mobcrush Streaming, Inc. applied the
acquisition method of accounting with respect to the assets and
liabilities of Mobcrush, Inc. and its subsidiary INPvP, LLC that it
acquired, which were remeasured to fair value as of the date of the
transaction. The Company’s consolidated financial statements
for periods following the close of the transaction are labeled
“Successor” and reflect Mobcrush Streaming Inc.’s
basis of accounting in the new fair values of the assets and
liabilities of Mobcrush Inc. acquired businesses. All periods prior
to the close of the transaction reflect the historical accounting
basis in the Company’s assets and liabilities and are labeled
“Predecessor”. The Company’s consolidated
financial statements and footnotes include a black line division,
which appears between the columns titled Predecessor and Successor,
which signifies that the amounts shown for the periods to and
following the May 4, 2020 transaction are not comparable. See Note
4 for additional information on the May 4, 2020
transaction.
3.
Summary of Significant Accounting Principles
Going concern uncertainties and liquidity requirements
The
accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which
contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The
consolidated financial statements do not reflect any adjustments
relating to the recoverability and reclassification of assets and
liabilities that might be necessary if the Company is unable to
continue as a going concern. Since inception, the Company has
incurred losses and negative cash flows from operations. Management
expects to incur additional operating losses and negative cash
flows from operations in the foreseeable future as the Company
continues its product development programs. For the years ended
December 31, 2020 and 2019, the Company incurred net losses had
cash used in operations as follows:
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Period from May 4, 2020 to December 31, 2020
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Period from
January 1, 2020 to May 3, 2020
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Year ended
December 31, 2019
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Net
loss
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$(4,110,124)
|
$(3,334,498)
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$(7,583,621)
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Cash used
in operations
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$(3,480,711)
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$(2,849,368)
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$(5,770,339)
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As of
December 31, 2020, the Company had cash and cash equivalents of
approximately $1,712,000 and an accumulated deficit
of approximately $4,110,000.
Based on
the Company’s current level of expenditures, the Company
believes that its existing cash and cash equivalents as of December
31, 2020 will not provide sufficient funds to enable it to meet its
obligations for the next 12 months from the issuance of the
Company’s consolidated financial statements as of and for the
year ended December 31, 2020.
On March 9,
2021, the Company entered into an agreement to be acquired by a
public company (see Note 13). Should this acquisition not be
consummated, the Company plans to
raise additional capital by selling shares of capital stock or
other equity or debt securities. However, the Company can give no
assurance that such capital will be available on favorable terms or
at all. The Company may need additional financing thereafter until
it can achieve profitability.
Although the Company is actively pursuing the
aforementioned sale of the Company, if the transaction is not
completed the Company may not be able to raise cash on terms
acceptable to the Company or at all. There can be no assurance that
the Company will be successful in obtaining additional funding.
Financings, if available, may be on terms that are dilutive to
shareholders, and the prices at which new investors would be
willing to purchase the Company’s securities may be lower
than the current price of ordinary shares. The holders of new
securities may also receive rights, preferences or privileges that
are senior to those of existing holders of ordinary shares. If
additional financing is not available or is not available on
acceptable terms, the Company could be forced to
delay, reduce, or eliminate its research and development programs
or future commercialization efforts, which could adversely affect
its future business prospects and its ability to continue as a
going concern. .
Use of
estimates
The preparation
of the consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates. Significant estimates
made by management include, but are not limited to, the stage of
completion of contracts, realization of deferred tax assets,
accrued liabilities, stock-based compensation and the fair value of
the Company’s Common Stock and Preferred Stock.
Cash
and cash equivalents
The Company
considers all highly liquid investments with original maturities of
90 days or less at the date of purchase to be cash
equivalents.
Accounts
receivable and allowance for doubtful accounts
Accounts
receivable are derived from services delivered to customers and are
stated at their net realizable value.
Property
and equipment
Property and
equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Equipment,
computers, software, and furniture and fixtures are depreciated
over periods ranging from five to seven years, and leasehold
improvements over the shorter period of the lease or the life of
the asset. The cost of maintenance and repairs is charged to
expense as incurred; significant renewals and betterments are
capitalized. Deductions are made for retirements resulting from
renewals or betterments.
Acquisitions
For
acquisitions that meet the definition of a business under ASC
805, the Company records the acquisition using the acquisition
method of accounting. All of the assets acquired, liabilities
assumed, contractual contingencies, and contingent consideration,
when applicable, are recorded at fair value at the acquisition
date. Any excess of the purchase price over the fair value of the
net assets acquired is recorded as goodwill. The application of the
acquisition method of accounting requires management to make
significant estimates and assumptions in the determination of the
fair value of assets acquired and liabilities assumed in order to
properly allocate purchase price consideration. For acquisitions
that do not meet the definition of a business under ASC 805,
the Company accounts for the transaction as an asset
acquisition.
Goodwill
and intangible assets
Goodwill is
tested for impairment at a minimum on an annual basis. Goodwill is
tested for impairment at the reporting unit level by first
performing a qualitative assessment to determine whether it is more
likely than not that the fair value of the reporting unit is less
than its carrying value. If the reporting unit does not pass the
qualitative assessment, then the reporting unit's carrying value is
compared to its fair value. The fair values of the reporting units
are estimated using market and discounted cash flow approaches.
Goodwill is considered impaired if the carrying value of the
reporting unit exceeds its fair value. The discounted cash flow
approach uses expected future operating results. Failure to achieve
these expected results may cause a future impairment of goodwill at
the reporting unit.
The Company
conducted its annual impairment test of goodwill as of
December 31, 2020. As a result of this test, the Company
recorded no impairment charge to its goodwill for the year ended
December 31, 2020.
Intangible
assets consist of trademarks, purchased customer and advertiser
relationships, influencers/content creators, and purchased
technology. Intangible assets are amortized over the period of
estimated benefit using the straight-line method and estimated
useful lives ranging from 4 to 10 years. No significant residual
value is estimated for intangible assets. The Company evaluates
long-lived assets (including intangible assets) for impairment
whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. An
asset is considered impaired if its carrying amount exceeds the
undiscounted future net cash flow the asset is expected to
generate.
The
Company’s evaluation of its long-lived assets completed
during the years ended December 31, 2020 and 2019 resulted in
no impairment charges.
Amortization
expense for intangible assets was approximately $339,000 during the
period from May 4, 2020 through December 31, 2020;$0 during the
period from January 1, 2020 through May 3, 2020;and $0 during
2019.
Future
amortization on intangible assets for the next five years is as
follows:
2021
|
$508,571
|
2022
|
508,571
|
2023
|
508,571
|
2024
|
501,905
|
2025
|
281,571
|
Preferred
stock
The Company
records Preferred Stock at fair value on the dates of issuance, net
of issuance costs. Preferred stock is recorded as
stockholders’ equity.
Income
taxes
For the years
ended December 31, 2020 and 2019 income taxes are recorded in
accordance with Financial Accounting Standards Board
(“FASB”) ASC Topic 740, Income Taxes (“ASC
740”), which provides for deferred taxes using an asset and
liability approach. Under this method, the Company records deferred
tax assets and liabilities for the expected future tax consequences
of temporary differences between the financial statement carrying
amounts and the tax basis of assets and liabilities using enacted
tax rates expected to be in effect when the differences are
expected to reverse. Valuation allowances are provided when
necessary to reduce net deferred tax assets to the amount that is
more likely than not to be realized. Based on the available
evidence, the Company is unable, at this time, to support the
determination that it is more likely than not that its deferred tax
assets will be utilized in the future. Accordingly, the Company
recorded a full valuation allowance as of December 31, 2020 and
2019. The Company intends to maintain valuation allowances until
sufficient evidence exists to support its reversal.
Current income
taxes (benefits) are based upon the year's income taxable for
federal and state tax reporting purposes. Deferred income taxes
(benefits) are provided for certain income and expenses, which are
recognized in different periods for tax and financial reporting
purposes.
Revenue
recognition
Revenue is
recognized when the Company transfers promised goods or services to
customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods and
services. In this regard, revenue is recognized when: (i) the
parties to the contract have approved the contract (in writing,
orally, or in accordance with other customary business practices)
and are committed to perform their respective obligations; (ii) the
entity can identify each party’s rights regarding the goods
or services to be transferred; (iii) the entity can identify the
payment terms for the goods or services to be transferred; (iv) the
contract has commercial substance (that is, the risk, timing, or
amount of the entity’s future cash flows is expected to
change as a result of the contract);and (v) it is probable that the
entity will collect substantially all of the consideration to which
it will be entitled in exchange for the goods or services that will
be transferred to the customer.
The Company
generates revenues and related cash flows from (i) platform
generated sales transactions, and (ii) advertising and
third-party content.
Platform Generated Sales Transactions
The Company
generates in-game Platform sales revenues via digital goods sold
within the platform, including cosmetic items, durable goods,
player ranks and game modes, leveraging the flexibility of the
Microsoft Minecraft Bedrock platform, and powered by the InPvP
cloud architecture technology platform. Revenue is generated
when transactions are facilitated between Microsoft and the end
user, either via in-game currency or cash.
Revenue for
digital goods sold on the platform is recognized when Microsoft
(our partner) collects the revenue and facilitates the transaction
on the platform. Revenue for such arrangements includes all revenue
generated, bad debt, make goods, and refunds of all transactions
managed via the platform by Microsoft. The revenue is
recognized on a reconciled monthly basis. Payments are made to the
Company monthly by Microsoft based on the reconciled sales revenue
generated.
Advertising and Third-Party Content Revenue
The Company
generates content through digital experiences that offer
opportunities for generating advertising revenue across social
platforms and influençer activations including live streaming.
The Company’s technology allows creators to live stream to
their fans across multiple social platforms and integrate with a
sponsored message or ad placement during the session.
For
advertising and third-party content arrangements that include
performance obligations satisfied over time, customers typically
simultaneously receive and consume the benefits under the
arrangement as the Company satisfies its performance obligations,
over the applicable contract term. As such, revenue is recognized
over the contract term based upon progress toward complete
satisfaction of the contract performance obligations (typically
utilizing a time, effort or delivery-based method of estimation).
Payments are typically due from customers once delivery is
complete for shorter campaigns. In the case of some longer
campaigns, the Company can break out the campaign billables into
installments.
Revenue billed
or collected in advance is recorded as deferred revenue until the
event occurs or until applicable performance obligations are
satisfied as described above. As of December 31, 2020, the Company
expects 100% of total deferred revenue to be realized in less
than a year.
Revenue was
comprised of the following for the periods presented:
|
|
|
|
Period from May 4, 2020 to December 31, 2020
|
Period form
January 1, 2020 to May 3, 2020
|
Year ended
December 31, 2019
|
Platform
generated
|
$1,312,164
|
$796,245
|
$1,702,455
|
Advertising
and content
|
3,144,828
|
1,274,238
|
2,221,421
|
Other
|
̶
|
̶
|
50,000
|
Total
revenue
|
$4,456,992
|
$2,070,483
|
$3,973,876
|
Research
and development
The Company
engages in new product development efforts. Research and
development expenses relating to possible future products are
expensed as incurred.
Leases
The Company
leases all its office space and may enter into various other
operating lease agreements in conducting its business. At the
inception of a lease, the Company evaluates the lease agreement to
determine whether the lease is an operating or capital lease.
Operating lease expenses are recognized in the consolidated
statement of operations on a straight-line basis over the term of
the related lease. Some of the Company’s lease agreements may
contain renewal options, tenant improvement allowances, rent
abatements or rent escalation clauses. When such items are included
in a lease agreement, the Company records a deferred rent asset or
liability on the consolidated balance sheet equal to the difference
between the rent expense and cash rent payments.
Stock-based
compensation
The Company
accounts for its stock-based compensation in accordance
with ASC 718, Compensation-
Stock Compensation. The Company accounts for all stock-based
compensation awards using a fair-value method on the grant date and
recognizes the fair value of each award as an expense over the
requisite service period.
The Company
follows ASC 505-50, Equity-Based
Payments to Non-Employees, for stock options issued to
consultants and other non-employees. In accordance with ASC 505-50,
these stock options issued as compensation for services provided to
the Company are accounted for based upon the fair value of the
services provided or the estimated fair market value of the option,
whichever can be more clearly determined. The fair value of the
equity instrument, which is revalued at each reporting period, is
charged directly to compensation expense and additional paid-in
capital over the period during which services are
rendered.
Recent
accounting standards adopted
In May 2014,
the FASB issued ASC 606, “Revenue from Contracts with
Customers.” This standard superseded nearly all
existing revenue recognition guidance under GAAP. Under this
standard, revenue is recognized when promised goods or services are
transferred to customers in an amount that reflects the
consideration that is expected to be received for those goods or
services. This standard also requires additional disclosure about
the nature, amount, timing and uncertainty of revenue and cash
flows arising from customer contracts, including significant
judgments and changes in judgments. The Company adopted this
standard prior to January 1, 2019.
Recent
accounting standards not yet adopted
In February
2016, the FASB issued an ASU that requires lessees to present
right-of-use assets and lease liabilities on the balance sheet. The
new guidance is to be applied using a modified retrospective
approach at the beginning of the earliest comparative periods in
the financial statements and is effective for fiscal years
beginning after December 15, 2021 and early adoption is permitted.
The Company is evaluating the impact that this guidance will have
on its financial position, results of operations and financial
statement disclosures.
In June 2016,
the FASB issued guidance on the measurement and recognition of
credit losses on most financial assets. For trade receivables,
loans, and held-to-maturity debt securities, the current probable
loss recognition methodology is being replaced by an expected
credit loss model. For available-for-sale debt securities, the
recognition model on credit losses is generally unchanged, except
the losses will be presented as an adjustable allowance. The
guidance will be applied retrospectively with the cumulative effect
recognized as of the date of adoption. The guidance will become
effective at the beginning of the Company’s first quarter of
the fiscal year ending December 31, 2021 but can be adopted as
early as the beginning of the first quarter of fiscal year ending
December 31, 2020. The Company is currently assessing the impact
that adopting this new accounting guidance will have on its
financial statements and footnote disclosures.
4.
Acquisition of Mobcrush, Inc.
On May 4, 2020,
the Company entered into Asset Purchase Agreement with Mobcrush,
Inc., a Delaware Corporation (“Seller”), whereby the
Company acquired assets and assumed certain liabilities of the
Seller, which included the wholly owned stock of its subsidiary
INPvP, LLC (“the Acquisition”). Consideration for the
Acquisition consisted of the forgiveness of the convertible
promissory note described in Note 6.
The acquisition
of Mobcrush, Inc. was accounted for as a business combination using
the acquisition method pursuant to FASB ASC Topic 805. As the
acquirer for accounting purposes, the Company has estimated the
Purchase Price, assets acquired and liabilities assumed as of the
acquisition date, with the excess of the Purchase Price over the
fair value of net assets acquired recognized as goodwill. An
independent valuation expert assisted the Company in determining
these fair values.
The Purchase
Price allocation as of the acquisition date is presented as
follows:
|
|
Purchase
price:
|
|
Forgiveness
of debt, at fair value
|
$3,114,982
|
Total
Purchase Price
|
$3,114,982
|
|
|
Purchase price
allocation:
|
|
Cash
|
$3,058
|
Accounts
receivable
|
427,351
|
Other
current assets
|
180,842
|
Property
and equipment
|
36,000
|
Identifiable
intangible assets
|
2,840,000
|
Goodwill
|
1,115,919
|
Total
identifiable assets required
|
$4,603,170
|
Accounts
payable
|
(888,120)
|
Accrued
expenses
|
(600,068)
|
Net
assets acquired
|
$3,114,982
|
The allocation
of the purchase price for Mobcrush, Inc.’s intangible assets
were as follows:
|
|
|
|
|
|
Developed
technology
|
$1,140,000
|
4-5
|
Customer
relationships
|
200,000
|
7
|
Advertiser
relationships
|
500,000
|
10
|
Influencers / content
creators
|
600,000
|
5
|
Trademarks
|
400,000
|
5
|
Total
intangible assets
|
$2,840,000
|
|
5.
Balance Sheet Components
Property
and Equipment
Property and
equipment consisted of the following:
|
|
|
December
31,
|
|
|
Computer and
equipment
|
$38,048
|
$330,568
|
Leasehold
improvements
|
̶
|
25,070
|
Furniture and
fixtures
|
̶
|
93,026
|
Software
|
̶
|
7,840
|
|
38,048
|
456,504
|
Less accumulated
depreciation and
|
|
|
amortization
|
(17,013)
|
(413,495)
|
|
$21,035
|
$43,009
|
Depreciation
expense was approximately $17,000 during the period from May 4,
2020 through December 31, 2020; $12,000 during the period from
January 1, 2020 through May 3, 2020; and $44,000 during 2019.
Depreciation expense is included
in general and administrative expenses in the consolidated
statement of operations.
Accrued
Expenses
Accrued
expenses consisted of the following:
|
|
|
December
31,
|
|
|
Accrued partner
expenses
|
$599,587
|
$248,050
|
Accrued payroll &
payroll taxes
|
386,247
|
495,825
|
Accrued infrastructure
expenses
|
190,303
|
213,937
|
Accrued
commission
|
115,802
|
54,522
|
Other accrued
expenses
|
31,236
|
192,247
|
Total
accrued expenses
|
$1,323,175
|
$1,204,581
|
6.
Debt
Convertible
Promissory Note
In December
2019, the Company issued a $3,114,982 convertible promissory note
to a minority stockholder. The note bore interest at 5% compounded
annually and was due at the earlier of January 31, 2020 or the
closing of the next equity financing. Upon the next equity
financing, the note was to be automatically converted into the
shares issued in the equity financing at a conversion price equal
to 75% of the price per share paid in the equity financing. In May
2020, the note holder formed Mobcrush Streaming, Inc. and assigned
the note to that company. On May 4, 2020, in connection with
Mobcrush Streaming, Inc.’s purchase of the assets of
Mobcrush, Inc., the note plus accrued interest balance of
$3,181,134 was forgiven. The fair value of the loan forgiveness was
considered part of the purchase price consideration (see Note
4).
CARES
Act Payroll Protection Program Loan
During 2020 the
Company received and repaid $546,810 in loans under the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act).
7.
Stockholders’ Equity
Mobcrush, Inc. (Predecessor)
The Amended and
Restated Certificate of Incorporation dated September 8, 2016
authorized the issuance of 20,000,000 shares of Common Stock and
11,791,679 shares of Preferred Stock, with a par value of $0.0001
per share.
Preferred
Stock
During 2019 and
the period from January 1, 2020 through May 3, 2020, the following
shares of Mobcrush, Inc. preferred stock were outstanding:
3,036,264 shares of Series Seed; 1,569,961 shares of Series Seed-1;
3,267,496 shares of Series A; and 3,917,949 shares of Series
B.
Conversion
At the option
of the holder, shares of Series Seed, Series Seed-1, Series A, and
Series B Preferred Stock were convertible into Common Stock at a
conversion rate of one-to-one, subject to adjustments for stock
dividends, splits, combinations and similar events. Automatic
conversion would occur in the event of a firmly underwritten public
offering of Common Stock of the Company with total proceeds to the
Company of at least $30,000,000, before deduction of underwriters'
commissions and expenses.
Redemption
The shares of
the Series Seed, Series Seed-1, Series A, and Series B Preferred
Stock were redeemable only upon acquisition or liquidation of the
Company.
Liquidation
preference
With respect to
any distributions in connection with a liquidation, dissolution or
winding up of the Company, or in connection with the sale of voting
control of all or substantially all of the assets of the Company,
by way of merger, acquisition, consolidation or similar
transaction, prior to any distribution to Common Stockholders, the
holders of Series Seed, Series Seed-1, Series A, and Series B
Preferred Stock were entitled to receive $0.8564, $1.4650, $4.0560,
and $5.1047 per share, respectively, plus any declared but unpaid
dividends, adjusted to reflect any dividends previously paid. If,
upon the occurrence of such event, the assets and funds distributed
among the holders of Series Seed, Series Seed-1, Series A, and
Series B Preferred Stock shall be insufficient to permit the
payment to such holders of the full liquidation preference amounts,
the entire assets and funds of the Company legally available shall
be distributed ratably among the Preferred Stock holders in
proportion to the preferential amount to which each holder is
entitled.
After payment
of the liquidation preferences, the holders of Common Stock were
entitled to receive the remaining assets of the Company available
for distribution to its stockholders pro rata based on the number
of shares of Common Stock held by each holder.
Voting
rights
The holders
of vested shares of Common Stock shall be entitled to vote on any
matter submitted to a vote of the stockholders and each such holder
shall be entitled to one vote per share of Common Stock held. The
holders of Series Seed, Series Seed-1, Series A, and Series B
Preferred Stock shall be entitled to vote together with the Common
Stock as a single class on any matter submitted to a vote of the
stockholders, and shall be entitled to the number of votes equal to
the number of Common Stock issuable upon conversion of their
respective shares of Preferred Stock at the time such shares are
voted. The holders of a majority of the Preferred Stock have
additional voting rights as specified in the Company’s
Amended and Restated Certificate of Incorporation.
Mobcrush Streaming, Inc. (Successor)
The Amended and
Restated Certificate of Incorporation dated May 29, 2020 authorize
the issuance of 27,237,530 shares of Common Stock with a par value
of $0.01 per share, and 23,242,692 shares of Preferred Stock with a
par value of $0.0001 per share.
Preferred
Stock
In May 2020
upon inception of Mobcrush Streaming, Inc., the Company issued
1,000 shares of common stock and 15,979,351 shares of Series A
preferred stock to the convertible promissory note holder described
in Note 6. As consideration for the shares, the investor paid cash
of $300,000 and assigned the note receivable to Mobcrush Streaming,
Inc. The fair value of the assigned note receivable was determined
to be $3,114,982.
During the
period from May 4, 2020 through December 31, 2020, the Company
issued an aggregate of 4,539,605 shares of Series A-1 preferred
stock for proceeds of approximately $4,891,000, net of issuance
costs of approximately $109,000.
Conversion
At the option
of the holder, shares of Series A and Series A-1 Preferred Stock
are convertible into Common Stock at a conversion rate of
one-to-one, subject to adjustments for stock dividends, splits,
combinations and similar events. Automatic conversion will occur in
the event of a firmly underwritten public offering of Common Stock
of the Company with total proceeds to the Company of at least
$30,000,000, before deduction of underwriters' commissions and
expenses.
Redemption
The shares of
the Series A and Series A-1 Preferred Stock are redeemable only
upon acquisition or liquidation of the Company.
Liquidation
preference
With respect to
any distributions in connection with a liquidation, dissolution or
winding up of the Company, or in connection with the sale of voting
control of all or substantially all of the assets of the Company,
by way of merger, acquisition, consolidation or similar
transaction, prior to any distribution to Common Stockholders, the
holders of Series A and Series A-1 Preferred Stock are entitled to
receive $1.00 and $1.1014 per share, respectively, plus any
declared but unpaid dividends, adjusted to reflect any dividends
previously paid. If, upon the occurrence of such event, the assets
and funds distributed among the holders of Series A and Series A-1
Preferred Stock shall be insufficient to permit the payment to such
holders of the full liquidation preference amounts, the entire
assets and funds of the Company legally available shall be
distributed ratably among the Preferred Stock holders in proportion
to the preferential amount to which each holder is
entitled.
After payment
of the liquidation preferences, the holders of Common Stock are
entitled to receive the remaining assets of the Company available
for distribution to its stockholders pro rata based on the number
of shares of Common Stock held by each holder.
Voting
rights
The holders
of vested shares of Common Stock shall be entitled to vote on any
matter submitted to a vote of the stockholders and each such holder
shall be entitled to one vote per share of Common Stock held. The
holders of Series A and Series A-1 Preferred Stock shall be
entitled to vote together with the Common Stock as a single class
on any matter submitted to a vote of the stockholders, and shall be
entitled to the number of votes equal to the number of Common Stock
issuable upon conversion of their respective shares of Preferred
Stock at the time such shares are voted. The holders of a majority
of the Preferred Stock have additional voting rights as specified
in the Company’s Amended and Restated Certificate of
Incorporation.
8.
Equity Awards
In 2014, the
Board of Directors of Mobcrush, Inc. approved the Mobcrush, Inc.
2014 Equity Incentive Plan (the “2014 Plan”). The Plan
provided for the issuance of Common Stock options, appreciation
rights, and other awards to employees, directors, and consultants.
The number of shares that may be issued under the Plan was not to
exceed 4,416,538 shares. Options issued under the Plan generally
vested over a four-year period with cliff vesting for the first
year and had a 10-year expiration date. During 2020, the 2014 Plan
terminated upon the sale of Mobcrush, Inc.’s assets to
Mobcrush Streaming, Inc.
In 2020, the
Board of Directors of Mobcrush Streaming, Inc. approved the
Mobcrush Streaming, Inc. 2020 Equity Incentive Plan (the
“2020 Plan”). The Plan provided for the issuance of
Common Stock options, appreciation rights, and other awards to
employees, directors, and consultants. The number of shares that
may be issued under the Plan may not exceed 3,993,838 shares.
Options issued under the Plan generally vest over a four-year
period with cliff vesting for the first year and have a 10-year
expiration date.
The Company
adopted the fair value recognition provisions in accordance with
authoritative guidance related to equity-based payments.
Compensation expenses in 2020 and 2019 include the portion of
awards vested in the periods for all equity-based awards granted,
based on the grant date fair value estimated using a Black-Scholes
option valuation model, consistent with authoritative guidance,
using the weighted average assumptions in the table
below:
|
|
|
|
Period from May 4,
2020 to December 31, 2020
|
Period from January 1, 2020 to May 3,
2020
|
Year ended December
31, 2019
|
Expected
volatility
|
76.00%
|
47.67%
|
47.67%
|
Dividend yield
|
0.00%
|
0.00%
|
0.00%
|
Risk-free interest
rate
|
0.11%
|
2.8%
|
2.8%
|
Expected term in
years
|
3.00
|
2.00
|
2.00
|
Expected Volatility - The expected
volatility is based on a peer group in the industry in which the
Company does business.
Dividend Yield - The Company has not,
and does not, intend to pay dividends.
Risk-free Interest Rate - The Company
applies the risk-free interest rate based on the U.S. Treasury
yield in effect at the time of the grant consistent with the
expected term of the award.
Expected Term in Years - The Company
calculated the expected term using the Simplified Method. This
method uses the average of the contractual term of the option and
the weighted average vesting period in accordance with
authoritative guidance.
Forfeitures - Share-based compensation
expense recognized in the consolidated statement of operations is
based on awards ultimately expected to vest, reduced for estimated
forfeitures. Authoritative guidance applicable to equity-based
compensation requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. A forfeiture rate of 0%
was used for 2020 and 2019.
Estimates of
fair value are not intended to predict actual future events or the
value ultimately realized by employees who receive equity awards,
and subsequent events are not indicative of the reasonableness of
the original estimates of fair value made by the Company in
accordance with authoritative guidance.
A summary of
the Company’s share option activity is as
follows:
2014 Plan (Predecessor)
|
|
Weighted
Average Exercise Price
|
|
Options outstanding at
January 1, 2019
|
2,830,363
|
$1.44
|
$1,339,634
|
Granted
|
188,749
|
$1.91
|
|
Options outstanding at
December 31, 2019
|
3,019,112
|
$1.47
|
$1,348,125
|
Granted
|
218,145
|
$1.91
|
-
|
Forfeited
|
(3,237,257)
|
$1.50
|
-
|
Options outstanding at May
4, 2020
|
-
|
$-
|
$-
|
Options vested and
exercisable at May 4, 2020
|
-
|
$-
|
$-
|
* The
estimate of fair value of the Company’s Common Stock on
December 31, 2019 was $1.91 per share.
During the
period from January 1, 2020 through May 3, 2020 and the year ended
December 31, 2019, share-based compensation expense of
approximately $133,000 and $369,000, respectively, was included in
general and administrative expenses in the consolidated statement
of operations.
The weighted
average fair value of grant date awards granted during the period
from January 1, 2020 through May 3, 2020 and the year ended
December 31, 2019 was $0.54 and $0.54 per share,
respectively.
2020 Plan (Successor)
|
|
Weighted
Average Exercise Price
|
|
Options outstanding at May
4, 2020
|
-
|
$-
|
$-
|
Granted
|
3,306,220
|
$0.17
|
-
|
Options outstanding at
December 31, 2020
|
3,306,220
|
$0.17
|
$-
|
Options vested and
exercisable at December 31, 2020
|
545,129
|
$0.17
|
$-
|
* The
estimate of fair value of the Company’s Common Stock on
December 31, 2020 was $0.17 per share.
Additional
information regarding options outstanding as of December 31, 2020
is as follows:
|
|
Weighted
Average Remaining Contractual Life in Years
|
|
Weighted
Average Remaining Contractual Life in Years
|
$0.17
|
3,306,220
|
9.73
|
545,129
|
9.72
|
|
3,306,220
|
9.73
|
545,129
|
9.72
|
The intrinsic
value for options exercised represents the difference between the
estimate of fair value based on the valuation of the shares on the
date of exercise and the exercise price of the share
option.
During the
period from May 4, 2020 through December 31, 2020, share-based
compensation expense of approximately $66,000 was included in
general and administrative expenses in the consolidated statement
of operations.
As of December
31, 2020, there was approximately $176,000 of total unrecognized
compensation expense related to unvested share-based compensation
arrangements granted under the Plan. The cost is expected to be
recognized over a weighted average period of 3.37
years.
The weighted
average fair value of grant date awards granted during the period
May 4, 2020 through December 31, 2020 was $0.08 per share. There
were 687,618 stock option shares available to be issued at December
31, 2020.
9.
Commitment and Contingencies
Operating
leases
Rent expense,
net of sublease income, was approximately$0 during the period from
May 4, 2020 through December 31, 2020; $370,000 during the period
from January 1, 2020 through May 3, 2020; and $338,000 for the year
ended December 31, 2019. The facility lease of Mobcrush, Inc. was
not among the assets acquired by Mobcrush Streaming, Inc. on May 4,
2020 and was terminated. The Company did not enter into any leases
or subleases subsequent to that date. As such, the Company has no
future lease commitments as of December 31, 2020.
Litigation
In the normal
course of business, the Company may possibly be named as a
defendant in various lawsuits; there are no such lawsuits currently
pending nor is management aware of any such potential
lawsuits.
10.
Concentrations
Credit
risk
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash
equivalents.
The Company
maintains cash balances at financial institutions located in
California. Accounts at these institutions are secured by the
Federal Deposit Insurance Corporation. At times, balances may
exceed federally insured limits. The Company has not experienced
any losses in such accounts. Management believes that the Company
is not exposed to any significant credit risk with respect to its
cash and cash equivalents.
Customers
The Company
grants unsecured credit to its customers based on an evaluation of
the customer’s financial condition and a cash deposit is
generally not required. Management believes its credit policies do
not result in significant adverse risk and historically has not
experienced significant credit-related losses.
During the
period from May 4, 2020 through December 31, 2020, the Company had
three major customers that accounted for approximately 29%, 14%,
and 14%, respectively, of the Company’s total revenues. At
December 31, 2020, the amounts receivable (payable) from these
customers were approximately $198,000, $240,000, and
($40,000).
During the
period from January 1, 2020 through May 3, 2020, the Company had
three major customers that accounted for approximately 38%, 29%,
and 27%, respectively, of the Company’s total
revenues.
During 2019,
the Company had two major customers that accounted for
approximately 42% and 12%, respectively, of the Company’s
total revenues. At December 31, 2019, the amounts receivable from
these customers were approximately $209,000 and
$480,000.
11.
Income Taxes
Coronavirus
Aid, Relief and Economic Security Act
On March 27,
2020, the Coronavirus Aid, Relief, and Economic Security Act (the
CARES Act) was enacted and signed into law in response to the
market volatility and instability resulting from the COVID-19
pandemic. It includes a significant number of tax provisions and
lifts certain deduction limitations originally imposed by the Tax
Cuts and Jobs Act of 2017 (the 2017 Act). The changes are mainly
related to: (1) the business interest expense disallowance rules
for 2019 and 2020; (2) net operating loss rules; (3) charitable
contribution limitations; (4) employee retention credit; and (5)
the realization of corporate alternative minimum tax credits. The
Company does not anticipate the application of the CARES Act
provisions to materially impact the overall Consolidated Financial
Statements.
The components
of current income tax expense are as follows:
|
|
|
|
Period from May 4, 2020 to December 31, 2020
|
Period from
January 1, 2020 May 3, 2020
|
Year ended
December 31, 2019
|
Federal
|
$̶
|
$̶
|
$̶
|
State
|
̶
|
̶
|
̶
|
Total
income tax expense
|
$̶
|
$̶
|
$̶
|
Significant
components of the Company's net deferred tax asset at December 31,
2020 and 2019 are as follows:
|
|
|
December
31,
|
|
|
Deferred tax
assets:
|
|
|
Net
operating loss
|
$958,000
|
$9,114,000
|
Depreciation
and amortization
|
58,000
|
̶
|
Credits
|
̶
|
1,011,000
|
Other
|
̶
|
̶
|
Total deferred tax
assets
|
1,016,000
|
10,125,000
|
Valuation
allowance
|
(1,016,000)
|
(10,125,000)
|
Net deferred tax
assets
|
$̶
|
$̶
|
In assessing
the realizability of deferred tax assets of approximately
$1,016,000 at December 31, 2020 management considered whether it is
more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become
deductible.
A
reconciliation of the expected tax computed at the U.S. statutory
federal income tax rate to the total provision for income taxes
follows:
|
|
|
|
Period from May 4, 2020 to December 31, 2020
|
Period from
January 1, 2020 to May 3, 2020
|
Year ended
December 31, 2019
|
Computed
expected tax expense
|
$(863,000)
|
$(700,000)
|
$(1,593,000)
|
State
taxes, net of federal benefit
|
̶
|
̶
|
̶
|
Non-deductible
expenses
|
15,000
|
696,000
|
90,000
|
Change in
valuation allowance
|
848,000
|
4,000
|
1,503,000
|
Total
income tax expense
|
$--
|
$̶
|
$̶
|
Realization of
a portion of the Company’s deferred tax assets is dependent
upon the Company generating sufficient taxable income in future
years to obtain benefit from the reversal of temporary
differences.
Management
considered all available evidence under existing tax law and
anticipated expiration of tax statutes and determined that a
valuation allowance was required as of December 31, 2020 and 2019,
respectively, for those deferred tax assets that are not expected
to provide future tax benefits.
At December 31,
2020, the Company has available net operating loss carryforwards of
approximately $3,834,000 for federal income tax purposes, all
of which were generated after 2017 and can be carried forward
indefinitely under the Tax Cuts and Jobs Act.
At December 31,
2020, the net operating losses for state purposes are approximately
$2,194,000 and will begin to expire in 2035 if not
utilized.
At December 31,
2020, the Company has federal and state income tax credit
carryforwards of approximately $0 and $0, respectively. The federal
credit carryovers begin to expire in 2038. The state credit
carryovers do not expire.
The Company has
not completed a study to determine whether any ownership change per
the provisions of Section 382 of the Internal Revenue Code of 1986,
as amended, as well as similar state provisions, has occurred.
Utilization of the Company's net operating loss and income tax
credit carryforwards may be subject to a substantial annual
limitation due to ownership changes that may have occurred or that
could occur in the future. These ownership changes may limit the
amount of the net operating loss and income tax credit carryover
that can be utilized annually to offset future taxable income. In
general, an "ownership change" as defined by Section 382 of the
Code results from a transaction or series of transactions over a
three-year period resulting in an ownership change of more than 50
percentage points of the outstanding stock of a company by certain
stockholders.
Uncertain
tax positions
In accordance
with authoritative guidance, the impact of an uncertain income tax
position on the income tax return must be recognized at the largest
amount that is more-likely-than-not to be sustained upon audit by
the relevant taxing authority. An uncertain income tax position
will not be recognized if it has less than a 50% likelihood of
being sustained. The Company has no material uncertain tax
positions as of December 31, 2020.
The Company
recognizes interest and penalties related to unrecognized tax
positions within the income tax expense line in the accompanying
consolidated statement of operations. There were no accrued
interest and penalties associated with uncertain tax positions as
of December 31, 2020 and 2019.
The Company is
subject to U.S. federal and state income tax, and in the normal
course of business, its income tax returns are subject to
examination by the relevant taxing authorities. As of December 31,
2020, the 2017 – 2020 tax years remain subject to examination
in the U.S. federal tax and various state tax jurisdictions.
However, to the extent allowed by law, the taxing authorities may
have the right to examine the period from 2013 through 2020 where
net operating losses and income tax credits were generated and
carried forward and make adjustments to the amount of the net
operating loss and income tax credit carryforward amount. The
Company is not currently under examination by federal or state
jurisdictions.
12.
Related Party Transactions
In December
2019, the Company issued a $3,114,982 convertible promissory note
to a minority stockholder. See Notes 4, 6, and 7.
13.
Subsequent Events
The Company has
evaluated subsequent events through April 19, 2021, the date which
the consolidated financial statements were available to be
issued.
Bridge
Note
On February 23,
2021, the Company issued a $500,000 convertible promissory note to
a stockholder. The note bears interest at 12% compounded monthly
and is due February 23, 2022. Upon the closing of a sale of the
Company (as contemplated by the Merger Agreement discussed below),
the note will automatically convert into the common shares of the
acquirer (i.e. Super League Gaming, Inc.).
Proposed
Acquisition of Mobcrush Streaming, Inc.
On March 9,
2021, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Super League Gaming, Inc. ("Super
League"), a publicly traded company. Upon completion of the Merger,
the Company will be a wholly-owned subsidiary of Super League
Gaming, Inc.
In accordance
with the terms and subject to the conditions of the Merger
Agreement: (A) each outstanding share of the Company’s common
stock and preferred stock (other than dissenting shares) will be
canceled and converted into the right to receive (i) 0.528 shares
of Super League's common stock (“Super League Common Stock"),
as determined in the Merger Agreement (the “Share Conversion
Ratio”), and (ii) any cash in lieu of fractional shares of
Super League Common Stock otherwise issuable under the Merger
Agreement (the "Merger Consideration"); (B) vested stock options
will be converted into comparable options that are exercisable for
shares of Super League Common Stock, with a value determined in
accordance with the Share Conversion Ratio; and (C) unvested stock
options will either be (i) converted into comparable options that
are exercisable for shares of Super League Common Stock, with a
value as determined by the Super League and the Company prior to
the closing of the Merger, or (ii) terminated and re-issued as
options that are exercisable for shares of Super League Common
Stock with a value as determined by Super League and the Company
prior to the closing of the Merger. Subject to certain adjustments
and other terms and conditions more specifically set forth in the
Merger Agreement, Super League will be issuing 12,582,204 shares of
Super League Common Stock as the Merger Consideration. The Merger
Agreement contains representations, warranties and covenants of
each of the parties thereto that are customary for transactions of
this type.
The obligations
of the Company and Super League to consummate the Merger are
subject to certain closing conditions, including, but not limited
to the approval of Super League's and the Company’s
shareholders.