Item 5. Market for Registrant’s Common Equity
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is quoted on the OTCQB Venture Market
under the symbol “JMDA”. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Holders of Common Equity
As of March 30, 2020, there were approximately 278 stockholders
of record. An additional number of stockholders are beneficial holders of our common stock in “street name” through
banks, brokers and other financial institutions that are the record holders.
Dividend Information
We have not paid any cash dividends to our holders
of common stock. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our
earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions.
It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in
our business operations.
Securities Authorized for Issuance under Equity
Compensation Plans
The following
table summarizes information about our equity compensation plans as of December 31, 2019.
Number of
securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights
(b)
Number of
securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column
(a) (c)
Equity compensation plans approved by security holders
882,500
8.32
17,500
Equity compensation plans not approved by security holders
29,000
3.22
-
Total
911,500
8.16
17,500
Unregistered Sales of Equity Securities
The October 2019 Frommer Loan Agreement
On October 7, 2019, the Company entered into a loan agreement
(the “October 2019 Frommer Loan Agreement”) with Jeremy Frommer, whereby the Company issued Frommer a promissory note
in the principal amount of $10,000 (the “October 2019 Frommer Note”). As additional consideration for entering in the
October 2019 Frommer Loan Agreement, the Company issued Frommer a five-year warrant to purchase 150 shares of the Company’s
common stock at a purchase price of $6.00 per share.
October 2019 Warrant Issuance
On October 8, 2019, we issued a five-year warrant to an accredited
investor to purchase 30,000 shares of the Company’s common stock at a purchase price of $5.00 per share in consideration
for converting outstanding promissory notes.
- 30 -
The November 2019 Convertible Note Offering
During the year ended December 31, 2019, the Company conducted
a private placement to accredited investors (the “November 2019 Convertible Note Offering”) of units of the Company’s
securities by entering into subscription agreements with accredited investors (the “November 2019 Investors”) for aggregate
gross proceeds of $479,500.
Each unit in the November 2019 Convertible Note Offering
consisted of (a) a 10% Convertible Promissory Note, convertible into shares of the Company’s common stock, at a fixed conversion
price equal to $4.50 per share; and a warrant to purchase common stock.
Consultant Shares
During the 3 months ended December 31, 2019, the Company issued
14,897 shares to consultants.
The foregoing offers, sales and issuances were exempt from registration
under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D thereunder.
Item 6. Selected Financial Data.
We are not required to provide the information required
by this Item we are a “smaller reporting company,” as defined in Rule 229.10(f)(1).
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The following discussion of our plan of operation
and results of operations should be read in conjunction with the financial statements and related notes to the financial statements
included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that relate to future
events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other
factors include, among others, those listed under “Forward-Looking Statements” and “Risk Factors” and those
included elsewhere in this report.
Overview
Jerrick Media Holdings, Inc. (OTCQB: JMDA). provides technology
solutions for content creators, brands and their respective audiences with its flagship digital media platform Vocal.
We believe that Jerrick’s agile business framework and
Vocal’s design and development process provide a sustainable, capital light operational infrastructure. Our technology is
built to scale, while the rate of growth can be modulated up or down based on available capital and the relative tightness of the
capital markets.
- 31 -
Vocal is a user-generated long-form digital publishing platform.
The platform primarily focuses on providing storytelling tools, monetization features and engaged communities for content creators
to get discovered and fund their creativity.
There are over 4.5 billion internet
users; of that, 83% publish some form of content on a monthly basis (photos, writing, reviews), and 3.8 billion of them are active
on social media (according to data by GlobalWebIndex and Reddit). In 2020, the internet has become the linchpin of the modern information
society, as well as the modern social society. We believe digital platforms, such as Vocal, exist to help the world find order
in this vast ocean of opportunity.
A global crisis, like the 2020 COVID-19
pandemic, only further emphasizes how critical a role digital platforms play in society, as government bodies are encouraging social
distancing and restricting travel, and employers are widely implementing work-from-home policies. These factors aside, Vocal exists
in an environment where the total addressable market (TAM) of the platform was growing exponentially, and in the current environment,
may see even more rapid growth.
The Vocal platform is home to content creators and brands of
all shapes and sizes, and attracts audiences across a network of the Company’s 100% owned-and-operated communities. The platform’s
unique canvas-style editor supports content creation utilizing a wide range of rich-media assets including streaming
content, photos, videos, podcasts, product links, written word, and more. Vocal makes it easy for creators to produce well-constructed,
search engine optimized, and engaging content. Additionally, creators can upgrade to Vocal+, and pay a premium subscription fee
to access a suite of additional features such as an increased rate of CPM monetization, brand collaborations, rewards, and early
access to new features.
Given Vocal’s built-in monetization capabilities, topic-specific
structure, and adaptability to a wide range of uses and industries, we believe that it is the ideal platform to help users adapt
to evolving social, professional, and societal realities of a new digital world. Moderation and compliance are more important in
a world where ambiguity can systematically damage value. Vocal’s enforcement of community guidelines and content moderation
creates a secure environment for users. Vocal provides its stakeholders a trustworthy environment that people look for, especially
in periods of uncertainty.
In 2018, the Company launched its in-house creative studio,
Vocal for Brands. Vocal for Brands partners brands with authentic, like-minded Vocal
creators to produce campaign-optimized branded experiences on the Vocal platform that build affinity, trust, and drive results.
Additionally, in 2018, Jerrick converted $13,896,233 in debt and preferred holdings into common stock, eliminating a significant
majority of debt from the Company’s balance sheet.
In the third quarter of 2019, Jerrick implemented
a $9.99 monthly renewal option for Vocal+ subscribers, in addition to the $99 annual renewal option introduced in May 2019. Additionally,
following Jerrick’s acquisition of e-commerce agency Seller’s Choice, LLC (“Seller’s Choice”) in
September 2019, the Company successfully integrated Seller’s Choice into its sales team and operations. The acquisition enabled
Vocal for Brands to further expand its client base in the direct-to-consumer (DTC) space, while providing an opportunity for the
Seller’s Choice team to leverage Vocal for Brand’s unique brand storytelling capabilities as a way to further support
its e-commerce clientele. The Vocal platform’s unique underlying architecture generates scalable and sustainable revenues,
while at the same time providing an infrastructure for future acquisitions, as it did in regard to the Seller’s Choice acquisition.
Jerrick’s resources and Vocal’s technology
were designed to amplify creator subscriptions as well as convert on direct to consumer brand opportunities. Today’s consumer
behavior and online environment is ideal for brand marketing and product awareness, and creators are looking for further monetization
opportunities. Both brands and creators, as well as their respective audiences, will continue to grow on Jerrick’s safe and
secure platform, Vocal.
- 32 -
Results of Operations
Liquidity and Capital Resources
The following table summarizes total current assets,
liabilities and working capital at December 31, 2019 compared to December 31, 2018:
December 31,
2019
December 31,
2018
Increase /
(Decrease)
Current Assets
$ 183,826
$ 6,500
$ 177,326
Current Liabilities
$ 10,928,830
$ 2,569,584
$ 8,359,246
Working Capital Deficit
$ (10,745,004 )
$ (2,563,084 )
$ (8,181,920 )
At December 31, 2019, we had a working capital deficit of $10,745,004
as compared to a working capital deficit of $2,563,084 at December 31, 2018, an increase of $8,181,920. The increase is primarily
attributable to an increase in notes payable related party, convertible notes payable, and the current portion of operating lease
payable.
Net Cash
Net cash used in operating activities for the years ended December
31, 2019 and 2018, was $5,957,027 and $4,972,814, respectively. The net loss for the years ended December 31, 2019 and 2018 was
$8,035,372 and $12,013,542, respectively. This change is primarily attributable to the net loss for the current period offset by
share-based payments in the amount of $437,106 to employees and consultants for services rendered, the accretion of debt discount
and debt issuance costs of $348,665 due to the incentives given with debentures, and a gain on extinguishment of debt of $162,860
in addition to a change in accounts payable and accrued expenses of $985,715. These increases were offset by a change in accounts
receivable and unrecognized tax benefit during the year ended December 31, 2019.
Net cash used in investing activities for the years ended December
31, 2019 and 2018 was $363,288 and $27,605, respectively. This change is attributable to the cash paid for property and equipment
and the cash consideration for the acquisition.
Net cash provided by financing activities for the years
ended December 31, 2019 and 2018 was $6,337,947 and $4,889,368. During the year ended December 31, 2019 period, the Company was
predominantly financed by issuance of common stock, debt and related party notes of $649,829, $2,722,525 and $4,186,500, respectively
to fund operations. These increases were offset by repayment of notes and related party notes of $50,000 and $501,500, respectively.
- 33 -
Summary of Statements of Operations for the Years
Ended December 31, 2019 and 2018:
Year Ended
December 31,
2019
2018
Revenue
$ 453,006
$ 80,898
Gross Margin
$ 453,006
$ 80,898
Operating Expenses
$ (7,669,984 )
$ (5,767,153 )
Loss from operations
$ (7,216,978 )
$ (5,686,255 )
Other Expenses
$ (818,394 )
$ (6,327,287 )
Net loss
$ (8,035,372 )
$ (12,013,542 )
Loss per common share – basic and diluted
$ (0.98 )
$ (4.16 )
Revenue
Revenue was $453,006 for the year ended December 31, 2019, as
compared to $80,898 for the comparable year ended December 31, 2018, an increase of $372,108. The increase in revenue is primarily
attributable to the launch and steady growth of Vocal+ paid subscribers, the rising price points for Vocal for Brands campaigns,
and the integration of Seller’s Choice into Jerrick following the Company’s successful acquisition of Seller’s
Choice in late third quarter. Over $400,000 of the $453,006 was generated in the second half of the year with approximately $300,000
generated in the fourth quarter alone.
Operating Expenses
Operating expenses for the year ended December 31, 2019 were
$7,669,984 as compared to $5,767,153 for the year ended December 31, 2018. The increase of $1,902,831 in operating expenses is
the result of an increase in general and administrative expenses and consulting fees. The increase to these expenses is mainly
related to the acquisition of Seller’s Choice and the implementation of the Company’s future business plans.
Loss from Operations
Loss from operations for the year ended December 31, 2019 was
$7,216,978 as compared to $5,686,255 for the year ended December 31, 2018. The increase in the loss from operations is primarily
due to increased expenses due to the continued development of the Vocal platform and the acquisition of Seller’s Choice and
the implementation of the Company’s future business plans.
Other Expenses
Other expenses for the year ended December 31, 2019 was $818,394
as compared to $6,327,287 for the year ended December 31, 2018. Other expenses during the year ended December 31, 2019 was comprised
of interest expense of $612,830 on notes and related party notes, accretion of debt discount and issuance cost of $348,665 due
to the incentives given with debentures, a loss on extinguishment of debt of $162,860. These expenses were offset by other income
from an Australian tax credit for research and development of $292,387. During the year ended December 31, 2018, other expenses
were comprised of interest expense of $923,008 on notes and related party notes and accretion of debt discount and issuance cost
of $2,090,286 due to the incentives given with debentures, loss on extinguishment of liabilities of $3,453,137 for the incentives
given to amend or convert debt.
Net Loss
Net loss attributable to common shareholder for the year ended
December 31, 2019, was $8,035,372, or loss per share of $0.98, as compared to a net loss of $14,204,408, or loss per share of $4.16,
for the year ended December 31, 2018.
Inflation did not have a material impact on the Company’s
operations for the applicable period. Other than the foregoing, management knows of no trends, demands, or uncertainties that are
reasonably likely to have a material impact on the Company’s results of operations.
Off-Balance Sheet Arrangements
As of December 31, 2019, we had no off-balance sheet
arrangements.
- 34 -
Critical Accounting Policies
We believe that the following accounting policies
are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of
Financial Condition and Results of Operation.”
Use of Estimates and Assumptions and Critical
Accounting Estimates and Assumptions
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods.
Critical accounting estimates are estimates for which
(a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain
matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating
performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:
(i)
Assumption as a going concern : Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
(ii)
Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
(iii)
Valuation allowance for deferred tax assets : Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
(iv)
Estimates and assumptions used in valuation of equity instruments : Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk-free rate(s) to value share options and similar instruments.
(V)
Operating lease Estimates and assumptions: These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We estimate the incremental borrowing rate for each lease based on an evaluation of our credit ratings and the prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the terms of the lease.
These significant accounting estimates or assumptions
bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates
or assumptions are difficult to measure or value.
- 35 -
Management bases its estimates on historical experience
and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources.
Management regularly evaluates the key factors and
assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical
experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates.
Principles of consolidation
The Company consolidates all majority-owned subsidiaries,
if any, in which the parent’s power to control exists.
As of December 31, 2019, the Company’s consolidated
subsidiaries and/or entities are as follows:
Name of combined affiliate
State or other
jurisdiction of
incorporation or
organization
Company Ownership Interest
Jerrick Ventures LLC
Delaware
100 %
Abacus Tech Pty Ltd
Australia
100 %
Seller’s Choice, LLC
New Jersey
100 %
Jerrick Global, LLC
Delaware
100 %
Jerrick Investment Advisors LLC
Delaware
100 %
Jerrick Partners LLC
Delaware
100 %
Maven Tech LLC
Delaware
100 %
OG Collection LLC
Delaware
100 %
VMENA LLC
Delaware
100 %
Vocal For Brands, LLC
Delaware
100 %
Vocal Ventures LLC
Delaware
100 %
What to Buy, LLC
Delaware
100 %
All inter-company balances and transactions have been
eliminated.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the
FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial
instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about
fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph
820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value
into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets
for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy
defined by Paragraph 820-10-35-37 are described below:
Level 1
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3
Pricing inputs that are generally observable inputs and not corroborated by market data.
Financial assets are considered Level 3 when their
fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant
model assumption or input is unobservable.
The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization
is based on the lowest level input that is significant to the fair value measurement of the instrument.
- 36 -
The carrying amount of the Company’s financial
assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued liabilities and accrued liquidating damages
approximate their fair value because of the short maturity of those instruments. Transactions involving related parties cannot
be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings
may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions
were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be
substantiated.
Cash Equivalents
The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
The Company minimizes its credit risk associated with
cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally
insured limits.
Property and Equipment
Property and equipment are recorded at cost. Expenditures
for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation
is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated
useful lives of the respective assets as follows:
Estimated Useful
Life
(Years)
Computer equipment and software
3
Furniture and fixture
2
Upon sale or retirement of property and equipment,
the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated
statements of operations.
Leases
In February 2016, the FASB issued ASU 2016-02
“ Leases” (Topic 842) which amended guidance for lease arrangements to increase transparency and comparability
by providing additional information to users of financial statements regarding an entity’s leasing activities. Subsequent
to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance
is referred to as ASC 842. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease
assets and lease liabilities on the balance sheet for substantially all lease arrangements.
On January 1, 2019, the Company adopted
ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”) asset and liability in the
condensed consolidated balance sheet in the amount of $ 289,167 related to the operating lease for office and warehouse space.
Results for the year ended December 31, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue
to be reported in accordance with the legacy accounting guidance under ASC Topic 840, Leases .
As part of the adoption the Company elected
the practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the
Company to:
1.
Not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component.
2.
Not to apply the recognition requirements in ASC 842 to short-term leases.
3.
Not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial.
Long-lived Assets Including Goodwill and Other
Acquired Intangibles Assets
We evaluate the recoverability of property and equipment
and acquired finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying
amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows
are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison
of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition.
If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying
amount of such assets is reduced to fair value. We have not recorded any significant impairment charges during the years presented.
We review goodwill for impairment at least annually
or more frequently if events or changes in circumstances would more likely than not reduce the fair value of our single reporting
unit below its carrying value. As of December 31, 2019, no impairment of goodwill has been identified.
- 37 -
Acquired finite-lived intangible assets are amortized on a straight-line
basis over the estimated useful lives of the assets. We routinely review the remaining estimated useful lives of property and
equipment and finite-lived intangible assets. If we change the estimated useful life assumption for any asset, the remaining unamortized
balance is amortized or depreciated over the revised estimated useful life.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting
Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial
statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events
occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims
that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims
as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that
it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability
would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material
loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards
Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements
in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605), using the modified retrospective transition
method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after
January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in
accordance with our historic accounting under Topic 605. The impact of adopting the new revenue standard was not material
to our consolidated financial statements and there was no adjustment to beginning retained earnings on January 1, 2018.
Under Topic 606, revenue is recognized when control
of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be
entitled to in exchange for those goods or services.
We determine revenue recognition through the following
steps:
●
identification of the contract, or contracts, with a customer;
●
identification of the performance obligations in the contract;
●
determination of the transaction price;
●
allocation of the transaction price to the performance obligations in the contract; and
●
recognition of revenue when, or as, we satisfy a performance obligation.
- 38 -
Revenue disaggregated by revenue source for the years
ended December 31, 2019 and 2018 consists of the following
Year Ended
December 31,
2019
2018
Branded Content
$ 107,335
$ 60,485
Creator Subscriptions
31,997
-
Managed Services
283,332
Affiliate Sales
15,300
11,553
Other Revenue
15,042
8,860
$ 453,006
$ 80,898
Branded Content
Revenues from branded content in 2019 increased 78%
as compared to the previous year. Onboarding of additional brand clients as well as greater pricing strength contributed to a large
part of the gain. The increased pricing strength was attributable to improved features and data analytics. Clients are increasing
their spend on Vocal for Brands campaigns with the company’s improved marketing strategies. The continued development of
Vocal’s technology translates into a higher value proposition for brands. Revenue recognized from these tactical improvements
occurred in the fourth quarter and have created a foundation for scale, future platform improvements, and continued pricing strength.
Branded content revenue is recognized when the Company
fulfills its obligation to create and publish branded articles for clients on the Vocal platform, promote said stories, and meet
any required promotional milestones as per the contract with the client. The revenue is recognized over time as the services are
performed, with any payments received in advance being deferred until they are earned.
Below are the significant components of a typical agreement pertaining
to branded content revenue:
● The Company typically
collects fixed fees ranging from $5,000 to $45,000, depending on duration and scope of third-party marketing spend. The client
pays 50% at contract signing and 50% upon campaign completion
● The articles are created
and published within three months of the signed agreement, or as previously negotiated with the client
● The articles are promoted
on Vocal as well as on third-party platforms, and engagement reports are provided to the client throughout the campaign.
Creator Subscriptions
Vocal+ is a premium subscription offering. The Company initially
offered the subscription to a Founding Member beta group starting in May 2019, utilizing our first-party data from the 450,000+
‘Vocal Free’ creators we had onboarded onto Vocal up until that point. During the beta period, we analyzed the behaviors
and data of the Vocal+ Founding Members, refining the product and ultimately releasing it to the public in September 2019 alongside
the Vocal 2.0 re-platform.
Vocal+ subscribers receive access to value-added features
such as increased rate of CPM cost per mille (thousand) (“CPM”) monetization, a decreased minimum withdrawal threshold,
a discount on platform processing fees, member badges for their profiles, participation in exclusive Challenges with monetary rewards,
and early access to new Vocal features.
Subscription revenues stem from both monthly and annual
subscriptions, which cost $9.99 per month and $99 per year, respectively, the latter of which is amortized over a twelve-month
period. Any customer payments received are recognized over the subscription period, with any payments received in advance being
deferred until they are earned.
The continued development of Vocal’s technology
and targeting efficiencies translates into a decreasing cost of acquisition per creator, a scalable onboarding process, and an
increasing rate of subscription signups.
- 39 -
Managed Services
Managed Services are provided by Seller’s Choice,
and encompass a suite of digital marketing solutions for e-commerce brands. Services offered include listing and storefront optimization
on e-commerce platforms like Amazon and Shopify, the setup and ongoing management of clients’ websites, search engine optimization,
digital advertising, and other various tactics for sales growth and customer retention. Additionally, Seller’s Choice draws
upon Vocal for Brand’s storytelling capabilities to provide Seller’s Choice additional value and maximize their success.
The average Seller’s Choice client generates revenues of between $3,500-$5,000 per month.
Affiliate Sales
Affiliate sales represent the commission the Company
receives when a purchase is made through affiliate links placed within content hosted on the Vocal platform. Affiliate revenue
is earned on a “click through” basis, upon referring visitors, via said links, to an affiliate’s site and having
them complete a specific outcome, most commonly a product purchase.
The Company maintains multiple affiliate relationships,
with platforms such as Skimlinks, Amazon, and Tune, to form and maintain thousands of vendor relationships. Each vendor establishes
their own commission percentage payout, which typically range from 5-15%. The revenue is recognized upon receipt of commission
fees.
Deferred Revenue
Deferred revenue consists of billings and payments from clients
in advance of revenue recognition. As of December 31, 2019 and 2018, the Company had deferred revenue of $50,691 and $9,005, respectively.
Accounts Receivable and Allowances
Accounts receivable are recorded and carried
when the Company uploads the articles and reaches the required number of views on the platform. We make estimates for the allowance
for doubtful accounts and allowance for unbilled receivables based upon our assessment of various factors, including historical
experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other
factors that may affect our ability to collect from customers. During the year ended December 31, 2019 the Company recorded $33,503
as reserve doubtful accounts. As of December 31, 2019 and 2018 the Company has an allowance for doubtful accounts of $33,503 and
$0 respectively.
Stock-Based Compensation
The Company recognizes compensation expense for all
equity–based payments granted in accordance with ASC 718 “Compensation – Stock Compensation”. Under
fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and
recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.
Restricted stock awards are granted at the discretion
of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods,
typically over a five-year period (vesting on a straight–line basis). The fair value of a stock award is equal to the fair
market value of a share of Company stock on the grant date.
The fair value of an option award is estimated on
the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires
the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected
stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock
and the expected forfeiture rate. Expected volatility is benchmarked against similar companies in a similar industry over the expected
option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded risk–free
rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends
on its Common stock and does not intend to pay dividends on its Common stock in the foreseeable future. The expected forfeiture
rate is estimated based on management’s best estimate.
Determining the appropriate fair value model and calculating
the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions
used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve
inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses
different assumptions, our equity–based compensation could be materially different in the future. In addition, the Company
is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If the Company’s
actual forfeiture rate is materially different from its estimate, the equity–based compensation could be significantly different
from what the Company has recorded in the current period.
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Loss Per Share
Basic net loss per common share is computed by dividing
net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted
net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted
for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for the years ended
December 31, 2019 and 2018 presented in these consolidated financial statements, the weighted-average number of common shares outstanding
excludes common stock equivalents because their inclusion would be anti-dilutive.
The Company had the following common stock equivalents
at December 31, 2019 and 2018:
December 31,
2019
2018
Options
911,500
17,649,990
Warrants
742,221
110,859,062
Convertible notes - related party
5,438
2,889
Convertible notes
724,751
839,764
Totals
2,383,910
129,351,705
Reclassifications
Certain prior year amounts in the consolidated financial
statements and the notes thereto have been reclassified where necessary to conform to the current year presentation. These reclassifications
did not affect the prior period total assets, total liabilities, stockholders’ deficit, net loss or net cash used in operating
activities.
Recently Adopted Accounting Guidance
In February 2016, the FASB issued ASU 2016-02, “Leases
(Topic 842).” Under ASU 2016-02, lessees will, among other things, require lessees to recognize a lease liability, which
is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were
made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts
with Customers.” ASU 2016-02 became effective for us on January 1, 2019 and initially required transition using a modified
retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,”
which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU
2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to
the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases
(Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting
for sales and similar taxes and certain lessor costs. As of January 1, 2019, the Company adopted ASU 2016-02 and has recorded a
right-of-use asset and lease liability on the balance sheet for its operating leases. We elected to apply certain practical expedients
provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii)
the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do
not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance).
We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease
contracts and because we expect this election will result in a lower impact on our balance sheet.
Recent Accounting Guidance Not Yet Adopted
In October 2016, the FASB issued ASU 2016-16, “Income
Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits
the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the
asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019,
including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating
the impact of the new standard.
Management does not believe that any recently issued,
but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial
statements.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
We are not required to provide the information required by this
Item we are a “smaller reporting company,” as defined in Rule 229.10(f)(1).
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.