What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-04-07 compared with 2021-03-31 · 148 added, 134 removed, 217 unchanged (57% of the section changed)

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References to “management” or “management team” refer to our officers and directors.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements appearing elsewhere in this Annual Report on Form 10-K.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto appearing elsewhere in this Annual Report on Form 10-K.

As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

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Key Events and Recent Developments

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) as a pandemic.

The outbreak is having an impact on the global economy, resulting in rapidly changing market and economic conditions.

The COVID-19 outbreak in the United States has caused business disruption through mandated and voluntary closing of businesses and cancellation of events for which the Company's application transition business serves.

Furthermore, the Company’s platform software and services business serves healthcare and hospitals throughout the United States.

While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the closings and cancellations.

The related financial impact and duration cannot be reasonably estimated at this time.

We implemented a work-from-home policy for our employees effective March 16, 2020 and we are taking steps to implement measures to reduce operating expenses.

To that end, on March 27, 2020, the Company committed to cost reduction by furloughing 37 persons, or approximately 42% of its workforce.

From March 27, 2020 to December 31, 2020, the Company recalled seven employees from furlough and ten voluntary terminated.

On September 10, 2021, we entered into a Stock Purchase Agreement with Caleb Borgstrom for the purchase of all issued and outstanding shares of common stock of Lyte Technology, Inc.

with an initial purchase price of up to approximately $10.3 million, of which $2.5 million is subject to an earnout provision based upon Lyte operations meeting certain annual revenue milestones.

On October 18, 2021, we closed the acquisition with an adjusted purchase price of approximately $11.0 million (subject to the earn-out adjustment), representing an increase in working capital as of the closing date.

Refer to Note 3 " Business Combination " in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information on the acquisition of Lyte.

Refer to " Liquidity and Ca pital Resources " below for further discussion on key events and recent developments.

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offers a fully integrated software platform that equips companies with the products, solutions and services necessary to engage, manage and monetize their mobile application portfolios globally at scale.

Our Multiscreen-as-a-Service ("MaaS") platform provides the entire mobile lifecycle of applications, media and data in one login through one procurement relationship.

Our MaaS platform provides the entire mobile lifecycle of applications, media and data in one login through one procurement relationship.

Our offerings include:

• Enterprise mobile software development kits (SDKs) including content management, location-based services, marketing automation, business intelligence and analytics, alerts, notifications and messaging, audience engagement, audience monetization;

• Integration of our SDK licenses into existing applications maintained by our customers, as well as custom application development and support services;

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the patient experience for healthcare, the shopper experience for retail, the fan experience for sports, the traveler experience for aviation, the luxury resident experience for real estate, the luxury guest experience for hospitality, the student experience for education and the generic user experience for all other verticals and applications;

• Application transactions for mobile audience building, user acquisition, application discovery, audience engagement and audience monetization.

• Application transactions for mobile audience building, user acquisition, application discovery, audience engagement and monetization, including our engagement-driven cryptocurrency PhunToken.

We also offer and sell pre-packaged and custom high-end personal computer systems for gaming, streaming and cryptocurrency mining enthusiasts.

We intend to continue investing for long-term growth.

We have invested and expect to continue investing in expanding our ability to market, sell and provide our current and future products and services to customers globally.

We have invested and expect to continue investing in the expansion of our ability to market, sell and provide our current and future products and services to customers globally.

We also expect to continue investing in the development and improvement of new and existing products and services to address customers' needs.

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Backlog and Deferred Revenue.

Backlog represents future amounts to be invoiced under our current customer agreements.

Backlog represents future amounts to be invoiced under our current software subscription and services customer agreements.

At any point in the contract term, there can be amounts that we have not yet been contractually able to invoice.

Until such time as these amounts are invoiced, they are not recorded in revenues, deferred revenue, accounts receivable or elsewhere in our consolidated financial statements, and are considered by us to be backlog.

Until such time as these amounts are invoiced, they are not recorded in revenue, deferred revenue, accounts receivable or elsewhere in our consolidated financial statements, and are considered by us to be backlog.

We expect backlog to fluctuate up or down from period to period for several reasons, including the timing and duration of customer contracts, varying billing cycles and the timing and duration of customer renewals.

We reasonably expect approximately half of our backlog as of December 31, 2020 will be invoiced during the subsequent 12-month period, primarily due to the fact that our contracts are typically one to three years in length.

We reasonably expect approximately 40% of our backlog as of December 31, 2021 will be invoiced during the subsequent 12-month period, primarily due to the fact that our contracts are typically one to three years in length.

In addition, our deferred revenue consists of amounts that have been invoiced but have not yet been recognized as revenues as of the end of a reporting period.

Together, the sum of deferred revenue and backlog represents the total billed and unbilled contract value yet to be recognized in revenues, and provides visibility into future revenue streams.

Together, the sum of deferred revenue and backlog represents the total billed and unbilled contract value yet to be recognized in revenue, and provides visibility into future revenue streams.

The following table sets forth our backlog and deferred revenue:

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Total backlog and deferred revenue $ 8,588 $ 9,066

For further information regarding our deferred revenue balances, refer to Note 4 “ Revenue ” of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Non-GAAP Financial Measures

Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA

We report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP").

We also use certain non-GAAP financial measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior period results.

We report our financial results in accordance with GAAP.

We also use certain non-GAAP financial measures that fall within the meaning ascribed in SEC Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior period results.

Our non-GAAP financial measures include adjusted gross profit, adjusted gross margin and adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") (our "non-GAAP financial measures").

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Some of these limitations include:

• Non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating its ongoing operating performance for a particular period;

• Our non-GAAP financial measures do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations, and;

• Non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period;

• Our non-GAAP financial measures do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations;

• Other companies in our industry may calculate our non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.

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Year Ended December 31,

($ in thousands)

(in thousands, except percentages)

Adjusted gross profit (1)

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(2) Adjusted EBITDA is a non-GAAP financial measure.

We believe adjusted EBITDA provides helpful information with respect to operating performance as viewed by management, including a view of our business that is not dependent on (i)

the impact of our capitalization structure and (ii) items that are not part of day-to-day operations.

We believe adjusted EBITDA provides helpful information with respect to operating performance as viewed by management, including a view of our business that is not dependent on (i) the impact of our capitalization structure and (ii) items that are not part of day-to-day operations.

We define adjusted EBITDA as net loss plus (i) interest expense, (ii) income tax expense, (iii) depreciation, (iv) amortization, and further adjusted for (v) one-time adjustments and (vi) stock-based compensation expense.

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Year Ended December 31,

($ in thousands)

(in thousands, except percentages)

Gross profit $ 3,613 $ 6,644

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Interest expense 4,481 3,413

Income tax expense 2 5

(Less) Add back:

Income tax (benefit) expense (426) 2

EBITDA (49,227) (18,631)

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Loss on extinguishment of debt 7,952 2,158

Impairment of digital assets 9,383 —

Add back (Less):

Fair value adjustment for warrant liabilities 18,139 (872)

Gain on forgiveness of PPP loan (2,850) —

Adjusted EBITDA $ (11,662) $ (8,353)

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Revenue and Gross Profit

There are a number of factors that impact the revenue and margin profile of the services and technology offerings we provide, including, but not limited to, solution and technology complexity, technical expertise requiring the combination of products and types of services provided, as well as other elements that may be specific to a particular client solution.

There are a number of factors that impact the revenue and margin profile of the product, service and technology offerings we provide, including, but not limited to, solution and technology complexity, technical expertise requiring the combination of products and types of services provided, as well as other elements that may be specific to a particular client solution.

Platform Subscriptions and Services Revenue.

Subscription revenue is derived from software license fees, which comprise subscription fees from customers licensing our Software Development Kits (SDKs), which includes accessing the MaaS platform;

Subscription revenue is derived from software license fees, which comprise subscription fees from customers licensing our Software Development Kits (SDKs), that includes accessing the MaaS platform;

application development service revenue from the development of customer applications, or apps, which are built and delivered to customers;

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cost per thousand impressions and cost per click.

During 2021, we announced the commencement of the selling of PhunToken, PhunToken is designed to reward consumers for their activity, such as watching branded videos, completing surveys and visiting points of interest.

We recognize revenue related to PhunToken at time of delivery to a customer's ethereum-based wallet.

Application transaction gross profit is equal to application transaction revenue less cost of revenue associated with application transactions.

Application transaction gross profit is impacted by the cost of advertising traffic we pay to our suppliers and amount of traffic which we can purchase from those suppliers.

As a result, our application transaction gross profit may fluctuate from period to period due to variable costs of advertising traffic.

Application transaction gross profit is impacted by the cost of advertising traffic we pay to our suppliers, the amount of traffic which we can purchase from those suppliers and ethereum blockchain fees paid to deliver PhunToken.

As a result, our application transaction gross profit may fluctuate from period to period due to variable costs of advertising traffic and cryptocurrency blockchain fees.

Computer Hardware Revenue .

We acquired Lyte in October 2021.

Revenue from Lyte is primarily derived from the sale of high-performance personal computers.

Lyte computers are sold with a variety of pre-packaged solutions, as well as customizable solutions selected by our customers.

A majority of Lyte's customers pay us via credit card payments, which is managed through a third party processor.

We recognize revenue at the time a completed unit ships from our facility.

Computer hardware gross profit is equal to computer hardware revenue less the costs associated with the assembly of computers.

Computer hardware gross profit is impacted by the costs that we pay for parts incorporated into a Lyte computer system, as well as labor costs of our employees directly attributable to building computer systems and shipping.

Demand may exceed available supply at times, which may hamper our ability to deliver computer systems timely and may increase the costs at which we can obtain inventory needed for computer builds.

Customizable solutions we offer our customers may also vary from time to time.

As a result, computer hardware revenue and gross profit may fluctuate from period to period.

Although we plan to invest in Lyte for future growth, we may experience revenue and gross profit fluctuations as a result of seasonality.

Gross margin measures gross profit as a percentage of revenue.

Gross margin is generally impacted by the same factors that affect changes in the mix of subscriptions and services and application transactions.

Gross margin is generally impacted by the same factors that affect changes in the mix of subscriptions and services and application transactions, and computer hardware.

Operating Expenses

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Interest Expense

Interest expense includes interest related to our outstanding debt, including amortization of discounts and deferred issuance costs, as well as, factoring fees related to our factoring financing arrangement.

During 2020, we maintained a factoring financing arrangement and our board of directors has authorized various debt offerings.

Interest expense includes interest related to our outstanding debt, including amortization of discounts and deferred issuance costs.

Refer to Note 8 " Factoring Agreement " and Note 9 " Debt " of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information on our factoring arrangement and debt offerings, respectively.

We also may seek additional debt financings to fund the expansion of our business or to finance strategic acquisitions in the future, which may have an impact on its interest expense.

We also may seek additional debt financings to fund the expansion of our business or to finance strategic acquisitions in the future, which may have an impact on our interest expense.

Income Tax Expense

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Our effective tax rate will vary depending on permanent non-deductible expenses and other factors.

Refer to Note 15 " Income Taxes " of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.

Results of Operations

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Year Ended December 31, Change

2020 2019 Amount %

Net Revenue ($ in thousands)

(in thousands, except percentages) 2021 2020 Amount %

Platform subscriptions and services $ 5,308 $ 9,108 $ (3,800) (41.7) %

Computer hardware 3,095 — 3,095 100.0 %

Application transaction 2,240 893 1,347 150.8 %

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Platform subscriptions and services as a percentage of total revenue 49.9 % 91.1 %

Computer hardware as a percentage of total revenue 29.1 % — %

Application transactions as a percentage of total revenue 21.0 % 8.9 %

Total revenue decreased $9.1 million, or (47.8)%, in the year ended December 31, 2020 compared to the corresponding period in 2019.

Platform subscriptions and services revenue decreased $8.1 million, or (47.2)% driven by the completion of our statement of work with Fox Networks Group ("Fox") on September 30, 2019.

Revenue from Fox was approximately $9.5 million for the year ended December 31, 2019.

This decrease was partially offset higher revenues from a particular customer in 2020 as compared to 2019.

Revenue from this customer was 32% and 8% of our total net revenues for the years ended December 31, 2020 and 2019, respectively.

See the subheading titled, " Disaggregation of Revenue” in Note 3 “ Revenue ” of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Application transaction revenue decreased 1.0 million, or (53.2)%, primarily because the various decreased or ceased advertising campaigns and decrease in app store revenue.

Total revenue increased $0.6 million, or 6.4%, in the year ended December 31, 2021 compared to the corresponding period in 2020.

Platform subscriptions and services revenue decreased $3.8 million, or (41.7)%.

Greater revenues derived in 2020 were primarily driven by development, licensing and support services provided to a particular customer during 2020.

Revenue from this customer was 32% of our total net revenues for the year ended December 31, 2020.

This customer is identified as “ Customer D ” in Note 4 “ Revenue ” of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Computer hardware revenue represented $3.1 million due to the Lyte Technology, Inc.

Application transaction revenue increased $1.3 million, or 150.8% due to $1.1 million in PhunToken sales, as we commenced the sale of PhunToken in 2021 and an increase in revenue related to advertising campaigns.

Cost of Revenue, Gross Profit and Gross Margin

Year Ended December 31, Change

2020 2019 Amount %

($ in thousands)

(in thousands, except percentages) 2021 2020 Amount %

Cost of Revenue

Platform subscriptions and services $ 3,702 $ 3,180 $ 522 16.4 %

Computer hardware 3,017 — 3,017 100.0 %

Application transaction 311 177 134 75.7 %

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Platform subscriptions and services $ 1,606 $ 5,928 $ (4,322) (72.9) %

Computer hardware 78 — 78 100.0 %

Application transaction 1,929 716 1,213 169.4 %

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Platform subscriptions and services 30.3 % 65.1 %

Computer hardware 2.5 % — %

Application transaction 86.1 % 80.2 %

Total gross margin 33.9 % 66.4 %

Total gross profit decreased $3.5 million, or (34.4)%, in the year ended December 31, 2020 compared to the corresponding period of 2019 primarily attributable to the revenue items described above.

Total gross profit decreased $3.0 million, or (45.6)%, in the year ended December 31, 2021 compared to the corresponding period of 2020.

Stock-based compensation increased $0.8 million during the year ended December 31, 2021.

Furthermore, margin decrease can be attributed to a higher margin realized in 2020 as compared to the same period in 2021 related to the customer identified as “ Customer D ” in Note 4, “ Revenue ”, in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Operating Expenses

Year Ended December 31, Change

2020 2019 Amount %

($ in thousands)

(in thousands, except percentages) 2021 2020 Amount %

Operating expenses

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Sales and Marketing

Sales and marketing expense decreased $1.1 million, or (38.9)% for the year ended December 31, 2020 compared to the corresponding period of 2019 primarily due to $0.6 million of reduced employee compensation costs due to lower headcount and $0.5 million related to other expenditure decreases such as marketing events, contractor spend and travel.

Sales and marketing expense increased $1.4 million, or 82.8% for the year ended December 31, 2021 compared to the corresponding period of 2020, primarily due to $0.5 million of increase employee compensation costs due to higher headcount, $0.4 million related to stock-based compensation expense and $0.3 million of online marketing expenditures.

General and Administrative

General and administrative expense decreased $42 thousand, or (0.3)%, for the year ended December 31, 2020, compared to the corresponding period of 2019 due to decreases of $1.1 million in software and hosting expenses, $0.5 million in professional and contract labor expenses, $0.4 million for payroll and related costs due to a decrease in headcount, $0.2 million in travel expense, $0.2 million in depreciation and amortization expense and $0.5 million in net positive settlements of accounts payable balances previously expensed.

These decreases were primarily offset by the increase in stock-based compensation expense of $2.7 million and $0.2 million in bad debt expense.

General and administrative expense decreased $2.1 million, or (13.7)%, for the year ended December 31, 2021, compared to the corresponding period of 2020, primarily due to a decrease of $1.8 million in legal fees mainly related to our previous litigation with Uber, $1.3 million in stock-based compensation expense and $0.5 million in bad debt recoveries.

This decrease was partially offset by additional expenses of $1.2 million related to investor relations costs.

Research and Development

Research and development expense decreased $1.7 million, or (39.3)% for the year ended December 31, 2020, compared to the corresponding period of 2019 as a result of a decrease of $1.4 million related to employee headcount and contract spend.

Other decreases of $0.3 million include expenditures such as stock-based compensation, contractor spend and travel.

Research and development expense increased $1.6 million, or 59.0% for the year ended December 31, 2021, compared to the corresponding period of 2020, primarily due to increases of $1.0 million for increased headcount dedicated to research and development projects and $0.6 million in stock-based compensation expense.

Legal Settlement

The legal settlement expense of $4.5 million relates to the settlement of our litigation with Uber as described in detail in Note 9 " Commitments and Contingencies " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The legal settlement expense of $4.5 million for the year ended December 31, 2020 relates to the settlement of our litigation with Uber as described in detail in Note 11 " Commitments and Contingencies " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Other income (expense)

Year Ended December 31, Change

2020 2019 Amount %

($ in thousands)

(in thousands, except percentages) 2021 2020 Amount %

Other income (expense)

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Loss on extinguishment of debt (7,952) (2,158) (5,794) 268.5 %

Impairment of digital assets (9,383) — (9,383) 100.0 %

Fair value adjustment for warrant liabilities (18,139) 872 (19,011) (2,180.2) %

Other income (expense) — 27 (27) (100.0) %

Gain on forgiveness of Paycheck Protection Program ("PPP") loan 2,850 — 2,850 100.0 %

Other income, net 1 — 1 100.0 %

Total other expense $ (37,104) $ (4,699) $ (32,405) 689.6 %

Other expense increased $(4.1) million for the year ended December 31, 2020 when compared to 2019, primarily due to losses on extinguishment of debt and interest related to our debt borrowings as further described in Note 8 " Debt " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

This is partially

offset by gain in fair value adjustment for warrant liabilities and a decrease in interest related to our factoring financing arrangement due to lower usage.

Other expense increased $(32.4) million for the year ended December 31, 2021 when compared to 2020, primarily due to a fair value adjustment as a result of a partial exercise of an outstanding warrant issued to the holder of our 2020 Convertible Notes, impairment of our digital asset holdings, primarily consisting of bitcoin and losses on extinguishment of debt related to payments and the payoff of our 2020 Convertible Notes.

These losses were partially offset by the gain on forgiveness of our Paycheck Protection Program loan.

Refer to Note 2, " Summary of Significant Accounting Policies " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion regarding our digital asset holdings.

Further, reference is made to Note 9 " Debt " of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion on our debt holdings.

Liquidity and Capital Resources

As of December 31, 2020, we held total cash (including restricted cash) of $4,031, all of which was held in the United States.

On October 9, 2020, we entered into a settlement agreement with Uber Technologies, Inc.

("Uber") and certain other parties related to our complaint against Uber, Uber's cross-complaint and amended cross-complaint against us and certain individual defendants.

The settlement agreement provides that we will pay to Uber a total sum of $4.5 million in a series of installments.

We recorded a charge in the third quarter of 2020 related to the settlement agreement.

As of December 31, 2020, we owe $3 million related to the settlement, which will be paid in various installments ending no later than September 30, 2021.

For further information related to the Uber settlement agreement, refer to Note 9 " Commitments and Contingencies" of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

As of December 31, 2020, the principal balance of our debt was approximately $10.1 million, from various debt, including a Paycheck Protection Program ("PPP") loan and convertible debt offerings.

The debt we believe will have the most significant impact on our future liquidity and capital resources is discussed below.

For further information on all our debt outstanding as of December 31, 2020, refer to Note 8 “ Debt ” of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

In April 2020, we received a PPP loan of approximately $2.85 million, which bears interest at a rate of 0.98% per annum.

The Paycheck Protection Flexibility Act of 2020, extended the deferral period for loan payments.

The Company currently anticipates its first PPP loan payment will be made in the third quarter of 2021.

Although we intend to apply for forgiveness, as currently provided for under terms of the PPP loan and the CARES Act, there can be no assurance that any part of our PPP loan will be forgiven.

The PPP loan matures in April 2022.

During 2020, we issued a series of convertible notes to an institutional investor.

As of December 31, 2020, the unrestricted principal balance of our Series A Convertible Note and Series B Convertible Note (collectively, the "2020 Convertible Notes") was $2.48 million and $3.58 million, respectively.

The 2020 Convertible Notes were issued with an original issue discount of 8% and each bear an interest rate of 7% per annum, which further includes a make-whole of interest (for unrestricted principal amounts) from the date of issuance through the maturity date of December 31, 2021.

Outstanding principal on the 2020 Convertible Notes is subject to monthly installment payments in cash of 107% of the installment amount due.

The noteholder has various redemption rights, such as the right to redeem an amount equal to 40% of the net proceeds from a qualified capital raise, or upon change of control or company default.

The noteholder may also convert 2020 Convertible Notes into shares of our common at a current adjusted conversion price of $2.25 per share.

Upon consummation of the issuance of the 2020 Convertible Notes, we also issued the note holder a warrant for the purchase of up to 2,160,000 shares of our common stock, which has a current adjusted exercise price of $2.25 per share.

We also have the right to redeem the full amount of the outstanding principal under the 2020 Convertible Notes.

As of December 31, 2020, the restricted principal balance of the Series A Convertible Note and Series B Convertible Note was $0 and $11.1 million, respectively.

Upon issuance of the 2020 Convertible Notes, the noteholder issued an investor note to us, which offsets the combined restricted balances of the 2020 Convertible Notes.

In March 2020, the noteholder exercised its right to redeem all amounts outstanding under the investor note.

As a result, all principal under the Series B Convertible Note has become unrestricted.

In January 2021, we issued 2,670,121 shares of common stock for aggregate proceeds of $5.1 million, net of $0.2 million of commissions (and before noteholder redemption payment) pursuant to the terms of an at-the-market offering, which has concluded.

In February 2021, we also issued 11,761,111 shares of our common stock for aggregate proceeds of $24.7 million in an underwritten public offering, net of $1.7 million of underwriter commissions and other underwriter costs.

As a result of the fundraising events above, the holder of our 2020 Convertible Notes elected to require us to use forty percent (40%) of the net proceeds satisfy obligations under the 2020 Convertible Notes, pursuant to which we paid approximately $11.5 million to the noteholder.

In March 2021, the noteholder voluntarily prepaid an aggregate of $10.3 million pursuant to the terms of the investor note.

As a result, we received cash proceeds of $10.3 million and the corresponding amount of principal of the Series B Note, representing the entire remaining amount of restricted principal, along with $0.8 million of original issue discount became unrestricted and outstanding.

On March 25, 2021, we delivered a Company Optional Redemption Notice to the holder of our Series B Note exercising our right to redeem and fully satisfy all obligations under the Series B Note on April 5, 2021.

Given the financings achieved above, we believe our current cash position is expected to be sufficient to meet our projected operating requirements for at least the next twelve months from the filing of this Annual Report on Form 10-K.

We have a history of operating losses and negative operating cash flows.

As we continue to focus on growing our revenues, we expect these trends to continue into the foreseeable future.

Our future capital requirements will depend on many

factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support development efforts, the expansion of sales and marketing activities and the market acceptance of our products and services.

As of December 31, 2021, we held total cash of $23.1 million, all of which was held in the United States.

In connection with our acquisition of Lyte, we entered into a note purchase agreement and completed the sale of an unsecured promissory note (the "2021 Promissory Note") with an original principal amount of $5.2 million in a private placement that closed on October 18, 2021.

After deducting all transaction cost, net cash proceeds to us were $4.7 million.

No interest will accrue on the promissory note unless and until the occurrence of an event of default (as defined in the promissory note).

We may prepay outstanding balance of the promissory note earlier than it is due with a prepayment premium of 110%.

Beginning on January 15, 2022 and on the same day of each month thereafter until the promissory note is paid in full, we are required to make a monthly amortization payments in the amount of $574 thousand which are considered prepayments subject to the prepayment premium.

On April 7, 2021, we entered into an At Market Issuance Sales Agreement with B.

Riley Securities, Inc.

Riley"), pursuant to which we offered and sold shares of our common stock, from time to time.

We filed two prospectus supplements on April 7, 2021 and October 26, 2021 that form part of our shelf registration statement for the offer and sale of up to an aggregate of $25 million and $48.5 million in common stock, respectively.

As of December 31, 2021, 20,951,043 shares of our common stock had been sold and we had received aggregate net cash proceeds of $65.2 million.

We terminated our At Market Issuance Sales Agreement with B.

Riley on February 4, 2022, with an effective termination date of February 9, 2022.

In addition, on October 22, 2021, the holder of our 2020 Convertible Notes partially exercised its warrant for the purchase of 2,060,000 shares of our common stock at an exercise price of $2.25 per share for net proceeds of $4.6 million to the Company.

On February 1, 2022, we filed a Form S-3, which was subsequently declared effective by the SEC on February 9, 2022, pursuant to which we may issue up to $200 million in common stock, preferred stock, warrants and units.

Contained therein, was a prospectus supplement in which we may sell up to $100 million of our common stock in an “at the market offering” as defined by the Securities Act pursuant to an At Market Issuance Sales Agreement we entered into with H.C.

Wainwright & Co., LLC on January 31, 2022.

To date, we have not sold any shares of our common stock under the sales agreement with H.C.

Wainwright or issued any securities under our Form S-3 filed on February 1, 2022.

As a result of the financing events described above, while our liquidity risk continues as a result of continued losses and the ongoing and evolving effects of the COVID-19 pandemic, management believes it has sufficient cash on hand for at least one year following the filing date of this Annual Report on Form 10-K.

Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support development efforts, the pace at which we can scale Lyte, the expansion of sales and marketing activities and the market acceptance of our products and services.

We believe that it is likely we will in the future enter into arrangements to acquire or invest in complementary businesses, technologies and intellectual property rights.

We may be required to seek additional equity or debt financing.

We may be required to seek additional equity or debt financings, or issue securities related to the effective registration statement described above.

In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all.

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Year Ended December 31, Change

2020 2019 Amount %

($ in thousands)

(in thousands, except percentages) 2021 2020 Amount %

Consolidated statement of cash flows

Net cash used in operating activities $ (22,514) $ (10,973) $ (11,541) 105.2 %

Net cash provided by investing activities — 70 (70) (100.0) %

Net cash used in investing activities (46,385) — (46,385) 100.0 %

Net cash provided by financing activities 88,019 14,596 73,423 503.0 %

Operating Activities

Our primary source of cash from operating activities is receipts from the sale of our platform subscriptions and services and application transactions to our customers.

Our primary uses of cash from operating activities are payments to employee for compensation and related expenses, publishers and other vendors for the purchase of digital media inventory and related costs, sales and marketing expenses and general operating expenses.

Our primary source of cash from operating activities is receipts sales for our various product and service offerings as further described elsewhere in this Annual Report.

Our primary uses of cash from operating activities are payments to employees for compensation and related expenses, publishers and other vendors for the purchase of digital media inventory and related costs, vendors for costs of inventory related to the assembly of Lyte computers, sales and marketing expenses and general operating expenses.

We utilized $(22.5) million of cash from operating activities during 2021 resulting from a net loss of $(53.5) million.

The net loss included non-cash charges of $40.0 million, primarily consisting of the change in fair value of warrants, impairment of digital assets, the loss on the extinguishment and amortization of debt issuance costs related to our 2020 Convertible Notes, as well as stock-based compensation.

In addition, certain changes in our operating assets and liabilities resulted in significant cash (decreases) as follows:

$(5.7) million from a decrease in accounts payable, accrued expenses and an installment payments to Uber related to the settlement of our lawsuit, as well as $(3.3) million from other working capital changes, primarily related to a decrease in post-acquisition deferred revenue and inventory purchases.

We utilized $(11.0) million of cash from operating activities during 2020 primarily resulting from a net loss of $(22.2) million, as adjusted for non-cash charges related to stock-based compensation of $4.5 million, $2.2 million for amortization of debt discount and deferred financing costs, $0.2 million for bad debt expense, $(0.5) million for accounts payable settlements, $(0.9) million for gain on the change in fair value of warrants and $2.2 million for loss on extinguishment of debt.

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$1.5 million from an increase in accounts payable and accrued expenses, $3.0 million accrued legal settlement balance as of December 31, 2020 related to our settlement with Uber, $0.8 million from an decrease in account receivable and $(2.0) million from an decrease in deferred revenue.

We utilized $(6.2) million of cash from operating activities during 2019 primarily resulting from a net loss of $(12.9) million, as adjusted for non-cash charges related to stock-based compensation of $1.8 million, depreciation and amortization of $0.3 million and allowance for doubtful receivables of $0.1 million.

In addition, during 2019 certain changes in our operating assets and liabilities resulted in cash increases (decreases) as follows:

$1.1 million from an increase in accrued expenses mainly related to accrued compensation, $0.7 million from an increase in accounts payable related to increase in payables for legal fees, $1.8 million from a decrease in accounts receivable mainly attributable to the conclusion of our statement of work with Fox, $0.6 million from deferred revenue and $0.2 million from prepaid expenses.

Investing Activities

Investing activities during 2019 primarily consisted of proceeds received from the sale of digital currencies.

Investing activities during 2021 consisted of the purchase of digital assets and the acquisition of Lyte Technology, Inc.

Financing Activities

Our financing activities during 2021 consisted of proceeds from equity financings and debt borrowings offset by payments on debt.

We acquired $88.0 million of cash from financing activities resulting primarily from $94.7 million in proceeds from the sale of our common stock, $14.7 million in proceeds from our Series B Convertible Note and 2021 Promissory Note and $4.6 million from a partial exercise of a warrant held by the holder of our 2020 Convertible Notes.

These sources of financing were partially offset by $(26.2) million of payments on debt, a majority of which related to payments on the 2020 Convertible Notes.

Our financing activities during 2020 consisted of proceeds from various debt borrowings offset by repayments on our various debt offerings and financing factoring agreement.

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These sources of financing were partially offset of $(9.0) million of payments on debt (inclusive of $0.6 million to related parties) and $(1.1) million in net repayments on our factoring financing agreement.

Our financing activities during 2019 consisted primarily of the proceeds from warrant exercises offset by redemptions of Series A convertible preferred stock.

We acquired $0.1 million of cash from financing activities during 2019, primarily as follows:

$6.1 million provided by warrant exercises;

$1.1 million from our debt financings, which includes $0.2 million

received from an affiliate associated with our Chief Executive Officer;

$0.3 million from proceeds of exercises of options to purchase our common stock;

and $0.2 million from proceeds received from PhunCoin deposits.

These sources of financing were offset by ($6.2) million in payments for the redemption of Series A convertible preferred stock and ($1.4) million in net payments on our factoring financing arrangement.

Contractual Obligations

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Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S.

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues generated and expenses incurred during the reporting periods.

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For further information on all significant accounting policies, refer to Note 2 “ Summary of Significant Accounting Policies ” of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

We derive our revenue primarily from MaaS subscription fees, application development and support fees.

We derive our revenue primarily from MaaS subscription fees, application development and support fees, as well as revenue from the sale of high-performance personal computer systems.

Revenue is recognized when control of these products or services are transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

Our revenue recognition policy follows guidance from Accounting Standards Codification No.

Our revenue recognition policy follows guidance from Accounting Standards Codification ("ASC") No.

606, Revenue from Contracts with Customers (Topic 606) .

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• Recognition of revenue when, or as, we satisfy a performance obligation.

Our contracts with customers often include promises to transfer multiple products and services to a customer.

Our software subscription and services contracts often include promises to transfer multiple products and services to a customer.

Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

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Judgment is required to determine whether a software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software support and services and recognized over time.

We review goodwill for impairment annually during the fourth quarter 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.

Digital Assets

We account for out digital assets as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other .

We have ownership of and control over our digital assets and we may use third-party custodial services to secure them.

The digital assets are initially recorded at cost and are subsequently remeasured, net of any impairment losses incurred since acquisition.

We determine the fair value of our digital assets on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement , based on quoted prices on the active exchange(s) that we have determined is the principal market for bitcoin and

ethereum (Level 1 inputs).

We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired.

In determining if an impairment has occurred, we consider the lowest market price quoted on an active exchange since acquiring the respective digital asset.

If the then current carrying value of a digital asset exceeds the fair value, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the fair value.

The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value.

Gains are not recorded until realized upon sale, at which point they are presented net of any impairment losses for the same digital assets held.

In determining the gain or loss to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

Impairment losses and gains or losses on sales are recognized within other expense in our consolidated statements of opera

We review goodwill for impairment annually during the fourth quarter or more frequently if events or changes in circumstances would more-likely-than-not reduce the fair value of a reporting unit below its carrying value.

As of December 31, 2021, no impairment of goodwill has been identified.

Convertible Notes

In March 2020, we issued a convertible note with a cash conversion feature.

In accounting for the issuance of the note, we separated the note into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have a convertible feature.

In July 2020, we also issued additional convertible notes to the same investor as the March 2020 convertible note.

Our net cash proceeds after the payoff of the March 2020 convertible note and transaction costs were approximately $1.8 million.

We also issued a warrant exercisable for 3 years for the purchase of an aggregate of up to 2,160,000 shares of our common stock at an initial exercise price of $4.00 per share in conjunction with the issuance of the convertible notes.

We evaluated all of the financial instruments, including the warrants to purchase common stock issued in conjunction with convertible debt, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC with ASC Topic 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock .

The warrants are accounted for as liabilities and initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statement of operations.

2020 Convertible Notes and Warrant

In July 2020, we issued the 2020 Convertible Notes.

We also issued a warrant exercisable for three (3) years for the purchase, initially, of an aggregate of up to 2,160,000 shares of our common stock at an initial exercise price of $4.00 per share.

As a result of our underwritten public offering in February 2021, the exercise price of each share decreased to $2.25 per share, and the number of shares for which the warrant is exercisable increased to 3,840,000.

We evaluated all of the financial instruments, including the warrant to purchase shares of our common stock issued in conjunction with 2020 Convertible Notes, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock .

In accordance with ASC 480, Distinguishing Liabilities from Equity , we accounted for the warrant initially as a liability at its fair value and is then re-valued the warrant at each reporting date, with changes in the fair value reported in the consolidated statement of operations.

We used a Black-Scholes option-pricing model to value the warrants at inception and subsequent valuation dates.

The initial and subsequent valuation of the warrants requires significant judgment.

For the assumptions used to value at warrants at issuance and at December 31, 2020, refer to Note 8 “ Debt ” of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Furthermore, the holder partially exercised its warrant for 2,060,000 shares of our common stock, in October 2021, which resulted in a revaluation of the warrant at the time of exercise.

The initial and subsequent valuations of the warrant requires significant judgment.

For the assumptions used to value at warrant as of December 31, 2021, refer to Note 9 “ Debt ” of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Business Combination

We account for business combinations using the acquisition method of accounting as prescribed in ASC 805, " Business Combinations (Topic 805)." We record the assets acquired, liabilities assumed and acquisition-related contingent consideration at fair value on the date of acquisition.

The difference between the purchase price, including any contingent consideration, and the fair value of net assets acquired is recorded as goodwill.

We may adjust the preliminary purchase price and purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as we obtain more information as to facts and circumstances that impact the determination of fair value at the acquisition date.

Any change in fair value of acquisition-related contingent consideration resulting from events after the acquisition date is recognized in earnings.

Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.

Recent Accounting Standards

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Quantitative and Qualitative Disclosures About Market Risk.

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, we are not required to provide the information required under this Item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis