TEN Holdings, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report. Forward-Looking Statements This Annual Report on Form 10-K contains certain forward-looking statements and information relating to the Company within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or conditional verbs such as “will,” “should,” “could,” or “may” and similar expressions or the negative thereof. Important factors that could cause actual results to differ materially from those in the forward-looking statements included herein include, but are not limited to: ● assumptions about our future financial and operating results, including revenue, income, expenditures, cash balances, and other financial items; ● our ability to execute our growth strategies, including our ability to meet our goals; ● current and future economic and political conditions; ● our capital requirements and our ability to raise any additional financing which we may require; ● our ability to attract customers and further enhance our brand recognition; ● our ability to hire and retain qualified management personnel and key employees in order to enable us to develop our business; ● trends and competition in our industry; and ● other assumptions described in this annual report underlying or relating to any forward-looking statements. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. We caution readers not to place undue reliance on forward-looking statements. The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-K to reflect future events or developments. Additional information on risk factors that may affect forward-looking statements is included under “Risk Factors” in this Form 10-K. Overview We are a provider of event planning, production, and broadcasting services headquartered in Pennsylvania. We mainly produce virtual and hybrid events and physical events. Virtual and hybrid events involve virtual and hybrid event planning, production and broadcasting services, and continuing education services, all of which are supported by our proprietary Xyvid Pro Platform. Physical events mainly involve live streaming and video recording of physical events. 29 Factors Impacting Our Operating Results Our financial condition and results of operation have been and will continue to be affected by a number of factors, many of which may be beyond our control, including those factors set out in the section headed “Risk Factors” in this annual report and those described below. Change in demand for our products or platform We derive, and expect to continue to derive, a significant portion of our revenue and cash flows from producing virtual and hybrid events. Widespread adoption and use of live engagement technologies, webinars and event software in general, and our platform in particular, are critical to our future growth and success. If this market fails to grow or grows more slowly than we currently anticipate, demand for our platform could be negatively affected. Demand for our platform is affected by a number of factors, many of which are beyond our control. Some of these potential factors include: ● availability of products and services that compete, directly or indirectly, with ours; ● awareness and adoption of live engagement technologies, generally, as a substitute for in-person events; ● ease of adoption and use of the relevant technologies; ● features and platform experience; ● reliability of our platform, including frequency of outages; ● performance and user support; ● our brand and reputation; ● security and privacy; ● our pricing and our competitors’ pricing; and ● new modes of live engagement that may be developed in the future. If we fail to successfully predict and address these factors, meet customer demands or achieve more widespread market adoption of our platform, our business could be harmed. Ability to respond to rapid technological changes, extend our platform or develop new features The markets in which we compete are characterized by rapid technological changes and the frequent introduction of new products and services. Our ability to attract new customers and retain and expand the usage of existing customers depends on our ability to enhance and improve our platform, and to introduce new features and solutions. Our customers may require features and capabilities that our current platform does not have. We are focused on improving the quality and range of our service offerings and are committed to investing in research and development. Our enhancements to our platform, features or capabilities may not be compelling to our existing or potential customers and may not gain market acceptance. If our research and development investments do not accurately anticipate customer demand, or if we fail to develop our platform in a manner that satisfies customer preferences in a timely and cost-effective manner, we may fail to retain our existing customers or increase demand for our platform. The introduction of competing services or the development of entirely new technologies to replace existing offerings could make our platform obsolete or adversely affect our business, results of operations and financial condition. We may experience difficulties with software development, design or marketing that could delay or prevent our development, introduction, or implementation of new services, features, or capabilities. New services, features or capabilities may not be released according to schedule. Any delays could result in adverse publicity, loss of revenue or market acceptance, or claims by customers brought against us, all of which could harm our business. If customers do not widely adopt our new services, features and capabilities, we may not be able to realize a return on our investment. If we are unable to develop, license or acquire new features and capabilities to our platform on a timely and cost-effective basis, or if such enhancements do not achieve market acceptance, our business could be harmed. 30 Ability to effectively develop and expand our marketing capabilities Our ability to increase our customer base and achieve broader market acceptance of our services will depend to a significant extent on our ability to expand our marketing and sales operations. We plan to continue expanding our sales and marketing capabilities, including through additional investment in digital marketing and sales team expansion. If we are unable to expand our sales and marketing operations, our future revenue growth and business could be adversely impacted. Identifying and recruiting qualified sales representatives and training them is time consuming and resource intensive, and they may not be fully trained and productive for a significant amount of time. We also plan to dedicate resources to sales and marketing programs, including internet and other online advertising. All of these efforts will require us to invest significant financial and other resources, as the cost to acquire customers through these efforts is high. Our business will be harmed if our efforts do not generate a correspondingly significant increase in revenue. Competitive market The webcasting market is competitive and rapidly changing, and existing and new market entrants, particularly established companies with greater resources than we have, that provide technologies to improve communication and engagement technologies or platforms, such as artificial intelligence and machine learning, could also increase the level of competition in the market. We face competition from many large and small companies, which include, but are not limited to, Zoom, ON24, GlobalMeet, Cvent, Bizzabo, and Meeting Tomorrow. Our competitors vary in size and in the breadth and scope of the products and services they offer. Many of our actual and potential competitors benefit from competitive advantages over us, such as greater name recognition; longer operating histories; more varied products and services; larger marketing budgets; more established marketing relationships; more third-party integration; greater accessibility across devices or applications; greater access to larger user bases; and greater financial, technical, and other resources. Some of our competitors may make acquisitions or strategic investments or enter into strategic relationships to offer a broader range of products and services than we do, which may prevent us from using such third parties’ technology or offering such products or services. These combinations may make it more difficult for us to compete effectively. We expect these trends to continue as competitors attempt to strengthen or maintain their market positions. As we introduce new products or services, and with the introduction of new technologies and market entrants, we expect competition to intensify in the future. Demand for our platform is price sensitive. Many factors, including our pricing and marketing strategies, customer acquisition, and technology costs, as well as the pricing and marketing strategies of our competitors, can significantly affect our pricing strategies. Certain competitors offer, or may in the future offer, lower-priced or free products or services that compete with our platform or certain aspects of our platform, and they may offer a broader range of products and services than we do. Even if such competing products do not include all of the features and functionality that we provide, we could face pricing pressure to the extent that customers find such alternative products to be sufficient to meet their needs. Similarly, certain competitors or potential competitors may use marketing strategies that enable them to acquire customers at a lower cost than we can. Moreover, our major customers may demand substantial price concessions. As a result, we may be required to provide our major customers with pricing below our targets in the future. As a result, we could lose market share to our competitors or be forced to engage in price-cutting initiatives or other discounts to attract and retain customers, each of which could harm our business, results of operations and financial condition. Future Outlook of Market Trends Customer Concentration We had a single customer that represented approximately 64.6% and 51.1% of our revenue for the years ended December 31, 2024 and 2023, respectively, and if they were to reduce their purchases, it may have an outsized effect on our revenue, cash and profitability. Our sales team is actively pursuing new customers in our existing sales channels as well as adding new sales channels to enhance our up-selling and cross-selling potential. Competitive Landscape Within the webcasting market segment, larger companies, such as Zoom, ON24, GlobalMeet, Cvent, can leverage their extensive and agile infrastructure to swiftly adapt to emerging market trends, such as software-as-a-service related offerings, production related enhancements, Artificial Intelligence (AI) integrations, etc. As market leaders, these companies may be able to set industry standards while driving the pace of innovation. We continue to closely monitor our competition to better understand market trends and their potential impact on our business, if any. 31 Security Considerations Our cybersecurity is paramount for safeguarding our internally created software platform to ensure the protection of sensitive data and intellectual property. We are developing robust security measures to mitigate the risk of cyber threats, such as data breaches or unauthorized access, which could compromise the integrity and reputation of our Company. By prioritizing cybersecurity, we seek to maintain trust among stakeholders, uphold regulatory compliance, and sustain uninterrupted operations. Future Prospects During the COVID-19 pandemic, we saw a significant increase in usage of our platform and services. Following the pandemic, some of our customers reduced their use of our platform, and additional customers may do so in the future. Other than as disclosed in the consolidated financial statements and the related notes included elsewhere in this annual report, we are not aware of any other trends, uncertainties, commitments or events for the years ended December 31, 2024 and 2023 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity or capital resources, or cause such financial statements to be not necessarily indicative of future operations results or financial condition. Key Financial Performance Indicators Revenue Our revenue is derived from the provision of virtual and hybrid events and physical events on our Xyvid Pro Platform. Cost of revenue Our cost of revenue is primarily driven by the costs paid to our employees for producing events and the costs of renting equipment and our studio. Selling, general and administrative expenses Selling, general and administrative expenses are primarily composed of personnel costs for sales and marketing staff and general corporate functions, computer and software costs, and advertising and marketing expenses. Operating profit and operating profit margin Operating profit is the difference between our revenue and cost of revenue and selling, general and administrative expenses. Operating profit margin is the profit margin as a percentage of revenue. Other income (expenses) From time to time, we have non-recurring, non-operating gains and losses which are reflected through other income (expense). Interest expenses Interest expenses consist of interest expenses arising from borrowings. 32 Results of Operations Comparison of Results of Operations for the years ended December 31, 2024 and 2023 The following table sets forth our statements of operations for the years ended December 31, 2024 and 2023: (in thousands, except change % data) Years Ended December 31, Change (2024 vs. 2023) 2024 ($) 2023 ($) $ YoY % Revenue 　 　 　 　 Delivered events - Virtual and Hybrid 3,219 3,525 (306 ) (8.7 %) Delivered events - Physical 285 194 91 46.9 % Total Revenue 3,504 3,719 (215 ) (5.8 %) Cost of revenue 652 555 97 17.5 % Gross Profit 2,852 3,164 (312 ) (9.9 %) Operating expenses: 　 　 　 　 Selling, General and Administrative Expenses 5,390 4,742 648 13.7 % Depreciation expenses 190 51 139 272.5 % Total operating expenses 5,580 4,793 787 16.4 % Loss from operations (2,728 ) (1,629 ) (1,099 ) 67.5 % Other income (expenses), net (30 ) 28 (58 ) (207.1 %) Interest expenses (210 ) (52 ) (158 ) 303.8 % Loss before income taxes (2,968 ) (1,653 ) (1,315 ) 79.6 % Provision for income taxes - 35 (35 ) (100.0 %) Net Loss (2,968 ) (1,688 ) (1,280 ) 75.8 % Revenue Revenue decreased by approximately $215 thousand, or 5.8%, to approximately $3,504 thousand. The decrease was primarily driven by following factors: ● Revenue from delivered events – Virtual and Hybrid decreased by approximately $306 thousand, mainly due to a 2023 event that did not repeat in 2024. ● Revenue from delivered events – Physical increased by approximately $91 thousand, mainly due to a corporate restructuring which resulted in the addition of a full year of activity during the year ended December 31, 2024. During the year ended December 31, 2023, we only reported revenue from “delivered events – physical” in June through December of 2023. Cost of Revenue Cost of revenue increased by approximately $97 thousand, or 17.5%, to approximately $652 thousand. Cost of revenue increased while revenue decreased mainly due to higher outsourced labor costs associated with physical events and a singular hybrid event that required significant third-party production and labor costs. 33 Selling, General and Administrative Expenses (“SG&A expenses”) SG&A expenses increased by approximately $648 thousand, or 13.7%, to approximately $5,390 thousand, mainly due to accounting and professional service expenses, computer and software related expenses, and increased payroll expenses due to the addition of key members of the management team. Other Income (Expense), net and Interest Expenses The total of other expenses and interest expenses increased by approximately $216 thousand, or 900.0%, to approximately $240 thousand primarily due to the increase in borrowing. Net Loss As a result of the foregoing, the net loss was approximately $2,968 thousand during the year ended December 31, 2024, compared to the net loss of approximately $1,688 thousand during the year ended December 31, 2023. Cash Flows/Liquidity Cash flows for the years ended December 31, 2024 and 2023 As of December 31, 2024 and 2023, we had cash of approximately $48 thousand and $357 thousand, respectively. Liquidity is a measure of our ability to meet potential cash requirements. We generally funded our operations with cash flow from operations, and, when needed, borrowing from financial institutions and capital injections from our principal shareholders. Our principal use of liquidity has been to fund our daily operations and working capital. We expect that our cash and cash equivalents will be sufficient to fund our operating expenses and cash obligations for the next 12 months, although our ability to continue as a going concern depends upon our ability to attract and retain revenue generating customers, acquire new customer contracts, and secure additional financing. We expect we will require additional financing through debt and equity investments to fund our operating expenses and cash obligations beyond the next 12 months. (in thousands) Years Ended December 31, 2024 2023 Cash flows from operating activities: Net loss $ (2,968 ) $ (1,688 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 190 51 Noncash lease expenses 71 68 Changes in operating assets and liabilities: Accounts receivable (155 ) 567 Other assets (90 ) (10 ) Income tax receivable 91 197 Accounts payable (12 ) 229 Accrued expenses 578 156 Deferred revenue (127 ) 221 Operating lease liabilities (63 ) (56 ) Net cash (used in)/provided by operating activities (2,485 ) (265 ) Cash flows from investing activities: Purchase of property and equipment (38 ) (25 ) Purchase of capitalized internal-use software (999 ) (1,050 ) Net cash used in investing activities (1,037 ) (1,075 ) Cash flows from financing activity Proceeds from short-term loans - related party 4,244 1,690 Payment for deferred offering costs (1,031 ) - Net cash provided by financing activity 3,213 1,690 Net change in cash and cash equivalents (309 ) 350 Cash and cash equivalents at beginning of period 357 7 Cash and cash equivalents at end of period $ 48 $ 357 Non-cash investing and financing activities: Conversion of convertible promissory note $ 317 $ — 34 Operating Activities Net cash used in operating activities increased from approximately $265 thousand during the year ended December 31, 2023 to approximately $2,485 thousand during the year ended December 31, 2024. The increase in cash outflow was primarily due to the higher loss in the year ended December 31, 2024. Investing Activities Net cash used in investing activities decreased from approximately $1,075 thousand during the year ended December 31, 2023 to approximately $1,037 thousand during the year ended December 31, 2024. The decrease in cash outflow was mainly due to a reduction in the amount capitalized with respect to the internally developed software. Financing Activities Net cash provided by financing activity increased from approximately $1,690 thousand during the year ended December 31, 2023 to approximately $3,213 thousand during the year ended December 31, 2024. The increase was due to the higher amount of short-term loans we had during the year ended December 31, 2024, partially offset by the payment made related to the deferred costs in connection with our IPO. Contractual Obligations and Commitments As of December 31, 2024, the Company had total of approximately $6,305 thousand contractual obligations for future payments. As of December 31, 20224 (in thousands) Payments due by period: Total Less than 1 year 1 – 3 years 4 – 5 years More than 5 years Short-term debt $ 5,617 $ 5,617 $ — $ — $ — Operating lease payments 688 104 220 238 126 Total $ 6,305 $ 5,721 $ 220 $ 238 $ 126 35 Capital Expenditures Our capital expenditure primarily consists of acquisition of computer hardware equipment and capitalized software. During the fiscal years ended December 31, 2024 and 2023, we spent $1,037,000 and $1,075,000, respectively, on acquisitions of computer hardware / equipment and capitalized software. Off-Balance Sheet Arrangements As of December 31, 2024, the Company did not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Critical Accounting Policies and Estimates The preparation of the consolidated financial statements and accompanying notes included elsewhere in this annual report requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting policies that are significant to the preparation of our consolidated financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. While our significant accounting policies are more fully described in Note 2 to the consolidated financial statements included elsewhere in this prospectus, we believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements. Use of Estimates The preparation of the consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the reporting date, and the reported amounts of revenue and expense during the reporting period. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future and include, but are not limited to, allowance for credit losses, useful lives of property and equipment and capitalized software, the carrying value of operating lease right-of-use assets, impairment of long-lived assets, and valuation allowance against net deferred tax assets. Actual results could differ from those estimates. The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our financial statements: Revenue Recognition The Company applies ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) for all periods presented in the consolidated financial statements. To determine the appropriate amount of revenue to be recognized in accordance with ASC 606, the Company follows a five-step model as follows: 1 – Identification of the contract with a customer 2 – Identification of the performance obligation in the contract 3 – Determination of the transaction price 4 – Allocation of the transaction price to the performance obligation in the contract 5 – Recognition of revenue when, or as, a performance obligation is satisfied 36 Hybrid, virtual and physical event revenue Revenue from hybrid, virtual and physical events is generated from producing and delivering hybrid or virtual events using the Company’s platform, the Xyvid Pro Platform, or delivering physical events. Virtual events are online events and conferences where participants interact in an online environment, and physical events are events where participants meet in a physical location. The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring services to the customer. The transaction price is generally fixed at contract inception and is based on the agreed upon rates stated in the contract which indicates the amount of consideration the Company expects to be entitled to in exchange for satisfaction of performance obligation (i.e., delivering events). The amount on the final invoice depends on the actual work performed and might differ from the amount stated in the initial contract. When there is variable consideration included in the transaction price if, in the management’s judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur, the Company and the customer agree on the price on the final invoice, and revenue is recognized based on the amount on the final invoice. None of our contracts contain a significant financing component. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to government entities. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised services to the customer, which is upon completion of the event. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company sometimes enters into the contract with a bundle of events. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on each performance obligation’s relative standalone selling price. The Company’s contracts with multiple performance obligations are generally sold over the same contract terms as that of the contract with single performance obligation and have the same pattern of transferring services to the customer, and therefore, they are accounted for as one combined performance obligation in the context of the contract. From time to time, the Company engages subcontractors for delivering events. The Company assesses and records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenue and expenses. For events delivered with subcontractors, the Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified vendors, (ii) has the discretion to select the vendors and establish their price and duties, and (iii) bears the risk for services that are not fully paid for by its customers. Property and Equipment, Net Property and equipment are recorded at the cost less accumulated depreciation. Depreciation is computed using the straight-line method. The estimated useful lives of assets are as follows: Property and Equipment Estimated Useful Life Computer and equipment 7 years Furniture and fixture 10 years Leasehold improvement Shorter of 10 years or lease term Repair and maintenance costs are expensed as incurred. Intangible Assets Intangible assets consist of capitalized software. The Company accounts for its software development costs in accordance with the guidance in ASC 350-40, Internal-use software. The costs incurred prior to the application development stage and post implementation are expensed as incurred. Direct and incremental internal and external costs incurred during the application development stage are capitalized until the application is substantially complete and ready for its intended use, at which point amortization begins. Training, data conversion and maintenance costs are expensed as incurred. Costs of capitalized software are amortized on a straight-line basis over the estimated period of benefit, which is approximately five years, and are recorded in cost of revenue in the Consolidated Statements of Operations. Impairment or Disposal of Long-Lived Assets Long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if the carrying amount is not recoverable when compared to the Company’s undiscounted cash flows, and the impairment loss is measured based on the difference between the carrying amount and fair value. Long-lived assets held for sales are reported at the lower of cost or fair value less costs to sell. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, we are not required to provide the information required by this item. Item 8. Financial Statements and Supplementary Data. Please see the financial statements beginning on page F-1 following the signature pages in this Annual Report on Form 10-K and incorporated herein by reference. 37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.