TEN Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q. Forward-Looking Statements This quarterly report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to: any projections of earnings, revenue, or other financial items; any statements regarding the adequacy, availability, and sources of capital, any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” or “anticipate,” and other similar words. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in the forward-looking statements include those factors set forth in the “Risk Factors” section included in our registration statement on Form S-1 (File No. 333-282621), as amended, which was initially filed with the SEC on October 11, 2024 and declared effective by the SEC on February 7, 2025. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this quarterly report. We do not intend, and undertake no obligation, to update any forward-looking statement, except as required by law. The information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes included in this quarterly report on Form 10-Q, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 28, 2025 (the “Annual Report”). Business 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 were added to our revenue streams, due to our corporate restructuring completed in fiscal year 2023, and mainly involve live streaming and video recording of physical events. As of the date of this quarterly report, we primarily generate revenue from virtual and hybrid events delivered to corporate customers. We experienced a decrease in our total revenue and net income in the first quarter of fiscal year 2025, mainly due to an event series with our biggest customer that took place in the first quarter of fiscal year 2024 that did not repeat in the first quarter of fiscal year 2025. For the three months ended March 31, 2025 and 2024, we had total revenue of approximately $739 thousand and $1,128 thousand, respectively, and net loss of approximately $4,841 thousand and $405 thousand, respectively. For the three months ended March 31, 2025 and 2024, the revenue generated from virtual and hybrid events was approximately $713 thousand and $1,081 thousand, respectively, accounting for approximately 96.5% and 95.8% of our total revenue, respectively; and the revenue generated from physical events was approximately $26 thousand and $47 thousand, respectively, accounting for approximately 3.5% and 4.2% of our total revenue, respectively. Our mission is to deliver top-tier planning, production, and broadcasting services for virtual, hybrid and physical events. Our goal is to become a global leader in innovative virtual events that enhance engagement and connectivity, making impactful and memorable experiences accessible to all. 19 Key Financial Performance Indicators Revenue Our revenue is derived from the provision of virtual and hybrid events and physical events on our Xyvid Pro Platform. Cost of revenue Our cost of revenue is primarily driven by the costs paid to our employees for producing events and the costs of renting equipment and our studio. Selling, general and administrative expenses Selling, general and administrative expenses are primarily composed of personnel costs for sales and marketing staff and general corporate functions, computer and software costs, and advertising and marketing expenses. Operating profit and operating profit margin Operating profit is the difference between our revenue and cost of revenue and selling, general and administrative expenses. Operating profit margin is the profit margin as a percentage of revenue. Other income (expenses) From time to time, we have non-recurring, non-operating gains and losses which are reflected through other income (expense). Interest expenses Interest expenses consist of interest expenses arising from borrowings. Results of Operations Comparison of Results of Operations for the three months ended March 31, 2025 and 2024 The following table sets forth our statements of operations for the three months ended March 31, 2025 and 2024: (in thousands, except change % data) Three Months Ended March 31, Change (2025 vs. 2024) 2025 ($) 2024($) $ YoY % Revenues Delivered events - Virtual and Hybrid 713 1,081 (368 ) (34.0 )% Delivered events - Physical 26 47 (21 ) (44.7 )% Total Revenues 739 1,128 (389 ) (34.5 )% Cost of revenues 186 283 (97 ) (34.3 )% Gross Profit 553 845 (292 ) (34.6 )% Operating expenses: Selling, General and Administrative Expenses 5,166 1,206 3,960 328.4 % Depreciation expenses 149 13 136 1,046.2 % Total operating expenses 5,315 1,219 4,096 336.0 % Loss from operations (4,762 ) (374 ) (4,388 ) 1,173.3 % Other income (expenses), net (5 ) (5 ) - 0.0 % Interest expenses (69 ) (26 ) (4 3 ) 1 65.4 % Loss before income taxes (4,836 ) (405 ) (4,43 1 ) 1,09 4.1 % Provision for income taxes - - - 0.0 % Net Loss (4,836 ) (405 ) (4,436 ) 1,09 4.1 % 20 Revenue Revenue decreased by $389 thousand, or 34.5%, to $739 thousand. The decrease was primarily driven by following factors: ● Revenue from delivered events – Virtual and Hybrid decreased by $368 thousand mainly due to an event series with our biggest customer that took place in the three months ended March 31, 2024 but did not repeat in the three months ended March 31, 2025. This event series is held by our biggest customer every other year. ● Revenue from delivered events – physical events decreased by $21 thousand, mainly due to two customers’ events from the three months ended March 31, 2024 that did not repeat for the three months ended March 31, 2025. Cost of Revenue Cost of revenue decreased by $97 thousand, or 34.3%, to $186 thousand, reflecting the lower direct costs associated with the lower corresponding revenue. Selling, General and Administrative Expenses (“SG&A expenses”) SG&A expenses increased by $3,960 thousand, or 328.4%, to $5,166 thousand, due to the recognition of stock compensation expense of $3,513 thousand in connection with the vesting of employee stock options from the IPO, marketing expenses from brand and performance-related spend 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 $43 thousand, or 138.7%, to $74 thousand, primarily due to the increase in borrowing. Net Loss As a result of the foregoing, the net loss was $4,836 thousand during the three months ended March 31, 2025 compared to the net loss of $405 thousand during the three months ended March 31, 2024. Non-GAAP Financial Measures Non-GAAP Net Loss and Non-GAAP Net Loss per Share We define non-GAAP net loss as GAAP net loss excluding the impact of stock-based compensation expense. Non-GAAP net loss per share is calculated by dividing non-GAAP net loss by the diluted weighted average shares of common stock outstanding. We believe the presentation of these adjusted operating results provides useful supplemental information to investors and facilitates the analysis and comparison of our operating results across reporting periods. Three Months Ended March 31, 2025 2024 (in thousands) Net Loss $ (4,836 ) $ (405 ) Stock-based compensation expense 3,512 - Non-GAAP net loss $ (1,324 ) $ (405 ) Weighted-average number of shares of common stock outstanding used to compute net loss per share, basic and diluted 27,058,113 25,000,000 Net loss per share - basic and diluted $ (0.18 ) $ (0.02 ) Non-GAAP net loss per share - basic and diluted $ (0.05 ) $ (0.02 ) 21 Adjusted EBITDA Adjusted EBITDA is a key measure used by our management to help us analyze our financial results, establish budgets and operating goals for managing our business, evaluate our performance and make strategic decision. We define Adjusted EBITDA as our net loss excluding: (i) depreciation and amortization, (ii) other expense (income), and (iii) stock-based compensation expense. The following table provides a reconciliation of net loss to Adjusted EBITDA: Three Months Ended March 31, 2025 2024 (in thousands) Net loss $ (4,836 ) $ (405 ) Depreciation and amortization 149 13 Other income (expenses), net 5 5 Stock-based compensation expenses 3,512 - Adjusted EBITDA $ (1,170 ) $ (387 ) Cash Flows/Liquidity Cash flows as of March 31, 2025 and December 31, 2024 As of March 31, 2025 and December 31, 2024, we had cash of $247 thousand and $48 thousand, respectively. Liquidity is a measure of our ability to meet potential cash requirements. We generally fund our operations with cash flow from operations, and, when needed, borrowed funds 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. (in thousands) Three Months Ended March 31, 2025 2024 Cash flows from operating activities: Net loss $ (4,836 ) $ (405 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 149 13 Noncash lease expenses 18 17 Noncash interest expenses 69 26 Stock-based compensation 3,512 - Changes in operating assets and liabilities: Accounts receivable 203 (477 ) Advance – related party (5,265 ) - Prepaid expenses and other assets (33 ) (32 ) Accounts payable (321 ) 156 Accrued expenses (387 ) (117 ) Deferred revenue 123 253 Operating lease liabilities (17 ) (15 ) Net cash used in operating activities (6,785 ) (581 ) Cash flows from investing activities: Purchase of property and equipment - (11 ) Purchase of capitalized internal-use software (273 ) (258 ) Net cash used in investing activities (273 ) (269 ) Cash flows from financing activity Proceeds from short-term loans - related party 385 917 Repayments of short-term loans - related party (2,000 ) - Proceed from issuance of shares 8,900 - Payment for deferred offering costs (28 ) - Net cash provided by financing activity 7,257 917 Net change in cash and cash equivalents 199 67 Cash and cash equivalents at beginning of period 48 357 Cash and cash equivalents at end of period $ 247 $ 424 22 Operating Activities Net cash used in operating activities increased from $581 thousand during the three months ended March 31, 2024 to $6,785 thousand during the three months ended March 31, 2025. The increase in cash outflow was primarily due to the higher loss in the three months ended March 31, 2025. Investing Activities Net cash used in investing activities increased from $269 thousand during the three months ended March 31, 2024 to $273 thousand during the three months ended March 31, 2025. The increase in cash outflow was mainly due to an increase in the amount capitalized with respect to the internally developed software. Financing Activities Net cash provided by financing activity increased from $917 thousand during the three months ended March 31, 2024 to $7,257 thousand during the three months ended March 31, 2025. The increase was primarily due to the proceeds received from issuance of shares, partially offset by the payment made related to the outstanding loans. Contractual Obligations and Commitments As of March 31, 2025, the Company had total of $4,664 thousand contractual obligations for future payments. As of March 31, 2025 (in thousands) Payments due by period: Total Less than 1 year 1 – 3 years 4 – 5 years More than 5 years Short-term debt $ 4,002 $ 4,002 $ - $ - $ - Operating lease payments 662 78 220 238 126 Total $ 4,664 $ 4,080 $ 220 $ 238 $ 126 23 Capital Expenditures Our capital expenditure primarily consists of acquisition of computer hardware equipment and capitalized software. During the three months ended March 31, 2025 and 2024, we spent $273 thousand and $269 thousand, respectively, on acquisitions of computer hardware / equipment and capitalized software. Off-Balance Sheet Arrangements As of March 31, 2025, 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 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 24 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. 25 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 3. Quantitative and Qualitative Disclosures About Market Risk . As a smaller reporting company, we are not required to provide this information.