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, and in our registration statement on Form S-1 (File No. 333-288741), as amended, which was initially filed with the SEC on July 17, 2025 and declared effective by the SEC on August 12, 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 an increase in our total revenue in the second quarter of fiscal year 2025, mainly due to an increase in revenue from our physical events, which were provided to a new customer. For the six months ended June 30, 2025 and 2024, we had total revenue of approximately $1,855,000 and $2,151,000, respectively, and net loss of approximately $7,620,000 and $826,000, respectively. For the six months ended June 30, 2025 and 2024, the revenue generated from virtual and hybrid events was approximately $1,587,000 and $1,972,000, respectively, accounting for approximately 85.6% and 91.7% of our total revenue, respectively; and the revenue generated from physical events was approximately $268,000 and $179,000, respectively, accounting for approximately 14.4% and 8.3% 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. 25 Settlement Agreement and Stipulation with Sunpeak Holdings Corporation (“SHC”) On April 23, 2025, we entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with SHC, which became effective on April 30, 2025, to settle certain outstanding obligations owed by us. Pursuant to the Settlement Agreement, SHC agreed to purchase certain outstanding payables owed by us to our designated creditors totaling approximately $4.91 million (the “Claims”) and agreed to exchange the Claims for a settlement amount payable in shares of our common stock (the “Settlement Shares”). The Settlement Shares were priced at the closing price of our common stock on April 23, 2025, subject to adjustment pursuant to the terms of the Settlement Agreement. Among other things, in the event that our common stock’s market price decreases to or below $0.25 per share or if at any time the thirty-day average volume of the trading of our common stock drops to at or below 100,000 shares per day, then we will be deemed to be in default under the Settlement Agreement. SHC has agreed that it will not become the beneficial owner of more than 4.99% of common stock of us at any point in time. The Settlement Agreement and the issuance of the Settlement Shares were approved by the Circuit Court of the Twelfth Judicial Circuit in and for Manatee County, Florida, Civil Division (the “Court”), on April 30, 2025 (Case No. 2025 CA 000858). The Court entered an order confirming the fairness of the terms and conditions of the Settlement Agreement and the issuance of the Settlement Shares. In accordance with the terms of the Settlement Agreement, the Company issued the following amounts of freely tradable shares of common stock to SHC: (i) 175,000 shares on May 9, 2025 (the “Settlement Fee Shares”), (ii) 1,372,000 shares on May 14, 2025, (iii) 1,458,000 shares on May 15, 2025, (iv) 690,000 shares on June 4, 2025, (v) 707,000 shares on June 11, 2025, and (vi) 1,158,000 shares on June 25, 2025 (such shares in clauses (ii) through (vi) being, collectively, the “Issued Settlement Shares, ” and together with the Settlement Fee Shares, the “SHC Shares”). The issuance of the SHC Shares were made in reliance upon the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933, as amended, which exempts from registration any securities issued in exchange for one or more outstanding securities, claims, or property interests where the terms and conditions of such issuance and exchange are approved by a court of competent jurisdiction after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange have the right to appear. The foregoing description of the Settlement Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, which was filed as Exhibit 10.1 to our Current Report on Form 8-K dated May 2, 2025 and is incorporated by reference herein. Common Stock Purchase Agreement (“Purchase Agreement”) and Registration Right Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) On June 23, 2025, we entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park committed to purchase from us, from time to time and subject to certain limitations and conditions, up to an aggregate of $20,000,000 of shares of our common stock over the term of the Purchase Agreement. On the same date, we issued 882,145 shares of our common stock to Lincoln Park. In connection with the Purchase Agreement, we also entered into a registration rights agreement, dated June 23, 2025 (the “Registration Rights Agreement”), with Lincoln Park, pursuant to which we agreed to file a registration statement on Form S-1 with the SEC to register under the Securities Act of 1933 the resale of the shares of our common stock that have been and may be issued to Lincoln Park under the Purchase Agreement. The foregoing description of the Purchase Agreement and Registration Rights Agreement (collectively, the LPC Transaction Documents”) does not purport to be complete and is qualified in its entirety by reference to the full text of the Purchase Agreement and Registration Rights Agreement, which was filed as Exhibit 10.2 and Exhibit 10.3 to our Current Report on Form 8-K dated June 24, 2025, and is incorporated by reference herein. Share Issuance to Bancroft Capital, LLC (“Bancroft”) In connection with our initial public offering in February 2025, we entered into an underwriting agreement with Bancroft, under which Bancroft was granted a right of first refusal to act as the sole placement agent for any private equity offerings we undertake. As compensation for the services Bancroft provided in connection with our entry into the LPC Transaction Documents, Bancroft invoiced us for a fee of 61,750 shares of our common stock. Accordingly, on July 31, 2025, we issued 61,750 shares of our common stock to Bancroft as payment for its services with respect to such transaction. 26 Share Issuance to MicroCap Advisory, LLC On July 18, 2025, the Company entered into a market awareness agreement, dated as of June 27, 2025 (the “MCA Agreement”), with MicroCap Advisory, LLC (the “MC Advisor”), pursuant to which the MC Advisor will provide investor communications and market awareness services to the Company for a six-month term. The MC Advisor will develop and implement a multi-step investor outreach strategy, including positioning, media planning, and campaign execution. As compensation, the MC Advisor will receive a $15,000 setup fee and $100,000 per month, beginning one week after execution of the MCA Agreement. Additionally, the Company will issue 500,000 fully earned warrants to the MC Advisor, exercisable at $0.40 per share for two years, with anti-dilution adjustments in the event of a reverse stock split and cashless exercise rights if unregistered. Either party may terminate the MCA Agreement after 60 days upon 30 days’ written notice. As of the date of this quarterly report, the Company has not issued any warrants to the MC Advisor. The Company expects to issue the foregoing warrants to the MC Advisor by the end of 2025. Key Financial Performance Indicators Revenue Our revenue is derived from the provision of virtual and hybrid events and physical events on our Xyvid Pro Platform. Cost of revenue Our cost of revenue is primarily driven by the costs paid to our employees for producing events and the costs of renting equipment and our studio. Selling, general and administrative expenses Selling, general and administrative expenses are primarily composed of personnel costs for sales and marketing staff and general corporate functions, computer and software costs, and advertising and marketing expenses. Operating profit and operating profit margin Operating profit is the difference between our revenue and cost of revenue and selling, general and administrative expenses. Operating profit margin is the profit margin as a percentage of revenue. Other income (expenses) From time to time, we have non-recurring, non-operating gains and losses which are reflected through other income (expense). Interest expenses Interest expenses consist of interest expenses arising from borrowings. Results of Operations Comparison of Results of Operations for the three months ended June 30, 2025 and 2024 The following table sets forth our statements of operations for the three months ended June 30, 2025 and 2024: (in thousands, except change % data) Three Months Ended June 30, Change (2025 vs. 2024) 2025($) 2024($) $ YoY % Revenues Delivered events - Virtual and Hybrid 855 891 (16 ) (1.8 )% Delivered events - Physical 261 132 109 82.6 % Total Revenues 1,116 1,023 93 9.1 % Cost of revenues 175 141 34 24.1 % Gross Profit 941 882 59 6.7 % Operating expenses: Selling, General and Administrative Expenses 2,153 1,243 910 73.2 % Depreciation expenses 148 13 135 1,038.5 % Total operating expenses 2,301 1,256 1,045 83.2 % Loss from operations (1,360 ) (374 ) (986 ) 263.6 % Other income (expenses), net (1,344 ) 2 (1,346 ) 67,300.0 % Interest expenses (80 ) (48 ) (32 ) 66.7 % Loss before income taxes (2,784 ) (420 ) (2,364 ) 562.9 % Provision for income taxes - - - 0.0 % Net Loss (2,784 ) (420 ) (2,364 ) 562.9 % 27 Revenue Revenue for the three months ended June 30, 2025 was $1,116,000 compared to $1,023,000 for the three months ended June 30, 2024. Revenue increased by $93,000, or 9.1%, compared to the three months ended June 30, 2024. The increase was primarily driven by the following factors: ● Revenue from delivered events – virtual and hybrid events for the three months ended June 30, 2025 decreased by $36,000, or 4.0%, compared to the three months ended June 30, 2024, mainly due to opportunities shifting to the third quarter of 2025, as clients shifted event dates outside of the quarter. ● Revenue from delivered events – physical events for the three months ended June 30, 2025 increased by $129,000, or 97.7%, compared to the three months ended June 30, 2024, mainly due to approximately $100,000 in revenue from additional events delivered to a new customer. Cost of Revenue Cost of revenue for the three months ended June 30, 2025 was $175,000 compared to $141,000 for the three months ended June 30, 2024. Cost of revenue increased by $34,000, or 24.1%, compared to the three months ended Jun 30, 2024. The increase was primarily due to an increase in physical events for such period causing the cost of revenue to increase by a proportionate amount. Selling, General and Administrative Expenses (“SG&A expenses”) SG&A expenses for the three months ended June 30, 2025 was $2,153,000 compared to $1,243,000 for the three months ended June 30, 2024. SG&A expenses increased by $910,000, or 73.2%, compared to the three months ended Jun 30, 2024. The increase was primarily due to the Company now being a publicly traded organization, for additional legal, auditor, and SEC fees. Other Income (Expense), net and Interest Expenses Other expense for the three months ended June 30, 2025 was $1,344,000 and was primarily comprised of expenses in connection with entry into the Settlement Agreement during the three months ended June 30, 2025 . Interest Expenses Interest expenses for the three months ended June 30, 2025 was $80,000 compared to $48,000 for the three months ended June 30, 2024. Interest expenses increased by $32,000, or by 66.7%, primarily due to the increase in borrowing. Net Loss As a result of the foregoing, the net loss was $2,784,000 during the three months ended June 30, 2025 compared to the net loss of $420,000 during the three months ended June 30, 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 June 30, 2025 2024 (in thousands) Net Loss $ (2,784 ) $ (420 ) Stock-based compensation expense 3 - Non-GAAP net loss $ (2,781 ) $ (420 ) Weighted-average number of shares of common stock outstanding used to compute net loss per share, basic and diluted 21,425,980 25,000,000 Net loss per share - basic and diluted $ (0.13 ) $ (0.02 ) Non-GAAP net loss per share - basic and diluted $ (0.13 ) $ (0.02 ) 28 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 June 30, 2025 2024 (in thousands) Net loss $ (2,784 ) $ (420 ) Depreciation and amortization 148 13 Other income (expenses), net (1,344 ) 2 Stock-based compensation expenses 3 - Adjusted EBITDA $ (1,289 ) $ (409 ) Comparison of Results of Operations for the six months ended June 30, 2025 and 2024 The following table sets forth our statements of operations for the six months ended June 30, 2025 and 2024: (in thousands, except change % data) Six Months Ended June 30, Change (2025 vs. 2024) 2025($) 2024($) $ YoY % Revenues Delivered events - Virtual and Hybrid 1,587 1,972 (385 ) (19.5 )% Delivered events - Physical 268 179 89 49.7 % Total Revenues 1,855 2,151 (296 ) (13.8 )% Cost of revenues 361 425 (64 ) (15.1 )% Gross Profit 1,494 1,726 (232 ) (13.4 )% Operating expenses: Selling, General and Administrative Expenses 7,319 2,448 4,871 (199.0 )% Depreciation expenses 296 27 269 996.3 % Total operating expenses 7,615 2,475 5,140 207.7 % Loss from operations (6,121 ) (749 ) (5,372 ) 717.2 % Other income (expenses), net (1,350 ) (3 ) (1,347 ) 44,900.0 % Interest expenses (149 ) (74 ) (75 ) 101.4 % Loss before income taxes (7,620 ) (826 ) (6,794 ) 822.5 % Provision for income taxes - - - 0.0 % Net Loss (7,620 ) (826 ) (6,794 ) 822.5 % 29 Revenue Revenue for the six months ended June 30, 2025 was $1,855,000 compared to $2,151,000 for the six months ended June 30, 2024. Revenue decreased by $296,000, or 13.8%, compared to the six months ended June 30, 2024. The decrease was primarily driven by the following factors: ● Revenue from delivered events – virtual and hybrid events for the six months ended June 30, 2025 decreased by $385,000, or 19.5%, compared to the six months ended June 30, 2024, mainly due to one of our major customers that usually hosts a bi-annual event which took place in 2024 and did not occur again as of the date of this quarterly report. ● Revenue from delivered events – physical events for the six months ended June 30, 2025 increased by $89,000, or 49.7%, compared to the six months ended June 30, 2024, mainly due to approximately $100,000 in revenue from additional events delivered to a new customer. Cost of Revenue Cost of revenue for the six months ended June 30, 2025 was $361,000 compared to $425,000 for the six months ended June 30, 2024. Cost of revenue decreased by $64,000, or 15.1%, compared to the six months ended Jun 30, 2024. The decrease was primarily due to a reduction in the amount of equipment rentals needed for physical events and utilizing contractors, rather than fulltime staff. Selling, General and Administrative Expenses (“SG&A expenses”) SG&A expenses for the six months ended June 30, 2025 was $7,319,000 compared to $2,448,000 for the six months ended June 30, 2024. SG&A expenses increased by $4,871,000, or 199.0%, compared to the six months ended Jun 30, 2024. The increase was primarily due to accounting for $3.5m of stock compensation expenses along with additional expenses of being a public company. Other Income (Expense), net and Interest Expenses Other expense for the six months ended June 30, 2025 was $1,350,000 and was primarily comprised of expenses in connection with entry into the Settlement Agreement during the six months ended June 30, 2024. Interest Expenses Interest expenses for the six months ended June 30, 2025 was $149,000 compared to $74,000 for the six months ended June 30, 2024. Interest expenses increased by $75,000, or by 101.4%, primarily due to the increase in borrowing. Net Loss As a result of the foregoing, the net loss was $7,620,000 during the six months ended June 30, 2025 compared to the net loss of $826,000 during the six months ended June 30, 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. Six Months Ended June 30, 2025 2024 (in thousands) Net Loss $ (7,620 ) $ (826 ) Stock-based compensation expense 3,515 - Non-GAAP net loss $ (4,105 ) $ (826 ) Weighted-average number of shares of common stock outstanding used to compute net loss per share, basic and diluted 28,906,617 25,000,000 Net loss per share - basic and diluted $ (0.26 ) $ (0.03 ) Non-GAAP net loss per share - basic and diluted $ (0.14 ) $ (0.03 ) 30 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: Six Months Ended June 30, 2025 2024 (in thousands) Net loss $ (7,620 ) $ (826 ) Depreciation and amortization 296 27 Other income (expenses), net (1,350 ) (3 ) Stock-based compensation expenses 3,515 - Adjusted EBITDA $ (2,459 ) $ (796 ) Cash Flows/Liquidity Cash flows as of June 30, 2025 and December 31, 2024 As of June 30, 2025 and December 31, 2024, we had cash of $739,000 and $48,000, 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) Six Months Ended June 30, 2025 2024 Cash flows from operating activities: Net loss $ (7,620 ) $ (826 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 297 27 Noncash lease expenses 37 35 Noncash interest expenses 149 - Stock-based compensation 3,515 - Loss on extinguishment of debt 1,345 - Changes in operating assets and liabilities: Accounts receivable 282 (28 ) Advance - related party (4,996 ) - Prepaid expenses and other assets (63 ) (130 ) Income tax receivable - 86 Accounts payable (217 ) (77 ) Accrued expenses (221 ) 39 Deferred revenue (50 ) (102 ) Operating lease liabilities (35 ) (31 ) Net cash used in operating activities (7,577 ) (1,007 ) Cash flows from investing activities: Purchase of property and equipment - (30 ) Purchase of capitalized internal-use software (530 ) (511 ) Net cash used in investing activities (530 ) (541 ) Cash flows from financing activity Proceeds from short-term loans - related party 1,925 1,327 Repayments of short-term loans - related party (2,000 ) - Proceed from issuance of shares 8,900 - Payment for deferred offering costs (27 ) - Net cash provided by financing activity 8,798 1,327 Net change in cash and cash equivalents 691 (221 ) Cash and cash equivalents at beginning of period 48 357 Cash and cash equivalents at end of period $ 739 $ 136 31 Operating Activities Cash provided by operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation expense and depreciation and amortization, as well as the effect of changes in operating assets and liabilities during each period. For the six months ended June 30, 2025, net cash used in operating activities was $7,577,000, primarily resulting from our net loss during the period and increase in advances to a related party, partially offset by non-cash adjustments related to stock-based compensation and loss on extinguishment of debt. For the six months ended June 30, 2024, net cash used in operating activities was $1,007,000, primarily resulting from our net loss. Investing Activities Net cash used in investing activities decreased from $541,000 for the six months ended June 30, 2024 to $530,000 for the six months ended June 30, 2025. The decrease in cash outflow was mainly due to a decrease in the purchase of property and equipment. Financing Activities Net cash provided by financing activity increased from $1,327,000 for the six months ended June 30, 2024 to $8,798,000 for the six months ended June 30, 2025. The increase was primarily due to the proceeds received from issuance of shares and short-term loans, partially offset by the payments made related to the outstanding loans. Contractual Obligations and Commitments As of June 30, 2025, the Company had total of $4,306,000 contractual obligations for future payments. As of June 30, 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 $ 3,670 $ 3,670 $ - $ - $ - Operating lease payments 636 52 220 238 126 Total $ 4,306 $ 3,722 $ 220 $ 238 $ 126 32 Capital Expenditures Our capital expenditure primarily consists of acquisition of computer hardware equipment and capitalized software. During the six months ended June 30, 2025 and 2024, we spent $529,000 and $511,000, respectively, on acquisitions of computer hardware/equipment and capitalized software. Off-Balance Sheet Arrangements As of June 30, 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 quarterly report, 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 33 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 to seven years, and are recorded in cost of revenue in the Consolidated Statements of Operations. 34 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.