UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-55591

LOOP MEDIA, INC.

(Exact name of registrant as specified in its charter)



Nevada		47-3975872
(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)

700 N. Central Ave., Suite 430, Glendale, CA 91203
(Address of principal executive offices) (Zip Code)

(818) 823-4801
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Yes ☒No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒No

As of May 6, 2022, the registrant had 153,507,277 shares of common stock issued and outstanding.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION		2

Item 1.	Financial Statements.	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	25
Item 3.	Quantitative and Qualitative Disclosure About Market Risk.	33
Item 4.	Controls and Procedures.	33

PART II — OTHER INFORMATION		35

Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	35
Item 3.	Defaults Upon Senior Securities.	35
Item 4.	Mine Safety Disclosure.	35
Item 5.	Other Information.	35
Item 6.	Exhibits	36
Signatures		37

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PART I — FINANCIAL INFORMATION

Item 1Financial Statements.

LOOP MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31,		September 30,
	2022		2021
ASSETS	(UNAUDITED)
Current assets
Cash	$	637,998	$	4,162,548
Accounts receivable, net		4,626,858		1,571,226
Inventory		62,083		223,048
Prepaid expenses and other current assets		406,757		1,645,037
Prepaid income tax		19,648		17,806
License content assets - current		696,613		850,263
Deferred offering costs		370,521		—
Total current assets		6,820,478		8,469,928
Non-current assets
Deposits		63,879		34,289
License content assets - non current		36,797		365,360
Equipment, net		30,356		38,936
Operating lease right-of-use assets		158,980		237,094
Intangible assets, net		646,556		702,778
Goodwill		1,970,321		1,970,321
Total non-current assets		2,906,889		3,348,778
Total assets	$	9,727,367	$	11,818,706
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	2,260,046	$	1,147,585
Accrued liabilities		1,471,012		434,858
Accrued royalties		2,597,676		633,463
Payable on acquisition		250,125		250,125
License content liabilities - current		306,500		985,000
Note payable - current		—		25,714
Deferred Income		156,938		191,331
Convertible debt related party - current, net		2,498,651		530,226
Convertible debt – current, net		488,183		—
Lease liability - current		146,979		167,101
Total current liabilities		10,176,110		4,365,403
Non-current liabilities
Convertible debt – related party, less current portion, net		566,272		2,458,194
Convertible debt, less current portion, net		—		404,319
Note payable – non-current		—		460,924
Derivative liability		912,320		1,058,633
Non-revolving line of credit		1,500,000		—
Lease liability		14,775		75,530
Total non-current liabilities		2,993,367		4,457,600
Total liabilities		13,169,477		8,823,003

Stockholders’ equity (deficit)
Series B Convertible Preferred stock, $0.0001 par value, 3,333,334 shares authorized, 0 and 200,000 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively. Liquidation preference of $1.50 per share before any payment to Series A Preferred or Common stock				20
Common Stock, $0.0001 par value, 316,666,667 shares authorized,153,507,277 and 133,470,019 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively		15,349		13,345
Additional paid in capital		72,633,782		69,824,754
Accumulated deficit		(76,091,241)		(66,842,416)
Total stockholders' equity (deficit)		(3,442,110)		2,995,703
Total liabilities and stockholders' equity (deficit)	$	9,727,367	$	11,818,706

See the accompanying notes to the consolidated financial statements

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LOOP MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three months ended March 31,				Six months ended March 31,
	2022		2021		2022		2021

Revenue	$	4,879,839	$	794,043	$	7,875,873	$	1,499,211
Cost of revenue		3,515,217		724,578		4,960,194		1,186,620
Gross profit		1,364,622		69,465		2,915,679		312,591

Operating expenses
Selling, general and administrative		5,891,831		7,906,284		11,801,511		10,942,582
Impairment of goodwill and intangibles		—		—		—		2,390,799
Total operating expenses		5,891,831		7,906,284		11,801,511		13,333,381

Loss from operations		(4,527,209)		(7,836,819)		(8,885,832)		(13,020,790)

Other income (expense)
Interest income		—		5,657		200		8,653
Interest expense		(494,389)		(415,918)		(998,506)		(811,823)
Income from equity investment		—		1,551		—		1,551
Gain on extinguishment of debt, net		—		—		490,051		13,900
Loss on settlement of obligation		—		—		—		(15,000)
Change in fair value of derivatives		47,568		—		146,313		—
Total other income (expense)		(446,821)		(408,710)		(361,942)		(802,719)
Loss before income taxes		(4,974,030)		(8,245,529)		(9,247,774)		(13,823,509)
Income tax (expense)/benefit		(800)		(1,586)		(1,051)		(99,830)
Net loss	$	(4,974,830)	$	(8,247,115)	$	(9,248,825)	$	(13,923,339)

Basic and diluted net loss per common share	$	(0.04)	$	(0.07)	$	(0.07)	$	(0.12)

Weighted average number of basic and diluted common shares outstanding		136,595,986		120,153,908		135,015,827		118,459,023

See the accompanying notes to the consolidated financial statements

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LOOP MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED MARCH 31, 2022 and 2021

(UNAUDITED)


	Preferred Stock Series B			Common Stock			Additional Paid		Accumulated
	Shares	Amount		Shares	Amount		in Capital		Deficit		Total
Balances, September 30, 2021	200,000	$	20	133,470,018	$	13,345	$	69,824,754	$	(66,842,416)	$	2,995,703
Stock-based compensation	—		—	—		—		1,549,406		—		1,549,406
Net loss	—		—	—		—		—		(4,273,995)		(4,273,995)
Balances, December 31, 2021	200,000	$	20	133,470,018	$	13,345	$	71,374,160	$	(71,116,411)	$	271,114

Stock-based compensation	—		—	—		—		1,116,318		—		1,116,318
Warrants issued to consultants	—		—	—		—		56,788		—		56,788
Payment in kind interest stock issuance	—		—	37,136		4		88,496		—		88,500
Conversion of series B convertible stock to common stock	(200,000)		(20)	20,000,000		2,000		(1,980)		—		—
Net loss	—		—	—		—		—		(4,974,830)		(4,974,830)
Balances, March 31, 2022	—	$	—	153,507,154	$	15,349	$	72,633,782	$	(76,091,241)	$	(3,442,110)


		Preferred Stock B			Preferred Stock A			Common Stock				Common stock		Additional Paid		Accumulated
		Shares	Amount		Shares	Amount		Shares	Amount			subscriptions		in Capital		Deficit		Total
Balances, September 30, 2020		200,000	$	20	30,667	$	3	114,320,911	$	11,432		$	135,144	$	36,669,899	$	(35,867,920)	$	1,156,299
Shares issued for cash		—		—	—		—	757,333		75			—		899,925		—		900,000
Cash received for common stock subscribed		—		—	—		—	—		—			330,000		—		—		330,000
Issuance of common stock subscribed		—		—	—		—	(53,333)		(5)			20,000		(19,995)		—		—
Shares issued in connection with reverse merger		—		—	—		—	—		—			—		(1)		—		(1)
Shares issued for asset purchase		—		—	—		—	1,369,863		137			—		2,671,096		—		2,671,233
Beneficial conversion feature of convertible debt		—		—	—		—	—		—			—		750,000		—		750,000
Stock-based compensation		—		—	—		—	—		—			—		134,253		—		134,253
Warrants issued to consultant		—		—	—		—	—		—			—		492,000		—		492,000
Shares issued for debt settlement		—		—	—		—	97,891		10			—		194,793		—		194,803
Shares issued for license content assets		—		—	—		—	1,180,880		118			—		2,065,878		—		2,065,996
Shares issued for investment in unconsolidated entity		—		—	—		—	454,463		46			—		863,434		—		863,480
Net loss		—		—	—		—	—		—			—		—		(5,676,224)		(5,676,224)
Balances, December 31, 2020	$	200,000	$	20	30,667	$	3	118,128,008	$	11,813		$	485,144	$	44,721,282	$	(41,544,144)	$	3,881,839
Issuance of common stock subscribed		—		—	—		—	497,429		49			(485,144)		485,095		—		—
Conversion of convertible debenture		—		—	—		—	1,003,618		100			—		376,256		—		376,356
Shares issued for cash		—		—	—		—	1,564,000		156			—		1,954,844		—		1,955,000
Stock-based compensation		—		—	—		—	—		—			—		5,419,800		—		5,419,800
Warrants issued in conjunction with debenture		—		—	—		—	—		—			—		43,654		—		43,654
Beneficial conversion feature of convertible debt		—		—	—		—	—		—			—		306,346		—		306,346
Net loss		—		—	—		—	—		—			—		—		(8,247,115)		(8,247,115)
BALANCES, March 31, 2021	$	200,000	$	20	30,667	$	3	121,193,055	$	12,118	$	$	—	$	53,307,277	$	(49,791,259)	$	3,735,880

See the accompanying notes to the consolidated financial statements

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LOOP MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six months ended March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(9,248,825)	$	(13,923,339)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount		713,197		465,641
Depreciation and amortization expense		64,802		1,075,898
Amortization of license content assets		482,213		94,086
Amortization of right-of-use assets		78,114		70,596
Bad debt expense		20,000		167,874
Gain on extinguishment of debt		(490,051)		—
Change in fair value of derivative		(146,313)		—
Warrants issued for consulting services		56,788		—
Stock-based compensation		2,665,724		6,046,053
Payment in kind for interest stock issuance		88,500		—
Gain on settlement of obligations		—		(13,900)
Loss on settlement of obligations		—		15,000
Equity method investment income		—		(1,551)
Impairment of intangible assets		—		2,390,799
Change in operating assets and liabilities:
Accounts receivable		(3,075,632)		(40,961)
Prepaid income tax		(1,842)		99,837
Inventory		160,965		1,328
Prepaid expenses		(11,720)		(69,579)
Deposit		(29,590)		227,000
Accounts payable		871,866		106,582
Accrued expenses		1,033,139		(205,051)
Accrued royalties		1,964,214		12,724
License content liability		(678,500)		(839,000)
Operating lease liabilities		(80,877)		(70,289)
Deferred income		(34,392)		39,350
NET CASH USED IN OPERATING ACTIVITIES		(5,598,220)		(4,350,902)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets, net of cash acquired		—		(750,000)
Purchase of equipment		—		2,752
Collection of note receivable		—		1,477
NET CASH USED IN INVESTING ACTIVITIES		—		(745,771)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		1,250,000		3,185,000
Proceeds from issuance of convertible debt		—		1,100,000
Proceeds from credit facility		1,500,000		—
Repayment of stockholder loans		(552,832)		(58,770)
Deferred offering costs		(123,498)		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		2,073,670		4,226,230

Change in cash and cash equivalents		(3,524,550)		(870,443)
Cash, beginning of period		4,162,548		1,971,923
Cash, end of period	$	637,998	$	1,101,480

SUPPLEMENTAL DISCLOSURES OF CASH FLOW STATEMENTS
Cash paid for interest	$	101,186	$	105,627
Cash paid for income taxes	$	1,051	$	-
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for license content assets	$	—	$	2,260,799
Preferred shares issued for debt settlement	$	—	$	1,006,584
Conversion of convertible debenture to common stock	$	—	$	376,356
Common stock issued for acquisition	$	—	$	2,671,233
Common stock issued for equity investment in unconsolidated entity	$	—	$	863,480
Accrued interest rolled into convertible note	$	—	$	81,824
Unpaid deferred offering costs	$	247,023	$	—
Payment in kind common stock payment	$	88,496	$	—
Warrants issued as debt discount on convertible debenture	$	—	$	43,654
Conversion of Preferred Class B stock to common stock	$	1,980	$	—
Shares issued for common stock subscribed	$	—	$	135,144
Beneficial conversion feature recorded as debt discount	$	—	$	1,056,346

See the accompanying notes to the consolidated financial statements

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LOOP MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

NOTE 1 – BUSINESS

Loop Media Inc. is a Nevada corporation. We were incorporated under the laws of the State of Nevada on May 11, 2015.

We are a multichannel digital video platform media company that uses marketing technology, or “MarTech,” to generate our revenue and fuel our services. Our technology and library of videos and licensed content enable us to curate and deliver short-form videos to our digital out-of-home (“DOOH”) business locations for dining, hospitality, retail and other customers to enable them to inform, entertain and engage their customers. Our technology provides DOOH customers and third-party advertisers with a targeted marketing and promotional tool for their products and services and allows us to measure the number of potential viewers of such advertising and promotional materials. In addition to providing services to DOOH venue operators, we provide our services direct to consumers (“D2C”) in their homes and on their mobile devices.

We offer self-curated music video content licensed from major and independent record labels, as well as movie, television and video game trailers, kid-friendly videos, viral videos, drone footage, news headlines, and lifestyle and atmospheric channels. These licenses allow us to provide music video content in both the DOOH and D2C markets. Our DOOH services are complimented by our mobile app (the “Loop App”), which allows users to follow each other, share their locations and playlists, view activity, and signal support for a music video.

We curate content into playlists for DOOH locations and into streaming channels for delivery to our over-the-top (“OTT”) platform customers and our mobile application users. Our digital platform service seeks to surround and engage consumers with a diverse offering of video content on their chosen digital screen wherever they are located. Our services include both an ad-supported service, which offers content on a free or unpaid advertising supported basis, and a subscription service, which offers content on a paid subscription basis. We deliver our services to DOOH locations primarily through our proprietary Loop Media-designed “small-box” streaming Android media player (the “Loop Player”) and direct to consumers through our fully functional and operational Loop App and across OTT streaming platforms on connected TVs.

Going concern and management’s plans

As of March 31, 2022, we had cash of $637,998 and an accumulated deficit of ($76,091,241). During the six months ended March 31, 2022, we used net cash in operating activities of $(5,598,220). We have incurred net losses since inception. These conditions raise substantial doubt about our ability to continue as a going concern within one year from the issuance date of these consolidated financial statements.

Our primary source of operating funds since inception has been cash proceeds from debt and equity financing transactions. Our ability to continue as a going concern is dependent upon our ability to generate sufficient revenue and our ability to raise additional funds by way of our debt and equity financing efforts.

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or classification of the liabilities that might be necessary if we are unable to continue as a going concern. Our ability to continue as a going concern is dependent on management’s further implementation of our on-going and strategic plans, which include continuing to raise funds through equity and/or debt raises. If we are unable to raise adequate funds, certain

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aspects of the on-going and strategic plans may require modification. Management is in the process of identifying sources of capital via strategic partnerships, debt refinancing and equity investments through one or more private placements.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The following (a) condensed consolidated balance sheet as of September 30, 2021, which has been derived from our audited financial statements, and (b) our unaudited condensed consolidated interim financial statements for the six months ended March 31, 2022, have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X of the Securities Act of 1933. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended March 31, 2022, are not necessarily indicative of results that may be expected for the year ending September 30, 2022.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended September 30, 2021, included in our Annual Report on Form 10-KT filed with the Securities and Exchange Commission ("SEC") on January 21, 2022.

Basis of presentation

The unaudited condensed consolidated financial statements are prepared using the accrual basis of accounting in accordance with US GAAP. All inter-company transactions and balances have been eliminated on consolidation.

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions used in the fair value of stock-based compensation, the fair value of other equity and debt instruments, fair value of intangible assets and recoverability of license content assets.

Business combinations

We account for business acquisitions under Accounting Standards Codification (“ASC”) 805, Business Combinations. The total purchase consideration for an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities assumed on the acquisition date. Costs that are directly attributable to the acquisition are expenses as incurred. Identifiable assets (including intangible assets), liabilities assumed (including contingent liabilities) and noncontrolling interests in an acquisition are measured initially at their fair values on the acquisition date. We recognize goodwill if the fair value of the total purchase consideration and any noncontrolling interest is in excess of the net fair value of the identifiable assets and the liabilities assumed. The results of operations of the acquired business are included in the consolidated financial statements beginning on the acquisition date

Segment reporting

We report as one reportable segment because we do not have more than one operating segment. Our business activities, revenues and expenses are evaluated by management as one reportable segment.

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Cash

Cash and cash equivalents include all highly liquid monetary instruments with original maturities of three months or less when purchased. These investments are carried at cost, which approximates fair value. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash deposits. We maintain our cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”). At times, our cash and cash equivalent balances may be uninsured or in amounts that exceed the FDIC insurance limits. We have not experienced any losses on such accounts. On March 31, 2022, and September 30, 2021, we had no cash equivalents.

As of March 31, 2022, and September 30, 2021, approximately $387,998 and $3,655,716 of cash exceeded the FDIC insurance limits, respectively.

Accounts receivable

Accounts receivable represent amounts due from customers. We assess the collectability of receivables on an ongoing basis. A provision for the impairment of receivables involves significant management judgment and includes the review of individual receivables based on individual customers, current economic trends and analysis of historical bad debts. As of March 31, 2022, and September 30, 2021, we recorded an allowance for doubtful accounts of $235,371 and $216,238, respectively.

Concentration of credit risk

We grant credit in the normal course of business to our customers. Periodically, we review past due accounts and make decisions about future credit on a customer by customer basis. Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to discharge an obligation.

Our concentration of credit risk was not significant as of March 31, 2022, and September 30, 2021.

License Content Asset

On January 1, 2020, we adopted the guidance in ASU 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials, on a prospective basis. We capitalize the fixed content fees and our corresponding liability when the license period begins, the cost of the content is known, and the content is accepted and available for streaming. If the licensing fee is not determinable or reasonably estimable, no asset or liability is recorded, and licensing costs are expensed as incurred. We amortize licensed content assets into cost of revenue, using the straight-line method over the contractual period of availability. The liability is paid in accordance with the contractual terms of the arrangement.

Goodwill and other intangible assets

Goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill and other intangible assets determined to have an indefinite useful life are not amortized but are subject to impairment tests. We conduct our annual impairment tests or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. We conducted the annual impairment test on September 30, 2021.

When evaluating goodwill and indefinite-lived intangible assets for impairment, we may first perform an assessment of qualitative factors to determine if the fair value of the reporting unit or the intangible asset is more-likely-than-not greater than the carrying amount. Significant factors considered in this assessment include, but are not limited to, macro-economic conditions, market and industry conditions, cost considerations, the competitive environment, overall financial performance, and results of past impairment tests. If, based on a review of the qualitative factors, we determine it is more-likely-than-not that the fair value is greater than the carrying value, we may bypass a quantitative test for impairment.

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In performing the quantitative test for impairment of goodwill, we compare the fair value of each reporting unit with it carrying amount, including goodwill, in order to identify a potential impairment. Measurement of the fair value of a reporting unit is based on a fair value measure using the sum of the discounted estimated future cash flows. Estimates of forecasted cash flows involve measurement uncertainty, and it is therefore possible that reductions in the carrying value of goodwill may be required in the future because of changes in management’s future cash flow estimates. When the fair value of a reporting unit is less than its carrying amount, goodwill of the reporting unit is considered to be impaired. Effective January 1, 2020, we adopted the guidance in Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment, which measures impairment amount as the excess of a reporting unit’s carrying amount over its fair value as determined by the quantitative test.

Operating leases

We determine if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the consolidated balance sheet.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. For lease agreements with terms less than 12 months, we have elected the short-term lease measurement and recognition exemption, and recognize such lease payments on a straight-line basis over the lease term.

Fair value measurement

We determine the fair value of our assets and liabilities using a hierarchy established by the accounting guidance that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The three levels of valuation hierarchy are defined as follows:

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Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

●

Level 2 inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

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Level 3 inputs to the valuation methodology is one or more unobservable inputs which are significant to the fair value measurement.

The carrying amount of our financial instruments, including cash, accounts receivable, deposits, short-term portion of notes receivable and notes payable, and current liabilities approximate fair value due to their short-term nature. We do not have financial assets or liabilities that are required under US GAAP to be measured at fair value on a recurring basis. We have not elected to use fair value measurement option for any assets or liabilities for which fair value measurement is not presently required.

We record assets and liabilities at fair value on a nonrecurring basis as required by US GAAP. Assets recognized or disclosed at fair value in the condensed consolidated financial statements on a nonrecurring basis include items such as property and equipment, operating lease assets, goodwill, and other intangible assets, which are measured at fair value if determined to be impaired.

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The following table summarizes fair value measurements of the Derivative Liability as of March 31, 2022:


		Quoted Prices in				Significant
		Active Markets		Significant Other		Unobservable
		For Identical Items		Observable Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
Derivative liabilities		—		—		912,320		912,320
Total	$	—	$	—	$	912,320	$	912,320

The following table summarizes fair value measurements of the Derivative Liability as of September 30, 2021:


		Quoted Prices in				Significant
		Active Markets		Significant Other		Unobservable
		For Identical Items		Observable Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
Derivative liabilities		—		—		1,058,633		1,058,633
Total	$	—	$	—	$	1,058,633	$	1,058,633

The following table summarizes changes in fair value measurements of the Derivative Liability during the six months ended March 31, 2022:




Balance as of September 30, 2021	$	1,058,633
Derivative liability issued with convertible debentures		—
Change in fair value		(146,313)
Balance as of March 31, 2022	$	912,320

The following table summarizes the unobservable inputs used in the valuation of the derivatives during the six months ended March 31, 2022:



Expected term	0.67 - 1.75 years

Discount rate	7.12% - 11.80%

Volatility	75% - 110.0%

Convertible debt and derivative treatment

When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock, and b) classified in shareholders’ equity in its statement of financial position.

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using the Monte Carlo Method upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is

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revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt.

Convertible debt and beneficial conversion features

If the conversion feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF”). A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible and is recorded as additional paid in capital and as a debt discount in the consolidated balance sheets. We amortize the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations.

If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt.

Advertising costs

We expense all advertising costs as incurred. Advertising and marketing costs for the six months ended March 31, 2022, and 2021 were $2,251,590 and $426,098, respectively.

Revenue recognition

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers, when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration we expect to receive in exchange for those products. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Revenues are recognized under Topic 606 in a manner that reasonably reflects the delivery of our products and services to customers in return for expected consideration and includes the following elements:

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executed contracts with our customers that it believes are legally enforceable;

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identification of performance obligations in the respective contract;

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determination of the transaction price for each performance obligation in the respective contract;

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allocation of the transaction price to each performance obligation; and

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recognition of revenue only when we satisfy each performance obligation.

Performance obligations and significant judgments

Our revenue streams can be categorized into the following performance obligations and recognition patterns:

o

Delivery of streaming services including content encoding and hosting. We recognize revenue over the term of the service based on bandwidth usage.

o

Delivery of subscription content services in customized formats. We recognize revenue over the term of the service.

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o

Delivery of hardware for ongoing subscription content delivery through software. We recognize revenue at the point of hardware delivery.

o

Revenue share arrangements, where platform providers distribute our licensed content and providers pay us a portion of the usage-based advertising revenues.

Transaction prices for performance obligations are explicitly outlined in relevant agreements; therefore, we do not believe that significant judgments are required with respect to the determination of the transaction price, including any variable consideration identified.

Customer acquisition costs

We record commission expense associated with subscription revenue. Commissions are included in operating expenses. We have elected the practical expedient that allows us to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.

Cost of revenue

Cost of revenue represents the cost of the delivered hardware and related bundled software and is recognized at the time of sale. For ongoing licensing and hosting fees, cost of sales is recognized over time based on usage patterns.

Deferred income

We bill subscription services in advance of when the service period is performed. The deferred income recorded at March 31, 2022, and September 30, 2021, represents our accounting for the timing difference between when the subscription fees are received and when the performance obligation is satisfied.

Net loss per share

We account for net loss per share in accordance with ASC subtopic 260-10, Earnings Per Share (“ASC 260-10”), which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during each period. It excludes the dilutive effects of any potentially issuable common shares.

Diluted net loss per share is calculated by including any potentially dilutive share issuances in the denominator.

The following securities are excluded from the calculation of weighted average diluted shares at March 31, 2021, and September 30, 2021, respectively, because their inclusion would have been anti-dilutive.


	March 31,	September 30,
	2022	2021
Options to purchase common stock	18,406,306	17,833,356
Warrants to purchase common stock	15,652,025	15,464,700
Series A preferred stock	—	3,066,700
Series B preferred stock	—	20,000,000
Convertible debentures	4,922,121	7,079,622
Total common stock equivalents	38,980,452	63,444,378

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Stock-based compensation

Share-based compensation issued to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. We measure the fair value of the share-based compensation issued to non-employees using the stock price observed in the trading market (for stock transactions) or the fair value of the award (for non-stock transactions), which were more reliably determinable measures of fair value than the value of the services being rendered. The measurement date is the earlier of (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

Recently adopted accounting pronouncements

In September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for fiscal years beginning after December 15, 2022. We are currently evaluating the impact of this standard on our condensed consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock. As well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related EPS guidance. The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for periods beginning after December 15, 2020. Adoption of the ASU can either be on a modified retrospective or full retrospective basis. We are currently evaluating the impact of this standard on our condensed consolidated financial statements and related disclosures.

NOTE 3 – INVENTORY

Our finished goods inventory consisted of the following on March 31, 2022, and September 30, 2021:


	March 31,		September 30,
	2022		2021
Computers	$	13,127	$	6,881
Hasp keys		3,547		3,581
Loop player		45,409		212,586
Total inventory	$	62,083	$	223,048

NOTE 4 – LICENSE CONTENT ASSETS

License Content Assets

To stream video content to the users, we generally secure intellectual property rights to such content by obtaining licenses from, and paying royalties or other consideration to, rights holders or their agents. The licensing arrangements can be for a fixed fee, variable fee, or combination of both. The licensing arrangements specify the period when the content is available for streaming. The license content assets are two years in duration and include prepayments to distributors for customer subscription revenues, per play usage fees, and ad supported fees.

As of March 31, 2022, license content assets were $696,613 recorded as License content asset, net – current and $36,797 recorded as License content asset, net – noncurrent.

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We recorded amortization expense of $482,213 and $94,086 for the six months ended March 31, 2022, and 2021, respectively, in cost of revenue, in the consolidated statements of operations, related to capitalized license content assets. The amortization expense for the next two years for capitalized license content assets as of March 31, is $508,630 in 2022, and $207,517 in 2023.

License Content Liabilities

On March 31, 2022, we had $306,500 of obligations comprised of $306,500 in License content liability – current and $0 in License content liability – noncurrent on the Consolidated Balance Sheets. Payments for content liabilities for the six months ended March 31, 2022, were $678,500. The expected timing of payments for these content obligations is $275,250 payable in fiscal year 2022, and $31,250 payable in fiscal year 2023. Certain contracts provide for recoupment of payments on minimum obligations during the term of the contracts.

NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS

As of March 31, 2022, and September 30, 2021, the balance of goodwill was $1,970,321 and $1,970,321, respectively.

Our other intangible assets, each definite lived assets, consisted of the following as of March 31, 2022, and September 30, 2021:


		March 31,		September 30,
	Useful life	2022		2021
Customer relationships	nine years	$	1,012,000	$	1,012,000
Content library	two years		198,000		198,000
Total intangible assets, gross			1,210,000		1,210,000

Less: accumulated amortization			(563,444)		(507,222)
Total			(563,444)		(507,222)
Total intangible assets, net		$	646,556	$	702,778

Amortization expense charged to operations amounted to $56,222 and $688,861, respectively, for the six months ended March 31, 2022, and the six months ended March 31, 2021.

Annual amortization expense for the next five years and thereafter is estimated to be $84,333 (remaining in 2022), $112,444, $112,444, $112,444, $112,444, and $112,444, respectively. The weighted average life of the intangible assets subject to amortization is 6 years on March 31, 2022.