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, 2023

☐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: 001-41508

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 Avenue, Suite 430, Glendale, CA 91203
(Address of principal executive offices) (Zip Code)

(213) 436-2100
(Registrant’s telephone number, including area code) N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value per share

LPTV

The NYSE American, LLC

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 (§ 232.405 of this chapter) 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.

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 10, 2023, the registrant had 56,381,209 shares of common stock issued and outstanding.

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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.	29
Item 3.	Quantitative and Qualitative Disclosure About Market Risk.	48
Item 4.	Controls and Procedures.	48

PART II — OTHER INFORMATION		48

Item 1.	Legal Proceedings.	48
Item 1A.	Risk Factors.	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	49
Item 3.	Defaults Upon Senior Securities.	49
Item 4.	Mine Safety Disclosures.	49
Item 5.	Other Information.	49
Item 6.	Exhibits.	50
Signatures		52

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PART I — FINANCIAL INFORMATION

Item 1Financial Statements.

LOOP MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31,		September 30,
	2023		2022
ASSETS	(UNAUDITED)
Current assets
Cash	$	4,650,763	$	14,071,914
Accounts receivable, net		5,694,321		12,590,970
Prepaid expenses and other current assets		918,175		1,496,566
Deferred offering costs		232,845		—
Content assets - current		2,700,232		745,633
Total current assets		14,196,336		28,905,083
Non-current assets
Deposits		64,090		63,889
Content assets - non current		1,111,580		678,659
Property and equipment, net		2,701,130		1,633,169
Operating lease right-of-use assets		17,185		76,696
Intangible assets, net		534,111		590,333
Total non-current assets		4,428,096		3,042,746
Total assets	$	18,624,432	$	31,947,829
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,883,215	$	7,453,801
Accrued liabilities		3,413,038		5,620,873
Accrued royalties and revenue share		3,184,604		4,559,088
Payable on acquisition		—		250,125
License content liabilities - current		1,282,655		1,092,819
Deferred Income		—		140,764
Lease liability - current		18,483		75,529
Non-revolving line of credit		1,809,594		—
Total current liabilities		16,591,589		19,192,999
Non-current liabilities
Non-revolving line of credit		—		1,494,469
Non-revolving line of credit, related party		3,088,753		2,575,753
Revolving line of credit		4,185,069		3,030,516
Total non-current liabilities		7,273,822		7,100,738
Total liabilities		23,865,411		26,293,737

Commitments and contingencies (Note 9)		—		—

Stockholders’ equity
Common Stock, $0.0001 par value, 105,555,556 shares authorized, 56,381,209 and 56,381,209 shares issued and outstanding as of March 31, 2023, and September 30, 2022, respectively		5,638		5,638
Additional paid in capital		106,151,803		101,970,318
Accumulated deficit		(111,398,420)		(96,321,864)
Total stockholders' equity		(5,240,979)		5,654,092
Total liabilities and stockholders' equity	$	18,624,432	$	31,947,829

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,
		2023	2022			2023	2022

Revenue	$	5,393,231	$	4,879,839	$	20,219,062	$	7,875,873
Cost of revenue
Cost of revenue - Advertising and Legacy and other revenue		3,177,607		3,169,059		11,635,240		4,302,981
Cost of revenue - depreciation and amortization		630,543		346,158		1,312,710		657,213
Total cost of revenue		3,808,150		3,515,217		12,947,950		4,960,194
Gross profit		1,585,081		1,364,622		7,271,112		2,915,679

Operating expenses
Sales, general and administrative		7,769,314		4,686,326		15,727,448		9,014,197
Stock-based compensation		2,475,807		1,173,106		4,266,614		2,722,512
Depreciation and amortization		235,009		32,399		422,725		64,802
Total operating expenses		10,480,130		5,891,831		20,416,787		11,801,511

Loss from operations		(8,895,049)		(4,527,209)		(13,145,675)		(8,885,832)

Other income (expense)
Interest income		—		—		—		200
Interest expense		(919,444)		(494,389)		(1,927,027)		(998,506)
Gain (Loss) on extinguishment of debt, net		—		—		—		490,051
Change in fair value of derivatives		—		47,568		—		146,313
Other income		(2,624)		—		(2,624)		—
Total other income (expense)		(922,068)		(446,821)		(1,929,651)		(361,942)
Loss before income taxes		(9,817,117)		(4,974,030)		(15,075,326)		(9,247,774)
Income tax (expense)/benefit		—		(800)		(1,230)		(1,051)
Net loss	$	(9,817,117)	$	(4,974,830)	$	(15,076,556)	$	(9,248,825)

Basic and diluted net loss per common share		(0.17)	$	(0.11)		(0.27)	$	(0.21)

Weighted average number of basic and diluted common shares outstanding		56,381,209		45,531,995		56,381,209		45,005,276

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, 2023, and 2022

(UNAUDITED)


	Preferred Stock Series B			Common Stock			Additional Paid		Accumulated
	Shares	Amount		Shares	Amount		in Capital		Deficit		Total
Balances, September 30, 2022	—	$	—	56,381,209	$	5,638	$	101,970,318	$	(96,321,864)	$	5,654,092
Stock-based compensation	—		—	—		—		1,790,807		—		1,790,807
Net loss	—		—	—		—		—		(5,259,439)		(5,259,439)
Balances, December 31, 2022	—	$	—	56,381,209	$	5,638	$	103,761,125	$	(101,581,303)	$	2,185,460
Stock-based compensation	—		—	—		—		2,475,807		—		2,475,807
Short swing profit recovery	—		—	—		—		1,201		—		1,201
Issuance costs from uplist of stock	—		—	—		—		(86,330)		—		(86,330)
Net loss	—		—	—		—		—		(9,817,117)		(9,817,117)
Balances, March 31, 2023	—	$	—	56,381,209	$	5,638	$	106,151,803	$	(111,398,420)	$	(5,240,979)



	Preferred Stock Series B			Common Stock			Additional Paid		Accumulated
	Shares	Amount		Shares	Amount		in Capital		Deficit		Total
Balances, September 30, 2021	200,000	$	20	44,490,003	$	4,449	$	69,833,650	$	(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	44,490,003	$	4,449	$	71,383,056	$	(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	—		—	12,378		1		88,499		—		88,500
Conversion of series B convertible stock to common stock	(200,000)		(20)	6,666,666		667		(647)		—		—
Net loss	—		—	—		—		—		(4,974,830)		(4,974,830)
Balances, March 31, 2022	—	$	—	51,169,047	$	5,117	$	72,644,014	$	(76,091,241)	$	(3,442,110)

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,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(15,076,556)	$	(9,248,825)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount		1,244,329		713,197
Depreciation and amortization expense		422,725		64,802
Amortization of content assets		1,312,710		657,213
Amortization of right-of-use assets		59,511		78,114
Bad debt expense		—		20,000
Gain on extinguishment of debt, net		—		(490,051)
Change in fair value of derivative		—		(146,313)
Stock-based compensation		4,266,614		2,722,512
Payment in kind for interest stock issuance		—		88,500
Change in operating assets and liabilities:
Accounts receivable		6,896,649		(3,075,632)
Prepaid income tax		—		(1,842)
Inventory		10,252		160,965
Prepaid expenses		568,138		(11,720)
Deposit		(201)		(29,590)
Accounts payable		(1,181,952)		871,866
Accrued liabilities		(2,207,835)		1,033,139
Accrued royalties and revenue share		(1,374,484)		1,964,214
Licensed content liability		(3,457,477)		(853,500)
Operating lease liabilities		(57,046)		(80,877)
Deferred income		(140,764)		(34,392)
NET CASH USED IN OPERATING ACTIVITIES		(8,715,387)		(5,598,220)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(1,046,876)		—
NET CASH USED IN INVESTING ACTIVITIES		(1,046,876)		—

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		—		1,250,000
Proceeds from credit facility		—		1,500,000
Proceeds from line of credit		28,087,249		—
Payments on line of credit		(27,326,600)		—
Debt issuance costs		(22,300)		—
Issuance costs for stock uplist		(86,330)		—
Deferred offering costs		(61,983)		(123,498)
Payment of acquisition related consideration		(250,125)		—
Repayment of stockholder loans		—		(552,832)
Short swing profit recovery		1,201		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		341,112		2,073,670

Change in cash and cash equivalents		(9,421,151)		(3,524,550)
Cash, beginning of period		14,071,914		4,162,548
Cash, end of period	$	4,650,763	$	637,998

SUPPLEMENTAL DISCLOSURES OF CASH FLOW STATEMENTS
Cash paid for interest	$	665,309	$	101,186
Cash paid for income taxes	$	1,230	$	1,051
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES
Payment in kind common stock payment	$	—	$	88,496
Conversion of Preferred Class B stock to common stock	$	—	$	1,980
Unpaid deferred offering costs	$	170,862	$	247,023
Unpaid additions to property and equipment	$	387,588	$	—
Unpaid additions to licensed and internally developed content	$	52,916	$	—

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, 2023

(UNAUDITED)

NOTE 1 – BUSINESS

Loop Media, Inc., a Nevada corporation, (collectively, “Loop Media,” the “Company,” “we,” “us” or “our”) is a multichannel digital video platform media company that uses marketing technology, or “MarTech,” to generate our revenue and offer our services. Our technology and vast library of videos and licensed content enable us to curate and distribute short-form videos to out-of-home (“OOH”) dining, hospitality, retail, convenience stores and other locations and venues to enable them to inform, entertain and engage their customers. Our technology provides third-party advertisers with a targeted marketing and promotional tool for their products and services and, in certain instances, allows us to measure the number of potential viewers of such advertising and promotional materials. We also allow our OOH clients to access our service without advertisements by paying a monthly subscription fee.

We offer hand-curated music video content licensed from major and independent record labels, including Universal Music Group (“Universal”), Sony Music Entertainment (“Sony”), and Warner Music Group (“Warner” and collectively with Universal and Sony, the “Music Labels”), as well as non-music video content, which is predominantly licensed or acquired from third parties, including action sports clips, drone and atmospheric footage, trivia, news headlines, lifestyle channels and kid-friendly videos, as well as movie, television and video game trailers, amongst other content. We distribute our content and advertising inventory to digital screens located in OOH locations primarily through (i) our owned and operated platform (the “O&O Platform”) of Loop Media-designed “small-box” streaming Android media players (“Loop Players”) and legacy ScreenPlay computers and (ii) through screens on digital platforms owned and operated by third parties (each a “Partner Platform” and collectively, the “Partner Platforms,” and together with the O&O Platform, the “Loop Platform”). As of March 31, 2023, we had 32,734 QAUs (described below) operating on our O&O Platform. We launched our Partner Platforms business in May 2022 and have a total of approximately 24,000 screens across our Partner Platforms as of March 31, 2023.

We define an “active unit” as (i) an ad-supported Loop Player (or DOOH location using our ad- supported service through our “Loop for Business” application or using an DOOH venue-owned computer screening our content) that is online, used on our O&O Platform, playing content, and has checked into the Loop analytics system at least once in the 90-day period or (ii) a DOOH location customer using our subscription service on our O&O Platform at any time during the 90-day period. We use “QAU” to refer to the number of such active units during such period. We do not count towards our QAUs any Loop Players or screens used on our Partner Platform.

Liquidity and management’s plan

As shown in the accompanying consolidated financial statements, we have incurred significant recurring losses resulting in an accumulated deficit. We anticipate further losses in the foreseeable future. We also had negative cash flows used in operations. These factors raise substantial doubt about our ability to continue as a going concern.

We filed a shelf Registration Statement on Form S-3 that has been declared effective by the Securities and Exchange Commission (“SEC”). On May 12, 2023, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (the “Agent”) pursuant to which we may offer and sell, from time to time through the Agent, shares of our common stock, par value $0.0001 per share (“Common Stock”), for aggregate gross proceeds of up to $50,000,000. Since May 12, 2023, we have not had any sales under the Sales Agreement.

In addition, on May 10, 2023, we entered into a Non-Revolving Line of Credit Loan Agreement with several institutions and individuals for aggregate loans of up to $4.0 million.

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Based on the available cash balance at March 31, 2023, and these new sources of funding, we believe that we will have sufficient resources to fund our operations for at least twelve months from the date these financial statements were issued and that the substantial doubt in connection with our ability to continue as a going concern is alleviated.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The following (a) condensed consolidated balance sheet as of September 30, 2022, 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, 2023, 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, 2023, are not necessarily indicative of results that may be expected for the year ending September 30, 2023.

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, 2022, included in our Annual Report on Form 10-K filed with the SEC on December 20, 2022.

Basis of presentation

The consolidated financial statements include our accounts and our wholly-owned subsidiaries, EON Media Group Pte. Ltd. and Retail Media TV, Inc. 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 revenue recognition of performance obligations, allowance for doubtful accounts, fair value of stock-based compensation awards, income taxes and going concern.

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.

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, 2023, and September 30, 2022, we had no cash equivalents.

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As of March 31, 2023, and September 30, 2022, approximately $4,400,763 and $13,821,914 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, 2023, and September 30, 2022, we had recorded an allowance for doubtful accounts of $778,370 and $646,013, respectively.

Concentration of credit risk

During the six months ended March 31, 2023, we had two customers which each individually comprised greater than 10% of net revenue. These customers represented 17% and 15% respectively. No other customer accounted for more than 10% of net revenue during the periods presented.

As of March 31, 2023, three customers accounted for a total of 45% of our accounts receivable balance or 20%, 15%, and 10%, respectively. No other customer accounted for more than 10% of total accounts receivable.

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.

Prepaid expenses

Expenditures paid in one accounting period which will not be consumed until a future period such as insurance premiums and annual subscription fees are accounted for on the balance sheet as a prepaid expense. When the asset is eventually consumed, it is charged to expense.

Content Assets

We capitalize the fixed content fees and 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. Internally-developed content costs are capitalized in the same manner as licensed content costs, when the cost of the content is known and the content is ready and available for streaming. We amortize internally-developed content assets into cost of revenue, using the straight-line method over the estimated period of streaming.

Long-lived assets

We evaluate the recoverability of long-lived assets, including intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner that an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, we recognize an impairment loss only if their carrying amount is not recoverable through the undiscounted cash flows. The impairment loss is based on the difference between the carrying amount and estimated fair value as determined by discounted future cash flows. Our finite long-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from two to nine years.

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Property and equipment, net

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the asset’s estimated useful life. Our capitalization policy is to capitalize property and equipment purchases greater than $3,000, as well as internally-developed software enhancements. Expenditures for maintenance and repairs are expensed as incurred. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in earnings.

Loop players are capitalized as fixed assets and depreciated over the estimated period of use.

See below for estimated useful lives:


Loop players		3 years
Equipment		3-5 years
Software		3 years

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 twelve months, we have elected the short-term lease measurement and recognition exemption, and we 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:

●

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.

●

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

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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.

On September 26, 2022, our convertible debentures converted to common stock as part of our public offering and uplist to the NYSE stock exchange, and in accordance with the terms of the original debt agreements. As of September 30, 2022, the remaining balance of the derivative liability was written off as part of the conversion to equity. Thus, there is no fair value measurement of the Derivative Liability balance as of March 31, 2023.

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

Advertising costs

We expense all advertising costs as incurred. Advertising and marketing costs for the six months ended March 31, 2023, and 2022, were $5,835,275 and $2,435,811, 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 client, revenue is deferred until all acceptance criteria have been met. For example, we bill subscription services in advance of when the service is performed and revenue is treated as deferred revenue until the service is performed and/or the performance obligation is satisfied. Revenues are recognized under Topic 606 in a manner that reasonably reflects the delivery of our products and services to clients in return for expected consideration and includes the following elements:

●

executed contracts with our customers that we believe are legally enforceable;

●

identification of performance obligations in the respective contract;

●

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

●

allocation of the transaction price to each performance obligation; and

●

recognition of revenue only when we satisfy each performance obligation.

Performance obligations and significant judgments

Our revenue can be categorized into two revenue streams: Advertising revenue and Legacy and other revenue.

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The following table disaggregates our revenue by major type for the three and six months ended March 31, 2023, and 2022.


	Three months ended March 31,				Six months ended March 31,
		2023		2022		2023		2022
Advertising revenue	$	4,648,390	$	3,499,791	$	18,607,895	$	4,936,878
Legacy and other revenue		744,841		1,380,048		1,611,167		2,938,995
Total	$	5,393,231	$	4,879,839	$	20,219,062	$	7,875,873

Our performance obligations and recognition patterns for each revenue stream are as follows:

Advertising revenue

For the three and six months ended March 31, 2023, advertising revenue accounts for 86% and 92%, respectively, of our revenue and includes revenue from direct and programmatic advertising as well as sponsorships.

For all advertising revenue sources, we evaluate whether we should be considered the principal (i.e., report revenues on a gross basis) or an agent (i.e., report revenues on a net basis). Our role as principal or agent differs based on our performance obligation for each revenue share arrangement.

For both the O&O and Platform Partner businesses, advertising inventory provided to advertisers through the use of an advertising demand partner or agency, with whose fees or commission is calculated based on a stated percentage of gross advertising spending, we are considered the agent and our revenues are reported net of agency fees and commissions. We are considered the agent because the demand partner or agency controls all aspects of the transaction (pricing risk, inventory risk, obligation for fulfillment) except for the devices used to show the advertisements, therefore we report this advertising revenue net of agency fees and commissions.

We are considered the principal in our arrangements with content providers in our O&O Platform business and with our arrangements with our third-party partners in our Partner Platforms business and thus report revenues on a gross basis (net of agency fees and commissions), wherein the amounts billed to our advertising demand partners, advertising agencies, and direct advertisers and sponsors are recorded as revenues, and amounts paid to content providers and third-party partners are recorded as expenses. We are considered the principal because we control the advertising space, are primarily responsible to our advertising demand partners and other parties filling our advertising inventory, have discretion in pricing and advertising fill rates and typically have an inventory risk.

For advertising revenue, we recognize revenue at the time the digital advertising impressions are filled and the advertisements are played and, for sponsorship revenue, we generally recognize revenue ratably over the term of the sponsorship arrangement as the sponsored advertisements are played.

Legacy and other business revenue

For the three and six months ended March 31, 2023, legacy and other business revenue accounts for the remaining 14% and 8%,respectively, of total revenue and includes streaming services, subscription content services, and hardware delivery, as described below:

o

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

o

Delivery of subscription content services in customized formats. We recognize revenue straight-line 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. Revenue from hardware sales is insignificant.

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

Customer acquisition costs consist of marketing costs and affiliate fees associated with the O&O business. They are included in operating expenses and expensed as incurred.

Cost of revenue

Cost of revenue for the O&O Platform and legacy businesses represents the amortized cost of ongoing licensing and hosting fees, which is recognized over time based on usage patterns. The depreciation expense associated with the Loop players is not included in cost of sales.

Cost of revenue for the Partner Platform business represents hosting fees, amortized costs of internally-developed content, and the revenue share with third party partners (after deduction of allocated infrastructure costs). The cost of revenue is higher with partners within the Partner Platform versus those within the O&O Platform because the Company leverages its Partner Platform partners’ network of customers and their screens to deliver content and advertising inventory, rather than using its own Loop players.

Deferred income

As of March 31, 2023, we no longer bill subscription services in advance of when the service period is performed. The deferred income recorded at September 30, 2022, 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.

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The following securities are excluded from the calculation of weighted average diluted shares at March 31, 2023, and September 30, 2022, respectively, because their inclusion would have been anti-dilutive.


	March 31,	September 30,
	2023	2022
Options to purchase common stock	8,605,814	8,174,583
Warrants to purchase common stock	5,300,033	5,300,033
Restricted Stock Units (RSUs)	1,102,004	890,000
Series A preferred stock	—	—
Series B preferred stock	—	—
Convertible debentures	—	—
Total common stock equivalents	15,007,851	14,364,616

Shipping and handling costs

Loop players are provided free to our customers. Loop absorbs any associated costs of shipping and handling and records as an operational expense at the time of service.

Income taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We have no material uncertain tax positions for any of the reporting periods presented.

We recognize accrued interest and penalties related to unrecognized tax benefits as part of income tax expense. We have also made a policy election to treat the income tax with respect to global intangible low-tax income as a period expense when incurred.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. The adoption of this standard in the first quarter of 2022 had no impact on our consolidated financial statements.

Stock-based compensation

Stock-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 stock-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.

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Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation. These reclassifications have no effect on the previously reported financial position, results of operations, or cash flows. Previously reported accounts payable and accrued liabilities have now been disaggregated into accounts payable, accrued liabilities, and accrued royalty. Further, stock-based compensation and depreciation and amortization expenses have now been segregated from sales, general and administrative expenses and separately reported within operating expenses.

Recently adopted accounting pronouncements

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 adopted this ASU as of October 1, 2022, and there is no material impact as of March 31, 2023.

Recent 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.

NOTE 3 – CONTENT ASSETS

Content Assets

The content we stream to our users is generally acquired by securing the intellectual property rights to the content through licenses from, and paying royalties or other consideration to, rights holders or their agents. The licensing can be for a fixed fee or can be a revenue sharing arrangement. The licensing arrangements specify the period when the content is available for streaming, the territories, the platforms, the fee structure and other standard content licensing terms defining the rights and/or restrictions for how the licensed content can be used by Loop. We also develop original content internally, which is capitalized when the content is ready and available for streaming, and generally amortized over a period of two to three years.

As of March 31, 2023, content assets were $2,700,232 recorded as Content asset, net – current and $1,111,580 recorded as Content asset, net – noncurrent, of which $177,292 was internally-developed content asset, net.

We recorded amortization expense in cost of revenue, in the consolidated statements of operations, related to capitalized content assets:



	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
Licensed Content Assets	$	615,165	$	346,158	$	1,284,843	$	657,213
Internally-Developed Assets		15,378		—		27,867		—
Total	$	630,543	$	346,158	$	1,312,710	$	657,213

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Our content license contracts are typically two to three years. The amortization expense for the next three years for capitalized content assets as of March 31, 2023:


	Remaining in Fiscal Year 2023		Fiscal Year 2024		Fiscal Year 2025		Fiscal Year 2026
Licensed Content Assets	$	1,447,223	$	2,068,907	$	115,726	$	2,664
Internally-Developed Assets		36,430		72,860		59,440		8,562
Total	$	1,483,653	$	2,141,767	$	175,166	$	11,226

License Content Liabilities

On March 31, 2023, we had $1,335,571 of obligations comprised of $1,282,655 in License content liability – current and $52,916 in accounts payable on the Consolidated Balance Sheets. Payments for content liabilities for the six months ended March 31, 2023, were $3,483,019. The expected timing of payments for these content obligations is $1,282,655 payable in fiscal year 2023.

NOTE 4. PROPERTY AND EQUIPMENT

Our property and equipment, net consisted of the following as of March 31, 2023, and September 30, 2022:


	March 31,		September 30,
	2023		2022
Loop Players	$	2,145,929	$	1,259,402
Equipment		1,066,782		703,341
Software		588,553		404,058
		3,801,264		2,366,801
Less: accumulated depreciation		(1,100,134)		(733,632)
Total property and equipment, net	$	2,701,130	$	1,633,169

For the three months ended March 31, 2023, and 2022, depreciation expense, calculated using straight line method, charged to operations amounted to $206,897 and $4,288, respectively.

For the six months ended March 31, 2023, and 2022, depreciation expense, calculated using straight line method, charged to operations amounted to $366,502 and $8,580, respectively.

NOTE 5. INTANGIBLE ASSETS

Our intangible assets, each definite lived assets, consisted of the following as of March 31, 2023, and September 30, 2022:


		March 31,		September 30,
	Useful life	2023		2022
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			(675,889)		(619,667)
Total			(675,889)		(619,667)
Total intangible assets, net		$	534,111	$	590,333

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Amortization expense charged to operations amounted to $28,111 and $28,111, for the three months ended March 31, 2023, and 2022, respectively.

Amortization expense charged to operations amounted to $56,222 and $56,222, respectively, for the six months ended March 31, 2023, and 2022.

Annual amortization expense for the next five years and thereafter is estimated to be $56,222 (remaining in fiscal year 2023), $112,444, $112,444, $112,444, $112,444, and $28,113, respectively. The weighted average life of the intangible assets subject to amortization is 4.8 years on March 31, 2023.

NOTE 6 – OPERATING LEASES

Operating leases

We have operating leases for office space and office equipment. Many leases include one or more options to renew, some of which include options to extend the leases for a long-term period, and some leases include options to terminate the leases within 30 days. In certain of our lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for capital area maintenance, utilities, inflation and/or changes in other indexes.

Our lease liability consisted of the following as of March 31, 2023, and September 30, 2022:


	March 31,		September 30,
	2023		2022
Short term portion	$	18,483	$	75,529
Long term portion		—		—
Total lease liability	$	18,483	$	75,529

Maturity analysis under these lease agreements are as follows:



2023	$	20,331
Total undiscounted cash flows		20,331
Less: 10% Present value discount		(1,848)
Lease liability	$	18,483

We recorded lease expense in sales, general and administration expenses in the consolidated statement of operations:


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
Operating lease expense	$	17,495	$	44,444	$	61,939	$	88,888
Short-term lease expense		32,431		2,100		34,831		4,200
Total lease expense	$	49,926	$	46,544	$	96,770	$	93,088

For the six months ended March 31, 2023, cash payments against lease liabilities totaled $59,138, and accretion on lease liability of $2,428.

For the six months ended March 31, 2022, cash payments against lease liabilities totaled $45,238, accretion on lease liability of $5,889.

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Weighted-average remaining lease term and discount rate for operating leases are as follows:


Weighted-average remaining lease term	0.17 years
Weighted-average discount rate	10	%

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following as of March 31, 2023, and September 30, 2021:


	March 31,		September 30,
	2023		2022
Accounts payable	$	6,883,215	$	7,453,801

Performance bonuses		1,889,315		2,970,000
Professional fees		390,058		505,169
Interest payable		355,737		348,150
Marketing		339,895		344,309
Insurance liabilities		83,744		602,970
Commissions		54,995		425,321
Other accrued liabilities		299,295		424,954
Accrued liabilities		3,413,038		5,620,873

Accrued royalties and revenue share		3,184,604		4,559,088

Total accounts payable and accrued expenses	$	13,480,857	$	17,633,762

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NOTE 8 – DEBT