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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2023

OR

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)

 

2600 West Olive Avenue, Suite 5470, Burbank, CA 91505

(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. 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). 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 February 5, 2024, the registrant had 70,851,214 shares of common stock issued and outstanding.

Graphic

Graphic

1

Table of Contents

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.

50

Item 4.

Controls and Procedures.

50

PART II — OTHER INFORMATION

51

Item 1.

Legal Proceedings.

51

Item 1A.

Risk Factors.

51

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

52

Item 3.

Defaults Upon Senior Securities.

52

Item 4.

Mine Safety Disclosures.

52

Item 5.

Other Information.

52

Item 6.

Exhibits.

52

Signatures

54

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements.

LOOP MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 

    

September 30, 

2023

2023

ASSETS

(UNAUDITED)

 

  

Current assets

  

 

  

Cash

$

3,811,159

$

3,068,696

Accounts receivable, net

 

7,941,430

 

6,211,815

Prepaid expenses and other current assets

 

669,360

 

987,605

Content assets - current

1,937,900

2,218,894

Total current assets

 

14,359,849

 

12,487,010

Non-current assets

 

  

 

  

Deposits

 

12,145

 

12,054

Content assets - non current

304,180

448,726

Deferred costs - non current

1,710,583

744,408

Property and equipment, net

 

2,533,829

 

2,711,558

Intangible assets, net

 

449,778

 

477,889

Total non-current assets

 

5,010,515

 

4,394,635

Total assets

$

19,370,364

$

16,881,645

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

  

 

Current liabilities

 

  

 

  

Accounts payable

$

6,627,014

$

4,978,920

Accrued liabilities

2,324,189

3,546,338

Accrued royalties and revenue share

6,272,056

4,930,329

License content liabilities - current

521,746

489,157

Deferred Income

 

19,565

 

Revolving line of credit, current

4,907,573

2,985,298

Non-revolving line of credit

 

1,760,000

 

2,124,720

Total current liabilities

 

22,432,143

 

19,054,762

Non-current liabilities

 

  

 

  

License content liabilities - non current

184,000

208,000

Non-revolving line of credit

 

441,390

 

475,523

Non-revolving line of credit, related party

1,959,693

Total non-current liabilities

 

625,390

 

2,643,216

Total liabilities

 

23,057,533

 

21,697,978

Commitments and contingencies (Note 9)

Stockholders’ equity (deficit)

Common Stock, $0.0001 par value, 150,000,000 shares authorized, 70,851,214 and 65,620,151 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively

 

7,085

6,562

Additional paid in capital

 

129,876,691

123,462,648

Accumulated deficit

 

(133,570,945)

(128,285,543)

Total stockholders' equity (deficit)

 

(3,687,169)

 

(4,816,333)

Total liabilities and stockholders' equity (deficit)

$

19,370,364

$

16,881,645

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 December 31,

    

2023

2022

Revenue

$

10,171,256

$

14,825,831

Cost of revenue

 

Cost of revenue - Advertising and Legacy and other revenue

5,739,710

8,457,633

Cost of revenue - depreciation and amortization

807,007

682,167

Total cost of revenue

6,546,717

9,139,800

Gross profit

3,624,539

 

5,686,031

Operating expenses

  

 

  

Sales, general and administrative

6,170,977

 

7,958,134

Stock-based compensation

1,328,225

1,790,807

Depreciation and amortization

381,875

187,716

Total operating expenses

7,881,077

 

9,936,657

Loss from operations

(4,256,538)

 

(4,250,626)

Other income (expense)

  

 

  

Interest income

 

Interest expense

(1,002,189)

 

(1,007,583)

Loss on extinguishment of debt

(25,424)

 

Other expense

(1,251)

Total other income (expense)

(1,028,864)

 

(1,007,583)

Loss before income taxes

(5,285,402)

(5,258,209)

Income tax (expense)/benefit

 

(1,230)

Net loss

$

(5,285,402)

$

(5,259,439)

Basic and diluted net loss per common share (Note 2)

$

(0.09)

$

(0.09)

Weighted average number of basic and diluted common shares outstanding

66,787,371

 

56,381,209

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 THREE MONTHS ENDED DECEMBER 31, 2023, and 2022

(UNAUDITED)

Common Stock

Additional Paid

Accumulated

Shares

Amount

in Capital

Deficit

Total

Balances, September 30, 2023

    

65,620,151

    

$

6,562

    

$

123,462,648

    

$

(128,285,543)

    

$

(4,816,333)

Stock-based compensation

1,287,390

1,287,390

Warrants issued for debt

1,003,269

1,003,269

Warrants issued for consulting fees

40,835

40,835

Shares issued for consulting fees

311,889

31

124,101

124,132

Shares issued for debt conversion

3,037,895

304

2,455,437

2,455,741

Shares issued for capital raise costs

30,405

3

22,497

22,500

Shares issued upon warrant exercises

1,850,874

185

1,480,514

1,480,699

Net loss

 

 

 

 

(5,285,402)

 

(5,285,402)

Balances, December 31, 2023

 

70,851,214

$

7,085

$

129,876,691

$

(133,570,945)

$

(3,687,169)

Common Stock

Additional Paid

Accumulated

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

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)

Three months ended December 31, 

2023

    

2022

CASH FLOWS FROM OPERATING ACTIVITIES

  

 

  

Net loss

$

(5,285,402)

$

(5,259,439)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

Amortization of debt discount

 

396,598

661,335

Depreciation and amortization expense

 

381,875

187,716

Amortization of content assets

807,007

682,167

Amortization of right-of-use assets

 

42,779

Bad debt expense

804,664

Extinguishment of debt converted to equity

338,858

Loss on extinguishment of debt converted to equity

25,424

Stock-based compensation

 

1,328,225

1,790,807

Shares issued for capital raise costs

22,500

Shares issued for consulting fees

124,132

Change in operating assets and liabilities:

 

 

    Accounts receivable

 

(2,534,279)

(2,883,253)

    Inventory

 

(886)

12,091

    Prepaid expenses

 

319,130

251,644

    Deposit

 

(91)

    Accounts payable

 

2,042,211

(1,375,043)

    Accrued liabilities

(1,225,987)

(2,331,374)

    Accrued royalties and revenue share

1,341,727

3,860,199

    License content liability

 

(432,266)

(2,420,129)

    Operating lease liabilities

 

(45,104)

    Deferred income

 

19,565

2,375

NET CASH USED IN OPERATING ACTIVITIES

 

(1,526,995)

 

(6,823,229)

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

  

Purchase of property and equipment

 

(394,401)

(618,032)

NET CASH USED IN INVESTING ACTIVITIES

 

(394,401)

 

(618,032)

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Proceeds from lines of credit

9,788,286

13,649,036

Repayments on lines of credit

(8,529,696)

(12,219,595)

Proceeds from exercise of warrants

1,480,699

Deferred costs

(75,430)

(56,024)

Payment of acquisition related consideration

(250,125)

Debt issuance costs

(301)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

2,663,859

 

1,122,991

Change in cash and cash equivalents

 

742,463

 

(6,318,270)

Cash, beginning of period

 

3,068,696

 

14,071,914

Cash, end of period

$

3,811,159

$

7,753,644

SUPPLEMENTAL DISCLOSURES OF CASH FLOW STATEMENTS

 

  

 

  

Cash paid for interest

$

295,086

$

508,118

Cash paid for income taxes

$

$

1,230

SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES

 

  

 

  

Shares issued for debt conversion

$

2,455,741

$

Deferred costs for warrants issued for debt

$

1,003,269

$

Unpaid additions to licensed content and internally developed content

$

180,362

$

2,756,420

Unpaid deferred costs

$

7,310

$

12,808

Unpaid additions to property and equipment

$

14,400

$

280,950

See the accompanying notes to the consolidated financial statements

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LOOP MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 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 connected televisions (“CTV”) in out-of-home (“OOH”) dining, hospitality and retail establishments, convenience stores and other locations and venues to enable them to inform, entertain and engage their customers. Our technology also provides businesses the ability to promote and advertise their products via digital signage and provides third-party advertisers with a targeted marketing and promotional tool for their products and services. We also allow our business 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. Our non-music video content is predominantly licensed or acquired from third parties, including action sports clips, drone and nature 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 (as defined below) computers and (ii) through screens (“Partner 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 December 31, 2023, we had approximately 77,000 active Loop Players and Partner Screens across the Loop Platform, which include 33,783 quarterly active Loop Players, or QAUs (as defined below) across our O&O Platform, a decrease of 3,238 over the quarter ended September 30, 2023, and approximately 43,000 Partner Screens across our Partner Platforms, an increase of 1,000 Partner Screens over the quarter ended September 30, 2023.

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.

On December 22, 2022, 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 “ATM 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. As of the date of this Report, however, we are now subject to the limitations of General Instruction I.B.6. of Form S-3, and in accordance with the terms of the ATM Sales Agreement, the number of shares of our Common Stock available for sale thereunder is now limited to one-third of the aggregate market value of our Common Stock held by non-affiliates of the Company, as calculated pursuant to General Instruction I.B.6. of Form S-3. During the three months ended December 31, 2023, we issued no shares of Common Stock under the ATM Sales Agreement. On January 8, 2024, we filed a Prospectus Supplement to the Prospectus filed on January 11, 2023, to decrease the amount of our Common Stock that is available to be sold under the ATM Sales Agreement, such that we registered the offer and sale of our Common Stock having an aggregate sales price of up to $18,200,000, from

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time to time. We have not raised any funds through sales under our ATM Sales Agreement from January 1, 2024, through the date of this Report. 

Effective as of December 14, 2023, we entered into a Revolving Line of Credit Loan Agreement with Excel Family Partners, LLLP (“Excel” and the “Excel Revolving Line of Credit Agreement”) for up to a principal sum of $2,500,000, under which we may pay down and re-borrow up to the maximum amount of the $2,500,000 limit (the “Excel Revolving Line of Credit”).  As of December 31, 2023, we had not drawn on the Excel Revolving Line of Credit.

Based on the available cash balance at December 31, 2023, and our current access to capital utilizing the ATM and our credit facilities, 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, 2023, which has been derived from our audited financial statements, and (b) our unaudited condensed consolidated interim financial statements for the three months ended December 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 three months ended December 31, 2023, are not necessarily indicative of results that may be expected for the year ending September 30, 2024.

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, 2023, included in our Annual Report on Form 10-K filed with the SEC on December 19, 2023.

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. Our business activities, revenues and expenses are evaluated by management as one reportable segment.

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In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, that would enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its chief operating decision maker (“CODM”) uses to assess segment performance and to make decisions about resource allocations. The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources. ASC 280 also requires other specified segment items and amounts such as depreciation, amortization and depletion expense to be disclosed under certain circumstances. The amendments in ASU 2023-07 do not change or remove those disclosure requirements. The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact of this standard on our condensed consolidated financial statements and related disclosures.

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 December 31, 2023, and September 30, 2023, we had no cash equivalents.

As of December 31, 2023, and September 30, 2023, approximately $3,561,159 and $2,818,696 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 December 31, 2023, and September 30, 2023, we had recorded an allowance for doubtful accounts of $804,664 and $630,629, respectively.

Concentration of credit risk

During the three months ended December 31, 2023, we had two customers which each individually comprised greater than 10% of net revenue. These customers represented 25% and 20% respectively. No other customer accounted for more than 10% of net revenue during the periods presented.

During the three months ended December 31, 2022, we had three customers which each individually comprised greater than 10% of net revenue. These customers represented 16%, 15% and 11% respectively. No other customer accounted for more than 10% of net revenue during the periods presented.

As of December 31, 2023, three customers accounted for a total of 42% of our accounts receivable balance or 17%, 15% and 10%, respectively. No other customer accounted for more than 10% of total accounts receivable.

As of December 31, 2022, three customers accounted for a total of 39% of our accounts receivable balance or 14%, 14% and 11%, respectively. No other customer accounted for more than 10% of total accounts receivable.

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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.

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.

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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 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 American, LLC, 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 December 31, 2023.

Advertising costs

We expense all advertising costs as incurred. Advertising and marketing costs for the three months ended December 31, 2023, and 2022, were $2,178,247 and $3,125,027, 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

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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.

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

The following table disaggregates our revenue by major type for each of the periods indicated:  

Three months ended December 31, 

2023

2022

Advertising revenue

$

9,394,764

$

13,959,505

Legacy and other revenue

776,492

866,326

Total

$

10,171,256

$

14,825,831

Performance obligations and significant judgments

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

Advertising revenue

For the three months ended December 31, 2023, and 2022, advertising revenue accounts for 92% and 94%, respectively, of our revenue and includes revenue from direct programmatic and local 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 Partner Platforms 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.

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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 months ended December 31, 2023, and 2022, legacy and other business revenue accounts for the remaining 8% and 6%, respectively, of total revenue and includes streaming services, subscription content services, and hardware delivery, as described below:

oDelivery 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.

oDelivery of subscription content services in customized formats. We recognize revenue straight-line over the term of the service.

oDelivery 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 Platform 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 we leverage our Partner Platform partners’ network of customers and their screens to deliver content and advertising inventory, rather than using our own Loop Players.

Deferred income

Deferred income represents our accounting for the timing difference between when fees are received and when the performance obligation is satisfied.  

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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 December 31, 2023, and September 30, 2023, respectively, because their inclusion would have been anti-dilutive.

    

December 31, 

September 30, 

2023

2023

Options to purchase common stock

 

8,915,294

 

8,849,305

Warrants to purchase common stock

 

6,866,699

 

5,592,573

Restricted Stock Units (RSUs)

1,156,397

1,156,397

Series A preferred stock

 

 

Series B preferred stock

 

 

Convertible debentures

 

 

Total common stock equivalents

 

16,938,390

 

15,598,275

On December 14, 2023, we entered into Warrant Reprice Letter Agreements with certain holders to amend the exercise price of existing exercisable warrants to $0.80 per share and to exercise an aggregate of 1,850,874 shares of our Common Stock for an aggregate exercise price of $1,480,699. The impact of the amendment resulted in a deemed dividend in the amount of $419,939, which was calculated based on the change in fair value.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share of our Common Stock is as follows:

Three months ended December 31,

2023

2022

Numerator:

Net loss

$

(5,285,402)

$

(5,259,439)

Plus: Deemed dividend on warrants

(419,939)

Net loss attributable to common stockholders

$

(5,705,341)

$

(5,259,439)

Denominator:

Weighted average number of common shares outstanding

66,787,371

 

56,381,209

 

Basic and diluted net loss per common share

$

(0.09)

$

(0.09)

Shipping and handling costs

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

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Income taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”).  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.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”).  ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 will be effective for us in the annual period beginning October 1, 2025, though early adoption is permitted. We are still evaluating the presentational effect that ASU 2023-09 will have on our consolidated financial statements, but we expect considerable changes to our income tax footnote.

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.

Deferred financing costs

Deferred financing costs represent legal, accounting and other direct costs related to our efforts to raise capital through a public or private sale of our Common Stock. Costs related to the public sale of our Common Stock are deferred until the completion of the applicable offering, at which time such costs are reclassified to additional paid-in-capital as a reduction of the proceeds. Costs related to the private sale of our Common Stock are deferred until the completion of the applicable offering, at which time such costs are amortized over the term of the applicable purchase agreement.

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Employee retention credits

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus measures, including the Employee Retention Credit (“ERC”): a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. We qualified for the ERC in the third and fourth quarters of 2020 and the first, second and third quarters of 2021. During the three months ended December 31, 2023, we recorded no aggregate benefit in our condensed combined income statement to reflect the ERC.

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.

Restructuring costs

We undertook initiatives in fiscal year 2023 to increase efficiency and cut costs, while still maintaining our focus on, and dedication to, the continued growth of our business. During fiscal year 2023, we made cuts and adjustments across several aspects of our business. We completed a plan to reduce our overall SG&A costs including labor and various other operating costs. Part of this reduction included eliminating some non-revenue generating headcount, while continuing to invest in expansion of our revenue and ad sales team.

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. We adopted this ASU as of October 1, 2023, and there is no material impact to our financial statements as of December 31, 2023.

Recent accounting pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, that would enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its chief operating decision maker (“CODM”) uses to assess segment performance and to make decisions about resource allocations. The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources. ASC 280 also requires other specified segment items and amounts such as depreciation, amortization and depletion expense to be disclosed under certain circumstances. The amendments in ASU 2023-07 do not change or remove those disclosure requirements. The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the

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amendments in ASU 2023-07 retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact of this standard on our condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”).  ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 will be effective for us in the annual period beginning October 1, 2025, though early adoption is permitted. We are still evaluating the presentational effect that ASU 2023-09 will have on our consolidated financial statements, but we expect considerable changes to our income tax footnote.

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 Media.  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 December 30, 2023, content assets were $1,937,900 recorded as Content asset, net – current and $304,180 recorded as Content asset, net – noncurrent, of which $122,647 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:

    

December 31, 

2023

2022

Licensed Content Assets

$

788,792

$

669,678

Internally-Developed Assets

18,215

12,489

Total

$

807,007

$

682,167

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

Remaining in Fiscal Year 2024

Fiscal Year 2025

Fiscal Year 2026

Licensed Content Assets

$

1,803,281

$

218,750

$

97,401

Internally-Developed Assets

 

54,645

 

59,440

 

8,563

Total

$

1,857,926

$

278,190

$

105,964

License Content Liabilities

As of December 31, 2023, we had $912,108 of obligations comprised of $521,746 in License content liability – current, $184,000 in License content liability - noncurrent and $206,362 in accounts payable on our consolidated balance sheets. Payments for content liabilities for the three months ended December 31, 2023, were $201,862. The expected timing of payments for these content obligations is $497,746 payable in fiscal year 2024, $98,000 payable in fiscal year 2025 and $110,000 payable in fiscal year 2026.

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NOTE 4. PROPERTY AND EQUIPMENT

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

    

December 31, 

September 30, 

2023

2023

Loop Players

$

2,950,767

$

2,536,937

Equipment

506,832

801,301

Software

 

854,966

 

854,966

 

4,312,565

 

4,193,204

Less: accumulated depreciation

 

(1,778,736)

 

(1,481,646)

Total property and equipment, net

$

2,533,829

$

2,711,558

For the three months ended December 31, 2023, and 2022, depreciation expense, calculated using straight line method, charged to operations amounted to $297,090 and $159,605, respectively.

NOTE 5. INTANGIBLE ASSETS

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

December 31, 

September 30, 

    

Useful life

    

2023

    

2023

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

 

(760,222)

 

(732,111)

Total

 

(760,222)

 

(732,111)

Total intangible assets, net

$

449,778

$

477,889

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

Annual amortization expense for the next five years and thereafter is estimated to be $84,333 (remaining in fiscal year 2024), $112,444, $112,444, $112,444, and $28,113, respectively. The weighted average life of the intangible assets subject to amortization is 4 years as of December 31, 2023.

NOTE 6 – OPERATING LEASES

Operating leases

As of December 31, 2023, we no longer have operating leases for office space and office equipment in excess of one year. Many of our prior leases included one or more options to renew, some of which included options to extend the leases for a long-term period, and some leases included options to terminate the leases within 30 days. In certain of our prior lease agreements, the rental payments were adjusted periodically to reflect actual charges incurred for capital area maintenance, utilities, inflation and/or changes in other indexes.

We had no lease liability as of December 31, 2023, and September 30, 2023.

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

Three months ended December 31, 

    

2023

    

2022

Operating lease expense

$

$

44,444

Short-term lease expense

 

36,843

 

2,400

Total lease expense

$

36,843

$

46,844

For the three months ended December 31, 2023, there were no cash payments against lease liabilities nor accretion on lease liability.

For the three months ended December 31, 2022, cash payments against lease liabilities totaled $40,346 and accretion on lease liability of $1,665.

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

    

December 31, 

September 30, 

2023

2023

Accounts payable

$

6,627,014

$

4,978,920

Performance bonuses

 

300,000

1,262,000

Interest payable

 

112,947

 

175,094

Professional fees

506,552

449,944

Marketing

781,487

800,165

Commissions

109,352

 

Insurance liabilities

233,902

552,000

Other accrued liabilities

279,949

307,135

Accrued liabilities

 

2,324,189

 

3,546,338

Accrued royalties and revenue share

6,272,056

4,930,329

Total accounts payable and accrued expenses

$

15,223,259

$

13,455,587

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NOTE 8 – DEBT

Lines of Credit as of December 31, 2023:

Unpaid

Contractual

Net Carrying Value

Principal

Interest Rates

Contractual

Warrants

Related party lines of credit:

Current

Long Term

Balance

Cash

Maturity Date

issued

$2,500,000 revolving line of credit, December 14, 2023

$

$

$

10%

12 months prior written notice

3,125,000

Total related party lines of credit, net

$

$

$

Lines of credit:

$2,200,000 non-revolving line of credit, May 13, 2022

$

1,760,000

$

$

1,760,000

12%

11/13/2023

314,286

$6,000,000 revolving line of credit, July 29, 2022

4,907,573

5,429,504

Greater of 4% or Prime

7/29/2024

$4,000,000 non-revolving line of credit, May 10, 2023

441,390

800,000

12%

5/10/2025

83,142

Total lines of credit, net

$

6,667,573

$

441,390

$

7,989,504

Lines of Credit as of September 30, 2023:

Unpaid

Contractual

Net Carrying Value

Principal

Interest Rates

Contractual

Warrants

Related party lines of credit:

Current

Long Term

Balance

Cash

Maturity Date

issued

$4,000,000 non-revolving line of credit, May 10, 2023

$

$

1,959,693

$

2,266,733

12%

5/10/2025

209,398

Total related party lines of credit, net

$

$

1,959,693

$

2,266,733

Lines of credit:

$2,200,000 non-revolving line of credit, May 13, 2022

$

2,124,720

$

$

2,200,000

12%

11/13/2023

314,286

$6,000,000 revolving line of credit, July 29, 2022

2,985,298

3,730,914

Greater of 4% or Prime

7/29/2024

$4,000,000 revolving line of credit, May 10, 2023

475,523

900,000

12%

5/10/2025

83,142

Total lines of credit, net

$

5,110,018

$

475,523

$

6,830,914

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The following table presents the interest expense related to the contractual interest coupon and the amortization of debt discounts on the lines of credit:

Three months ended December 31, 

2023

2022

Interest expense

$

593,764

$

340,379

Amortization of debt discounts

396,598

661,335

Total

$

990,362

$

1,001,714

Maturity analysis under the line of credit agreements for the fiscal years ended December 31,

2024

$

7,189,504

2025

800,000

2026

2027

2028

 

Lines of credit, related and non-related party

 

7,989,504

Less: Debt discount on lines of credit payable

 

(880,541)

Total Lines of credit payable, related and non-related party, net

$

7,108,963

Revolving Lines of Credit

Excel Revolving Line of Credit

Effective as of December 14, 2023, we entered into a Revolving Line of Credit Loan Agreement with Excel Family Partners, LLLP (“Excel” and the “Excel Revolving Line of Credit Agreement”) for up to a principal sum of $2,500,000, under which we may pay down and re-borrow up to the maximum amount of the $2,500,000 limit (the “Excel Revolving Line of Credit”). Our drawdown on the Excel Revolving Line of Credit is limited to no more than twenty-five percent (25%) of the last three full months’ revenue, not to exceed $1,250,000 in any quarter, and not to exceed in aggregate the outstanding debt amount of $2,500,000.The Excel Revolving Line of Credit is a perpetual loan, with a maturity date that is twelve (12) months from the date of formal notice of termination by Excel, and accrues interest, payable semi-annually in arrears, at a fixed rate of interest equal to ten  percent (10%) per year. Under the Excel Revolving Line of Credit Agreement, we granted to Excel a security interest in all of our present and future assets and properties, real or personal, tangible or intangible, wherever located, including products and proceeds thereof, which security interest is pari passu with the RAT Non-Revolving Line of Credit Agreement and the May 2023 Secured Line of Credit (each as described below), but is subordinate in rights to GemCap under the GemCap Revolving Line of Credit Agreement (as described below).

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Under the terms of the Excel Revolving Line of Credit Agreement, on December 14, 2023, we issued to Excel a warrant to purchase up to an aggregate of 3,125,000 shares of our Common Stock. The warrant has an exercise price of $0.80 per share, which was the closing price of our Common Stock on December 14, 2023, expires on December 14, 2026, and is exercisable at any time prior to such date, to the extent that after giving effect to such exercise, Excel and its affiliates would beneficially own, for purposes of Section 13(d) of the  Exchange Act, no more than 29.99% of the outstanding shares of our Common Stock.

We had not drawn down any funds from the Excel Revolving Line of Credit as of December 31, 2023.  

GemCap Revolving Line of Credit Agreement

Effective as of July 29, 2022, we entered into a Loan and Security Agreement with Industrial Funding Group, Inc. (the “Initial Lender”) for a revolving loan credit facility for the initial principal sum of up to $4,000,000, and through the exercise of an accordion feature, a total sum of up to $10,000,000 (the “GemCap Revolving Line of Credit Agreement”), evidenced by a Revolving Loan Secured Promissory Note, also effective as of July 29, 2022 (the “GemCap Revolving Line of Credit”). Shortly after the effective date of the GemCap Revolving Line of Credit, the Initial Lender assigned the GemCap Revolving Line of Credit Agreement, and the loan documents related thereto, to GemCap Solutions, LLC (“GemCap” or “Senior Lender.”)  Availability for borrowing under the GemCap Revolving Line of Credit is dependent upon our assets in certain eligible accounts and measures of revenue, subject to reduction for reserves that the Senior Lender may require in its discretion, and the accordion feature is a provision whereby we may request that the Senior Lender increase availability under the GemCap Revolving Line of Credit, subject to its sole discretion. Effective as