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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 June 30, 2021

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: 001-39441

Graphic

KUBIENT, INC.

(Exact name of registrant as specified in its charter)

Delaware

   

82-1808844

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

228 Park Avenue South

Suite 72602

New York, New York 10003-1502

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (866) 668-2567

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

Title of each class

   

Trading Symbol

    

Name of each exchange on which registered

Common Stock, par value $0.00001 per share

KBNT

 

The Nasdaq Stock Market LLC

Common Stock Purchase Warrants

KBNTW

The Nasdaq Stock Market 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 such 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 August 12, 2021, the registrant had 14,252,886 shares of common stock outstanding.

Table of Contents

KUBIENT, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

INDEX

 

 

Page

Part I.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020

1

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020

2

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) for the Three and Six Months Ended June 30, 2021 and 2020

3

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

5

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

 

 

Part II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosure

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

Signatures

32

Glossary

A-1

Table of Contents

Kubient, Inc.

Condensed Consolidated Balance Sheets

    

June 30, 

    

December 31, 

2021

2020

(unaudited)

Assets

 

  

 

  

 

  

 

  

Current Assets:

 

  

 

  

Cash

$

30,462,437

$

24,782,128

Accounts receivable, net

 

494,940

 

1,373,754

Prepaid expenses and other current assets

 

160,417

 

107,651

Total Current Assets

 

31,117,794

 

26,263,533

Intangible assets, net

 

2,562,717

 

1,071,850

Property and equipment, net

 

23,259

 

17,166

Deferred offering costs

 

33,905

 

10,000

 

  

 

  

Total Assets

$

33,737,675

$

27,362,549

 

  

 

  

Liabilities and Stockholders' Equity

 

  

 

  

 

  

 

  

Current Liabilities:

 

  

 

  

Accounts payable - suppliers

$

352,089

$

336,028

Accounts payable - trade

 

715,279

 

1,106,604

Accrued expenses and other current liabilities

 

492,540

 

1,032,282

Notes payable

 

328,753

 

218,461

Total Current Liabilities

 

1,888,661

 

2,693,375

Notes payable, non-current portion

 

77,337

 

187,629

 

  

 

  

Total Liabilities

 

1,965,998

 

2,881,004

 

  

 

  

Commitments and contingencies (Note 6)

 

  

 

  

 

  

 

  

Stockholders' Equity:

 

  

 

  

Preferred stock, $0.00001 par value; 5,000,000 shares authorized; No shares issued and outstanding as of June 30, 2021 and December 31, 2020

 

 

Common stock, $0.00001 par value; 95,000,000 shares authorized; 14,252,885 and 11,756,109 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

143

 

118

Additional paid-in capital

 

51,560,228

 

40,770,504

Accumulated deficit

 

(19,788,694)

 

(16,289,077)

 

  

 

  

Total Stockholders' Equity

 

31,771,677

 

24,481,545

 

  

 

  

Total Liabilities and Stockholders' Equity

$

33,737,675

$

27,362,549

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

Table of Contents

Kubient, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

    

For the Three Months Ended

    

For the Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

Net Revenues

$

497,568

$

91,537

$

1,205,325

$

1,473,450

Operating Expenses:

 

 

 

 

Sales and marketing

504,380

110,252

1,261,330

258,957

Technology

 

619,692

 

497,157

 

1,139,447

 

975,690

General and administrative

 

1,108,280

 

601,828

 

2,363,852

 

1,118,917

Total Operating Expenses

 

2,232,352

 

1,209,237

 

4,764,629

 

2,353,564

Loss From Operations

 

(1,734,784)

 

(1,117,700)

 

(3,559,304)

 

(880,114)

Other (Expense) Income:

 

  

 

  

 

  

 

  

Interest expense

 

(1,576)

 

(296,516)

 

(3,210)

 

(729,399)

Interest expense - related parties

 

 

(101,637)

 

 

(202,551)

Interest income

33,355

33

62,664

104

Gain on forgiveness of accounts payable - supplier

236,248

Other income

 

 

10,500

 

233

 

12,294

Total Other Income (Expense)

 

31,779

 

(387,620)

 

59,687

$

(683,304)

Net Loss

$

(1,703,005)

$

(1,505,320)

$

(3,499,617)

$

(1,563,418)

Net Loss Per Share - Basic and Diluted

$

(0.12)

$

(0.42)

$

(0.26)

$

(0.43)

Weighted Average Common Shares Outstanding - Basic and Diluted

 

13,983,195

 

3,601,838

 

13,307,766

 

3,601,680

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Table of Contents

Kubient, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

    

For the Six Months Ended June 30, 2021

Additional

Common Stock

Paid-In

Accumulated

    

Shares

    

Amount

    

Capital

    

Deficit

    

Total

Balance - January 1, 2021

 

11,756,109

$

118

$

40,770,504

$

(16,289,077)

$

24,481,545

 

  

 

  

 

  

 

  

 

  

Shares issued upon exercise of warrants, net of issuance costs [1]

2,047,361

20

9,274,891

9,274,911

Stock-based compensation:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Common Stock

70,040

1

513,102

513,103

Options

 

 

 

2,576

 

 

2,576

 

  

 

  

 

  

 

  

 

  

Net loss

 

 

 

 

(1,796,612)

 

(1,796,612)

 

  

 

  

 

  

 

  

 

  

Balance - March 31, 2021

 

13,873,510

139

50,561,073

(18,085,689)

32,475,523

Shares issued upon exercise of warrants, net of issuance costs [2]

 

108,961

 

1

 

428,718

 

 

428,719

Common stock issued upon exercise of options

2,815

8,361

8,361

Shares issued as partial consideration for intangible asset

100,000

1

531,999

532,000

Stock-based compensation:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Common stock

 

167,600

 

2

 

27,568

 

 

27,570

Options

 

 

 

2,509

 

 

2,509

 

  

 

  

 

  

 

  

 

  

Net loss

 

 

 

 

(1,703,005)

 

(1,703,005)

Balance - June 30, 2021

 

14,252,886

$

143

$

51,560,228

$

(19,788,694)

$

31,771,677

3

Table of Contents

    

For the Six Months Ended June 30, 2020

Additional

Common Stock

Paid-In

Accumulated

    

Shares

    

Amount

    

Capital

    

Deficit

    

Total

Balance - January 1, 2020

 

3,601,521

$

36

$

3,362,724

$

(8,403,417)

$

(5,040,657)

 

  

 

  

 

  

 

  

 

  

Stock-based compensation:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Options

 

 

 

5,394

 

 

5,394

 

  

 

  

 

  

 

  

 

  

Net loss

 

 

 

 

(58,098)

 

(58,098)

 

  

 

  

 

  

 

  

 

  

Balance - March 31, 2020

 

3,601,521

36

3,368,118

(8,461,515)

(5,093,361)

 

  

 

  

 

  

 

  

 

  

Stock-based compensation:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Common stock

1,112

3,000

3,000

Options

 

 

 

5,423

 

 

5,423

 

  

 

  

 

  

 

  

 

  

Forgiveness of accrued expenses by related party

33,738

33,738

Net loss

 

 

 

 

(1,505,320)

 

(1,505,320)

Balance - June 30, 2020

 

3,602,633

$

36

$

3,410,279

$

(9,966,835)

$

(6,556,520)

[1]

Includes gross proceeds of $9,708,038, less issuance costs of $433,127.

[2]

Includes gross proceeds of $460,989, less issuance costs of $32,270.

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents

Kubient, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

    

For the Six Months Ended

June 30, 

    

2021

    

2020

Cash Flows From Operating Activities:

 

  

 

  

Net loss

$

(3,499,617)

$

(1,563,418)

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

 

  

 

  

Depreciation and amortization

 

159,293

 

139,145

Bad debt expense

 

 

3,734

Gain on forgiveness of accounts payable - supplier

 

 

(236,248)

Stock-based compensation:

 

  

 

  

Stock options

 

5,085

 

10,817

Common stock

 

255,667

 

73,125

Amortization of debt discount and debt issuance costs

 

 

585,409

Amortization of debt discount and debt issuance costs - related parties

 

 

173,236

Changes in operating assets and liabilities:

 

  

 

Accounts receivable

 

878,814

 

(537,681)

Prepaid expenses and other current assets

 

(52,766)

 

(1,317)

Accounts payable - suppliers

 

16,061

 

(7,999)

Accounts payable - trade

 

(404,930)

 

209,292

Accrued expenses and other current liabilities

(334,280)

373,284

Accrued interest

 

(3,975)

 

133,741

Accrued interest - related parties

 

 

37,355

 

  

 

  

Net Cash Used In Operating Activities

 

(2,980,648)

 

(607,525)

 

  

 

  

Cash Flows From Investing Activities:

 

  

 

  

Purchase of intangible assets

 

(1,114,072)

 

(355,019)

Purchase of property and equipment

 

(10,181)

 

(2,316)

 

  

 

  

Net Cash Used In Investing Activities

 

(1,124,253)

 

(357,335)

 

  

 

  

Cash Flows From Financing Activities:

 

  

 

  

Proceeds from exercise of warrants [1]

9,787,149

Proceeds from exercise of options

8,361

Proceeds from issuance of notes payable

 

 

406,190

Proceeds from issuance of notes payable - related parties

 

 

585,000

Payment of deferred offering costs

(10,300)

(15,000)

 

  

 

  

Net Cash Provided By Financing Activities

 

9,785,210

 

976,190

 

  

 

  

Net Increase In Cash

 

5,680,309

 

11,330

 

  

 

  

Cash - Beginning of the Period

 

24,782,128

 

33,785

 

  

 

  

Cash - End of the Period

$

30,462,437

$

45,115

[1]

Includes gross proceeds of $10,169,027, less issuance costs of $381,878.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Kubient, Inc.

Condensed Consolidated Statements of Cash Flows (Continued)

(unaudited)

For the Six Months Ended

June 30, 

2021

    

2020

Supplemental Disclosures of Cash Flow Information:

Cash paid during the periods for:

 

  

 

  

Interest

$

$

Income taxes

$

$

 

  

 

  

Non-cash investing and financing activities:

 

  

 

  

Original issue discount in connection with convertible notes payable

$

$

285,000

Original issue discount in connection with convertible notes payable - related party

$

$

75,500

Accrual of intangible assets

$

$

1,144,981

Accrual of deferred offering costs

$

13,605

$

148,702

Forgiveness of related party liability

$

$

33,738

Accrual of warrant exercise issuance costs

$

83,519

$

Shares issued as partial consideration for intangible asset

$

532,000

$

Shares of common stock issued in satisfaction of accrued issuable equity

$

507,044

$

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 – BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES AND BASIS OF PRESENTATION

Organization and Operations

Kubient, Inc. (“Kubient” or the “Company”), a Delaware corporation, was incorporated in May 2017 to solve some of the most significant problems facing the global digital advertising industry.

The Company’s experienced team of marketing and technology veterans has developed the Audience Cloud, a modular, highly scalable, transparent, cloud-based software platform for real-time trading of digital, Programmatic Advertising. The Company’s platform’s open marketplace gives both advertisers (ad space buyers) and Publishers (ad space sellers) the ability to use machine learning in the most critical parts of any Programmatic Advertising inventory auction, while simultaneously and significantly reducing those advertisers and Publishers’ exposure to fraud, specifically in the Pre-bid environment.

By becoming a one stop shop for advertisers and publishers, providing them with the technology to deliver meaningful messages to their target audience, all in one place, on a single platform that is computationally efficient, transparent, and as safely fraud-free as possible, the Company believes that its platform (and the application of its machine learning algorithms) leads to increased publisher revenue, lower advertiser cost, reduced latency and increased economic transparency during the advertising auction process.

Furthermore, the Company believes that its technology allows advertisers to reach entire audiences rather than buying single impressions from disparate sources. The Company calls this approach Audience-Based Marketing. Combining this approach with its proprietary solutions for fraud prevention and the reduction of latency in auctions, the Company is confident that it is poised to alter the status quo as the next generation of the industry’s advertising inventory auction infrastructure.

Risks and Uncertainties

In March 2020, the World Health Organization declared COVID-19, a novel strain of coronavirus, a pandemic. During 2020 and continuing into 2021, the global economy has been, and continues to be, affected by COVID-19. While we continue to see signs of economic recovery as certain governments began to gradually ease restrictions, provide economic stimulus and vaccine distribution accelerated, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions causing reinstatement of restrictions in certain jurisdictions. Starting in 2020 and continuing into 2021, the Company has taken proactive measures to protect the health and safety of our employees and customers by closing our offices, requiring employees to work from home and suspending travel, in-person meetings and visits with our customers. We continue to monitor the effectiveness of these measures in light of the daily evolution of the COVID-19 pandemic, including the spread of the Delta variant, in order to ensure the health and safety of our employees remains our top priority. For example, while we recently developed a plan to return to our offices in September of 2021, the impact of the Delta variant may result in employees continuing to work from home for the duration of 2021 and beyond.

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

We will modify our return to office plans, as needed, to ensure the safety of our employees and to ensure that appropriate safety and cleanliness protocols are followed. We experienced improvement in our financial results and noticed an increase in customers’ advertising budgets beyond pre-pandemic levels in the latter half of the fiscal year 2020 and into the first and second quarter of 2021. The Company observed a corresponding increase in its advertising impression Volumes during the same period. In addition, the Company has observed advertising impression Volumes in the beginning of the fourth quarter of 2020 that have actually exceeded pre-pandemic levels. However, there can be no assurances that the Company’s advertising impression Volumes and profit margins will stay above pre-pandemic levels for the remainder of fiscal 2021 and beyond if new resurgence of the virus or its variants in certain jurisdictions. More specifically, the impact of the Delta variant cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and the response by governmental bodies and regulators. We continue to closely monitor the evolving effects of the COVID-19 pandemic on our business and implementing plans to take appropriate actions to adapt to changing circumstances arising from the pandemic. While we expect the COVID-19 pandemic will continue to have an adverse effect on our revenues and earnings in 2021, we do expect a recovery throughout the year. We expect to continue to make significant capital investments in the business. However, we continue to monitor the effects of COVID-19 and will adjust our future level of capital investments accordingly.

Furthermore, the COVID-19 pandemic could have a long-term impact on the Company’s customers well into 2021, which would reduce their demand for Company services and products. The extent to which COVID-19 or any other health epidemic may impact the Company’s results beyond 2021 will depend on future developments that could be outside the Company’s control, and which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the overall economic impact of the COVID-19 pandemic. Accordingly, COVID-19 could continue to have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during 2021 and beyond. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the operating results for the full year ending December 31, 2021 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures as of December 31, 2020 and 2019 and for the years then ended which are included the Annual Report filed on Form 10-K on March 30, 2021.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the significant accounting policies included in the audited consolidated financial statements as of December 31, 2020 and 2019 and for the years then ended, which were included the Annual Report filed on Form 10-K on March 30, 2021, except as disclosed in this note.

Revenue Recognition

The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines revenue recognition through the following steps:

Identification of a contract with a customer;
Identification of the performance obligations in the contract;

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when or as the performance obligations are satisfied.

The Company maintains a contract with each customer and supplier, which specify the terms of the relationship and potential access to the Company’s platform. The Company provides a service to its customers (the buy-side ad networks who work for advertisers) by connecting advertisers and publishers. For this service, the Company earns a percentage of the amount that is paid by the advertiser, who wants to run a digital advertising campaign, which, in some cases, is reduced by the amount paid to the publisher, who wants to sell its ad space to the advertiser.

The transaction price is determined based on the consideration to which it expects to be entitled, including the impact of any implicit price concessions over the course of the contract. The Company’s performance obligation is to facilitate the publication of advertisements. The performance obligation is satisfied at the point in time that the ad is placed. Subsequent to a bid being won, the associated fees are generally not subject to refund or adjustment. Historically, any refunds and adjustments have not been material. The revenue recognized is the amount the Company is responsible to collect from the customer related to the placement of an ad (the “Gross Billing”), less the amount the Company remits to the supplier for the ad space (the “Supplier Cost”), if any. The determination of whether the Company is the principal or agent, and hence whether to report revenue on a gross basis equal to the Gross Billing or on a net basis for the difference between the Gross Billing and Supplier Cost, requires judgment. The Company acts as an agent in arranging via its platform for the specified good (the ad space) to be purchased by the advertiser, as it does not control the goods or services being transferred to the end customer, it does not take responsibility for the quality or acceptability of the ad space, it does not bear inventory risk, nor does it have discretion in establishing price of the ad space. As a result, the Company recognizes revenue on a net basis for the difference between the Gross Billing and the Supplier Cost. During the three and six months ended June 30, 2021 and 2020, no revenue was recognized from performance obligations satisfied (or partially satisfied) in previous periods.

The Company invoices customers on a monthly basis for the amount of Gross Billings in the relevant period. Invoice payment terms, negotiated on a customer-by- customer basis, are typically between 45 to 90 days. However, for certain agency customers with sequential liability terms as specified by the Interactive Advertising Bureau, (i) payments are not due to the Company until such agency customers has received payment from its customers (ii) the Company is not required to make a payment to its supplier until payment is received from the Company’s customer and (iii) the supplier is responsible to pursue collection directly with the advertiser. As a result, once the Company has met the requirements of each of the five steps under ASC 606, the Company’s accounts receivable are recorded at the amount of Gross Billings which represent amounts it is responsible to collect and accounts payable, if applicable, are recorded at the amount payable to suppliers. In the event step 1 under ASC 606 is not met, the Company does not record either the accounts receivable or accounts payable. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

During the six months ended June 30, 2020, the Company recognized revenue in connection with contracts to scan a customers’ first-party anonymized data with Kubient Artificial Intelligence (“KAI”). Upon completion of the scan, the Company delivered a report to the customer, which is the point in time the Company satisfied the performance obligation. The Company acts as the principal for these contracts, as it is primarily responsible for fulfilling the promise to provide the services and has discretion in establishing the price of service. As a result, the Company recognizes revenue on a gross basis. During the three and six months ended June 30, 2020, the Company recognized aggregate revenue of $0 and $1,300,338, respectively, in connection with the contracts.

As of June 30, 2021 and December 31, 2020, the Company did not have any contract assets from contracts with customers. As of June 30, 2021 and December 31, 2020, the Company had $15,000 of contract liabilities where performance obligations have not yet been satisfied. The Company expects to satisfy its remaining performance obligations and recognize the revenue within the next twelve months. During the three and six months ended June 30, 2021 and 2020, there was no revenue was recognized from performance obligations satisfied (or partially satisfied) in previous periods.

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Intangible Assets

Intangible assets are comprised of costs to acquire a customer list as well as costs to acquire and develop computer software, including (i) the costs to acquire third-party data which is used to improve the Company’s artificial intelligence platform for client use as well as (ii) the costs to acquire third-party software as well as the related source code. The intangible assets have estimated useful lives of two years for the computer software, five years for the capitalized data and seven years for the customer list. Once placed into service, the Company amortizes the cost of the intangible assets over their estimated useful lives on a straight-line basis.

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common and dilutive common-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares of options, warrants and convertible notes, if not anti-dilutive.

The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

    

For the Three and Six Months Ended

June 30, 

    

2021

    

2020

Stock options

 

94,447

 

97,856

Warrants

 

5,122,074

[1]

1,138,556

Convertible notes

 

 

22,242

[2]

 

5,216,521

 

1,258,654

[1] Includes shares underlying warrants that are exercisable into an aggregate of (i) 368,711 shares of common stock and (ii) five-year warrants to purchase 368,711 shares of common stock at an exercise price of $5.50 per share.

[2] Excludes shares issuable upon conversion of the Senior and Junior Notes, which were not convertible as of June 30, 2020 and whose conversion price was not known as of such date. Subsequent to June 30, 2020, an aggregate of 1,555,314 shares of common stock and warrants to purchase 1,461,091 shares of common stock were issued as a result of the conversion of convertible notes outstanding as of June 30, 2020.

Reclassifications

Certain prior period income statement amounts have been reclassified to conform to the Company’s fiscal 2021 presentation. These reclassifications have no impact on the Company’s previously reported net loss.

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

On May 3, 2021, the Financial Accounting Standards Board (the "FASB") issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company is evaluating the impact of this new standard on the company’s financial statements and disclosures.

NOTE 3 – INTANGIBLE ASSETS

On June 15, 2021, pursuant to an asset purchase agreement dated June 4, 2021, the Company closed on the acquisition of a customer list (the “Customer List”) and other assets of Advisio Solutions, LLC (“Advisio”) for consideration consisting of: (i) $1,050,000 payable in cash and (ii) the issuance of an aggregate of 100,000 shares of the Company’s common stock with an aggregate issuance date fair value of $532,000. Under the screen test requirements under ASC 805, the Company concluded that the Customer List represented substantially all of the fair value of the gross assets acquired and, accordingly, determined the set was not considered a business, such that the Company applied asset acquisition accounting and recorded the acquisition of the Customer List as an intangible asset in the amount of $1,582,000 that will be amortized on a straight-line basis over its useful life of seven years.

Intangible assets consist of the following:

    

June 30,

    

December 31,

2021

2020

Acquired data

$

1,300,336

$

1,300,336

Acquired software

 

164,072

 

100,000

Acquired customer list

 

1,582,000

 

 

3,046,408

 

1,400,336

Less: accumulated amortization

 

(483,691)

 

(328,486)

Intangible assets, net

$

2,562,717

$

1,071,850

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 4 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

    

June 30, 

    

December 31, 

2021

2020

Accrued bonuses

$

154,632

$

541,834

Accrued payroll taxes

 

3,332

 

5,947

Accrued supplier expenses

 

124,105

 

50,972

Accrued legal and professional fees

 

 

80,653

Accrued commissions

 

 

2,768

Credit card payable

 

44,386

 

901

Accrued programming expenses

 

6,750

 

16,750

Accrued issuable equity

 

8,721

 

293,724

Deferred revenue

 

15,000

 

15,000

Accrued interest

7,135

3,975

Accrued deferred offering costs

83,519

Other

 

44,960

 

19,758

Total accrued expenses and other current liabilities

$

492,540

$

1,032,282

NOTE 5 – STOCKHOLDERS’ EQUITY

Stock-Based Compensation

During the three months ended June 30, 2021 and 2020, the Company recognized aggregate stock-based compensation expense of $19,538 and $62,423, respectively, related to common stock and options. For six months ended June 30, 2021 and 2020, the Company recognized aggregate stock-based compensation expense of $260,752 and $83,942, respectively, related to stock options and common stock. As of June 30, 2021, there was $2,370,429 of unrecognized stock-based compensation expense which will be recognized over approximately 3.6 years.

Common Stock

See Note 3 – Intangible Assets for details regarding the issuance of common stock as partial consideration for the acquisition of intangible assets.

See Note 6 – Commitments and Contingencies – Employment Agreements for details regarding the grant of a bonus that is payable in common stock of the Company.

During the three months ended March 31, 2021, the Company issued an aggregate of 70,040 shares of immediately vested common stock (30,040 shares were issued under the Company’s 2017 Plan) to an employee, four members of its board of directors and a consultant for services provided. The common stock had an aggregate issuance date fair value of $560,520 which was recognized immediately.

During the three months ended June 30, 2021, the Company issued an aggregate of 167,600 restricted shares of our common stock (the “Restricted Stock”) under the Company’s 2017 Plan to six employees. The Restricted Stock had an aggregate issuance date fair value of $963,701, of which, awards of Restricted Stock with an aggregate fair value of $957,313 vests over a period of one year and an award of Restricted Stock with an aggregate fair value of $6,388 vests immediately. The fair value of the Restricted Stock issued is being recognized over the vesting term.

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Stock Options

During the six months ended June 30, 2021, the holder of an option under the 2017 Plan to purchase 2,815 shares of the Company’s common stock at an exercise price of $2.97 per share exercised such option resulting in cash proceeds of $8,361 to the Company.

Stock Warrants

During the three months ended March 31, 2021, warrants to purchase an aggregate of 2,169,021 shares of the Company’s common stock were exercised at prices between $4.20 and $6.25 per share, resulting in net cash proceeds to the Company of $9,274,911 (net of issuance costs of $433,127) and the issuance of an aggregate of 2,047,361 shares of the Company's common stock and five-year warrants to purchase 773,000 shares of common stock at an exercise price of $5.50 per share.

During the three months ended June 30, 2021, warrants to purchase an aggregate of 112,647 shares of the Company’s common stock were exercised at prices between $4.20 and $6.25 per share, resulting in net cash proceeds to the Company of $428,719 (net of issuance costs of $32,270) and the issuance of an aggregate of 108,961 shares of the Company's common stock and five-year warrants to purchase 94,286 shares of common stock at an exercise price of $5.50 per share.

A summary of the warrant activity during the six months ended June 30, 2021 is presented below:

    

    

    

    

    

Weighted

    

    

Weighted

Average

Average

Remaining

Number of

Exercise

Life

Intrinsic

Warrants

Price

In Years

Value

Outstanding, January 1, 2021

 

6,167,745

$

5.26

 

  

 

  

Issued

 

867,286

 

5.50

 

  

 

  

Exercised

 

(2,281,668)

 

5.04

 

  

 

  

Expired

 

 

 

  

 

  

Outstanding, June 30, 2021 [1]

 

4,753,363

$

5.42

 

4.1

$

1,531,119

 

 

 

  

 

  

Exercisable, June 30, 2021

 

4,753,363

$

5.35

 

4.1

$

1,531,119

[1] Excludes five-year warrants to purchase 368,711 shares of common stock at an exercise price of $5.50 per share that are issuable upon exercise of certain warrants.

The following table presents information related to stock warrants as of June 30, 2021:

Warrants Outstanding

Warrants Exercisable

Weighted

Outstanding

Average

Exercisable

Exercise

Number of

Remaining Life

Number of

Price

    

Warrants

    

In Years

    

Warrants

$

4.20

 

368,711

 

3.2

 

368,711

$

4.95

 

177,223

 

1.8

 

177,223

$

5.50

 

3,998,459

 

4.2

 

3,998,459

$

6.25

32,500

4.1

32,500

$

6.38

176,470

4.5

176,470

 

4,753,363

 

4.1

 

4,753,363

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 6 – COMMITMENTS AND CONTINGENCIES

From time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Outstanding Litigation

In March 2019, the Company entered into a binding letter of intent (“LOI”) to acquire substantially all of the assets of Aureus Holdings, LLC d/b/a Lo70s (“Lo70s”). In connection with the LOI, the Company paid a good faith deposit to Lo70s of $200,000. Subsequently, during the diligence phase of the LOI it became apparent that Lo70s’ projections were grossly inaccurate and misstated. Diligence inquiries made to Lo70s on this subject continuously went ignored. As a result, the Company allowed the LOI to expire under its own terms. In connection with this expiration, the Company was served with a complaint by Lo70s (Aureus Holdings, LLC d/b/a Lo70s v. Kubient, Inc., et al., Superior Court of Delaware, Case No. N20C-07-061), which named the Company and three individuals, Peter A. Bordes, Jr., Paul Roberts and Philip Anderson (a former consultant to the Company) as defendants.  The complaint alleges breach of contract on the expired LOI and other claims and seeks damages, without providing information or support as to how the alleged damages are calculated.  The Company believes that Lo70s’ claim has no merit, and disputes Lo70s’ allegations therein.  The Company has retained legal counsel in Delaware in order to defend the action vigorously. On August 31, 2020, the Company filed its answer to Lo70s’ complaint on the contract claims, and moved to dismiss the unjust enrichment and tortious interference claims alleged by Lo70s for failure to state a claim. The individual defendants named in the claim moved to dismiss all of Lo70’s claims based on lack of personal jurisdiction and failure to state a claim. On August 31, 2020, the Company also filed a counterclaim denying all allegations made by Lo70s and pursuing the Company’s claims against Lo70s and its affiliates, including claims for fraudulent inducement and breach of contract. On November 6, 2020, Lo70s amended its Complaint and moved to dismiss the Company’s counterclaims. The amended Complaint removes Messrs. Bordes, Roberts, and Anderson as parties, but otherwise asserts the same causes of action as the original Complaint. On December 9, 2020, the Company moved to dismiss portions of Lo70s’ amended Complaint and filed amended counterclaims against Lo70s that Lo70s has moved to dismissed.  The Court heard argument on the motions to dismiss on April 28, 2021 and Kubient’s motion was denied on August 6, 2021. Lo70s’ motion remains outstanding.  The case is currently proceeding with discovery.   The Company continues to dispute Lo70s allegations and intends to vigorously defend itself and prosecute its counterclaims.  During the year ended December 31, 2019, the Company recorded an allowance of $200,000 related to the deposit. As of June 30, 2021 and December 31, 2020, the Company had accrued for all probable and estimable amounts in its condensed consolidated financial statements.

Settlements

On October 6, 2017, the Company entered into a Master Service Agreement for Buyers and Sellers, and an “Engage Buyer Addendum”, with Engage BDR, LLC whereby the Company could gain access to the Engage BDR, LLC proprietary trading technology platform in order to both offer and purchase inventory for the placement of ads. On August 31, 2018, Engage BDR, LLC filed suit against the Company (Engage BDR, LLC v. Kubient, Inc., Los Angeles County Superior Court Case No. SC129764) setting forth claims of breach of contract, unjust enrichment, quantum meruit, accounts stated, and breach of implied covenant of good faith and fair dealing. On November 14, 2018, Engage BDR, LLC obtained a summary default judgment against the Company for $35,936. On February 17, 2021, the Company and Engage BDR, LLC entered into a settlement agreement in the amount of $33,461 and the Company paid such amount on February 19, 2021, which had been accrued for as of December 31, 2020.

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Obligations Arising from Employment Agreements

On April 9, 2021, the Company entered into an at-will employment agreement with its new Chief Product Officer, Mr. Leon Zemel, that provides for an annual base salary of $390,000, plus annual performance bonuses with a target achievement of up to 20% of Mr. Zemel’s base salary. Subject to the approval of the board or its compensation committee, the Company agreed to take appropriate action within ninety (90) days following April 9, 2021 to make an award of 100,000 shares of common stock Mr. Zemel, which will vest at the rate of 1/4th of the total number of shares on the first anniversary of the Effective Date and 1/36th of the total number of remaining unvested shares each month thereafter. Upon termination of Mr. Zemel’s employment for any reason, Mr. Zemel is entitled to (i) any portion of his base salary earned through the date of his termination date, (ii) any expenses owed to him, (iii) subject to Company policy and the law, any accrued, but unused vacation pay owed to him, pursuant to Company policy, if any, to the extent not inconsistent with applicable laws; and (iv) any amount arising from Mr. Zemel’s participation in, or benefits under, the Company’s employee benefit plans. In the event Mr. Zemel is terminated without cause or that Mr. Zemel resigns for Good Reason (as defined in his employment agreement), Mr. Zemel is entitled to receive: to six month’s salary paid in one lump sum, six months continued healthcare coverage, any pro-rated bonus amounts outstanding at the time of termination, and immediate vesting of any equity awards that would have become vested and exercisable during the three months after his termination. Mr. Zemel’s employment agreement contains an accelerated vesting provision which provides that 25% of his share award under the agreement shall vest if he is terminated before the one year anniversary date of the agreement for good cause, or if he chooses to terminate his employment with the Company for Good Reason (as defined in the agreement), then 100% of his share award under the agreement shall vest immediately. All outstanding awards due to Mr. Zemel automatically vest upon a change in control of the Company.

On June 4, 2021 (the “Effective Date”), the Company entered into two-year employment agreements with its two new Vice Presidents of Performance Media. The agreements provide for a bonus paid to each Vice President of Performance Media of (i) the issuance of up to 67,738 shares of the Company’s common stock (the “First Year Bonus”) on the 12-month anniversary of the Effective Date if as of such date the net revenue, as defined within the agreement, generated from the Customer List through the respective Vice President of Performance Media’s performance marketing is between $175,000 and an amount of excess of $350,000, which First Year Bonus shall vest in two equal equity installments, the first of which occurring on the second anniversary of the issuance thereof and the second of which occurring on the fourth anniversary of the issuance thereof (the “Year 1 Equity Grant”), and (ii) the issuance of up to 67,738 shares of the Company’s common stock (the “Second Year Bonus”) on the 24-month anniversary of the Effective Date if as of such date the net revenue, as defined within the agreement, generated from the Customer List through the respective Vice President of Performance Media’s performance marketing is between $262,000 and an amount in excess of $525,000, which Second Year Bonus shall vest in two equal equity installments, the first of which occurring on the second anniversary of the issuance thereof and the second of which occurring on the fourth anniversary of the issuance thereof (the “Year 1 Equity Grant”).  If either Vice President of Performance Media ends the Term of Employment for good reason, as defined within the agreement, or the Company terminates either Vice President of Performance Media without cause, such Vice President of Performance Media shall (i) receive $150,000 prorated for two months following such termination and for an additional year for every year the Vice President of Performance Media was employed by Company, and (ii) payment of any earned, but unpaid, performance-based performances due as of the date of such termination (“Severance”). The Company determined that the First Year Bonus and Second Year Bonus to each Vice President of Performance Media represents an accounting grant with a performance-based vesting condition pursuant to Accounting Standards Codification 718 which was probable of completion as of June 30, 2021 and accordingly, the aggregate grant date fair value of the awards of $1,400,822 is being recognized over the respective vesting term.

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Kubient, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 7 – CONCENTRATIONS

Customer Concentrations

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s net revenues for the following periods:

    

For the Three Months Ended

    

For the Six Months Ended

 

June 30, 

June 30, 

 

Customer

    

2021

    

2020

    

2021

    

2020

 

Customer A

 

99.38

%  

113.07

%

101.16

%

12.79

%

Customer B

N/A

N/A

N/A

52.21

%

Customer C

14.98

%  

N/A

N/A

36.04

%

Total

 

114.36

%  

113.07

%  

101.16

%  

101.04

%

From time to time, certain customers generate negative net revenues that resulted from Supplier Costs that exceeded the Gross Billings. As a result, the Company’s concentrations on net revenues may result in total percentages that exceed 100%.

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s gross accounts receivable as of:

    

June 30, 

    

December 31, 

 

Customer

2021

2020

 

Customer A

 

61.63

%  

89.02

%  

Total

 

61.63

%  

89.02

%

A reduction in sales from or loss of these customers would have a material adverse effect on the Company’s results of operations and financial condition.

Supplier Concentrations

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s Supplier Costs for the following periods:

    

For the Three Months Ended

    

For the Six Months Ended

 

June 30, 

June 30, 

 

Supplier

    

2021

    

2020

    

2021

    

2020

 

Supplier A

 

N/A

51.93

%  

N/A

35.39

%

Supplier B

 

*

14.67

%  

11.30

%  

14.18

%

Supplier D

 

*

19.17

%

*

14.57

%

Supplier E

23.52

%

N/A

16.54

%

N/A

Supplier F

*

N/A

10.37

%

N/A

Total

 

23.52

%  

85.77

%  

38.21

%  

64.14

%

* Less than 10%.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of COVID-19 on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.