Troika Media Group, Inc. - Quarter Report: 2021 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

OMB APPROVAL

OMB Number: 3235-0070

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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, 2021

☐	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: 001-40329

Troika Media Group, Inc.

Exact name of registrant as speciﬁed in its charter)

Nevada		83-0401552
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identiﬁcation No.)

1715 N. Gower Street, Los Angeles, CAlifornia		90028
(Address of principal executive oﬃces)		(Zip Code)

(323) 965-1650

(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 Shares, $.001 par value	TRKA	The NASDAQ Capital Market

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN

BANKRUPTCY PROCEEDINGS DURING THE

PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has ﬁled all documents and reports required to be ﬁled by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan conﬁrmed by a court. ☐ Yes ☐ No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

Class		Outstanding at February 3, 2022
Common Stock, $.001 par value		43,659,616

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements
	Balance Sheets as of December 31, 2021 (Unaudited) and June 30, 2021	3
	Statements of Operations and Comprehensive Loss for the Three and Six Months ended December 31, 2021 and 2020 (Unaudited)	4
	Statements of Stockholders’ Equity for the Three Months Ended December 31, 2021 and 2020 (Unaudited)	5
	Statements of Cash Flows for the Six Months Ended December 31, 2021 and 2020 (Unaudited)	6
	Notes to Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion & Analysis of Financial Condition and Results of Operations.	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	37
Item 4.	Controls and Procedures.	37

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosure	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
SIGNATURES		40

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Troika Media Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

	December 31,			June 30,
ASSETS	2021			2021
Current assets:	(Unaudited)
Cash and cash equivalents	$	5,982,000		$	12,066,000
Accounts receivable, net		1,241,000			1,327,000
Prepaid expenses		232,000			670,000
Other assets – short term portion		65,000			1,000
Total current assets		7,520,000			14,064,000

Other assets -long term portion		629,000			626,000
Property and equipment, net		374,000			343,000
Operating lease right-of-use assets		6,356,000			6,887,000
Intangible assets, net		2,259,000			2,603,000
Goodwill		19,368,000			19,368,000
Total assets	$	36,506,000		$	43,891,000

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses	$	6,549,000		$	8,363,000
Convertible notes payable		50,000			50,000
Note payable - related party - short term portion		150,000			200,000
Due to related parties		7,000			41,000
Contract liabilities		5,826,000			5,973,000
Operating lease liability - short term portion		3,109,000			3,344,000
Derivative liabilities		1,000			13,000
Taxes payable		58,000			62,000
Stimulus loan programs- short term portion		19,000			22,000
Total current liabilities		15,769,000			18,068,000

Long term liabilities:
Operating lease liability - long term portion		5,341,000			5,835,000
Stimulus loan programs - long term portion		418,000			547,000
Rental deposits		119,000			119,000
Other long-term liabilities		140,000			477,000
Liabilities of discontinued operations - long term portion		107,000			107,000

Total liabilities		21,894,000			25,153,000

Stockholders’ equity:
Preferred stock, $0.01 par value: 15,000,000 shares authorized
Series A Preferred Stock ($0.01 par value: 5,000,000 shares authorized,720,000 shares issued and outstanding as of December 31, 2021 and June 30, 2021)		7,000			7,000
Common stock, ($0.001 par value: 300,000,000 shares authorized; 43,659,616 and 39,496,588shares issued and outstanding as of December 31, 2021 and June 30, 2021, respectively)		44,000			40,000
Additional paid-in-capital		208,085,000			204,788,000
Stock payable		-			1,210,000
Accumulated deficit		(193,138,000	)		(186,889,000	)
Other Comprehensive Loss		(386,000	)		(418,000	)
Total stockholders’ equity		14,612,000			18,738,000
Total liabilities and stockholders’ equity	$	36,506,000		$	43,891,000

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

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Troika Media Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)

	Three Months Ended December 31,						Six Months Ended December 31,
	2021			2020			2021			2020

Project revenues, net	$	6,994,000		$	4,451,000		$	15,343,000		$	8,583,000
Cost of revenues		3,583,000			2,139,000			8,420,000			4,419,000
Gross profit		3,411,000			2,312,000			6,923,000			4,164,000

Operating expenses:
Selling, general and administrative expenses		6,994,000			3,601,000			13,229,000			8,051,000
Professional fees		300,000			350,000			868,000			1,138,000
Depreciation expense		28,000			30,000			58,000			61,000
Amortization expense of intangibles		171,000			539,000			343,000			1,079,000
Total operating expenses		7,493,000			4,520,000			14,498,000			10,329,000
Loss from operations		(4,082,000	)		(2,208,000	)		(7,575,000	)		(6,165,000	)

Other income (expense):
Income from government grants		-			1,704,000			262,000			1,704,000
Amortization expense of note payable discount		-			(392,000	)		-			(409,000	)
Interest expense		(34,000	)		(42,000	)		(47,000	)		(46,000	)
Foreign exchange gain		(10,000	)		10,000			(26,000	)		(37,000	)
Gain on early termination of operating lease		-			-			(3,000	)		-
Loss on derivative liabilities		-			23,000			12,000			-
Other income		73,000			129,000			1,185,000			256,000
Other expenses		-			153,000			-			153,000
Total other income (expense)		29,000			1,585,000			1,383,000			1,621,000

Net loss from continuing operations before income tax		(4,053,000	)		(623,000	)		(6,192,000	)		(4,544,000	)
Provision for income tax		(57,000	)		-			(57,000	)		-
Net loss attributable to common stockholders	$	(4,110,000	)	$	(623,000	)	$	(6,249,000	)	$	(4,544,000	)
Foreign currency translation adjustment		1,000			(406,000	)		32,000			(499,000	)
Comprehensive loss	$	(4,109,000	)	$	(1,029,000	)	$	(6,217,000	)	$	(5,043,000	)

Basic earnings (loss) per share

Net loss attributable to common stockholders	$	(0.09	)	$	(0.04	)	$	(0.15	)	$	(0.26	)

Weighted average basic shares		43,600,019			17,687,179			42,517,201			17,589,581

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

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Troika Media Group, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the Three Months Ended December 31, 2021 and 2020

	Preferred Stock - Series A				Preferred Stock - Series B				Preferred Stock - Series C				Preferred Stock - Series D				Common Stock				Additional											Total
	$ 0.01 Par Value				$ 0.01 Par Value				$ 0.01 Par Value				$ 0.01 Par Value				$ 0.001 Par Value				Paid In		Stock			Accumulated			Comprehensive			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Payable			Deficit			Income (Loss)			Equity

BALANCE — July 1, 2020		720,000	$	7,000		2,495,000	$	25,000		911,149	$	9,000		1,979,000	$	20,000		15,454,623	$	16,000	$	176,262,000	$	1,300,000		$	(170,892,000	)	$	253,000		$	7,000,000
Issuance of common stock related to convertible notes																		499,223		-		1,400,000		-									1,400,000
Issuance of common stock related to stock payable																		1,733,333		2,000		1,298,000		(1,300,000	)								-
Stock-based compensation on options																						166,000											166,000
Stock-based compensation on warrants																						154,000											154,000
Imputed interest on convertible note payable																						4,000											4,000
Foreign currency translation gain																														(93,000	)		(93,000	)
Net loss																											(3,921,000	)					(3,921,000	)
BALANCE — September 30, 2020		720,000	$	7,000		2,495,000	$	25,000		911,149	$	9,000		1,979,000	$	20,000		17,687,179	$	18,000	$	179,284,000	$	-		$	(174,813,000	)	$	160,000		$	4,710,000

Stock-based compensation on options																						263,000											263,000
Stock-based compensation on warrants																						301,000											301,000
Imputed interest on convertible note payable																						3,000											3,000
Beneficial conversion features on convertible promissory notes																						144,000											144,000
Warrants granted for convertible promissory note																						12,000											12,000
Shares to be issued for convertible promissory note																								156,000									156,000
Foreign currency translation gain																														(406,000	)		(406,000	)
Net loss																											(623,000	)					(623,000	)
BALANCE — December 31, 2020		720,000	$	7,000		2,495,000	$	25,000		911,149	$	9,000		1,979,000	$	20,000		17,687,179	$	18,000	$	180,007,000	$	156,000		$	(175,436,000	)	$	(246,000	)	$	4,560,000

BALANCE — July 1, 2021		720,000	$	7,000		-	$	-		-	$	-		-	$	-		39,496,588	$	40,000	$	204,788,000	$	1,210,000		$	(186,889,000	)	$	(418,000	)	$	18,738,000
Common stock issued relating to Redeeem acquisition																		452,959		-		1,210,000		(1,210,000	)								-
Record vested deferred compensation relating to Redeeem employees																		3,623,433		4,000		801,000											805,000
Stock-based compensation on options																						107,000											107,000
Stock-based compensation on warrants																						67,000											67,000
Foreign currency translation gain																														31,000			31,000
Net loss																											(2,139,000	)					(2,139,000	)

BALANCE — September 30, 2021		720,000	$	7,000		-	$	-		-	$	-		-	$	-		43,572,950	$	44,000	$	206,973,000	$	-		$	(189,028,000	)	$	(387,000	)	$	17,609,000

Record vested deferred compensation relating to Redeeem employees																						805,000											805,000
Stock-based compensation on options																						106,000											106,000
Stock-based compensation on warrants																						57,000											57,000
Issuance of common stock related to employees																		66,666		-		104,000											104,000
Issuance of common stock to contractors for services																		20,000		-		40,000											40,000
Foreign currency translation gain																														1,000			1,000
Net loss																											(4,110,000	)					(4,110,000	)
BALANCE — December 31, 2021		720,000	$	7,000		-	$	-		-	$	-		-	$	-		43,659,616	$	44,000	$	208,085,000	$	-		$	(193,138,000	)	$	(386,000	)	$	14,612,000

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Troika Media Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Six Months Ended December 31,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,249,000	)	$	(4,544,000	)

Depreciation		58,000			61,000
Amortization of intangibles		343,000			1,079,000
Amortization of discount on convertible note payables		-			409,000
Stock-based compensation on options		213,000			429,000
Stock-based compensation on warrants		124,000			455,000
Stock-based compensation relating to Redeeem acquisition		1,610,000			7,000
Issuance of common stock related to employees		104,000			-
Issuance of common stock to contractors for services		40,000			-
Gain on early termination of operating lease		3,000			-
Loss on derivative liabilities		(12,000	)		-
Income from government grants		-			(1,704,000	)
(Recovery) and provision for bad debt		(67,000	)		(136,000	)
Change in operating assets and liabilities:
Accounts receivable		153,000			(1,622,000	)
Prepaid expenses		438,000			(3,000	)
Accounts payable and accrued expenses		(1,814,000	)		1,709,000
Other assets		(67,000	)		15,000
Operating lease liability		(201,000	)		586,000
Due to related parties		(34,000	)		-
Other long-term liabilities		(337,000	)		-
Taxes payable		(4,000	)		-
Contract liabilities relating to revenue		123,000			3,570,000
Contract liabilities to government grants		(402,000	)		(1,704,000	)
Net cash used in operating activities		(5,978,000	)		(1,393,000	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(93,000	)		(19,000	)
Net cash used in investing activities		(93,000	)		(19,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stimulus loan programs		-			565,000
Payments to note payable of related party		(50,000	)		-
Proceeds from convertible note payable		-			500,000
Net cash (used in) provided by financing activities		(50,000	)		1,065,000

Effect of exchange rate on cash		37,000			(287,000	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	$	(6,084,000	)	$	(634,000	)
CASH AND CASH EQUIVALENTS — beginning of period		12,066,000			1,706,000
CASH AND CASH EQUIVALENTS — end of period	$	5,982,000		$	1,072,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	-		$	-
Interest expense	$	3,000		$	-
Noncash investing and financing activities:
Beneficial conversion features on convertible promissory notes	$	-		$	144,000
Record derivative liability on convertible notes	$	-		$	98,000
Warrants granted for convertible promissory note	$	-		$	12,000
Shares to be issued for convertible promissory note	$	-		$	156,000
Issuance of common stock related to stock payable	$	-		$	1,300,000
Issuance of common stock related to stock payable	$	104,000		$	-
Issuance of common stock to contractors for services	$	40,000		$	-
Conversion of convertible note payable	$	-		$	1,400,000
Right-of-use assets acquired through adoption of ASC 842	$	-		$	8,931,000
Right-of-use assets acquired through operating leases	$	467,000		$	2,398,000

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TROIKA MEDIA GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended December 31, 2021 and 2020

NOTE 1 – PRESENTATION OF THE FINANCIAL STATEMENTS

The terms “Troika,” “the Company,” “we,” “our” and “us” each refer to Troika Media Group, Inc. and its subsidiaries, unless the context indicates otherwise. The accompanying unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP or GAAP, for interim financial information and Article 8 of Regulation S-X of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures have been condensed or omitted.

In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation, in all material respects, of the information contained herein. These unaudited condensed consolidated financial statements should be read in conjunction with our annual report on Form 10-K for the year ended June 30, 2021.

Risks & Uncertainties

Liquidity

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows until fiscal year 2023. For the three months ending December 31, 2021, the Company had a net loss of $4.1 million, which increased the accumulated deficit to $193.1 million at December 31, 2021 from $186.9 million at June 30, 2021. At December 31, 2021, the Company had approximately $6.0 million in cash and cash equivalents and a total of $7.5 million in current assets in relation to $15.8 million in current liabilities. While the Company continues to find efficiencies with its acquisitions of Troika Design Group, Inc. and Mission Group as well as the assets of Redeeem LLC, the departure of Mission’s President and Founder in fiscal year 2019 together with the coronavirus (COVID-19) pandemic impacted revenue more than anticipated.

With the acquisition of Mission Group, the Company is attempting to increase Troika’s footprint in major media markets, such as NY and London. The Company also continues to expand its consulting services and breadth of product offering with existing Mission and Troika clients and increased business development in NY and London as a result of the Mission acquisition. Additionally, the Company intends to add to Mission business development from Troika’s existing clientele and save overhead costs through rationalized synergies.

If the Company raises additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant debt service payments, which diverts resources from other activities. The Company’s ability to raise additional capital will also be impacted by the outbreak of COVID-19, as well as market conditions and the price of the Company’s common stock.

Based on the recent acquisitions, Company-wide consolidation, and management’s plans, the Company believes that the current cash on hand of $5,982,000 and anticipated cash from operations is sufficient to conduct planned operations for one year from the issuance of the consolidated financial statements. In addition, Management believes they can raise additional capital, if necessary, given the Company has been successful at raising funding through both equity and debt financing.

Impact of COVID-19

In March 2020, the World Health Organization categorized the coronavirus (COVID-19) as a pandemic, and it continues to spread throughout the United States and the rest of the world with different geographical locations impacted more than others. The outbreak of COVID-19 and the resulting public and private sector measures to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, have adversely impacted our business and those of our clients. Businesses have adjusted, reduced, or suspended operating activities, which has negatively impacted the clients we service. We continue to believe our focus on our strategic strengths, including talent, our differentiated market strategy and the relevance of our services, including the longevity of our relationships, will continue to assist our Company as we navigate a rapidly changing marketplace. The effects of the COVID-19 pandemic have negatively impacted our results of operations, cash flows and financial position; however, the continued extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19.

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We took steps to protect the safety of our employees, with a large majority of our worldwide workforce working from home, while developing creative ideas to protect the health and well-being of our communities and setting up our people to help them do their best work for our clients while working remotely. With respect to managing costs, we have implemented multiple initiatives to align our expenses with changes in revenue. The steps taken across our agencies and corporate group include deferred merit increases, freezes on hiring and temporary labor, major cuts in non-essential spending, staff reductions, furloughs in markets where that option is available and salary reductions, including voluntary salary deferment for our senior corporate management team. In addition, we remain committed to and have intensified our efforts around cash flow discipline, including the identification of significant capital expenditures that can be deferred, and working capital management. We began to see the effects of COVID-19 on client spending, notably in the UK and US markets with our Mission subsidiaries throughout the second quarter of calendar 2020 with much of the work force of the UK subsidiary on furlough, and with our Troika Design subsidiary furloughed as March 2020 progressed. Due to mandatory stay at home orders and social distancing, our experiential business has been particularly impacted by COVID-19. Promotional and experiential events with the Company’s assistance are particularly susceptible to external factors and were delayed by many of the Company’s Mission clients due to the effects of COVID-19. The Company had temporarily furloughed employees to reflect current reduced demands associated with those client sets. However, as of the first and second quarters of calendar 2021, we started to see business dramatically improve. As cities have commenced openings with the improvement of vaccines distribution and infection rates declining, our client activities have doubled and there is a real optimism that the economic conditions are improving. Sports, Entertainment, Pharma clients are contracting our services across all entities at rates similar to 2019.

In the current environment, a major priority for us is preserving liquidity. Our primary liquidity sources are operating cash flow, cash and cash equivalents and short-term investments. Although we experienced a decrease in our cash flow from operations as a result of the impact of COVID-19, we obtained relief under the CARES Act in the form of a Small Business Administration backed loans. In aggregate we received $1.7 million in SBA stimulus “Payroll Protection Program” funding in April 2020 of which the majority of these funds were used for payroll. As per the US Government rules, the funds used for payroll, healthcare benefits, and other applicable operating expenses can be forgiven and the Company reported them as such in December 2020 considering the Company believed it had substantially met these conditions. On August 14, 2020, the Company received an additional $500,000 in loans with 30 year terms under the SBA’s “Economic Injury Disaster Loan” program which the Company used to address any cash shortfalls that resulted from the current pandemic. In February 2021, the Company obtained additional relief under the CARES Act in the form of Small Business Administration backed loans and received an additional $1.7 million in SBA stimulus “Payroll Protection Program” funds which were used for payroll, healthcare benefits, and other applicable operating expenses. In July 2021, the Company was notified that all of the stimulus funds were forgiven with the exception of approximately $8,000 which was returned in the three months ending September 30, 2021.

In the United Kingdom, as of April 1, 2020, Mission furloughed twenty-seven employees, saving £78,000 in April payroll, being made up of £55,000 of furlough monies from the government and £16,000 in associated payroll savings and applied for a 3-month rent holiday. In May 1, 2020, Mission put on furlough an additional 5 employees bringing the total to 32, alongside a 10% pay cut for all employees not furloughed, saving £111,000 in May payroll, being made up of £62,000 of furlough monies from the government, £33,000 of associated payroll savings and £16,000 in savings related to the pay cut. On April 1, 2020, Troika Design Group actioned a 15% salary reduction across the majority of the Los Angeles staff and furloughed one office manager for a total savings of $112,000 per month. Finally, certain members of the Company’s executive team deferred compensation temporarily. In August 2020, the Company received £50,000 in loans related to the COVID pandemic with an interest rate of 2.5% to be paid over five years beginning one year after receipt. The Company used these proceeds to address any cash shortfalls that resulted from the pandemic.

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The extent to which the COVID-19 outbreak continues to impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of TMG, and its wholly-owned subsidiaries, Troika Design Group, Inc. (California), Troika Services Inc. (New York), Troika Production Group, LLC (California), Troika-Mission Holdings, Inc. (New York), Mission Culture LLC (Delaware), Mission-Media Holdings Limited (England and Wales), Mission Media USA, Inc. (New York), and Troika IO, Inc. (f/k/a Redeeem Acquisition Corp) (California). All significant intercompany accounts and transactions have been eliminated in consolidation.

RECLASSIFICATION OF PRIOR YEAR FINANCIALS

In the six months ended December 31, 2020, the Company reported amortization of right-of-use assets of $524,000 in its Condensed Consolidated Statements of Cash Flows separately in net cash used in operating activities. For purposes of consistency, this balance was reclassified to operating lease liability within the Condensed Consolidated Statements of Cash Flows resulting in a balance of $586,000 from $62,000. The reclassification did not change the net cash used in operating activities as it remains at $(1,393,000).

In the six months ended December 31, 2020, the Company reported a change in contract liabilities of $1,866,000 in its Condensed Consolidated Statements of Cash Flows within net cash used in operating activities. For purposes of consistency, this balance was bifurcated between contract liabilities relating to revenue and contract liabilities relating to government grants at $3,570,000 and $(1,704,000), respectively. The reclassification did not change the net cash used in operating activities as it remains at $(1,393,000).

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 periods.

Significant estimates and assumptions made by management include, among others, the assessment of the collectability of accounts receivable and the determination of the allowance for doubtful accounts, the valuation and useful life of capitalized equipment costs and long-lived assets, valuation of warrants and options, the determination of the useful lives and any potential impairment of long-lived assets such as intangible assets and goodwill, the allocation of purchase consideration to assets and liabilities due to the Redeeem acquisition, stock-based compensation, and deferred tax assets. Actual results could differ from those estimates.

FAIR VALUE MEASUREMENT

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:

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Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2021 and June 30, 2021. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable, accrued liabilities, and convertible notes payable. Fair values for these items were assumed to approximate carrying values because of their short-term nature or they are payable on demand. The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as the fair values were determined by using the Black-Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates, on a periodic basis, long-lived assets to be held and used for impairment in accordance with the reporting requirements of ASC 360-10. The evaluation is based on certain impairment indicators, such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If these impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, then an estimate of the undiscounted value of expected future operating cash flows is used to determine whether the asset is recoverable and the amount of any impairment is measured as the difference between the carrying amount of the asset and its estimated fair value. The fair value is estimated using valuation techniques such as market prices for similar assets or discounted future operating cash flows.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalent account balances with financial institutions in the United States and United Kingdom which at times exceed federally insured limits for accounts in the United States. Considering deposits with these institutions can be redeemed on demand, the Company believes there is minimal risk. As of December 31, 2021 and June 30, 2021, the Company had $5,332,000 and $10,125,000 in cash that was uninsured, respectively.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. As of December 31, 2021 and June 30, 2021, the Company had no cash equivalents.

ACCOUNTS RECEIVABLE

Our accounts receivable are amounts due from our clients. The Company accounts for unbilled accounts receivable using the percentage-of-completion accounting method for revenue recognized and the customer has not been invoiced due to the terms of the contract or the timing of the account invoicing cycle.

For those clients to whom we extend credit, we perform periodic evaluations of accounts receivable and maintain allowances for potential credit losses as deemed necessary.

The Company periodically reviews the outstanding accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. When a customer’s account is deemed to be uncollectible the outstanding balance is charged to the allowance for doubtful accounts. As of December 31, 2021 and June 30, 2021, the Company had $454,000 and $521,000 in allowance for doubtful accounts, respectively.

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PROPERTY AND EQUIPMENT, NET

Property and equipment are stated at cost less accumulated depreciation and amortization. Property and equipment consist of furniture and computer equipment. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, generally ranging from three to seven years. Maintenance and repairs are charged to expense as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is reflected in the statements of income in the period realized.

GOODWILL AND INTANGIBLE ASSETS

As a result of acquisitions, the Company recorded goodwill and identifiable intangible assets as part of its allocation of the purchase consideration.

Goodwill

Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business. Goodwill is tested annually at June 30 for impairment. The annual qualitative or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill exists. A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test. The first step of a quantitative goodwill impairment test compares the fair value of the reporting unit to its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss may be recognized. The amount of impairment loss is determined by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount. If the carrying amount exceeds the implied fair value then an impairment loss is recognized equal to that excess. There was no goodwill impairment recorded as a result of the Company’s annual impairment assessment on June 30, 2021. The Company has adopted the provisions of ASU 2017-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 requires goodwill impairments to be measured on the basis of the fair value of a reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. Thus, ASU 2017-04 permits an entity to record a goodwill impairment that is entirely or partly due to a decline in the fair value of other assets that, under existing GAAP, would not be impaired or have a reduced carrying amount. Furthermore, the ASU removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Accordingly, the goodwill of reporting unit or entity with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit/entity may indicate that goodwill is impaired.

We test our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is June 30.

None of the goodwill is deductible for income tax purposes.

Intangibles

Intangible assets with finite useful lives consist of tradenames, non-compete agreements, acquired workforce and customer relationships and are amortized on a straight-line basis over their estimated useful lives, which range from three to ten years. The estimated useful lives associated with finite-lived intangible assets are consistent with the estimated lives of the associated products and may be modified when circumstances warrant. Such assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount. The amount of any impairment is measured as the difference between the carrying amount and the fair value of the impaired asset. There was no impairment recorded for intangibles in the three and six months ended December 31, 2021 and 2020.

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LEASES

Right-of-use assets and lease liabilities are recorded in accordance with Leases (Topic 842). The Company has recorded a lease liability because the Company has the obligation to make lease payments and a ROU asset for the right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments over the lease term. The right-of-use asset is measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs. The Company uses the optional transitional method and elected to use the package of three practical expedients which allows the Company not to reassess whether contracts are or contain leases, lease classification and whether initial direct costs qualify for capitalization.

Income from subleased properties as well as non-lease items such as common-area maintenance and utilities are recognized as non-operating “other income” on the Consolidated Statements of Operations and Comprehensive Loss.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification (“ASC”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.

The Company recognizes primarily four revenue streams and they are retainer fees, project fees, reimbursement income, and fee income.

Retainer fees are non-refundable fixed amounts being received from a client often on a recurring basis and the performance obligation is the staff being available to provide consultation services. Consulting engagements do not incur a significant amount of direct costs however any costs are recognized as incurred. Consulting fees are recognized evenly throughout the term of the agreement.

Project fees are associated with the delivery of services and/or goods to a client and the revenue includes both the anticipated costs to deliver the product as well as the Company’s margin. As per ASC 606-10-25-31, the Company recognizes project fees over time by measuring the progress toward complete satisfaction of a performance obligation by measuring its performance in transferring control of the services contractually delivered to a client by applying the input method. Revenue is recognized based on the extent of inputs expended toward satisfying a performance obligation and it was determined that the best judge of inputs is the costs consumed by a project in relation to its total anticipated costs. As part of the close process the Company compiles a preliminary percentage of completion (POC) for each project which is the ratio of incurred costs to date in relation to the anticipated costs from the production team’s approved budgets. The POC ratio is then applied to the contracted revenue and the pro-rated revenue is then recognized accordingly.

Reimbursement income represents compensation relating to the out-of-pocket costs associated with a staging of a live event. As per 606-10-25-31, the Company recognizes reimbursement income over time by measuring the progress toward complete satisfaction of a performance obligation by measuring its performance in transferring control of the services contractually delivered to a client by applying the input method. The revenue is recognized based on the extent of inputs expended toward satisfying a performance obligation and it was determined that the best judge of input is the costs incurred to date in relation to the anticipated costs. As a result, unless an overage or saving is identified, the reimbursement income equates to the reimbursement costs incurred. Given that the Company contracts directly with the majority of the vendors and is liable for any overages, the Company is deemed a principal in this revenue transaction as they have control over the asset and transfer the asset themselves. As a result, this transaction is recorded gross rather than net.

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Fee income represents the Company’s margin on the staging of a live event, is negotiated with the client prior and fixed. Based on ASC 606, the Company’s progress in satisfying the performance obligation in a contract is difficult to determine so as a result the fee income is only recognized at the conclusion of a project. Only upon confirmation the Company has performed all its contractual obligations as per the contract does the Company record fee income.

Contract Assets

The Company does not have any contract assets such as work-in-process. All trade receivables on the Company’s consolidated balance sheet are from contracts with customers.

Contract Costs

Costs incurred to obtain a contract are capitalized unless short term in nature. As a practical expedient, costs to obtain a contract that are short term in nature are expensed as incurred. The Company does not have any contract costs capitalized as of December 31, 2021 and June 30, 2021.

Contract Liabilities - Deferred Revenue

The Company’s contract liabilities consist of advance customer payments and deferred revenue. Deferred revenue results from transactions in which the Company has been paid for products by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the deferred revenues are recognized.

ADVERTISING

The Company generally expenses marketing and advertising costs as incurred. During the three months ended December 31, 2021 and 2020, the Company incurred $42,000 and $0, respectively, on marketing, trade shows and advertising.

The Company received rebates on advertising from co-operative advertising agreements with several vendors and suppliers. These rebates have been recorded as a reduction to the related advertising and marketing expense.

DERIVATIVE LIABILITY

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect their fair value at each period end with any increase or decrease in the fair value being recorded in results of operations. The fair value of derivative instruments such as convertible note payables are valued using the Black-Scholes option-pricing model based on various assumptions.

STOCK-BASED COMPENSATION

The Company recognizes stock-based compensation in accordance with ASC Topic 718 “Stock Compensation”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.

For non-employee stock-based compensation, the Company has adopted ASC 2018-07, Improvements to Nonemployee Share-Based Payment Accounting which expands on the scope of ASC 718 to include share-based payment transactions for acquiring services from non-employees and requires stock-based compensation related to non-employees to be accounted for based on the fair value of the related stock or the fair value of the services at the grant date, whichever is more readily determinable in accordance with ASC Topic 718.

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FOREIGN CURRENCY TRANSLATION

The consolidated financial statements of the Company are presented in U.S. dollars. The functional currency for the Company is U.S. dollars for all entities other than Mission Media Limited whose operations are based in the United Kingdom and their functional currency is British Pound Sterling (GBP). Transactions in currencies other than the functional currencies are recorded using the appropriate exchange rate at the time of the transaction. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) income. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.

The relevant translation rates are as follows: for the six months ended December 31, 2021 closing rate at 1.349800 US$: GBP, average rate at 1.362733 US$: GBP, for the six months ended December 31, 2020 closing rate at 1.369000 US$: GBP, average rate at 1.332433 US$: GBP.

INCOME TAXES

The Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for consolidated financial reporting purposes and such amounts recognized for tax purposes and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse.

The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company has net operating losses for both their US and UK entities however a full valuation allowance was recorded due to uncertainties in realizing the deferred tax asset.

COMPREHENSIVE LOSS

Comprehensive loss is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. For the Company, comprehensive loss for the three and six months ended December 31, 2021 and 2020 included net loss and unrealized gains (losses) from foreign currency translation adjustments.

EARNINGS PER COMMON SHARE

Net income (loss) per common share is calculated in accordance with ASC Topic: 260 Earnings per Share. Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. In periods where the Company has a net loss, all dilutive securities are excluded.

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The following are dilutive common stock equivalents as the three and six months ending December 31, 2021 and 2020, which were not included in the calculation of loss per share, since the Company had a net loss from continuing operations and net loss:

	Three Months Ending December 31,
	2021		2020
Convertible preferred stock		48,000		16,280,397
Stock options		2,866,319		2,583,697
Stock warrants		7,138,485		7,523,841
Total		10,052,804		26,387,935

	Six Months Ending December 31,
	2021		2020
Convertible preferred stock		48,000		16,280,397
Stock options		2,884,718		2,610,070
Stock warrants		7,193,391		7,118,741
Total		10,126,109		26,009,208

STIMULUS FUNDING

In accordance with IAS-20, Accounting for Government Grants and Disclosure of Government Assistance, the proceeds from government grants are to be recognized as a deferred income liability and reported as income as the related costs are expensed. On December 31, 2021, the Company recorded deferred income liabilities of $0 within contract liabilities and $437,000 of stimulus loans. On June 30, 2021, the Company recorded deferred income liabilities of $270,000 within contract liabilities and $569,000 within stimulus loans. For the three months ending December 2021 and 2020, the Company recognized $0 and $1,704,000 in income from government grants, respectively. For the six months ending December 2021 and 2020, the Company recognized $262,000 and $1,704,000 in income from government grants, respectively. In the three and six months ending December 31, 2021, $8,000 of the stimulus funding was not forgiven and returned to the bank.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Not Yet Effective

In August 2020, FASB issued ASU 2020-06, ”Debt—Debt with Conversion and Other and Derivatives and Hedging—Contracts in Entity’s Own Equity: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” which simplifies the accounting for convertible instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The new guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 however it is not believed that it will have a material impact to the financials.

In December 2019, the FASB issued amended guidance in the form of ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is in the initial stage of evaluating the impact of this new standard however it does not believe the guidance will have a material impact on its financial statements.

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NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31, 2021 and June 30, 2021:

	December 31, 2021			June 30, 2021
Computer equipment	$	746,000		$	697,000
Website design		6,000			6,000
Office machine & equipment		96,000			97,000
Furniture & fixtures		467,000			438,000
Leasehold improvements		138,000			135,000
Tenant incentives		145,000			145,000
		1,598,000			1,518,000
Accumulated depreciation		(1,224,000	)		(1,175,000	)
Net book value	$	374,000		$	343,000

During the three months ended December 31, 2021 and 2020, depreciation expense was $28,000 and $30,000, respectively. During the six months ended December 31, 2021 and 2020, depreciation expense was $58,000 and $61,000, respectively.

NOTE 3 – INTANGIBLE ASSETS

Intangible assets consisted of the following as of December 31, 2021 and June 30, 2021:

	December 31, 2021			June 30, 2021
Customer relationship	$	4,960,000		$	4,960,000
Non-core customer relationships		760,000			760,000
Non-compete agreements		1,430,000			1,430,000
Technology		520,000			520,000
Tradename		470,000			470,000
Workforce acquired		2,125,000			2,125,000
		10,265,000			10,265,000
Less: accumulated amortization		(8,006,000	)		(7,662,000	)

Net book value	$	2,259,000		$	2,603,000

Purchased intangible assets with finite useful lives are amortized over their respective estimated useful lives (using an accelerated method for customer relationships and trade names) to their estimated residual values, if any. The Company’s finite-lived intangible assets consist of customer relationships, contractor and resume databases, trade names, and internal use software and are being amortized over periods ranging from two to nine years. Purchased intangible assets are reviewed annually to determine if facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, recoverability is assessed by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the rate of amortization is accelerated and the remaining carrying value is amortized over the new shorter useful life. For the three and six months December 31, 2021, the Company had no impairments. For the three and six months December 31, 2020, the Company had no impairments. During the fiscal year ending June 30, 2021, the Company recorded $0 in impairment expense related to intangibles.

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During the three months ended December 31, 2021 and 2020, amortization expense was $171,000 and $539,000, respectively. During the six months ended December 31, 2021 and 2020, amortization expense was $343,000 and $1,079,000, respectively.

NOTE 4 – ACCOUNTS PAYABLE & ACCRUED EXPENSES

As of December 31, 2021 and June 30, 2021, the Company recorded $6,549,000 and $8,363,000 in accounts payable and accrued expenses respectively. Both accounts payable and accrued expenses are treated as current liabilities however the difference is that a formal invoice has been received and entered to record an accounts payable.

	December 31, 2021		June 30, 2021
Accounts payable	$	1,668,000	$	2,362,000
Accrued expenses		3,885,000		4,819,000
Accrued payroll		312,000		294,000
Accrued taxes		684,000		888,000
	$	6,549,000	$	8,363,000

NOTE 5 – CONVERTIBLE NOTES PAYABLE

In October 2020, the Company received gross proceeds of $50,000 representing a convertible note payable issued to an existing investor. Terms include an interest rate of 10% and a maturity date the earlier of January 1, 2021 or five business days after the Company is listed on a US national securities exchange. Upon mutual agreement, the outstanding balance can be converted to common stock at a conversion price 25% less the current market price. In consideration for the loan, 6,667 warrants were issued at an exercise price of $2.25 per share vesting over three years. The Company determined that the note’s conversion feature should be valued separately and bifurcated from the host instrument and accounted for as a separate derivative liability. The fair market value of the embedded conversion feature was determined to be $1,000 and $13,000 using the Black-Scholes model as of December 31, 2021 and June 30, 2021, respectively. The derivative liability was recorded as a short-term liability and interest expense of $1,000 and $3,000 were recorded for the three and six months ending December 31, 2021, respectively. The assumptions used in the Black-Scholes valuation include a volatility of 63.96%, risk-free rate of 1.26% and a term of one year.

During the three months ended December 31, 2021 and 2020, the Company paid $0 towards the principal of the Promissory Notes. During the six months ended December 31, 2021 and 2020, the Company paid $0 towards the principal of the Promissory Notes.

As of December 31, 2021 and June 30, 2021, there was a total $50,000 in notes payable outstanding. The Company recorded $1,000 and $10,000 in interest expense relating to convertible note payables during the three months ended December 31, 2021 and 2020. The Company recorded $3,000 and $12,000 in interest expense relating to convertible note payables during the six months ended December 31, 2021 and 2020. The Company recorded $0 and $392,000 in amortization expense relating to the note payable discount during the three months ended December 31, 2021 and 2020, respectively. The Company recorded $0 and $409,000 in amortization expense relating to the note payable discount during the six months ended December 31, 2021 and 2020, respectively.

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NOTE 6 – NOTE PAYABLE RELATED PARTY

As of December 31, 2021 and June 30, 2021, the Company owed the founder and CEO of Troika Design Group, Inc., Dan Pappalardo, approximately $150,000 and $200,000, respectively. The loan was due and payable on demand and accrued interest at 10.0% per annum. In the three and six months ending December 31, 2021, the Company made payments of $30,000 and $50,000 in principal, respectively. Interest expense of $4,000 and $9,000 were recorded for this note for the three and six months ending December 31, 2021, respectively. Interest expense of $5,000 and $10,000 were recorded for this note for the three and six months ending December 31, 2020, respectively.

As of December 31, 2021 and 2020, the Company owed the estate of his mother Sally Pappalardo $0 and $235,000, respectively. The loan was due and payable on demand and accrued interest at 10.0% per annum. Interest expense of $5,000 and $10,000 were recorded for this note for the three and six months ending December 3, 2020, respectively. In the year ended June 30, 2021, the Company paid $300,000 to the estate of Sally Pappalardo representing the outstanding principal of $235,000 and accrued interest of $65,000. The holder provided the Company a signed release acknowledging all obligations under the note had been paid in full.

During the year ended June 30, 2020, the Company issued a convertible promissory note of $1,300,000 to a related party with an interest rate of 5.0% and convertible into shares of the Company’s common stock at a rate of $0.75 per share. The holder elected to convert the debt into shares of the Company’s common stock in July 2019 at a rate of $0.75 per share for 1,733,334 shares. This balance was recorded as stock payable on June 30, 2020 as the shares were not issued until July 2020.

Total interest expense on note payable related party was $4,000 and $9,000 for these notes for the three and six months ending December 31, 2021, respectively. Total interest expense on note payable related party was $10,000 and $20,000 for these notes for the three and six months ending December 31, 2020, respectively.

NOTE 7 – LEASE LIABILITIES

The Company leases office space and as a result of our adoption of ASC 842, the operating leases are reflected on our balance sheet within operating lease right-of-use (ROU) assets and the related current and non-current operating lease liabilities. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from lease agreement. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the terms. Variable lease costs such as common area maintenance, property taxes and insurance are expensed as incurred.

When the new accounting standard was adopted on July 1, 2019, the Company had current and long-term operating lease liabilities of $2,275,000 and $6,916,000, respectively, and right of use of assets of $8,348,000. As of December 31, 2021, the Company had current and long-term operating lease liabilities of $3,109,000 and $5,341,000, respectively, and right of use of assets of $6,356,000. As of June 30, 2021, the Company had current and long-term operating lease liabilities of $3,344,000 and $5,835,000, respectively, and right of use of assets of $6,887,000.

Future minimum lease payments on a discounted and undiscounted basis under these leases are as follows:

	Troika Gower			Troika LaBrea			Corporate Englewood			Mission US Brooklyn			Mission US Manhattan			Mission UK London			Undiscounted Cash Flows
Discount rate		5.50	%		5.50	%		5.50	%		5.50	%		5.50	%		5.50	%

Remainder of 2022	$	633,000		$	883,000		$	51,000		$	719,000		$	23,000		$	245,000		$	2,554,000
2023		558,000			-			103,000			497,000			-			635,000			1,793,000
2024		580,000			-			107,000			509,000			-			635,000			1,831,000
2025		346,000			-			110,000			522,000			-			635,000			1,613,000
2026		-			-			113,000			535,000			-			528,000			1,176,000
2027		-			-			9,000			455,000			-						464,000

Total undiscounted minimum future payments	$	2,117,000		$	883,000		$	493,000		$	3,237,000		$	23,000		$	2,678,000		$	9,431,000
Imputed interest		(110,000	)		-			(140,000	)		(381,000	)		-			(350,000	)		(981,000	)
Total operating lease liabilities	$	2,007,000		$	883,000		$	353,000		$	2,856,000		$	23,000		$	2,328,000		$	8,450,000
Short-term lease liabilities	$	827,000		$	883,000		$	88,000		$	844,000		$	23,000		$	444,000		$	3,109,000
Long-term lease liabilities	$	1,180,000		$	-		$	265,000		$	2,012,000		$	-		$	1,884,000		$	5,341,000

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Other information related to our operating leases is as follows:

	December 31, 2021
Weighted average remaining lease term in years	3.9 years
Weighted average discount rate		10.4	%

LEASE AGREEMENTS

On February 1, 2018, Troika Media Group entered into a five-year lease agreement for office space in Englewood Cliffs, NJ. The beginning lease expense was $4,120 per month escalating annually at 3.5% and the lease expires on January 31, 2023. In August 2021, the Company terminated the lease and Troika Services, Inc. entered into a new lease agreement for a larger office space within the same building. The beginning lease expense was $8,390 per month escalating annually at 3.0% for a term of five years expiring July 2026. As per accounting standard ASC 842, the Company is treating this lease as new agreement and recorded a loss of $3,000 from the early termination of the operating lease. As a result of the new lease agreement, the Company acquired $467,000 in right-of-use assets.

On January 9, 2014, Mission USA entered into a seven year and five-month lease agreement for office space in New York, NY. The lease expired in January 2022 and was not renewed.

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On May 2, 2017, Mission USA entered into a ten-year lease agreement for office space in Brooklyn, NY. The beginning lease expense was $34,278 per month escalating annually at 2.5%. As part of the lease agreement, Mission USA received a rent abatement in months one through four of the lease. The lease expires on May 1, 2027. In August 2021, the Company amended the lease agreement and lowered the base rent beginning in July 2021 to $24,750 for twelve months, escalating to $28,875 in July 2022 for twelve months, and then returning to the original lease agreement. Contingent on the Company abiding by the payment terms stipulated in the amendment regarding the outstanding rent, the landlord agreed to abate $120,405 of this balance and the Company plans to record this abatement in August 2022 after fulfilling its obligations relating to the payment terms.

On April 6, 2016, Mission UK entered into a ten-year lease agreement for office space in London, UK. In April 2021, Mission UK terminated the original lease agreement and has agreed with the landlord to occupy the first floor of the building through June 2021 at £8,858 per month. In April 2021, Mission UK entered into a three-year lease agreement for office space in London, UK ending in April 2024. The lease expense is £39,173 ($52,875) per month throughout the life of the lease.

On February 1, 2020, Troika Production Group, LLC. entered into a five-year lease agreement for office space in Los Angeles, CA. The beginning lease expense is $42,265 and the lease provides for an escalation clause where the Company will be subject to an annual rent increase of 3.5%, year over year. The lease expires on January 31, 2025.

The Company accounts for leases based on the new accounting standard ASC 842 and recorded $940,000 and $746,000 in rent expense for the six months ended December 31, 2021 and 2020, respectively.

SUBLEASE AGREEMENTS

On January 19, 2018, Mission Media USA, Inc. entered into a four-year sublease agreement pertaining to the aforementioned office space in New York, NY. The sublease commenced on March 1, 2018, ended in January 2022, and was not renewed. The lease income was $22,496 per month escalating annually at 3.0%.

On April 19, 2018, Mission-Media Limited entered into a sublease agreement pertaining to a floor within the aforementioned office space in London, UK. The sublease commenced in April 2018 and terminated in March 2021. The lease income was £5,163 per month.

NOTE 8 – LEGAL MATTERS

We may become a party to litigation in the normal course of business. In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon our financial condition, results of operations or cash flows.

STEPHENSON SETTLEMENT

In July 2021, the Company entered into a settlement agreement regarding the Stephenson legal dispute which settled all matters between the Company and the former owners of the Mission entities. The agreement provided for the full payment of all amounts due to the Company and allowed the Stephensons to sell the shares subject to a leak-out period. The agreement was filed with the Court and a settlement payment of approximately $905,000 which was recognized in the three months ending September 30, 2021. In addition to this cash settlement, the Company also reversed approximately $133,000 in accruals relating to the Stephensons which was recorded as other income.

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Other than the foregoing, no material legal proceedings to which the Company (or any officer or director of the Company, or any affiliate, to management’s knowledge) is party to or to which the property of the Company is subject is pending, and no such material proceeding is known by management of the Company to be contemplated.

MVRK SETTLEMENT

Mission Culture, LLC recently settled a claim from a former vendor, Maverick, LLC (“MVRK”) associated with certain services purportedly provided. Mission Culture, LLC and MVRK counsel have agreed to settle the claim for $110,000 with an upfront payment of $70,000 paid at signature and the remainder paid in four monthly installments of $10,000. The parties are in the process of drafting the settlement documents and the Company has fully accrued the settlement in the six months ending December 31, 2021.

LA BREA LEASE AGREEMENT

The Company was contacted by counsel representing the landlord of Troika Design’s former La Brea office lease in Los Angeles regarding the amounts due under the lease. The Company is reviewing the claims and assessing the amount due under the lease although an exact figure cannot be ascertained at this time due to potential mitigating factors.

The Company has currently accrued approximately $883,000 related to this matter. Counsel has advised the accrual of an additional $700,000 as the total estimated liability is approximately $1.6M related to the Troika Design Group, Inc. subsidiary’s former lease. Management believes the Company can settle the matter for less due to current conditions and outside counsel for the Company has advised that a settlement amount below the currently accrued for amount is likely.

NOTE 9 – STOCKHOLDERS’ EQUITY

REVERSE STOCK SPLIT

In June 2020, our Board of Directors and stockholders holding a majority of the outstanding shares of our voting securities approved a resolution authorizing our Board of Directors to effect a reverse stock split of our common stock at a certain exchange ratios from 1:10 to 1:15 with our Board of Directors retaining the discretion as to whether to implement the reverse stock split and which exchange ratio to implement. In September 2020, the Company amended its articles of incorporation and enacted a reverse stock split of one share for each fifteen shares and the accompanying financials reflect the reverse stock split retroactively.

The reverse stock split resulted in a decrease in authorized shares of all classes of stock from 615,000,000 to 315,000,000 shares consisting of 300,000,000 shares of common stock at a par value of $0.001 and 15,000,000 shares of preferred stock at a par value of $0.01 per share. Prior to the reverse stock split, the Company had 600,000,000 shares of common stock at a par value of $0.001, 15,000,000 shares of preferred stock at a par value of $0.20 per share.

COMMON STOCK

As of December 31, 2021 and June 30, 2021, the Company had 43,659,616 and 39,496,588 shares of common stock issued and outstanding, respectively.

In the three months ending September 30, 2020, the holder of a convertible promissory note for $1,000,000 informed the Company that they had elected to convert the balance due to common shares at the agreed upon conversion price of $3.00 per share and 387,222 shares were issued representing the outstanding principal and accrued interest.

In the three months ending September 30, 2020, the holder of a convertible promissory note for $200,000 informed the Company that they had elected to convert the balance due to common shares at the agreed upon conversion price of $3.75 per share and 56,000 shares were issued representing the outstanding principal and loan fee.

In the three months ending September 30, 2020, the holder of a related party convertible promissory note of $1,300,000 elected to convert the debt into shares of the Company’s common stock at a rate of $0.75 per share for 1,733,334 shares.

In the three months ending December 31, 2021, the Company issued 66,666 shares of common stock to a former employee as per their employment agreement. The common stock was distributed in two separate issuances at an average closing price of $1.56 per share and $104,000 in stock-based compensation was recorded.

In the three months ending December 31, 2021, the Company issued 20,000 shares of common stock to a contractor providing marketing services as per their vendor agreement. The common stock was issued at a price of $2.01 per share and $40,000 in expenses relating to professional fees was recorded.

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PREFERRED STOCK

The Company has authorized 15,000,000 shares as preferred stock, par value $0.01 series A, B, C and D, of which 5,000,000 shares have been designated as Series A preferred stock; 3,000,000 shares have been designated as Series B convertible preferred stock; 1,200,000 shares have been designated as Series C convertible preferred stock; and 2,500,000 shares have been designated as Series D convertible preferred stock.

As of December 31, 2021, 720,000 shares of Series A Preferred Stock were issued and outstanding; 0 shares of Series B Preferred Stock were issued and outstanding; 0 shares of Series C Preferred Stock were issued and outstanding; and 0 shares of Series D Preferred Stock were issued and outstanding.

As of June 30, 2021, 720,000 shares of Series A Preferred Stock were issued and outstanding; 0 shares of Series B Preferred Stock were issued and outstanding; 0 shares of Series C Preferred Stock were issued and outstanding; and 0 shares of Series D Preferred Stock were issued and outstanding. On May 10, 2021, the Company converted all Preferred Stock Series B, C, and D into Common Stock following its uplisting to the Nasdaq Capital Market. At the time of the conversion the Company had 2,495,000 shares of Series B Convertible Preferred Stock that were convertible into 594,048 shares of common stock at a price of $4.20 per share; 911,149 shares of Series C Convertible Preferred Stock convertible into 12,287,386 shares of Common Stock at $0.074 per share; and 1,979,000 shares of Series D Convertible Preferred Stock convertible into 5,277,334 shares of Common Stock at $0.375 per share for a total of 18,158,768 shares of Common Stock.

STOCK PAYABLE

In the fiscal year ended June 30, 2021, the Company recorded a stock payable of $1,210,000 relating to the acquisition of Redeeem, LLC. As per the asset purchase agreement dated May 21, 2021, 452,929 shares of common stock valued at $2.6715 per share were due to be issued to Redeeem’s employees and these shares were issued in the three months ending September 30, 2021.

DEFERRED COMPENSATION

On May 21, 2021, the Company entered into an agreement to acquire the assets and specific liabilities of fintech platform Redeeem, LLC for $2.6 million consisting of $1.2 million in cash, $166,000 in specific liabilities, and $1.2 million of the Company’s common stock. In addition, the Company agreed to provide equity to its employees to be vested over three years valued at $9,680,000 representing 3,623,433 shares of the Company’s common stock at conversion price of $2.6715 per share. Given the equity is contingent on the employees being employed and are vested over three years, the Company is treating this as deferred compensation and the expenses are recorded as the equity is vested. The vested portion of the deferred compensation was charged to additional paid-in capital and the expenses are recorded as stock-based compensation

In August 2021, all 3,623,433 shares of the Company’s common stock was issued to Redeeem’s employees and held in an escrow account subject to the vesting schedule in the aforementioned escrow agreement. Based on the vesting schedule summarized below, 2,885,204 shares of the Company’s common stock was issued as of December 31, 2021 but not vested.

The following table summarizes the deferred compensation recorded:

	Amount			Unvested Shares
Deferred compensation balance recorded at acquisition date	$	9,680,000			3,623,433
Vested portion of deferred compensation in fiscal year 2021		(362,000	)		(135,425	)
Unamortized deferred compensation at June 30, 2021		9,318,000			3,488,008
Vested portion of deferred compensation in six months ending December 31, 2021		(1,610,000	)		(602,804	)
Unamortized deferred compensation at December 31, 2021	$	7,708,000			2,885,204

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WARRANTS

During the three months ended December 31, 2021, the Company issued warrants to a member of the Board of Directors to purchase 150,000 shares of the Company’s common stock at an exercise price of $1.24 per share. The warrants are valued at approximately $98,000 using the Black-Scholes model.

During the three months ended December 31, 2020, the Company issued warrants to a certain aforementioned investor to purchase 40,000 shares of the Company’s common stock at $0.75 vested over three years in consideration for convertible note payables. Valued at $124,000, a total of $41,000 was expensed in both the three months ending December 31, 2020 and the three months ending December 31, 2021.

As of December 31, 2021 and 2020, respectively, the Company has outstanding warrant shares of 8,261,223 with an intrinsic value of $2,944,984 and 8,359,851 warrant shares with an intrinsic value of $1,044,134.

In February 2021, the Company decided to extend all warrants issued in association with its previous Series B Preferred Stock one year beyond their original expiration date. The Company considered recording the increase in the fair value associated with these new terms in the three months ending December 31, 2021 but determined that the change was not material and an adjustment was not necessary.

The Company uses the Black-Scholes Model to determine the fair value of warrants granted. Option-pricing models require the input of highly subjective assumptions, particularly for the expected stock price volatility and the expected term of options. Changes in the subjective input assumptions can materially affect the fair value estimate. The expected stock price volatility assumptions are based on the historical volatility of the Company’s common stock over periods that are similar to the expected terms of grants and other relevant factors. The Company derives the expected term based on an average of the contract term and the vesting period taking into consideration the vesting schedules and future employee behavior with regard to option exercise. The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected term calculated at the date of grant. The Company has never paid any cash dividends on its common stock and the Company has no intention to pay a dividend at this time; therefore, the Company assumes that no dividends will be paid over the expected terms of warrants awards.

The Company determines the assumptions used in the valuation of warrants awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for warrants granted throughout the year.

The Company has utilized the following assumptions in its Black-Scholes warrant valuation model to calculate the estimated grant date fair value of the warrants during the six months ended December 31, 2021 and 2020:

	2021			2020
Volatility - range		64.0	%	63.5% - 64.4	%
Risk-free rate		0.9	%	0.2% - 0.3	%
Contractual term	5.0 years			4.0 - 5.0 years
Exercise price	$	1.24		$0.75 - $3.00

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A summary of the warrants granted, exercised, forfeited and expired for the six months ending December 31, 2021 are presented in the table below:

	Number of Warrants			Weighted-Average Exercise Price		Weighted-Average Grant-Date Fair Value		Aggregate Intrinsic Value of Outstanding Warrant Shares		Weighted-Average Remaining Contractual Term (in years)
Outstanding July 1, 2021		8,296,408			1.05		1.90		12,158,467		2.2
Granted		150,000			1.24		0.66		-		-
Exercised		-			-		-		-		-
Expired/Forfeited		(185,185	)		5.00		12.00		-		-
Outstanding December 31, 2021		8,261,223			0.98		1.63		2,944,984		1.7
Vested and exercisable June 30, 2021		7,055,736			0.88		1.50		2,667,549		1.9
Non-vested December 31, 2021		1,205,486			1.51		2.42		277,435		0.8

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants under the Company’s warrant plans as of December 31, 2021.

		Outstanding Warrant Shares				Exercisable Warrant Shares
Exercise price range		Number of Warrant Shares		Weighted average remaining contractual life		Number of Warrant Shares		Weighted average remaining contractual life
$	0.75		7,182,889	1.7 years			6,424,070	2.0 years
$	1.24		150,000		-		-		-
$	1.50		400,000	2.4 years			400,000	2.7 years
$	1.95		26,667		-		-		-
$	3.75		435,000	2.5 years			165,000	5.7 years
$	3.00		66,667	3.2 years			66,667	3.4 years

			8,261,223	1.7 years			7,055,736	1.9 years

A summary of the warrants granted, exercised, forfeited and expired for the six months ended December 31, 2020 are presented in the table below:

	Number of Warrant Shares			Weighted-Average Exercise Price		Weighted-Average Grant-Date Fair Value		Aggregate Intrinsic Value of Outstanding Warrant Shares		Weighted-Average Remaining Contractual Term (in years)
Outstanding July 1, 2020		7,858,741		$	1.52	$	1.92	$	9,234,295		3.0
Granted		590,000			0.75		3.15		1,967,500		4.3
Exercised		-			-		-		-		-
Expired/Forfeited		(88,888	)		-		-		-		-
Outstanding December 31, 2020		8,359,851			1.24		1.87		11,037,350		2.8
Vested and exercisable December 31, 2020		7,241,518			1.22		1.69		8,367,683		2.6
Non-vested December 31, 2020		1,118,333		$	1.39	$	2.97	$	2,669,667		3.7

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		Outstanding Warrant Shares			Exercisable Warrant Shares
Exercise price range		Number of Warrant Shares		Weighted average remaining contractual life	Number of Warrant Shares		Weighted average remaining contractual life
$	0.75		7,188,333	2.8 years		6,341,667	2.7 years
$	1.50		400,000	3.4 years		266,667	3.5 years
$	1.95		26,666	4.8 years		-		-
$	2.25		6,666	4.8 years		-		-
$	3.00		76,667	0.6 years		3,333	4.6 years
$	3.75		368,333	3.9 years		230,000	4.0 years
$	6.00		381,333	0.2 years		381,333	0.2 years
$	27.00		18,518	0.6 years		18,518	0.6 years
			8,359,851	2.8 years		7,241,518	2.6 years

2017 EQUITY INCENTIVE PLAN

On June 13, 2017, the Board adopted and approved an amendment to the Troika Media Group, Inc. 2015 Employee, Director and Consultant Equity Incentive Plan (the “Equity Plan”), to change the name from M2 nGage Group, Inc. to Troika Media Group, Inc., in order to attract, motivate, retain, and reward high-quality executives and other employees, officers, directors, consultants, and other persons who provide services to the Company by enabling such persons to acquire an equity interest in the Company. Under the Plan, the Board (or the compensation committee of the Board, if one is established) may award stock options, either stock grant of shares of the Company’s common stock, incentive stock option under IRS section 422 (“ISO’s”) or a non-qualified stock option (“Non-ISO’s”) (collectively “Options”). The Plan allocates 3,333,334 shares of the Company’s common stock (“Plan Shares”) for issuance of equity awards under the Plan. As of December 31, 2021, the Company has granted, under the Plan, awards in the form of NQSO’s.

2021 EQUITY INCENTIVE PLAN

On October 28, 2021, the Board adopted, and a majority of outstanding shares subsequently approved, the 2021 Employee, Director & Consultant Equity Incentive Plan (the “2021 Plan”). The prior Equity Plan did not have any remaining authorized shares. The 2021 Plan is intended to attract and retain employees, directors and consultants, to involve them to work for the benefit of the Company or its affiliated entities, and to provide additional incentive for them to promote the Company’s success. The 2021 Plan provides for the award of stock options, either incentive stock options (ISOs) or non-qualified stock options (NQSOs), restricted shares and restricted stock units (RSUs). The 2021 Plan authorized 12,000,000 shares of Common Stock for the issuance of awards under the 2021 Plan. As of the date of this report, an aggregate of 4,600,000 RSUs had been awarded to executive officers and directors and 1,500,000 RSUs had been awarded to employees.

ISO’s Awards

During the three months ended December 31, 2021, the Company issued options to certain employees to purchase 76,667 shares of the Company’s common stock between $1.49 and $3.75 per share which vested during various terms and were valued at $114,000. In regards to the options issued in the three months ending December 31, 2021, the Company recorded compensation of $0 for the vested portion of these options. The Company recorded compensation of $106,000 relating to the vested portion of options that were issued in previous periods for the three months ended December 31, 2021. The total compensation of the unvested options to be recognized in future periods is $896,000 and the weighted average remaining is 2.8 years.

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During the three months ended December 31, 2020, the Company did not issue additional options. The Company recorded compensation of $263,000 relating to the vested portion of options that were issued in previous periods for the three months ended December 31, 2020. The total compensation of the unvested options to be recognized in future periods is $596,000 and the weighted average remaining is 1.6 years.

The Company uses the Black-Scholes Model to determine the fair value of Options granted. Option-pricing models require the input of highly subjective assumptions, particularly for the expected stock price volatility and the expected term of options. Changes in the subjective input assumptions can materially affect the fair value estimate. The expected stock price volatility assumptions are based on the historical volatility of the Company’s common stock over periods that are similar to the expected terms of grants and other relevant factors. The Company derives the expected term based on an average of the contract term and the vesting period taking into consideration the vesting schedules and future employee behavior with regard to option exercise. The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected term calculated at the date of grant. The Company has never paid any cash dividends on its common stock and the Company has no intention to pay a dividend at this time; therefore, the Company assumes that no dividends will be paid over the expected terms of option awards.

The Company determines the assumptions used in the valuation of Option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for options granted throughout the year.

The Company has utilized the following assumptions in its Black-Scholes options valuation model to calculate the estimated grant date fair value of the options during the six months ended December 31, 2021 and 2020:

		2021		2020
Volatility - range		64.2%–64.9	%			64.8	%
Risk-free rate		0.9–1.2%	%			0.3	%
Contractual term		3.0 years		3.0 years
Exercise price	$	1.49 - $3.75			$	3.75

A summary of the options granted, exercised, forfeited and expired for the six months ending December 31, 2021 are presented in the table below:

	Number of Options		Weighted-Average Exercise Price		Weighted-Average Grant-Date Fair Value		Aggregate Intrinsic Value of Outstanding Option Shares		Weighted-Average Remaining Contractual Term (in years)
Outstanding July 1, 2021		3,088,333	$	1.13	$	1.06		1,829,999		0.4
Granted		720,169		3.46		1.49		-		2.8
Exercised		-		-		-		-		-
Expired/Forfeited		-		-		-		-		-
Outstanding December 31, 2021		3,808,502		1.39		1.13		1,044,134		0.8
Vested and exercisable December 31, 2021		2,912,778		0.92		1.11		1,009,056		0.2
Non vested December 31, 2021		895,724	$	2.91	$	1.39	$	35,078		2.8

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The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s warrant plans as of December 31, 2021.

		Outstanding Option Shares				Exercisable Option Shares
Exercise price range		Number of Option Shares		Weighted average remaining contractual life		Number of Option Shares		Weighted average remaining contractual life
$	0.75		2,546,667		0.2		2,594,444		0.1
$	1.49		10,000		2.9		-		-
$	1.50		200,000		-		200,000		-
$	2.08		258,334		2.4		-		-
$	2.61		383,500		3.5		-		-
$	2.84		1,667		3.5		-		-
$	3.75		408,334		1.5		118,333		1.2
			3,808,502		0.8		2,912,778		0.2

A summary of the options granted, exercised, forfeited and expired for the six months ended December 31, 2020 are presented in the table below:

	Number of Option Shares			Weighted-Average Exercise Price		Weighted-Average Grant-Date Fair Value		Aggregate Intrinsic Value of Outstanding Option Shares		Weighted-Average Remaining Contractual Term (in years)
Outstanding July 1, 2020		3,377,222		$	1.10	$	1.06	$	2,030,000		0.7
Granted		76,667			3.75		1.61		-		2.8
Exercised		-			-		-		-		-
Forfeited		-			-		-		-		-
Expired		(143,333	)		-		-		-		-
Outstanding December 31, 2020		3,310,556			1.10		1.01		1,830,000		0.5
Vested and exercisable December 31, 2020		2,714,893			0.80		0.89		1,351,901		0.3
Non-vested December 31, 2020		595,663		$	2.49	$	1.82	$	478,099		1.6

		Outstanding Option Shares				Exercisable Option Shares
Exercise price range		Number of Option Shares		Weighted average remaining contractual life		Number of Option Shares		Weighted average remaining contractual life
$	0.75		2,768,889		0.3		2,543,782		0.2
$	1.50		200,000		0.8		166,667		0.7
$	3.75		341,667		2.2		4,444		1.3

			3,310,556		0.5		2,714,893		0.3

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NOTE 10 – DISAGGREGATION OF REVENUE & LONG-LIVED ASSETS

The following table presents the disaggregation of gross revenue between revenue types:

	Three Months Ended December 31,				Six Months Ended December 31,
	2021		2020		2021		2020
Project fees	$	3,129,000	$	1,488,000	$	8,001,000	$	3,641,000
Retainer fees		450,000		523,000		911,000		1,088,000
Fee income		1,317,000		1,030,000		2,593,000		1,759,000
Reimbursement income		2,079,000		1,410,000		3,815,000		2,095,000
Other revenue		19,000		-		23,000		-
	$	6,994,000	$	4,451,000	$	15,343,000	$	8,583,000

The following table presents the disaggregation of gross revenue between the United States and the United Kingdom for the three and six months ended:

	Three Months Ended December 31,				Six Months Ended December 31,
	2021		2020		2021		2020
Gross Revenue:
United States	$	4,439,000	$	2,328,000	$	10,518,000	$	5,631,000
United Kingdom		2,555,000		2,123,000		4,825,000		2,952,000
Total gross revenue	$	6,994,000	$	4,451,000	$	15,343,000	$	8,583,000

The following table presents the disaggregation of gross profit between the United States and the United Kingdom for the three and six months ended:

	Three Months Ended December 31,				Six Months Ended December 31,
	2021		2020		2021		2020
Gross Profit:
United States	$	1,939,000	$	1,389,000	$	4,382,000	$	2,692,000
United Kingdom		1,472,000		923,000		2,541,000		1,472,000
Total gross profit	$	3,411,000	$	2,312,000	$	6,923,000	$	4,164,000

The following table presents the disaggregation of net loss between the United States and the United Kingdom for the three and six months ended:

	Three Months Ended December 31,						Six Months Ended December 31,
	2021			2020			2021			2020
Net Gain/(Loss):
United States	$	(4,174,000	)	$	(720,000	)	$	(5,961,000	)	$	(3,959,000	)
United Kingdom		64,000			97,000			(288,000	)		(585,000	)
Total net loss	$	(4,110,000	)	$	(623,000	)	$	(6,249,000	)	$	(4,544,000	)

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The following table presents the disaggregation of fixed assets between the United States and the United Kingdom as of December 31, 2021:

	United States			United Kingdom			Total
Computer equipment	$	499,000		$	247,000		$	746,000
Website design		6,000			-			6,000
Office machine & equipment		52,000			44,000			96,000
Furniture & fixtures		383,000			84,000			467,000
Leasehold improvements		138,000			-			138,000
		145,000			-			145,000
		1,223,000			375,000			1,598,000

Accumulated depreciation		(911,000	)		(313,000	)		(1,224,000	)
Net book value	$	312,000		$	62,000		$	374,000

The following table presents the disaggregation of fixed assets between the United States and the United Kingdom as of June 30, 2021:

	United States			United Kingdom			Total
Computer equipment	$	468,000		$	229,000		$	697,000
Website design		6,000			-			6,000
Office machine & equipment		51,000			46,000			97,000
Furniture & fixtures		352,000			86,000			438,000
Leasehold improvements		135,000			-			135,000
Tenant incentives		145,000			-			145,000
		1,157,000			361,000			1,518,000

Accumulated depreciation		(867,000	)		(308,000	)		(1,175,000	)
Net book value	$	290,000		$	53,000		$	343,000

The following table presents the disaggregation of intangible assets and goodwill between the United States and the United Kingdom as of December 31, 2021:

Intangibles	US			UK		Total
Customer relationship	$	4,960,000		$	-	$	4,960,000
Non-core customer relationships		760,000			-		760,000
Non-compete agreements		1,430,000			-		1,430,000
Technology		520,000			-		520,000
Tradename		470,000			-		470,000
Workforce acquired		2,125,000			-		2,125,000
		10,265,000			-		10,265,000
Less: accumulated amortization		(8,006,000	)		-		(8,006,000	)

Net book value	$	2,259,000		$	-	$	2,259,000

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The following table presents the disaggregation of intangible assets and goodwill between the United States and the United Kingdom as of June 30, 2021.

Intangibles	US			UK		Total
Customer relationship	$	4,960,000		$	-	$	4,960,000
Non-core customer relationships		760,000			-		760,000
Non-compete agreements		1,430,000			-		1,430,000
Technology		520,000			-		520,000
Tradename		470,000			-		470,000
Workforce acquired		2,125,000			-		2,125,000
		10,265,000			-		10,265,000
Less: accumulated amortization		(7,662,000	)		-		(7,662,000	)

Net book value	$	2,603,000		$	-	$	2,603,000

NOTE 11 – SUBSEQUENT EVENTS

EQUITY INCENTIVES

In January 2022, the Company awarded a total of 6,100,000 restricted stock awards in incentive compensation consisting of 4,600,000 RSUs to executive officers and directors and 1,500,000 RSUs awarded to employees.

WARRANTS ISSUED

In January 2022, the Company issued warrants to a consultant for services rendered to purchase 25,000 shares of the Company’s common stock vested over two years. The warrants have an exercise price representing 20% below the prior business day’s closing price when the holder elects to exercise.

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

The following management’s discussion and analysis should be read in conjunction with the Company’s historical consolidated financial statements and the related notes thereto included in our audited financial statements for the year ended June 30, 2021, and the notes thereto (the “Form 10-K”). The management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this quarterly report. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this quarterly report.

Critical Accounting Policy & Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions and conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the condensed consolidated financial statements included in this quarterly report.

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OVERVIEW

Troika Media Group, Inc. was incorporated in Nevada in 2003. The Company is a transatlantic agency focusing on branding, digital marketing and performance media services, using actionable intelligence across all broadcast digital media and live experiences. On June 12, 2017, we commenced our current operations upon the merger with Troika Design Group, Inc., a strategic brand consultancy with deep expertise in entertainment media, sports, consumer goods and service brands. On June 29, 2018, we acquired all of the equity interests of Mission Culture LLC and Mission Media Holdings Limited, a company headquartered in London, with North American operations since 2009, as a brand experience and communications agency that specializes in consumer immersion through a cultural lens, via live experiences, brand partnerships, public relations and social and influencer engagement. On May 21, 2021, we acquired substantially all of the assets of Redeeem LLC (n/k/a Troika IO, Inc.), a peer-to-peer NFT blockchain exchange founded in 2018.

The Impact of the Global COVID-19 Virus

We took steps to protect the safety of our employees, with a large majority of our worldwide workforce working from home, while developing creative ideas to protect the health and well-being of our communities and setting up our people to help them do their best work for our clients while working remotely. With respect to managing costs, we have implemented multiple initiatives to align our expenses with changes in revenue. The steps taken across our agencies and corporate group include deferred merit increases, freezes on hiring and temporary labor, major cuts in non-essential spending, staff reductions, furloughs in markets where that option is available and salary reductions, including voluntary salary deferment for our senior corporate management team. In addition, we remain committed to and have intensified our efforts around cash flow discipline, including the identification of significant capital expenditures that can be deferred, and working capital management. We began to see the effects of COVID-19 on client spending, notably in the UK and US markets with our Mission subsidiaries throughout the second quarter of calendar 2020 with much of the work force of the UK subsidiary on furlough, and with our Troika Design subsidiary furloughed as March 2020 progressed. Due to mandatory stay at home orders and social distancing, our experiential business has been particularly impacted by COVID-19. Promotional and experiential events with the Company’s assistance are particularly susceptible to external factors were delayed by many of the Company’s Mission clients due to the effects of COVID-19. The Company had temporarily furloughed employees to reflect current reduced demands associated with those client sets. However, as of the first and second quarters of calendar 2021, we started to see business dramatically improve and expect greater improvement in our results in our next fiscal quarters. As cities have commenced openings with the improvement of vaccines distribution and infection rates declining, our client activities have doubled and there is a real optimism that the economic conditions are improving. Sports, Entertainment, Pharma clients are contracting our services across all entities at rates similar to 2019.

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In the current environment, a major priority for us is preserving liquidity. Our primary liquidity sources are operating cash flow, cash and cash equivalents and short-term investments. Although we experienced a decrease in our cash flow from operations as a result of the impact of COVID-19, we obtained relief under the CARES Act in the form of a Small Business Administration backed loans. In aggregate we received $1.7 million in SBA stimulus “Payroll Protection Program” funding in April 2020 of which the majority of these funds were used for payroll. As per the US Government rules, the funds used for payroll, healthcare benefits, and other applicable operating expenses can be forgiven and the Company reported them as such in December 2020 considering the Company believes we have substantially met these conditions. On August 14, 2020, the Company received an additional $500,000 in loans with 30 year terms under the SBA’s “Economic Injury Disaster Loan” program which the Company used to address cash shortfalls that resulted from the current pandemic. In February 2021, the Company obtained additional relief under the CARES Act in the form of a Small Business Administration backed loans and received an additional $1.7 million in SBA stimulus “Payroll Protection Program” funds which were used for payroll, healthcare benefits, and other applicable operating expenses. In July 2021, the Company was notified that all of the stimulus funds were forgiven with the exception of approximately $8,000 which was returned in the three months ending September 30, 2021.

See, Risk Factors Related to the COVID-19 Virus and Pandemic Response in General

RESULTS OF OPERATIONS

For the three months ended December 31, 2021 compared to the three months ended December 31, 2020.

Our revenues for the three months ended December 31, 2021 and 2020 were $6,994,000 and $4,451,000, respectively, an increase of approximately $2,543,000 or 57.1%. This increase is predominately due to Troika Design recognizing $1,616,000 in additional revenue in comparison to the prior period as a result of the generation of new business. Also attributing to this increase as a result of new business and the ease of lockdowns from the pandemic were the UK and US subsidiaries of Mission-Media Holdings Limited which recognized increases of $433,000 and $451,000, respectively.

The costs of revenue exclusive of operating expenses for the three months ended December 31, 2021 and 2020 were $3,583,000 and $2,139,000, respectively, an increase of $1,444,000, or 67.5%. This increase is correlated to the aforementioned increase in revenue at Troika Design and the UK and US subsidiaries of Mission-Media Holdings Limited as these costs relate to the staging and production of the additional revenue being generated. The gross profit margin for the three months ended December 31, 2021 and 2020 slightly decreased to 48.8% from 51.9% due to a higher proportion of consulting fees being generated in the prior period which have a higher gross profit margin in relation fees related from live events.

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The operating costs for the three months ended December 31, 2021 and 2020 were $7,493,000 and $4,520,000 respectively, an increase of $2,973,000 or 65.8%. The primary driver of this increase was an increase of $2,537,000 in cost of personnel which was the result of an increase of $1,731,000 in payroll and its associated fringe benefits as a result of furloughed employees returning to the UK subsidiary of Mission-Media Holdings Limited ($434,000), new hires and returning employees at Troika Design ($482,000), new hires at Troika Labs ($249,000), new hires at the US subsidiary of Mission-Media Holdings Limited ($148,000), new corporate hires ($222,000), and new hires relating to the Redeeem acquisition ($202,000). Also attributing to the increase in cost of personnel is a $507,000 increase in stock-based compensation which is due to the acquisition of Redeeem and the vesting of their employees’ stock relating to their deferred compensation in their purchase agreement ($805,000). This was offset by a reduction of $298,000 in the stock-based compensation relating to the vested portion of other warrants and options awarded.

The Company recognized a $1,704,000 reduction in gains from the extinguishment of stimulus loans in other expenses in the three months ending December 31, 2021 in relation to the three months ending December 31, 2020. The loans were awarded as a result of the pandemic and the funds were recognized in the prior period as expensed.

As a result of the foregoing, our net loss for the three months ended December 31, 2021 increased to $4,110,000 from $623,000 for the three months ended December 31, 2020.

For the six months ended December 31, 2021 compared to the six months ended December 31, 2020.

Our revenues for the six months ended December 31, 2021 and 2020 were $15,343,000 and $8,583,000, respectively, an increase of approximately $6,760,000 or 78.8%. This increase is predominately due to Troika Design recognizing $4,191,000 in additional revenue in comparison to the prior period as a result of the generation of new business. Also attributing to this increase as a result of new business and the ease of lockdowns from the pandemic were the UK and US subsidiaries of Mission-Media Holdings Limited which recognized increases of $1,873,000 and $653,000, respectively.

The costs of revenue exclusive of operating expenses for the six months ended December 31, 2021 and 2020 were $8,420,000 and $4,419,000, respectively, an increase of $4,001,000, or 90.5%. This increase is correlated to the aforementioned increase in revenue at Troika Design and the UK and US subsidiaries of Mission-Media Holdings Limited as these costs relate to the staging and production of the additional revenue being generated. The gross profit margin for the six months ended December 31, 2021 and 2020 decreased to 45.1% from 48.5% due to a higher proportion of consulting fees being generated in the prior period which have a higher gross profit margin in relation fees related from live events. Also attributing to the decrease in gross profit margin is the increase in revenue at Troika Design which in the six months ending December 31, 2021 recognized a gross profit margin 41.9% which was consistent with its forecast, however slightly lower than the collective margin of 48.0% at the UK and US subsidiaries of Mission-Media Holdings Limited.

The operating costs for the six months ended December 31, 2021 and 2020 were $14,498,000 and $10,329,000 respectively, an increase of $4,169,000 or 40.4%. The primary driver of this increase was an increase of $4,631,000 in cost of personnel which was the result of an increase of $2,593,000 in payroll and its associated fringe benefits as a result of furloughed employees returning to the UK subsidiary of Mission-Media Holdings Limited ($663,000), new hires and returning employees at Troika Design ($423,000), new hires at Troika Labs ($585,000), new hires at the US subsidiary of Mission-Media Holdings Limited ($143,000), new corporate hires ($345,000), and new hires relating to the Redeeem acquisition ($437,000). Also attributing to the increase in cost of personnel is a $1,166,000 increase in stock-based compensation which is due to the acquisition of Redeeem and the vesting of their employees’ stock relating to their deferred compensation in their purchase agreement ($1,610,000). This was offset by a reduction of $445,000 in the stock-based compensation relating to the vested portion of other warrants and options awarded.

The Company recognized a $1,442,000 reduction in gains from the extinguishment of stimulus loans in the six months ending December 31, 2021 in relation to the six months ending December 31, 2020. The loans were awarded as a result of the pandemic and the funds were recognized in the prior period as expensed.

As a result of the foregoing, our net loss for the six months ended December 31, 2021 increased to $6,249,000 from $4,544,000 for the six months ended December 31, 2020.

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LIQUIDITY & CAPITAL RESOURCES

As of December 31, 2021 compared with June 30, 2021:

As of December 31, 2021, the Company has a working capital deficit of $(8,249,000) compared with a deficit of $(4,004,000) at June 30, 2021. The increase in working capital deficit was primarily the result of a net loss of $6,249,000 for the six months ended December 31, 2021. The increase in working capital deficit also reflects a decrease of $6,084,000 in cash and a decrease of $438,000 in prepaid expenses offset by a decrease of $1,814,000 in accounts payable and accrued expenses and a decrease of $235,000 in short-term lease liabilities.

As of December 31, 2021 compared with December 31, 2020:

Net cash used in operating activities increased by $4,585,000 from $(1,393,000) to $(5,978,000) for the six months ended December 31, 2020 and 2021, respectively. The increase was the result of an increase of $3,523,000 in cash used relating to accounts payable and accrued expenses, $3,447,000 increase in contract liabilities to revenue, $736,000 reduction in the amortization of intangibles, $787,000 increase in lease liabilities, and a $1,705,000 increase in net loss. This was offset by a $1,775,000 increase in cash generated from accounts receivable and a $1,302,000 decrease in contract liabilities relating to government grants.

Net cash used in investing activities increased by $74,000 as a result of capital expenditures being increased to $93,000 from $19,000 for the six months ended December 31, 2021 and 2020, respectively.

Net cash provided by financing activities decreased by $1,115,000 from $1,065,000 to $(50,000) for the six months ended December 31, 2020 and 2021, respectively. The decrease was the result of a $565,000 decrease in proceeds from stimulus loan programs and a $500,000 decrease in proceeds from convertible note payables.

During the six months ended December 31, 2021 and 2020, the Company did not recognize any proceeds from the sale of its securities.

As a result of the forgoing, the Company had a decrease in cash of $6,084,000 for the six months ended December 31, 2021 in comparison to a decrease of $634,000 for the six months ended December 31, 2020.

Non-GAAP Measures

The following table sets forth the reconciliation of Adjusted Earnings Before Interest Taxes Depreciation & Amortization (“Adjusted EBITDA”) to Net Income (Loss):

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adj. EBITDA”):

The adjusted EBITDA metric is most helpful when used in determining the value of a company for transactions such as mergers, acquisitions or raising capital.

The adjustments made to a company’s EBITDA can vary quite a bit from one company to the next, but the goal is the same. Adjusting the EBITDA metric aims to “normalize” the figure so that it is somewhat generic, meaning it contains essentially the same line-item expenses that any other, similar company in its industry would contain.

We believe that our financial statements and the other financial data included, have been prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the United States (“GAAP”). However, for the reasons discussed below, we have presented certain non-GAAP measures herein.

We have presented the following non-GAAP measures to assist investors in understanding our core net operating results on an on-going basis: (i) Adjusted EBITDA as it relates to Net Income. These non-GAAP financial measures may also assist investors, securities analysts and others in making comparisons of our core operating results with those of other companies and making informed business decisions.

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As used herein, net income represents net loss plus depreciation and amortization, interest expense, net and income tax expense. As used herein, Adjusted EBITDA represents Net Income plus the following add backs;

Net Income plus unrealized gains, depreciation and amortization, interest expense, non-operating related management bonus compensation, foreign exchange losses, stock-based compensation expense and litigation expenses.

We recognize that Adjusted EBITDA off net income, have limitations as analytical financial measures. For example, neither EBITDA nor Adjusted EBITDA reflects:

	·	our capital expenditures or future requirements for capital expenditures or mergers and acquisitions;
	·	the interest expense or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;
	·	depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, or any cash requirements for the replacement of assets;
	·	changes in cash requirements for our working capital needs; or
	·	changes in fair value of contingent earn-out liabilities, warrant liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold) and transition costs from acquisitions.

Additionally, Adjusted EBITDA excludes non-cash expense for stock-based compensation, which is currently and is expected to remain a key element of our overall long-term incentive compensation package.

The bulk of the adjustments are often different types of expenses that are added back to EBITDA. The resulting adjusted EBITDA often reflects a higher earnings level because of the reduced expenses.

EBITDA Adjustments included below:

	·	Unrealized gains or losses
	·	Non-cash expenses (depreciation, amortization)
	·	Litigation expenses
	·	Non-operating related management bonuses
	·	Gains or losses on foreign exchange
	·	Goodwill impairments
	·	Non-operating income
	·	Stock-based compensation

Non-GAAP Financial Measures

Non-GAAP Measures	Three Months Ended December 31,
Un-Audited	2021			2020
	Un-Audited			Un-Audited

Net Operating Loss	$	(4,110,000	)	$	(623,000	)

* Unrealized gains or losses - Rent Abatement		39,000			-
* Non-cash expenses (Depreciation, amortization of intangibles & amortization of note payable discount)		199,000			961,000
* Interest expense		34,000			42,000
* Losses on foreign exchange		10,000			-
* Stock-based compensation non-cash expense		1,071,000			320,000
* Acquisition costs		517,000			-
* Consulting services (non-recurring)		204,000			-
* Software implementation (non-recurring)		45,000			-
* Legal costs		44,000			105,000

Adjusted EBITDA	$	(1,947,000	)	$	805,000

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Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Issuer is not required to provide the information called for in this item due to its status as a Smaller Reporting Company.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

The term “disclosure controls and procedures” is defined in Rules 13(a)-15e and 15(d) - 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. They have concluded that, as of December 31, 2021, our disclosures, controls and procedures were not effective to ensure that:

	(1)	Information required to be disclosed by the Company in reports that it files or submits under the act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; and

	(2)	Controls and procedures are designed by the Company to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management including the principal executive and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding financial disclosure.

This term refers to the controls and procedures of a Company that are designed to ensure that information required to be disclosed by a Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Management continues to take steps to improve its controls and procedures, and expects, further, that the growing scale of the business will enable the Company to obtain additional resources to assist in that effort.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting or in any other factors that could significantly affect these controls during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company is in the process of consolidating its bank accounts into one institution, investigating a consolidated general ledger system, and formalizing policies and procedures which, upon their implementation, should dramatically improve internal controls. The Company is also considering employing additional accounting staff which will improve segregation of duties. The Company intends to implement these controls in the near future in order to prevent and detect mistakes, noncompliance and potential fraud.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not a party to any material pending legal proceedings or a proceeding being contemplated by a governmental authority nor is any of the Company’s property the subject of any pending legal proceedings or a proceeding being contemplated by a governmental authority except as set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, from which there have been no material changes.

Item 1A. Risk Factors.

None.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

The Company’s registration statement on Form S-1 (Nos. 333-255328 and 333-255353) was declared effective by the SEC on April 19, 2021. The offering commenced on April 19, 2021 and was completed on April 22, 2021. The Company’s co-managing underwriters were EF Hutton (f/k/a Kingswood Capital Markets), a division of Benchmarks Investments, Inc., and Westpark Capital, Inc.

The Company registered and sold 5,783,133 shares of Common Stock and Warrants to purchase 5,783,133 shares of Common Stock, at an initial public offering price of $4.15 per share and accompanying warrant. The Company sold shares and warrants for gross proceeds of $24,000,002.

The Company paid estimated offering expenses of $3,298,000, consisting of $1,920,000 of underwriting discounts and commissions, a 1% non-accountable expense allowance ($240,000) and other expenses including legal and accounting of approximately $1,138,000. Payments of approximately $3,616,000 were made to directors, officers and ten (10%) percent or greater shareholders and to affiliates of its issuer for deferred compensation, severance payments, bonuses, and taxes. The net proceeds to the Company after deducting total expenses set forth above were approximately $17,086,000.

From the effective date of the Registered Statements through December 31, 2021, the amount of net proceeds were used for: the acquisition of Redeeem LLC ($1,380,000; repayment of indebtedness (approximately $5,329,780), working capital and any other purpose for which at least five (5%) percent of total offering proceeds or $100,000 (whichever is less) has been used, including approximately $1,153,780 for legal expenses outside of the offering and $761,475 for deferred consultant fees and $1,666,660 of deferred compensation for officers, directors and employees.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not Applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number		Exhibit Title
31.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS *		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH *		Inline XBRL Taxonomy Extension Schema Document.
101.CAL *		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF *		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB *		Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE *		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Troika Media Group, Inc.
	(Registrant)

		/s/ Christopher Broderick
		(Signature)

Date: February 14, 2022	Name:	Christopher Broderick
	Title:	Chief Financial Officer
		(Principal Financial Officer)

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