UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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DOCUMENTS INCORPORATED BY REFERENCE
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TABLE OF CONTENTS
USE OF MARKET AND INDUSTRY DATA
This Annual Report on Form 10-K includes market and industry data that we have obtained from third-party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management has developed its knowledge of such industries through its experience and participation in these industries. While our management believes the third-party sources referred to in this Annual Report on Form 10-K are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this Annual Report on Form 10-K or ascertained the underlying economic assumptions relied upon by such sources. Furthermore, internally prepared and third-party market prospective information, in particular, are estimates only and there will usually be differences between the prospective and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Also, references in this Annual Report on Form 10-K to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this Annual Report on Form 10-K.
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
“Kubient” and other trademarks or service marks of Kubient, Inc. appearing in this registration statement are the property of Kubient, Inc. The other trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Annual Report on Form 10-K are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
OTHER PERTINENT INFORMATION
Unless the context otherwise indicates, when used in this Annual Report on Form 10-K, the terms “Kubient” “we,” “us,” “our,” the “Company” and similar terms refer to Kubient, Inc., a Delaware corporation and its wholly-owned subsidiary, Fidelity Media, LLC.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. All statements of historical fact included in this report regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. Forward-looking statements contained in this report include, but are not limited to, statements about:
· | our future financial performance, including our expectations regarding our revenue, annual recurring revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, revenue mix and ability to achieve and maintain future profitability; |
· | our beliefs regarding the possible effects of the widespread domestic and global impact of the COVID-19 pandemic, including on general economic conditions, public health, and consumer demand and financial markets, as well as our results of operations, liquidity, capital resources, and general performance in the future; |
· | anticipated trends and growth rates in our business and in the markets in which we operate; |
· | our ability to maintain and expand our customer base; |
· | our ability to sell our platform, inclusive of KAI and expand internationally; |
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· | our ability to anticipate market needs and successfully develop new and enhanced solutions to meet those needs; |
· | our ability to hire and retain necessary qualified employees to grow our business and expand our operations; |
· | the evolution of technology affecting our platform; and |
· | our ability to adequately protect our intellectual property. |
We caution you that the foregoing list may not contain all of the forward-looking statements made in this report.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
GLOSSARY
“Ad network” means an intermediary network or company that acts as a broker between advertisers who want to purchase ad placements and content publishers who want to host the advertiser’s ads. Examples of advertisers are consumer good companies, multimedia companies and automobile manufacturers. Publishers in the context are website operators or app developers.
“Audience Marketplace” means the modular, highly scalable, transparent, cloud-based software platform created by the Company for real-time trading of digital, Programmatic Advertising.
“Bot” or “internet bot” means an autonomous program (or robot) running on a network (usually, the internet) that can interact with computer systems or users. Typically, Bots perform tasks that are both simple and structurally repetitive, at a much higher rate than would be possible for a human alone. According to Imperva, more than half of all web traffic is fraudulent, as it is made up of Bots rather than actual human beings.
“Brand” means a particular name used to identify a type of product or products manufactured by a particular company.
“Demand Side Platform” or “DSP” means a system that allows buyers of digital advertising space (ie, advertisers) to manage multiple ad exchange and data exchange accounts through one interface.
“Full stack” means computer engineering that encompasses databases, servers, systems engineering, and clients, across mobile applications, web-based applications and native applications.
“Latency” means the lag time between a customer click on an internet link and the conversion of that customer to a sale. The term can also refer to the lag time between ad inventory’s purchase and its display on publisher’s media.
“Omni-channel marketing” means marketing that is intended to reach target consumers across all advertising channels — mobile, video, desktop, and more — within the context of how the specific customer has interacted with a brand (for example, those first seeing an ad about a brand they have never experienced will receive a different message from those who have engaged with that brand a number of times).
“Programmatic advertising” means the purchase of advertising space meant to target audiences using software and tools that help agencies and brands target, deliver, and analyze their digital advertising efforts., rather than the traditional method of purchasing time slots in mass media, such as television programming.
“Pre-bid” means the bid placed by an advertiser for placement of its ad, verified prior to such ad being run or displayed.
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“Post-bid” means the verification of the running or display of an ad, after such running or display has occurred.
“Publisher” means a source of ad inventory, such as website owners, website operators or app developers. Publishers are generally either managed or owned and operated. An owned and operated publisher receives 100% of the profit for impressions sold. This is opposed to a managed publisher: a publisher that does not own its inventory but has a financial relationship with those who do.
“Supply Side Platform” or “SSP” means a platform that enables Publishers to access advertiser demand from a variety of networks, exchanges, and platforms via one interface.
“300-millisecond window” means the window of time adopted by the digital advertising industry in which a website or app has to load the content on their website and auction off the advertising space on their web property.
“Volume” means the concept buying large scale amounts of media in hopes of reaching a specific, smaller audience that lives within that larger pool.
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PART I
ITEM 1. BUSINESS
Overview
Kubient, Inc. (“Kubient,” “we,” “our,” or the “Company”), a Delaware corporation, was incorporated in May 2017 to solve some of the most significant problems facing the global digital advertising industry.
The Company’s experienced team of marketing and technology veterans has developed the Audience Marketplace, a modular, highly scalable, transparent, cloud-based software platform for real-time trading of digital, Programmatic Advertising. The Company’s platform’s open marketplace gives both advertisers (ad space buyers) and Publishers (ad space sellers) the ability to use machine learning in the most critical parts of any Programmatic Advertising inventory auction, while simultaneously and significantly reducing those advertisers and Publishers’ exposure to fraud, specifically in the Pre-bid environment.
The Company also provides unique capabilities with its proprietary pre-bid ad fraud detection & prevention, Kubient Artificial Intelligence (“KAI”), which has the ability to stop fraud in the critical 300 millisecond window before an advertiser spends their budget on fraudulent ad space. The technology is powered by deep learning algorithms, the latest advancement in machine learning, which allows the Company to ingest vast amounts of data, find complex patterns in the data and make accurate predictions. Most importantly, it’s self-learning, getting smarter and more accurate over time. This provides advertisers a powerful tool capable of preventing the purchase of ad fraud.
The Company believes that its Audience Marketplace technology allows advertisers to reach entire audiences rather than buying single impressions from disparate sources. By becoming a one stop shop for advertisers and publishers, providing them with the technology to deliver meaningful messages to their target audience, all in one place, on a single platform that is computationally efficient, transparent, and as safely fraud-free as possible, the Company believes that its Audience Marketplace platform (and the application of the platform’s machine learning algorithms) leads to increased publisher revenue, lower advertiser cost, reduced latency and increased economic transparency during the advertising auction process.
Recent Updates
Paul Roberts Promoted to Chief Executive Officer
On December 16, 2021, the Company’s board of directors (with Paul Roberts abstaining from the vote) determined to remove the designation of “interim” from Mr. Roberts’ title, effective immediately, such that Mr. Roberts is now the Company’s Chief Executive Officer, Chief Strategy Officer, President and Chairman. This action represents a change in title only and Mr. Robert’s authority and power and duties and responsibilities remain the same.
MediaCrossing, Inc. Acqui-hire
On November 30, 2021, the Company entered into and consummated an Asset Purchase Agreement between the Company and MediaCrossing Inc., a Delaware corporation (“MediaCrossing”) pursuant to which the Company acquired certain assets of MediaCrossing for (i) $500,000 in cash, and (ii) if the acquired business achieves certain milestones in 2022, up to 822,369 shares of the Company’s common stock. In connection with the transaction, the Company offered employment to ten employees of MediaCrossing, including the hiring of Michael Kalman, Founder and Former CEO of MediaCrossing, for the newly-created role of President – Agency & Brand Partnerships. Mr. Kalman brings his experience from working with leading brands to help direct the Company’s new Managed Services division, which is described in further detail later in this Annual Report on Form 10-K.
Upon the closing of the transaction, MediaCrossing was rebranded as Kubient Managed Services (“KMS”). KMS will continue to operate as a digital-first media buying agency focused on driving growth for both brands and agencies. KMS’s mission is to provide the advertising tools, technology and expertise necessary for brand leaders to focus on what matters most - growing their business. KMS leverages technology and multi-tactic initiatives to drive performance and exceed client requested KPIs through continuous innovation and client service. KMS intends to act as a true extension of our clients’ advertising teams; handling all media strategy development,
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planning, buying and analytics, in conjunction with offering a multitude of tactics for our clients including programmatic advertising, paid social, paid search, search engine optimization, direct to publisher, and traditional media advertising.
Mitchell Berg Appointment
Effective November 29, 2021, Mitchell Berg was appointed to serve as its Chief Technology Officer of the Company. Mr. Berg was appointed after the Company’s board of directors accepted Pavel Medvedev’s resignation effective as of November 30, 2021. Mr. Medvedev’s resignation was not in connection with any known disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.
Mitchell Berg, 60, brings close to 20 years’ experience as a senior information technology executive, including several stints as Chief Technology Officer at a number of leading digital marketplaces. Most recently, Mr. Berg worked as the Chief Technology Officer of Koddi Inc., an ad-tech marketplace, from March 2020 to October 2021. From June 2018 to March, 2020 he served as the Chief Technology Officer of Vroom Inc. (NASDAQ:VRM), an-online car buying marketplace. From August 2016 to March 2018, Mr. Berg served as the Senior Vice President of dailymotion, a publisher-side video advertising platform that is a subsidiary of the international media conglomerate Vivendi SE (Euronext:VIV). From July 2014 to August 2016, he was the Vice President of Display Advertising at IgnitionOne, Inc., a digital display advertising platform that was acquired by the multinational advertising company, Publicis Groupe (Euronext:PUB). From March 2014 to July 2014, he served as the Principal Architect at Cablevision Systems Corporation (NYSE:CVC), a cable television company which was acquired by Altice Europe N.V. (Euronext:ATC). From November 2012 to February 2014 he worked as the Vice President of Engineering at Kikin, Inc., an internet search engine. Mr. Berg has also held senior information technology positions at SEMplest LLC, BenefitPlan Manager Corp. and The Boeing Company (NYSE: BA). Mr. Berg holds a Bachelor of Science in Industrial Engineering and Computer Science from the University at Buffalo, a Master of Engineering in Systems Engineering from the University of Virginia, a Master of Business Administration in Technology Management from the University of Washington, and a Doctor of Philosophy in Industrial Engineering from the University of Pittsburgh.
There are no arrangements or understandings between Mr. Berg and any other persons pursuant to which he was appointed Chief Technology Officer. There are no family relationships between Mr. Berg and any director or executive officer of the Company, and Mr. Berg does not have any direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Russian Sanctions
The current invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization (“NATO”) and Russia. The United States and other NATO member states, as well as non-member states, have announced new sanctions against Russia and certain Russian banks, enterprises and individuals. Violation of such sanctions could result in civil and criminal, monetary and non-monetary penalties, disruptions to our business, limitations on our ability to import and export products and services, and damage to our reputation. As a result, the Company had terminated 10 contractors performing software engineering services as of March 25, 2022. As a result, the Company does not currently employ or contract with any engineers located in Russia. The current political climate has reduced the available number of engineers for hire in such regions. Furthermore, on-going conflict in Ukraine and the spread of political tensions in surrounding areas could increase the threat of cyberwarfare as well as wide-spread internet service interruptions, which would likely disrupt or delay the operations of many digitally-focused companies such as our own.
COVID-19
The novel coronavirus (“COVID-19”) pandemic continues to impact global economic conditions, as well as the Company's operations. COVID-19 had a meaningful negative impact on our financial condition, cash flows and results of operations during 2020, as revenues declined and we reduced spending in light of COVID-19 uncertainty. Although we continued to experience disruption and volatility during 2021, which could continue to have an adverse effect on our revenues and earnings in 2022, the ultimate economic impact of the pandemic remains fluid, as there continue to be periods of COVID-19 resurgence in various parts of the world. The extent of the impact of the COVID-19 pandemic in 2022 on our operational and financial performance will depend on a variety of factors, some of which are outside our control, including the duration and spread of COVID-19 and its variants, and its impact on our clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted.
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Similarly, the economic uncertainty caused by the COVID-19 pandemic has made and may continue to make it difficult for us to forecast revenue and operating results and to make decisions regarding operational cost structures and investments. We have committed, and we plan to continue to commit, resources to grow our business, employee base, and technology development, and such investments may not yield anticipated returns, particularly if worldwide business activity continues to be impacted by the COVID-19 pandemic. The duration and extent of the impact from the COVID-19 pandemic depend on future developments that cannot be accurately predicted at this time, and if we are not able to respond to and manage the impact of such events effectively, our business may be harmed.
There can be no assurance that precautionary measures, whether adopted by us or imposed by others, will be effective, and such measures could negatively affect our sales, marketing, and client service efforts, delay and lengthen our sales cycles, decrease our employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm our business and results of operations.
What We Do: Audience-Based Marketing on Our Full Stack Platform
Our Audience Marketplace’s platform enables advertisers and publishers to transact directly between each other on an open, end to end real-time bidding platform for programmatic digital advertising. The advertising inventory on our platform is available in any channel: desktop, mobile, digital out-of-home, and connected devices; and in any format: video, display, audio, and native. Indeed, we believe our single, fully integrated audience platform provides a comprehensive, fraud-minimized, transparent, independent advertising marketplace that facilitates intelligent decision-making, and automated transaction execution for the programmatic advertising industry. We optimize the liquidity and effectiveness of the advertising supply chain, increasing revenue for publishers and improving return on investment for advertisers.
Our platform offers a machine learning-powered fraud prevention solution, extremely low latency times and an audience management platform which provides omni-channel access into all advertising channels, inventory and ad formats. Thanks to our management and development teams’ deep experience with artificial intelligence applications, our platform is constantly self-optimizing, using our software’s ability to analyze and learn from vast volumes of data. We are confident that the additional data we obtain from the volume of transactions on our platform helps to make our machine-learning algorithms more intelligent over time.
Advertising is sometimes defined as the transfer of a message from one party to another for the purpose of education, motivation or suggestion. Advertisers who pay to send a message, should be confident that it arrives to the individual it was intended for and delivers its expected outcome. Our solution consistently ensures this is the case, by verifying each and every message and intended audience. As a result, we believe that we process, analyze and connect billions of audience participants and devices faster and more efficiently than the industry standard.
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Digital Advertising Fraud Solution: Machine Learning Combined with Artificial Intelligence
Thanks to advances in technology, the advertising inventory that is bought and sold in these real time auctions during the bid stream is customized to each individual viewer. This viewer customization is often called programmatic advertising, a new form of advertising where advertisers are able to specifically target their preferred audiences and demographics (rather than placing ads in generic public forums such as billboards or during live events, in hopes that the coveted audience or demographic sees the ad). According to eMarketer, digital advertising is one of the fastest growing sectors in the advertising industry, which is expected to reach $717.44 billion by 2024; rising from $380.75 billion in 2020. Worldwide digital ad spending surged by 29% in the trailing year of 2021 to a total of $491.70 billion. Digital programmatic advertising’s reach includes channels such as online, mobile browsing, in-app, text messages, “out of home” video advertising (in locations such as gas stations and airports) and digital or internet television services. The explosive growth of programmatic digital advertising has created unique challenges for advertisers and publishers that want to connect and engage their audiences. One of the primary challenges facing the digital advertising industry is that, like the meteoric growth of digital advertising itself, fraud is also growing rapidly. Despite attempts by advertisers and publishers to prevent fraud and conduct quality assurance checks, both Forrester Research and Juniper Research estimates that the losses experienced by advertisers will more than double to $100 billion in 2023, with advertisers losing an estimated 25% of every dollar spent due to fraud. Additionally, programmatic advertising was seen by the majority of industry professionals as the overwhelming medium at highest risk of compromise to fraud. In a market of spent advertising dollars projected to increase almost 50% from 2020-2025, the total addressable market for properly servicing ad fraud is ripe for the picking.
Digital advertising fraud occurs when an ad is displayed to a fake website or Bot in an effort to falsely inflate web traffic numbers, rather than being displayed to a legitimate web site to be viewed by a human being. An advertiser that pays for an ad that is displayed to a Bot has wasted the budget spent for the placement of that ad, as it is human beings that might spend money on the product or service being advertised, as opposed to a Bot. Thus, brands and advertisers that cannot prevent their ads being shown to Bots become victims to the billions of dollars lost to ad fraud annually, as calculated by Juniper Research and Forrester Consulting.
We believe that digital advertising fraud is further exacerbated by the fact that our industry is increasingly fragmented. The most popular solutions that have emerged in the marketplace for selling digital advertising are not connected to the solutions used by industry participants for purchases of digital advertising. In other words, advertisers use DSPs to purchase digital advertising, whereas publishers use completely different platforms called SSPs to sell advertising space to those advertisers. Therefore, advertisers may not know who is selling them advertising inventory, and publishers may not know who is purchasing such inventory. With the two sides of any auction not connected, and likely not communicating with each other across different platforms, it is difficult to assign responsibility to tracking down fraud after an ad sale has already occurred. We have created a marketplace where advertisers and publishers can interact directly. This layer of direct transparency allows advertisers to more efficiently identify ad fraud, and to ensure that they are only buying advertising space that delivers the expected value of a particular campaign. Furthermore, fraud prevention is also fragmented as a result of advertisers and publishers using different platforms to conduct digital advertising auctions. Indeed, many DSPs and SSPs do not even have built-in fraud prevention solutions, instead relying on third parties to identify ad fraud after an ad is displayed. Our internally-developed fraud prevention solution is native to our platform and detects fraud before the digital advertising auction is concluded.
As a result of the fragmented, complex and inefficient infrastructure currently in use for programmatic advertising, fraud is rampant in the digital advertising marketplace. Bad actors’ use of fake websites and Bots to sell advertising space costs advertisers billions of dollars a year. A large part of the reason that widespread fraud runs rampant in the digital advertising industry is that current machine learning and fraud prevention solutions in our industry can only identify such fraud after an ad purchase has already occurred. We believe it is much harder to stop fraud when trying to catch perpetrators after the fraud has already occurred because the fraudsters have the ability to completely change the fingerprint of the Bot, which allows it to reenter the ecosystem and commit fraud again.
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We believe it is more effective to stop fraud before it occurs than trying to catch perpetrators after the fraud has already occurred. Thus, we have developed what we believe to be the first machine learning technology that can detect fraud within the 300-millisecond window known as the “bid stream” prior to ad purchases. Our platform’s fraud detection solution, called Kubient Artificial Intelligence (“KAI”) is our patent-pending proprietary technology that uses artificial intelligence to analyze live advertising bid stream data to detect potential ad fraud, a major issue within the digital advertising ecosystem. KAI’s proprietary technology allows all advertisers to make better-informed, real-time decisions within this brief window of time by identifying potentially fraudulent activity in real-time. KAI is trained using different statistical and machine learning algorithms and is capable of detecting various types of fraud, including user fraud, device fraud, content fraud and heuristic fraud. KAI analyzes 100% of real-time programmatic data and industry-specific information to determine patterns and data points consistent with fraudulent activity, helping advertisers maximize return on ad spend and protecting publishers. KAI is fully integrated into Kubient’s Audience Marketplace, or alternatively, can be deployed as a standalone application or enterprise solution on third party real time bidding platforms.
Latency Solution: Machine Learning
We believe that our platform allows us to process digital advertising auctions faster than the competition. Faster auctions ensure that ad campaigns create more impressions that are seen by consumers, as consumers are less likely to become frustrated by slowly loading websites or apps (which normally results in consumers leaving such websites or apps before the ad is displayed).
To substantially reduce and minimize latency issues across our fully integrated open marketplace, we use a highly-specialized programming language originally designed to be used in extremely fast (but highly dependable) digital telephone communications switches, as well as quant-based speed trading of securities on Wall Street. In addition, our platform’s proprietary machine-learning algorithms, sophisticated data processing, high volume storage, detailed analytics capabilities, and a distributed infrastructure that supercharges our bidding process and helps our customers place, and win, more bids for advertising space. We believe we are transforming the digital advertising industry by analyzing billions of data points in record real time speed to enable our solution to make complex decisions in milliseconds, and to execute over 1 million queries per second, billions of transactions per week and trillions of bid requests per month.
Additional Platform Functionalities
Not only do we believe our platform works faster, more efficiently and more safely in terms of fraud than our competition, we also believe that it provides added functionality over our competitors, such as real time reporting of ad sales, and an open audience marketplace which enables publishers, including websites, mobile applications, video and other digital media properties, to connect their advertising inventory more efficiently and effectively to buyers across the entire advertising ecosystem, including brands, DSPs, ad networks and advertising agencies.
In addition, our platform’s functionality allows us to quickly adapt to emerging media channels that might have been previously overlooked by the digital marketing ecosystem. For example, outdoor advertising, often referred to as out of home media, such as billboards, bus-stop shelters, public elevators, airport monitors and gas station pump placards, has not traditionally been connected to digital advertising sources. However, these traditional forms of out of home media are increasingly being converted to digital signage. Unlike their traditional out of home counterparts, these updated digital signs, often referred to as digital out of home (“DOOH”) media, can display programmatic advertising, such that all of the advantages of our Audience Marketplace can be applied to this rapidly proliferating media channel. By allowing brands, DSPs, ad networks, advertising agencies and brands to bid on DOOH publishers’ inventory in real-time, just as if DOOH screens were video screens on a desktop computer or mobile device, our Audience Marketplace will allow advertisers to scale campaigns across new and thriving media channels, thereby maximizing inventory fill rates and increasing the audiences that advertisers may target by digital means.
Kubient Managed Services (KMS)
The Company has embraced platforms, tools and a culture that’s designed to help clients achieve their required outcomes. We remain focused on differentiating by helping advertisers achieve tangible, quantifiable outcomes such as heightened brand awareness and increased sales. As such, the Company believes that its Kubient Managed Services division will be able to benefit advertisers by providing: (i) better audience and performance insight, campaign control, transparency, and execution (ii) expert staff with varied, relevant backgrounds to assist advertisers, and (iii) access to quality tools and platforms for advertisement placement with an emphasis on return on media investment.
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Furthermore, KMS will provide advertising agencies and advertisers with several significant competitive advantages relative to existing media buying vendors, such as:
| ● | Managed services at scale. KMS provides strategy, planning, execution and reporting to advertising agencies and advertisers that do not have the capital and expertise to deliver impactful programmatic digital media campaigns at scale. |
| ● | Audience Marketplace and KAI Integration. The company intends to utilize Kubient’s transparent and fraud-free publisher supply from its Audience Marketplace powered by KAI whenever appropriate for (KMS) Managed Service campaigns. |
| ● | Leveraging data. Digital media advertising is a data-driven industry, and we believe all key players in the space require insightful analytics. Due to the sheer volume of data available on online users, however, we believe advertisers and agencies have struggled to gain valuable insights in a timely, actionable fashion, especially price action and audience data. |
| ● | Operating in real-time with transparent reporting. The massive volume and real-time creation of data generally precludes effective human review, analysis, optimization and implementation of advertising campaigns. This, in turn, makes it difficult and timely for existing providers of digital solutions to deliver transparency with in-market campaigns which we’ve solved by providing clients with accurate, reliable dashboard reporting. |
| ● | Achieving measurable and repeatable results. In aiming to improve methods of measuring campaign success, advertisers are seeking tangible, quantifiable outcomes such as heightened brand awareness and increased sales. Similarly, publishers are demanding higher fill rates and maximum spend from advertisers. |
Additional Platform Functionalities
Not only do we believe our platform works faster, more efficiently and more safely in terms of fraud than our competition, we also believe that it provides added functionality over our competitors, such as real time reporting of ad sales, and an open audience marketplace which enables publishers, including websites, mobile applications, video and other digital media properties, to connect their advertising inventory more efficiently and effectively to buyers across the entire advertising ecosystem, including brands, DSPs, ad networks and advertising agencies.
In addition, the acquisition of MediaCrossing and its re-branding to KMS, has also brought Kubient the systems and processes required to execute complex campaigns at scale. With a laser focus on maintaining the agility to adapt to evolving client needs, KMS is designed to execute campaigns with precision regardless of volume, using software and automation that can scale with increased client engagement. This agility also allows the team to adapt to an ever-changing advertising landscape and add new solutions in short order.
Intellectual Property
We have filed two provisional patents, one relating to our inventory and decision management system that allows DOOH media buying agencies to purchase ads on our programmatic and real-time-bidding marketplace, and one relating to our KAI real time, digital advertising fraud prevention solution. In addition, we have filed six registered trademarks, and we have filed an additional trademark application relating to our brand name, corporate logos and KAI product.
Customers and Revenue
We provide our customers with a platform to connect advertisers and publishers. Generally, our revenue generation process begins with publishers. When a publisher aims to fill the available advertising space on its website or app, we typically enter into a twelve-month master service agreement allowing the publisher to sell advertising inventory through our platform. Once the publisher executes our master service agreement and is accepted onto our platform, the publisher is allowed to electronically communicate with our platform through its ad server, in order to provide us information about the publisher’s advertising inventory, user base, minimum sale prices and other data signals, as applicable. We also enter into master service agreements to allow third-party exchanges that aggregate publishers’ available advertising inventory to sell such inventory on our platform. We earn a mark-up, which is the spread between what we collect from advertisers and what we remit to publishers. We only pay for inventory when an advertiser is connected to a publisher and an impression is successfully delivered. We sometimes refer to the amount we pay publishers for inventory upon the delivery of an
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impression as “cost pay.” As described further below, cost pay is generally lower than what advertisers ultimately spend to have their ad impression delivered on a publisher’s website or app.
We also typically enter into twelve-month master service agreements with advertisers that wish to purchase advertising inventory, either on our platform or through their DSP. Our proprietary algorithms use the industry information available (from advertisers, publishers, third parties and our own internal database) to automatically target and bid on publishers’ inventory to meet an advertiser’s campaign objective. We generate revenue from advertisers by charging them fees on a sliding scale based on a percentage of their spend on advertising purchased through our platform, the total of which we sometimes refer to as “gross spend.”
Thanks to the speed of our platform, the matching of publisher and advertiser occurs in fractions of a second, within the short time frame of the bidstream. We recognize revenue upon the completion of each matching transaction, at the moment when an impression has been delivered to the consumer viewing a website or application. We generally bill and collect the full purchase price of impressions from advertisers, unless the advertiser pays through its DSP, in which case the DSP is the entity that pays our fees. In either case, our gross revenue from each impression is equal to gross spend minus cost pay.
We consider our customers to be those that generate revenue during the period and is a mix of direct publishers, third-party exchanges that aggregate both publishers’ available advertising inventory and advertising budgets, along with direct advertisers and advertising agencies. Further, the Company’s definition of “customer” encompasses advertisers that purchased even a single impression on the Company’s platform during the period, not just advertisers that signed a twelve-month master service agreement.
We believe that growth of the programmatic advertising market is important for our ability to continually grow our business. Adoption of programmatic advertising by advertisers allows us to acquire new customers and grow revenue from existing customers. We also believe that current industry trends will lead more advertisers to seek out a better fraud prevention solution to protect their advertising budgets, such as the one offered on our platform.
Similarly, we believe that the adoption of programmatic advertising by unique advertising inventory owners, such as digital out of home content providers for which we have developed a unique solution, will allow us to expand the volume and type of advertising inventory that we present to advertisers using our platform.
KAI
In addition, during the first quarter of 2020, we allowed two clients to beta test KAI, our fraud prevention technology powered by machine learning. Our Supply Side Platform also provides KAI with hundreds of millions of rows of data in real-time which improves accuracy, and provides our clients the ability to prevent the purchase of non-human or fraudulent advertising traffic.
Based on the success of the beta test of KAI, beginning in the fourth quarter of 2020, we began providing potential KAI customers with a free KAI audit, which provides our prospective customer with the intricate details of types and quantity of ad-fraud occurring on their platforms as a means of demonstrating KAI’s product differentiation and its ability to prevent ad fraud. After conducting client satisfaction surveys after a series of free KAI audits, the Company discovered that the bulk of its new customers were far more interested in contracting for access to the Audience Marketplace as a whole, rather than contracting for the use of KAI as a standalone product. Accordingly, the Company decided to terminate such free KAI audits, and instead, the Company intends to sell KAI as part of the overall package of solutions available through the Company’s Audience Marketplace.
KMS
With our acquisition of MediaCrossing and re-brand to KMS in November 2021, we are now able to provide middle-market (and sometimes underserved) advertisers and agencies with access to advertising services. KMS is a managed service solution that provides our clients with access to the platforms, people, and processes to plan and activate advertising campaigns across media types and platforms at scale.
The KMS team is staffed by subject matter experts with the expertise required to plan and execute campaigns across programmatic, search, social, and traditional media channels to reach a client’s expected outcome. The services provided to our clients are specific to media planning, buying, and reporting with a focus on digital media formats.
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Prior to the acquisition, MediaCrossing was platform agnostic and remains so. This gives the KMS team a broad suite of solutions they can deploy to meet client needs. With the addition of Kubient’s offerings, the solution set has and will continue to grow.
The KMS team has also brought Kubient the systems and processes required to execute complex campaigns at scale. With a laser focus on maintaining the agility to adapt to evolving client needs, KMS is designed to execute campaigns with precision regardless of volume using software and automation that can scale with increased client engagement. This agility also allows the team to adapt to an ever-changing advertising landscape and add new solutions in short order.
KMS primarily operates as an agency of record for brands, but also provides agencies and brands with the skillsets and tools that they lack via more narrow engagements. Whether planning and executing a brand’s annual advertising efforts or pitching in on a project with an agency, the KMS team devotes the same energy and effort to provide a positive outcome for our client.
Growth Strategy
Organic Growth
The key elements of our long-term growth strategy are as follows:
· | Enhancing our existing auction technology to improve adoption among publishers and advertisers, which we expect will increase our revenue. |
· | Further developing our fraud prevention system, which is powered by our proprietary KAI machine learning technology. |
· | Growing our customer base by increasing our salesforce to engage brands, agencies, website owners, app owners and other connected device owners, to facilitate marketplace participation. This will allow us to reach more audiences and garner larger budgets, growing our revenue and building long lasting customer relationships. |
| ● | Providing a proficient and cost-effective solution for advertisers and agencies with Kubient Managed Services (KMS) where we deliver strategy, planning, execution and reporting to those constituents that do not have the capital and/or the expertise to deliver impactful digital media campaigns at scale. |
· | Launching and scaling our reach with advertisers by introducing real-time auctions into a previously static corners of the marketplace, such as digital out of home channels, allowing for video advertising at gas stations, hotels and airports. |
· | Further developing our Audience Marketplace platform to improve omni-channel relevance, and personalization at scale. |
· | Further diversifying both our products and revenue streams to include stand-alone applications that address advertisers’ business needs, such as first party data hosting, and audience targeting solutions. |
· | Increasing our global footprint across the globe, especially in Latin America, Asia-Pacific, Europe, the Middle East and Africa. |
M &A Growth
In addition to the long-term, organic growth discussed above, we intend to opportunistically acquire companies that expand our core technologies and introduce the Company to potential new client bases that are potentially accretive to the Company’s future earnings. At present, Kubient is looking for companies that will grow its existing ecosystem of services by adding additional direct publishers, direct advertising partnerships, as well as ones that provide additional engineering, operational, business development, and human capital resources.
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Industry Overview
Most consumers are unaware that when they browse a webpage, watch a video on the internet, use a mobile app or watch an internet-connected TV, there is often a behind-the-scenes auction for the purchase and sale of digital advertising space as the consumer’s desired content loads. In such auctions, advertisers (i.e., ad space buyers, such as sporting goods or consumer products manufacturers) purchase advertising space from publishers (i.e., ad space sellers, such as mobile app developers or website operators). Advertisers bid on each impression and if the bid is won, the ad is displayed on the publisher’s website or app being viewed by the consumer.
As the technology behind these auctions began to develop, traditional methods of digital advertising were used, where manual negotiations conducted by human brokers played a vital role in deciding the prices of digital advertising inventory to be bought and sold. Similarly, human brokers sought to place ad inventory in the digital equivalents of traditional public forums such as billboard-like banner ads or during digitally-broadcast sporting events, in hopes that the largest audience possible might see an ad.
However, in recent years, the technology behind these auctions has changed dramatically. Now, “real time bidding” has become an automated process that enables the buying and selling of individual impressions for each digital ad in milliseconds. In the blink of an eye, real time digital auctions determine what ad will display, where the ad will be displayed and what price the advertiser has to pay to the publisher for displaying the ad. The real time auction process is currently in the process of completely replacing the role of a human broker, by automating the buying and selling of ad space in a 300 millisecond window called the “bid stream.”
Another significant challenge facing participants in the digital marketing industry is the problem of latency, or loading wait times. Existing participants in the digital advertising marketplace have invested billions of dollars in large and cumbersome system infrastructures that are costly and slow by today’s standards. Their outdated infrastructure has caused hundreds of companies to provide a patchwork of solutions to address the slow and costly nature of the current digital advertising infrastructure that we believe are ineffective when compared with our solution. As a result of this patchwork of solutions, we believe the digital advertising marketplace has become complex and inefficient, with relatively long delays before an ad is displayed becoming commonplace. These delays often result in a user leaving a website or smartphone app before the advertiser’s content loads. If the user does not view the ad which the advertiser paid to place on the publisher’s website or app, then the advertiser has wasted the budget spent for the placement of that ad.
The problem of ineffective digital advertising has created large-scale lost revenue in our industry. In their 2020 “Not Another State of Marketing Report”, Hubspot states that only 61% of marketers believe their marketing strategy is effective. Furthermore, 40% of marketers say proving their ROI of their marketing activities is their top marketing challenge, with over 10% indicating that they are unable to measure the ROI of their digital advertising campaigns. Given that ROI is generally the main driver of digital advertising decision making, the inability to calculate it correctly, or at all, will continue to perpetuate the ineffective digital advertising environment.
To combat the large-scale loss in advertising dollars spent, the landscape of marketing from the perspective of metric-based analysis has evolved. In their 2021 “The State of Marketing” report, Salesforce states that marketers are embracing more sophisticated metrics to cater to various KPI standards, with 78% of marketers reprioritizing their metrics due to the previous pandemic conditions. The following metrics are the most tracked by marketing organizations: revenue, marketing/sales funnel performance, customer satisfaction analytics, content engagement, customer acquisition cost, customer retention rates, web/mobile analytics, customer referral rates/volume, and customer lifetime value. While all of these marketing KPIs saw an increase across the board, customer referral rates, customer acquisition costs, and content engagement saw the biggest year-over-year jumps in adoption. Additionally, a related study published by Salesforce estimated that 60% of customer interactions would take place online; a rapid acceleration from the reported 49% in 2019. The increasing need for effective advertising spend has seemingly illuminated the increasing need by both publishers and advertisers to cut fraudulent advertising engagement significantly.
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Competition
We derive our revenue from the digital advertising market, which is rapidly evolving, highly competitive, complex and fragmented. We currently compete for advertising spend with large, well-established companies as well as smaller, privately-held companies. Some of our larger competitors with more resources may be better positioned to execute on advertising campaigns conducted over multiple channels such as social media, mobile and video, yet we provide unique channels not found in the digital advertising market typically, such as the true programmatic DOOH auctions we perform. We believe that this, coupled with our other capabilities, will allow us to keep step with the larger competitors in the short term and surpass them in the long term.
While the majority of the market is dominated by two companies, Facebook and Google, we do not consider them to be our competitors. Our growth is focused in the rest of the available market and there are many companies who compete with us for that share. The Trade Desk is one of our fastest growing competitors for brand and advertiser budgets with a solid foundation and strong cash flow and client base. Their product known as a Demand Side Platform competes with our own Demand Side Platform however, we believe our platform has key advantages, such as built-in proprietary fraud prevention, direct publisher connections, a Supply Side Platform and a centralized auction hub. These advantages, in our opinion, provide us with more leverage when approaching advertisers and requesting budget. There are other platforms and exchanges that can be considered a competitor to one or more of our products as well.
A majority of our competitors are significantly larger than we are and have more capital to invest in their businesses however they operate on technology we consider to be outdated and inferior to our newer more agile technology. Competitors could also seek to gain market share by reducing the prices they charge to advertisers, introducing products and solutions that are similar to ours or introducing new technology tools for advertisers and digital media properties, yet the failure of these competitors to offer transparency on pricing as we do is likely to reduce or negate such impact. Moreover, increased competition for video advertising inventory from digital media properties could result in an increase in the portion of advertiser revenue that we must pay to digital media property owners to acquire that advertising inventory which is beneficial to us as our technology offers a more efficient auction thus allowing us to reduce cost for advertisers and increase revenue for publishers.
Some large advertising agencies that represent advertising customers have their own relationships with digital media properties and can directly connect advertisers with digital media properties. Our business will suffer to the extent that our advertisers and digital media properties purchase and sell advertising inventory directly from one another or through other companies that act as intermediaries between advertisers and digital media properties. Other companies that offer analytics, mediation, ad exchange or other third-party solutions have or may become intermediaries between advertisers and digital media properties and thereby compete with us. Any of these developments would make it more difficult for us to sell our solutions and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share.
Other companies that offer analytics, mediation, ad exchange or other third-party solutions have or may become intermediaries between advertisers and digital media properties and thereby compete with us. Despite this, we believe that they do not offer a full software suite like us, as such, the long-term effect of any interruption caused by such companies will be limited.
Our fraud prevention solution competes with the small landscape of other fraud prevention companies such as Human, Double Verify and Integral Ad Science. However, we believe that our product is the only product in this space that has patent pending technology allowing it to perform instream prevention as opposed to the landscapes standard.
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Sales and Marketing
Given our self-serve business model, we focus on supporting, advising and training our customers to use our platform independently as soon as they are ready to transact. There is an element of education about our platform that requires us to invest in sales and marketing programs and personnel to grow our business. We focus our efforts to build this awareness through trade shows and sponsored events.
The addition of KMS has augmented our sales and marketing capabilities by adding assigned account managers, real time dashboard monitoring, performance analysis, as well as quarterly client reviews, ensuring that our advertising clients using the Audience Marketplace have all logistics running smoothly and that any assistance they need would be there in an instant.
As of March 25, 2022, our sales and marketing team consisted of 14 employees. The team employs a consultative approach to both new and existing customers. Once a new customer has access to our platform, they work closely with our customer service teams as they onboard the new customer and provide continuous support throughout the early campaigns. Typically, once a customer has gained some initial experience, it will move to a fully self-serve model and request support as needed.
Seasonality
Our cash flows from operations vary from quarter to quarter due to the seasonal nature of advertiser spending. For example, many advertisers devote a disproportionate amount of their advertising budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing. Indeed, in digital advertising, seasonal downswings typically occur at the start in January (the beginning of the calendar year) and October (the beginning of the fiscal year for many companies). Upswings occur in December (the end of the calendar year) and September (the end of the fiscal year for many companies). This is due to the timing of when budgets are negotiated and distributed. Other swings occur around holidays, and other large consumer focused events such as Black Friday and Cyber Monday.
Platform Development
Part of our dedication to innovation means that we are constantly improving our platform, with new features and products being routinely released. We empower our development teams by encouraging them to release updated features and increase functionality fast and often. As a company, we are always exploring new and better ways to continuously improve the performance of our technology. Our development teams are intentionally lean and nimble in nature, providing for transparency and accountability.
Privacy and Data Protection Regulation
Privacy and data protection legislation and regulation play a significant role in our business. We and our customers use data about Internet users collected through our platform to manage and execute digital advertising campaigns in a variety of ways, including delivering advertisements to Internet users based on their particular geographic locations, the type of device they are using, or their interests as inferred from their web browsing or app usage activities. We do not use this data to identify specific individuals, and we do not seek to associate this data with information that can be used to identify specific individuals. We take steps not to collect or store personally identifiable information, or personal data. The definitions of personally identifiable information and personal data, however, vary by jurisdiction and are evolving. As a result, our platform and business practices must be assessed regularly in each jurisdiction where we do business to avoid violating applicable legislation and regulation.
In the United States, a complex patchwork quilt of both state and federal legislation governs activities such as the collection and use of data by companies like us. Digital advertising in the United States has, up until very recently, primarily been subject to regulation by the Federal Trade Commission, or the FTC, which has primarily relied upon Section 5 of the Federal Trade Commission Act, which prohibits companies from engaging in “unfair” or “deceptive” trade practices, including alleged violations of representations concerning privacy protections and acts that allegedly violate individuals’ privacy interests. The FTC has commenced the examination of privacy issues that arise when marketers track consumers across multiple devices, otherwise known as cross-device tracking.
The United States legal landscape concerning data and privacy continues to evolve at a rapid, and sometimes unpredictable pace. Domestic laws in this area are also complex and developing rapidly. Many state legislatures have adopted legislation that regulates how online business handle data. California recently enacted the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil
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penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential liability and adversely affect our business. Similar privacy legislation has been proposed in a number of states. Indeed, Virginia and Colorado have also enacted similar statutes; the Virginia Consumer Data Protection Act (“VCDPA”), and the Colorado Privacy Act (“CPA”). In addition, a dozen other states have data privacy bills either introduced or in committee, with the expectation that they will be enacted in coming years, further complicating the compliance landscape.
Because our platform reaches users throughout the world, including Europe, Australia and Asia, some of our activities may also be subject to foreign legislation. Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with which we or our customers must comply, including but not limited to the European Union. The European Union has adopted what is known as one of the most robust and comprehensive data protection regulations in the world - the General Data Protection Regulation (“GDPR”). The GDPR and contains numerous requirements and obligations on data processors and comprehensive documentation requirements for data protection, processing, and compliance programs. In addition, the GDPR promulgates data subject rights for EU citizens, which provides increased control for Eu citizens. Specifically, EU citizens posses rights of access, corrections, deletion, and portability. These rights translate into increased operational costs to companies who have to take steps to operationalize these rights in order to comply and meet any request. Non-compliance risks substantial fines. Under the GDPR, fines of up to 20 million euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s requirements. In additional the GDPR, the European Union is currently in the process of replacing the current ePrivacy directive with the ePrivacy Regulation, which contains enhanced protections and regulations concerning the use of electronic communications services, including in connection with online tracking technologies.
Accordingly, once the ePrivacy Regulation is enacted, the compliance landscape will only become more challenging. Certainly, an increase in operational costs and risk will arise to the extent we continue to do business in the European market. In particular, risks associated with non-compliance proceedings from governmental agencies, as well as limitations on our ability to attract and retain European customers.
The interpretation and application of many privacy and data protection laws along with contractually imposed industry standards are simply not predictable in light of the nascent nature of the data privacy legal landscape. These laws may be interpreted and applied in a manner that is inconsistent with our existing data handling practices or how our products and platform capabilities operate. The possibility of fines, lawsuits, and other claims and penalties may necessitate a change in our business activities and practices or modify our products and platform capabilities, which could have an adverse effect on our business.
In prior years, some government regulators and privacy advocates advocated vigorously for a Do Not Track standard that would allow Internet users to express a preference, independent of cookie settings in their browsers, not to have their online browsing activities tracked. In 2010, the FTC issued a staff report emphasizing the need for simplified notice, choice and transparency to the consumer regarding the collection, use and sharing of data, and suggested implementing a Do Not Track browser setting that would allow consumers to choose whether or not to allow tracking of their online browsing activities. All major Internet browsers have implemented some version of a Do Not Track setting. However, there is no commonly accepted definition of “tracking,” no consensus regarding what message is conveyed by a Do Not Track setting and no industry standards regarding how to respond to a Do Not Track preference.
Our Employees and Culture
As of March 25, 2022, we had 38 full time employees, and 3 consultants. None of our employees are represented by a union or parties to a collective bargaining agreement. We believe our employee relations to be good.
Corporate Information
Our mailing address is 500 7th Avenue, 8th Floor, New York, New York 10018. Our telephone number is (800) 409-9456.
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Available Information
Our website, www.Kubient.com, provides access, without charge, to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). The information provided on our website is not part of this Annual Report and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this Annual Report. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as we are an emerging growth company, unlike public companies that are not emerging growth companies under the JOBS Act, we will not be required to:
· | provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”); |
· | provide more than two years of audited financial statements and related management’s discussion and analysis of financial condition and results of operations; |
· | comply with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; |
· | provide certain disclosure regarding executive compensation required of larger public companies or hold stockholder advisory votes on the executive compensation required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”); or |
· | obtain stockholder approval of any golden parachute payments not previously approved. |
We will cease to be an emerging growth company upon the earliest of the:
· | last day of the fiscal year in which we have $1.07 billion or more in total annual gross revenues; |
· | date on which we become a “large accelerated filer” (the fiscal year-end on which the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30); |
· | date on which we issue more than $1.0 billion of non-convertible debt over a three-year period; or |
· | last day of the fiscal year following the fifth anniversary of our initial public offering. |
We have elected to take advantage of certain of the reduced disclosure obligations in this report and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
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ITEM 1A. RISK FACTORS
Not applicable to smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
On July 14, 2021, as amended on February 1, 2022, we entered into a lease agreement for the use of our current office space located at 500 7th Avenue, 8th Floor, New York, New York 10018 of approximately 917 square feet for $15,630 per month. Previously, our offices were located at 330 Seventh Avenue, 10th Floor, New York, NY 10001 and consisted of approximately 1,800 square feet of leased office space. The lease for 330 Seventh Avenue, 10th Floor, New York, NY 10001 was supposed to expire on June 1, 2021. The rent under such lease was $9,000 per month based on the use of 15 desks in the office space per month. On June 18, 2020, we entered into that certain Sublease Termination Agreement and terminated the lease for 330 Seventh Avenue, 10th Floor, New York, NY 10001. We believe that our facilities are adequate for our current needs and that suitable additional or substitute space would be available if needed.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be subject to various other legal proceedings and claims that are routine and incidental to our business. Although some of the legal proceedings set forth herein may result in adverse decisions or settlements, Management believes that the final disposition of such matters will not have a material adverse effect on our business, financial position, results of operations or cash flows.
In addition, the following material legal proceedings were recently settled:
On October 6, 2017, the Company entered into a Master Service Agreement for Buyers and Sellers, and an “Engage Buyer Addendum”, with Engage BDR, LLC whereby the Company could gain access to the Engage BDR, LLC proprietary trading technology platform in order to both offer and purchase inventory for the placement of ads. On August 31, 2018, Engage BDR, LLC filed suit against the Company (Engage BDR, LLC v. Kubient, Inc., Los Angeles County Superior Court Case No. SC129764) setting forth claims of breach of contract, unjust enrichment, quantum meruit, accounts stated, and breach of implied covenant of good faith and fair dealing. On November 14, 2018, Engage BDR, LLC obtained a summary default judgment against the Company for $35,936. On February 17, 2021, the Company paid a total of $33,461 in full satisfaction of the matter.
On March 11, 2022, the Company, Aureus Holdings, LLC d/b/a Lo70s (“Lo70s”) and JPAR, LLC entered into a Settlement Agreement and Mutual Release (the “Lo70s Settlement Agreement”). Pursuant to the Lo70s Settlement Agreement, the parties agreed to dismiss the litigation (Aureus Holdings, LLC d/b/a Lo70s v. Kubient, Inc., et al., Superior Court of Delaware, Case No. N20C-07-061) and resolve all claims among them, including potential or future claims arising from the letter of intent that the Company and Lo70s had entered into in March 2019, as well as a consulting agreement entered into between the Company and an employee of Lo70s in connection with such letter of intent. On March 14, 2022, the court in the matter entered an order approving the Lo70s Settlement Agreement, and the case was dismissed with prejudice. In the Lo70s Settlement Agreement, the Company expressly denies any and all liability and the dismissal of the case with prejudice was entered by the court without a final judgment of liability entered against the Company. Under the terms of the Lo70s Settlement Agreement, the Company made a cash payment of $975,000 to Lo70s in full satisfaction of the matter, as well as the releases and covenants of Lo70s and JPAR, LLC set forth in the agreement, such that the Lo70s Settlement Agreement fully concludes this matter.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on The Nasdaq Capital Market under the symbol “KBNT.” Our common stock purchase warrants are listed on The Nasdaq Capital Market under the symbol “KBNTW.”
Holders of Record
As of March 25, 2022, we had approximately 37 holders of record of our common stock.
Dividends
We have not historically declared dividends on our common stock, and we do not currently intend to pay dividends on our common stock. The declaration, amount and payment of any future dividends on shares of our common stock, if any, will be at the sole discretion of our board of directors, out of funds legally available for dividends. We anticipate that we will retain our earnings, if any, for the growth and development of our business.
Securities Authorized for Issuance Under Equity Compensation Plans
Number of securities | |||||||
remaining available for | |||||||
Number of securities | future issuance under | ||||||
to be issued upon | Weighted-average | equity compensation | |||||
exercise of outstanding | exercise price of | plans (excluding | |||||
options, warrants and | outstanding options, | securities reflected in | |||||
| rights |
| warrants and rights |
| column (a)) | ||
Plan category | (a) | (b) | (c) | ||||
Equity compensation plans approved by security holders |
| 94,447 | $ | 11.56 |
| 1,411,889 | |
Equity compensation plans not approved by security holders |
| — | — |
| — | ||
Total |
| 94,447 | $ | 11.56 |
| 1,411,889 | |
The Kubient, Inc. 2017 Equity Incentive Plan was originally adopted by our board of directors and approved by our stockholders on September 12, 2017, and was subsequently amended and restated on June 5, 2019 (the “2017 Plan”). The purposes of the 2017 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our service providers and to promote the success of the Company’s business. We have reserved 333,334 shares of our common stock to issue awards under our 2017 Plan. As of December 31, 2021, there were options to purchase 94,447 shares of our common stock with a weighted average exercise price of $11.56 per share that were outstanding under the 2017 Plan. As of December 31, 2021, a total of 236,073 shares of common stock were issued under the 2017 Plan. Accordingly, as of December 31, 2021, 11,889 shares of common stock remained available for future issuance under the 2017 Plan.
The Kubient, Inc. 2021 Equity Incentive Plan was originally adopted by our board of directors and approved by our stockholders on June 30, 2021 (the “2021 Plan”). The purposes of the 2021 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our service providers and to promote the success of the Company’s business. We have reserved 1,500,000 shares of our common stock to issue awards under our 2021 Plan. As of December 31, 2021, a total of 100,000 shares of common stock were issued under the 2021 Plan. Accordingly, as of December 31, 2021, 1,400,000 shares of common stock remained available for future issuance under the 2021 Plan.
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Recent Sales of Unregistered Securities
During the three months ended December 31, 2021, the Company issued 1,062 shares of common stock to a former director.
The foregoing securities were issued in reliance upon an exemption from registration pursuant to Rule 701 promulgated under the Securities Act.
Purchase of Equity Securities by Issuer and Affiliated Purchasers
None.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties.
Overview
Kubient, a Delaware corporation, was incorporated in May 2017 to solve some of the most significant problems facing the global digital advertising industry.
Our experienced team of marketing and technology veterans has developed the Audience Marketplace, a modular, highly scalable, transparent, cloud-based software platform for real-time trading of digital, Programmatic Advertising. Our platform’s open marketplace gives both advertisers (ad space buyers) and Publishers (ad space sellers) the ability to use machine learning in the most critical parts of any Programmatic Advertising inventory auction, while simultaneously and significantly reducing those advertisers and Publishers’ exposure to fraud, specifically in the Pre-bid environment.
We also provide unique capabilities with our proprietary pre-bid ad fraud detection and prevention, Kubient Artificial Intelligence (“KAI”), which has the ability to stop fraud in the critical 300 millisecond window before an advertiser spends their budget on fraudulent ad space. The technology is powered by deep learning algorithms, the latest advancement in machine learning, which allows us to ingest vast amounts of data, find complex patterns in the data and make accurate predictions. Most importantly, it’s self-learning, getting smarter and more accurate over time. This provides advertisers a powerful tool capable of preventing the purchase of ad fraud.
We believe that our Audience Marketplace technology allows advertisers to reach entire audiences rather than buying single impressions from disparate sources. By becoming a one stop shop for advertisers and publishers, providing them with the technology to deliver meaningful messages to their target audience, all in one place, on a single platform that is computationally efficient, transparent, and as safely fraud-free as possible, we believe that our Audience Marketplace platform (and the application of the platform’s machine learning algorithms) leads to increased publisher revenue, lower advertiser cost, reduced latency and increased economic transparency during the advertising auction process.
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Results of Operations
Year Ended December 31, 2021 Compared With Year Ended December 31, 2020
| For the Years Ended | |||||
December 31, | ||||||
2021 |
| 2020 | ||||
Net Revenues | $ | 2,737,767 | $ | 2,900,029 | ||
Costs and Expenses: |
|
|
|
| ||
Sales and marketing | 3,032,133 | 1,117,375 | ||||
Technology |
| 3,079,752 |
| 2,088,538 | ||
General and administrative |
| 6,117,601 |
| 4,160,854 | ||
Loss on legal settlement | 880,381 | — | ||||
Total Costs and Expenses |
| 13,109,867 |
| 7,366,767 | ||
Loss From Operations |
| (10,372,100) |
| (4,466,738) | ||
Other (Expense) Income: |
|
|
|
| ||
Interest expense |
| (8,383) |
| (1,135,675) | ||
Interest expense - related parties |
| — |
| (403,372) | ||
Interest income |
| 88,537 |
| 25,178 | ||
Amortization of beneficial conversion feature |
| — |
| (1,984,322) | ||
Gain on settlement of notes and other payables, net |
| — |
| 124,999 | ||
Gain on forgiveness of accounts payable - supplier |
| — |
| 236,248 | ||
Loss on extinguishment of convertible note payable |
| — |
| (297,272) | ||
Other income |
| 233 |
| 15,294 | ||
Total Other Income (Expense) |
| 80,387 |
| (3,418,922) | ||
Net Loss |
| (10,291,713) |
| (7,885,660) | ||
Deemed dividend related to warrant down round adjustment |
| — |
| (1,682,000) | ||
Net Loss Attributable to Common Shareholders | $ | (10,291,713) | $ | (9,567,660) | ||
17
Net Revenues
For the year ended December 31, 2021, net revenues decreased by $162,262, or 6%, to $2,737,767 from $2,900,029 for the year ended December 31, 2020. The decrease was primarily due to approximately $1,300,000 of revenue generated in connection with beta testing of KAI, our fraud detection service, which commenced during the 2020 period, as well as approximately $1,496,000 of net revenue generated from one new customer in the 2020 period, as compared to approximately $2,348,000 of revenue generated from the same customer in the 2021 period.
Sales and Marketing
For the year ended December 31, 2021, sales and marketing expenses increased by $1,914,758, or 171%, to $3,032,133 from $1,117,375 for the year ended December 31, 2020. The increase is primarily a result of the expansion of our sales and marketing department which resulted in increases in salary expense of approximately $1,194,000 arising from an increase in sales and marketing personnel headcount, as well as increased stock-based compensation of approximately $270,000, consulting fees of approximately $195,000 and selling expense of approximately $164,000.
Technology
For the year ended December 31, 2021, technology expenses increased by $991,214, or 47%, to $3,079,752 from $2,088,538 for the year ended December 31, 2020. The increase is primarily due to increases in salary expense of approximately $207,000 arising from an increase in technology personnel headcount, as well as increased stock-based compensation of approximately $18,000, consulting expenses of approximately $39,000, amortization of software of approximately $124,000 and cloud hosting costs of approximately $310,000.
General and Administrative
For the year ended December 31, 2021, general and administrative expenses increased by $1,956,747, or 47%, to $6,117,601 from $4,160,854 for the year ended December 31, 2020. The increase from 2020 to 2021 is primarily due to increases in legal fees of approximately $979,000, recruiting fees of approximately $275,000 arising from an increase in headcount, insurance expense of approximately $322,000, and state franchise taxes of approximately $160,000.
Loss on Legal Settlement
The Company recognized a loss on legal settlement of $880,381 for the year ended December 31, 2021 related to a settlement agreement reached in March 2022 wherein we made a cash payment of $975,000 to Lo70s in consideration of the dismissal of the ligation among the parties, as well as the releases and covenants of the parties.
Other Income (Expense)
For the year ended December 31, 2021, the Company had other income of $80,387 as compared to other expense of $(3,418,922) during the year ended December 31, 2020. The net decrease in other expense is primarily due to the absence of the amortization of beneficial conversion feature of approximately $1,984,000 and interest expense of approximately $1,539,000 that were recognized in the 2020 period, as these items no longer continued after the notes payable were converted at the closing of the initial public offering in August 2020 which resulted in net proceeds of approximately $10.6 million (“IPO”).
Non-GAAP Measures
Adjusted EBITDA
The Company defines EBITDA as net income (loss) before interest, taxes and depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, further adjusted to eliminate the impact of certain non-recurring items and other items that we do not consider in our evaluation of our ongoing operating performance from period to period. These items will include stock-based compensation, restructuring and severance costs, transaction costs, acquisition costs, certain other non-recurring charges and gains that the Company does not believe reflects the underlying business performance.
18
For the years ended December 31, 2021 and 2020, EBITDA and Adjusted EBITDA consisted of the following:
| For the Years Ended | |||||
December 31, | ||||||
| 2021 |
| 2020 | |||
Net Loss Attributable to Common Shareholders | $ | (10,291,713) | $ | (9,567,660) | ||
Interest expense |
| 8,383 |
| 1,135,675 | ||
Interest expense - related parties |
| — |
| 403,372 | ||
Interest income |
| (88,537) |
| (25,178) | ||
Depreciation and amortization |
| 452,136 |
| 315,202 | ||
Amortization of beneficial conversion feature |
| — |
| 1,984,322 | ||
EBITDA |
| (9,919,731) |
| (5,754,267) | ||
Adjustments: |
|
|
|
| ||
Deemed dividend related to warrant down round adjustment |
| — |
| 1,682,000 | ||
Stock-based compensation expense |
| 724,042 |
| 468,216 | ||
Adjusted EBITDA | $ | (9,195,689) | $ | (3,604,051) | ||
Adjusted Loss Per Share | $ | (0.67) | $ | (0.70) | ||
Weighted Average Common Shares Outstanding - |
|
|
|
| ||
Basic and Diluted |
| 13,695,700 |
| 5,185,204 | ||
EBITDA and Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes that because Adjusted EBITDA excludes (a) certain non-cash expenses (such as depreciation, amortization and stock-based compensation) and (b) expenses that are not reflective of the Company’s core operating results over time (such as stock-based compensation expense), this measure provides investors with additional useful information to measure the Company’s financial performance, particularly with respect to changes in performance from period to period. The Company’s management uses EBITDA and Adjusted EBITDA (a) as a measure of operating performance, (b) for planning and forecasting in future periods, and (c) in communications with the Company’s board of directors concerning the Company’s financial performance. The Company’s presentation of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation and should not be used by investors as a substitute or alternative to net income or any measure of financial performance calculated and presented in accordance with U.S. GAAP. Instead, management believes EBITDA and Adjusted EBITDA should be used to supplement the Company’s financial measures derived in accordance with U.S. GAAP to provide a more complete understanding of the trends affecting the business.
Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for, or more meaningful than, amounts determined in accordance with U.S. GAAP. Some of the limitations to using non-GAAP measures as an analytical tool are (a) they do not reflect the Company’s interest income and expense, or the requirements necessary to service interest or principal payments on the Company’s debt, (b) they do not reflect future requirements for capital expenditures or contractual commitments, and (c) although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP measures do not reflect any cash requirements for such replacements.
Liquidity and Capital Resources
We measure our liquidity in a number of ways, including the following:
| ||||||
December 31, | ||||||
2021 |
| 2020 | ||||
Cash and cash equivalents | $ | 24,907,963 | $ | 24,782,128 | ||
Working capital | $ | 22,676,301 | $ | 23,570,158 | ||
19
Availability of Additional Funds
As a result of its public offerings and the related note conversions, we believe our current cash on hand is sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.
Cash Flows
Year Ended December 31, 2021 Compared With Year Ended December 31, 2020
Our sources and uses of cash were as follows:
Cash Flows From Operating Activities
We experienced negative cash flows from operating activities for the years ended December 31, 2021 and 2020 in the amounts of $7,674,792 and $4,805,116, respectively. The net cash used in operating activities for the year ended December 31, 2021 was primarily a result of cash used to fund a net loss of $10,291,713, adjusted for net non-cash expenses of $1,198,876, partially offset by $1,418,045 of net cash provided by changes in the levels of operating assets and liabilities. The net cash used in operating activities for the year ended December 31, 2020 was primarily a result of cash used to fund a net loss of $7,885,660, adjusted for net non-cash expenses of $3,984,553, and $904,009 of net cash used in changes in the levels of operating assets and liabilities.
Cash Flows From Investing Activities
Net cash used in investing activities for the year ended December 31, 2021 was $1,672,486, which was attributable to aggregate purchases of intangible assets, property and equipment of $1,133,072 and $500,000 used in connection with the MediaCrossing purchase consideration. Net cash used in investing activities for the year ended December 31, 2020 was $1,316,336, which was attributable to aggregate purchases of intangible assets, property and equipment.
Cash Flows From Financing Activities
We experienced positive cash flows from financing activities for the years ended December 31, 2021 and 2020 in the amounts of $9,473,113 and $30,869,795, respectively. During the year ended December 31, 2021, $9,787,149 of proceeds were from exercises of options and warrants, partially offset by $145,050 of cash used to repay financed director and officer insurance premiums and $177,347 was used to partially repay our loan from JPMorgan Chase Bank, N.A., as lender, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act, as amended. During the year ended December 31, 2020, $30,732,981 of proceeds were from the sale of common stock and warrants in our IPO and follow-on public offering, $1,241,190 of proceeds were received from debt financings, and $11,000 of proceeds were received from the exercise of warrant, partially offset by $841,376 used for payment of initial public offering costs and $274,000 that was used to repay debt.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contractual Obligations
As a smaller reporting company, we are not required to provide the information required by paragraph (a)(5) of this Item.
20
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Management bases their estimates on historical experience and on various other factors that they believe are 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 outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements. While our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies and estimates are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results.
Revenue Recognition
The Company maintains a contract with each customer and supplier, which specify the terms of the relationship. The Company provides a service to its customers (the buy-side ad networks who work for advertisers) by connecting advertisers and publishers. For this service, the Company earns a percentage of the amount that is paid by the advertiser, who wants to run a digital advertising campaign, which, in some cases, is reduced by the amount paid to the publisher, who wants to sell its ad space to the advertiser.
The transaction price is determined based on the consideration to which it expects to be entitled, including the impact of any implicit price concessions over the course of the contract. The Company’s performance obligation is to facilitate the publication of advertisements. The performance obligation is satisfied at the point in time that the ad is placed. Subsequent to a bid being won, the associated fees are generally not subject to refund or adjustment. Historically, any refunds and adjustments have not been material. The revenue recognized is the amount the Company is responsible to collect from the customer related to the placement of an ad (the “Gross Billing”), less the amount the Company remits to the supplier for the ad space (the “Supplier Cost”), if any. The determination of whether the Company is the principal or agent, and hence whether to report revenue on a gross basis equal to the Gross Billing or on a net basis for the difference between the Gross Billing and Supplier Cost, requires judgment. The Company acts as an agent in arranging via its platform for the specified good (the ad space) to be purchased by the advertiser, as it does not control the goods or services being transferred to the end customer, it does not take responsibility for the quality or acceptability of the ad space, it does not bear inventory risk, nor does it have discretion in establishing price of the ad space. As a result, the Company recognizes revenue on a net basis for the difference between the Gross Billing and the Supplier Cost.
The Company invoices customers on a monthly basis for the amount of Gross Billings in the relevant period. Invoice payment terms, negotiated on a customer-by- customer basis, are typically between 45 to 90 days. However, for certain agency customers with sequential liability terms as specified by the Interactive Advertising Bureau, (i) payments are not due to the Company until such agency customers has received payment from its customers (ii) the Company is not required to make a payment to its supplier until payment is received from the Company’s customer and (iii) the supplier is responsible to pursue collection directly with the advertiser. As a result, once the Company has met the requirements of each of the five steps under ASC 606, the Company’s accounts receivable are recorded at the amount of Gross Billings which represent amounts it is responsible to collect and accounts payable, if applicable, are recorded at the amount payable to suppliers. In the event step 1 under ASC 606 is not met, the Company does not record either the accounts receivable or accounts payable. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.
21
Business Combinations
Business combinations are accounted for using the acquisition method and, accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any contingent consideration are recorded at their acquisition date fair values. The Company’s fair value measurement of the contingent consideration is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value.
Intangible Assets
Intangible assets are comprised of costs to acquire and develop computer software, including the costs to acquire third-party data which is used to improve the Company’s artificial intelligence platform for client use, as well as costs to acquire customer lists, customer contracts and related customer relationship and restrictive covenant agreements. The intangible assets have estimated useful lives of two years for the computer software, five years for the capitalized data, seven years for the customer lists and three years for the restrictive covenant agreements. Once placed into service, the Company amortizes the cost of the intangible assets over their estimated useful lives on a straight-line basis.
Impairment of Long-lived Assets
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. An impairment would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
Stock-Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares. The Company accrues for any equity awards at fair value that have been contractually earned but not yet issued.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Kubient, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kubient, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity (deficiency) and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
Marcum LLP
We have served as the Company’s auditor since 2019.
March 30, 2022
F-1
Kubient, Inc.
Consolidated Balance Sheets
December 31, | ||||||
| 2021 |
| 2020 | |||
Assets |
|
|
|
| ||
Current Assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
| |
| | ||
Other receivables | | — | ||||
Prepaid expenses and other current assets |
| |
| | ||
Total Current Assets |
| |
| | ||
Intangible assets, net |
| |
| | ||
Goodwill | | — | ||||
Property and equipment, net |
| |
| | ||
Deferred offering costs |
| |
| | ||
Total Assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity |
|
|
|
| ||
Current Liabilities: |
|
|
|
| ||
Accounts payable - suppliers | $ | | $ | | ||
Accounts payable - trade |
| |
| | ||
Accrued expenses and other current liabilities |
| |
| | ||
Deferred revenue | | | ||||
Notes payable |
| |
| | ||
Total Current Liabilities |
| |
| | ||
Contingent consideration | | — | ||||
Notes payable, non-current portion |
| |
| | ||
Total Liabilities |
| |
| | ||
Commitments and contingencies (Note 9) |
|
|
|
| ||
Stockholders’ Equity: |
|
|
|
| ||
Preferred stock, $ |
|
| ||||
Common stock, $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Total Stockholders’ Equity |
| |
| | ||
Total Liabilities and Stockholders’ Equity | $ | | $ | | ||
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Kubient, Inc.
Consolidated Statements of Operations
For the Years Ended | ||||||
December 31, | ||||||
| 2021 |
| 2020 | |||
Net Revenues | $ | | $ | | ||
Costs and Expenses: |
|
|
| |||
Sales and marketing | | | ||||
Technology |
| |
| | ||
General and administrative |
| |
| | ||
Loss on legal settlement | | — | ||||
Total Costs and Expenses |
| |
| | ||
Loss From Operations |
| ( |
| ( | ||
Other (Expense) Income: |
|
|
|
| ||
Interest expense |
| ( |
| ( | ||
Interest expense - related parties |
| — |
| ( | ||
Interest income | | | ||||
Amortization of beneficial conversion feature |
| — |
| ( | ||
Gain on settlement of notes and other payables, net |
| — |
| | ||
Gain on forgiveness of accounts payable - supplier |
| — |
| | ||
Loss on extinguishment of convertible note payable |
| — |
| ( | ||
Other income |
| |
| | ||
Total Other Income (Expense) |
| |
| ( | ||
Net Loss |
| ( |
| ( | ||
Deemed dividend related to warrant down round adjustment |
| — |
| ( | ||
Net Loss Attributable to Common Shareholders | $ | ( | $ | ( | ||
Net Loss Per Share - Basic and Diluted | ( | ( | ||||
Weighted Average Common Shares Outstanding - Basic and Diluted |
| |
| | ||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Kubient, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Deficiency)
For the Years Ended December 31, 2021 and 2020
| Additional | |||||||||||||
Common Stock | Paid-In | Accumulated | ||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Total | |||||
Balance - January 1, 2020 |
| | $ | | $ | | $ | ( | $ | ( | ||||
Issuance of common stock and warrants in initial public offering, net of issuance costs [1] |
| |
| |
| |
| — |
| | ||||
Conversion of notes payable and accrued interest into common stock and warrants | | | | — | | |||||||||
| ||||||||||||||
Conversion of notes payable and accrued interest into common stock |
| |
| |
| |
| — |
| | ||||
Issuance of common stock and warrants in follow-on public offering, net of issuance costs [2] | | | | — | | |||||||||
|
|
|
|
| ||||||||||
Stock-based compensation: |
|
|
|
|
| |||||||||
| ||||||||||||||
Common stock |
| |
| — |
| |
| — |
| | ||||
| ||||||||||||||
Options |
| — |
| — |
| |
| — |
| | ||||
| ||||||||||||||
Forgiveness of accrued expenses by related party |
| — |
| — |
| |
| — |
| | ||||
| ||||||||||||||
Exercise of warrant |
| |
| — |
| |
| — |
| | ||||
| ||||||||||||||
Effect of reverse stock-split |
| | — | — | — | — | ||||||||
| ||||||||||||||
Net loss | — | — | — | ( | ( | |||||||||
| ||||||||||||||
Balance - December 31, 2020 | | | | ( | | |||||||||
| ||||||||||||||
Shares issued upon exercise of warrants, net of issuance costs [3] | | | | — | | |||||||||
| ||||||||||||||
Common stock issued upon exercise of options | | — | | — | | |||||||||
| ||||||||||||||
Shares issued as partial consideration for intangible asset | | | | — | | |||||||||
| ||||||||||||||
Stock-based compensation: | ||||||||||||||
| ||||||||||||||
Common stock | | | | — | | |||||||||
| ||||||||||||||
Options | — | — | | — | | |||||||||
| ||||||||||||||
Net loss | — | — | — | ( | ( | |||||||||
| ||||||||||||||
Balance - December 31, 2021 | | $ | | $ | | $ | ( | $ | | |||||
[1]
[2] Includes gross proceeds of $
[3] Includes gross proceeds of $
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Kubient, Inc.
Consolidated Statements of Cash Flows
| For the Years Ended | |||||
December 31, | ||||||
| 2021 |
| 2020 | |||
Cash Flows From Operating Activities: |
|
|
|
| ||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
| ||
Depreciation and amortization |
| |
| | ||
Bad debt expense |
| |
| | ||
Gain on forgiveness of accounts payable - supplier |
| — |
| ( | ||
Stock-based compensation: |
|
|
|
| ||
Common stock |
| |
| | ||
Options |
| |
| | ||
Amortization of debt discount and debt issuance costs |
| — |
| | ||
Amortization of debt discount and debt issuance costs - related parties |
| — |
| | ||
Amortization of beneficial conversion feature |
| — |
| | ||
Loss on extinguishment of convertible note payable | — | | ||||
Loss on settlement of other payables |
| — |
| | ||
Gain on settlement of notes and other payables |
| — |
| ( | ||
Changes in operating assets and liabilities: |
|
|
|
| ||
Accounts receivable |
| ( |
| ( | ||
Other receivable |
| |
| — | ||
Prepaid expenses and other current assets |
| |
| ( | ||
Accounts payable - suppliers |
| |
| ( | ||
Accounts payable - trade |
| ( |
| | ||
Accrued expenses and other current liabilities |
| |
| | ||
Deferred revenue |
| ( |
| — | ||
Net Cash Used In Operating Activities |
| ( |
| ( | ||
|
|
| ||||
Cash Flows From Investing Activities: |
|
|
|
| ||
Purchase of intangible assets |
| ( |
| ( | ||
Purchase consideration of MediaCrossing |
| ( |
| — | ||
Purchase of property and equipment |
| ( |
| ( | ||
Net Cash Used In Investing Activities | ( | ( | ||||
|
|
|
|
| ||
Cash Flows From Financing Activities: | ||||||
Proceeds from exercise of warrants [1] |
| |
| — | ||
Repayment of PPP loan |
| ( |
| — | ||
Repayment of financed director and officer insurance premiums |
| ( |
| — | ||
Proceeds from exercise of options | | — | ||||
Proceeds from sale of common stock and warrants in initial public offering, net [2] |
| — |
| | ||
Payment of initial public offering issuance costs |
| — |
| ( | ||
Proceeds from sale of common stock and warrants in follow-on public offering, net [3] |
| — |
| | ||
Payment of follow-on public offering issuance costs |
| — |
| ( | ||
Proceeds from exercise of warrant |
| — |
| | ||
Repayment of advance from related party |
| — |
| ( | ||
Proceeds from issuance of notes payable |
| — |
| | ||
Repayment of notes payable |
| — |
| ( | ||
Proceeds from issuance of notes payable - related parties |
| — |
| | ||
Repayment of note payable - related party |
| — |
| ( | ||
|
|
| ||||
Net Cash Provided By Financing Activities |
| |
| | ||
Net Increase In Cash and Cash Equivalents |
| |
| | ||
|
|
| ||||
Cash and Cash Equivalents - Beginning of the Year |
| |
| | ||
|
|
| ||||
Cash and Cash Equivalents - End of the Year | $ | | $ | | ||
[1]
[2]
[3]
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Kubient, Inc.
Consolidated Statements of Cash Flows (Continued)
| For the Years Ended | |||||
December 31, | ||||||
| 2021 |
| 2020 | |||
Supplemental Disclosures of Cash Flow Information: |
|
|
|
| ||
Cash paid during the year for: |
|
|
|
| ||
Interest | $ | | $ | | ||
Income taxes | $ | — | $ | — | ||
Non-cash investing and financing activities: |
|
|
|
| ||
Accrual of warrant exercise issuance costs | $ | | $ | — | ||
Shares issued as partial consideration for intangible asset | $ | | $ | — | ||
Shares of common stock issued in satisfaction of accrued issuable equity | $ | | $ | — | ||
Contingent consideration | $ | | $ | — | ||
Financing of insurance premiums | $ | | $ | — | ||
Conversion of notes payable and accrued interest into common stock | $ | — | $ | | ||
Original issue discount in connection with convertible notes payable | $ | — | $ | | ||
Original issue discount in connection with convertible notes payable - related party | $ | — | $ | | ||
Accrual of follow-on offering deferred offering costs | $ | — | $ | ( | ||
Reduction of additional paid-in capital for initial public offering issuance costs that were previously paid | $ | — | $ | | ||
Reversal of previously accrued deferred offering costs | $ | — | $ | | ||
Forgiveness of related party liability | $ | — | $ | | ||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
NOTE 1 – BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES
Organization and Operations
Kubient, Inc. (“Kubient”, “we”, “our” or the “Company”), a Delaware corporation, was incorporated in May 2017 to solve some of the most significant problems facing the global digital advertising industry.
The Company’s experienced team of marketing and technology veterans has developed the Audience Marketplace, a modular, highly scalable, transparent, cloud-based software platform for real-time trading of digital, Programmatic Advertising. The Company’s platform’s open marketplace gives both advertisers (ad space buyers) and Publishers (ad space sellers) the ability to use machine learning in the most critical parts of any Programmatic Advertising inventory auction, while simultaneously and significantly reducing those advertisers and Publishers’ exposure to fraud, specifically in the Pre-bid environment.
The Company also provides unique capabilities with its proprietary pre-bid ad fraud detection and prevention, Kubient Artificial Intelligence (“KAI”), which has the ability to stop fraud in the critical 300 millisecond window before an advertiser spends their budget on fraudulent ad space. The technology is powered by deep learning algorithms, the latest advancement in machine learning, which allows the Company to ingest vast amounts of data, find complex patterns in the data and make accurate predictions. This provides advertisers a powerful tool capable of preventing the purchase of ad fraud.
The Company believes that its Audience Marketplace technology allows advertisers to reach entire audiences rather than buying single impressions from disparate sources. By becoming a one stop shop for advertisers and publishers, providing them with the technology to deliver meaningful messages to their target audience, all in one place, on a single platform that is computationally efficient, transparent, and as safely fraud-free as possible, the Company believes that its Audience Marketplace platform (and the application of the platform’s machine learning algorithms) leads to increased publisher revenue, lower advertiser cost, reduced latency and increased economic transparency during the advertising auction process.
Risks and Uncertainties
The novel coronavirus (“COVID-19”) pandemic continues to impact global economic conditions, as well as the Company’s operations. COVID-19 had a meaningful negative impact on our financial condition, cash flows and results of operations during 2020, as revenues declined and we reduced spending in light of COVID-19 uncertainty. Although we continued to experience disruption and volatility during 2021, which could continue to have an adverse effect on our revenues and earnings in 2022, the ultimate economic impact of the pandemic remains fluid, as there continue to be periods of COVID-19 resurgence in various parts of the world. The extent of the impact of the COVID-19 pandemic in 2022 on our operational and financial performance will depend on a variety of factors, some of which are outside our control, including the duration and spread of COVID-19 and its variants, and its impact on our clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted.
Similarly, the economic uncertainty caused by the COVID-19 pandemic has made and may continue to make it difficult for us to forecast revenue and operating results and to make decisions regarding operational cost structures and investments. We have committed, and we plan to continue to commit, resources to grow our business, employee base, and technology development, and such investments may not yield anticipated returns, particularly if worldwide business activity continues to be impacted by the COVID-19 pandemic. The duration and extent of the impact from the COVID-19 pandemic depend on future developments that cannot be accurately predicted at this time, and if we are not able to respond to and manage the impact of such events effectively, our business may be harmed.
There can be no assurance that precautionary measures, whether adopted by us or imposed by others, will be effective, and such measures could negatively affect our sales, marketing, and client service efforts, delay and lengthen our sales cycles, decrease our employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm our business and results of operations.
F-7
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, 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 revenues and expenses during the reporting period. The Company’s significant estimates used in these financial statements include, but are not limited to, fair value calculations for equity securities, revenue recognition, stock-based compensation,the valuation of intangible assets and contingent consideration, useful lives of intangibles assets, the collectability of receivables and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and may cause actual results to differ from those estimates.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of Fidelity Media, LLC (“Fidelity”). All intercompany transactions have been eliminated in the consolidation.
Cash and Cash Equivalents
The Company maintains cash in bank accounts, which, at times, may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. The Company has not experienced any losses in such accounts. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2021 and 2020, the Company’s cash and cash equivalents were comprised of demand deposits held in bank accounts.
Revenue Recognition
The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer; |
| ● | Identification of the performance obligations in the contract; |
| ● | Determination of the transaction price; |
| ● | Allocation of the transaction price to the performance obligations in the contract; and |
| ● | Recognition of revenue when or as the performance obligations are satisfied. |
F-8
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
The Company maintains a contract with each customer and supplier, which specify the terms of the relationship. The Company provides a service to its customers (the buy-side ad networks who work for advertisers) by connecting advertisers and publishers. For this service, the Company earns a percentage of the amount that is paid by the advertiser, who wants to run a digital advertising campaign, which, in some cases, is reduced by the amount paid to the publisher, who wants to sell its ad space to the advertiser.
The transaction price is determined based on the consideration to which it expects to be entitled, including the impact of any implicit price concessions over the course of the contract. The Company’s performance obligation is to facilitate the publication of advertisements. The performance obligation is satisfied at the point in time that the ad is placed. Subsequent to a bid being won, the associated fees are generally not subject to refund or adjustment. Historically, any refunds and adjustments have not been material. The revenue recognized is the amount the Company is responsible to collect from the customer related to the placement of an ad (the “Gross Billing”), less the amount the Company remits to the supplier for the ad space (the “Supplier Cost”), if any. The determination of whether the Company is the principal or agent, and hence whether to report revenue on a gross basis equal to the Gross Billing or on a net basis for the difference between the Gross Billing and Supplier Cost, requires judgment. The Company acts as an agent in arranging via its platform for the specified good (the ad space) to be purchased by the advertiser, as it does not control the goods or services being transferred to the end customer, it does not take responsibility for the quality or acceptability of the ad space, it does not bear inventory risk, nor does it have discretion in establishing price of the ad space. As a result, the Company recognizes revenue on a net basis for the difference between the Gross Billing and the Supplier Cost.
The Company invoices customers on a monthly basis for the amount of Gross Billings in the relevant period. Invoice payment terms, negotiated on a customer-by- customer basis, are typically between
As of December 31, 2021 and 2020, the Company did not have any contract assets from contracts with customers. As of December 31, 2021 and 2020, the Company had $
Accounts Receivable and Accounts Payable
Accounts receivable are carried at their contractual amounts, less an estimate for uncollectible amounts. As of December 31, 2021 and 2020, there was an allowance for uncollectible amounts of $
Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the corresponding accounts payable in the event that the Company’s contract contains sequential liability terms, with the excess receivable being written off against the allowance for bad debts only after all collection attempts have been exhausted.
Accounts receivable are recorded at the amount the Company is responsible to collect from the customer. See Note 2 — Significant Accounting Policies — Revenue Recognition for additional details. In the event that the Company does not collect the Gross Billing amount from the customer, the Company generally is not contractually obligated to pay the associated Supplier Cost.
F-9
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Convertible Instruments
The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with the Financial Accounting Standards Board (“FASB”) ASC Topic 815 “Derivatives and Hedging” (“ASC 815”). The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded in earnings each period as non-operating, non-cash income or expense. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument. The Company allocates proceeds based on the relative fair values of the debt and equity components.
Prior to the adoption of ASU 2020-06, if the instrument is not determined to be a derivative liability, the Company then evaluates for the existence of a beneficial conversion feature by comparing the fair value of the Company’s common stock as of the commitment date to the effective conversion price of the instrument (the intrinsic value). The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid-in capital.
Deferred Offering Costs
Deferred offering costs, which consist of direct, incremental professional fees incurred in connection with the Company’s future offerings of equity and debt securities that have yet to close, are capitalized as non-current assets on the consolidated balance sheet. Upon the closing of the offering, the deferred offering costs are either (i) charged off against the offering proceeds in connection with an equity offering or (ii) reclassified such that they represent a reduction in the carrying amount of the face value of the debt security.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation which is recorded commencing at the in-service date using the straight-line method at rates sufficient to charge the cost of depreciable assets to operations over their estimated useful lives, which is
Intangible Assets
Intangible assets are comprised of costs to acquire and develop computer software, including the costs to acquire third-party data which is used to improve the Company’s artificial intelligence platform for client use, as well as costs to acquire customer lists, customer contracts and related customer relationship and restrictive covenant agreements. The intangible assets have estimated useful lives of
Impairment of Long-lived Assets
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. An impairment would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The Company did not record any impairment losses during the years ended December 31, 2021 and 2020.
F-10
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Fair Value of Financial Instruments
The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”).
ASC 820 defines fair value 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 on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions
The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accounts payable, convertible notes and notes payable approximate fair value due to the short-term nature of these instruments. The carrying amounts of the Company’s short-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates, are comparable to rates of returns for instruments of similar credit risk.
Software Development Costs
The Company develops and utilizes software in connection with its ability to generate customer revenue (which is further explained in Note 2 – Significant Accounting Policies – Revenue Recognition). Costs incurred in this effort are accounted for under the provisions of ASC 985-20, Software – Cost of Software to be Sold, Leased or Marketed, whereby costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. The Company capitalizes subsequent additions, modifications, or upgrades to internally developed software only to the extent that such changes allow the software to perform a task it previously did not perform.
Income Taxes
The Company is subject to federal and state income taxes in the United States. The Company files income tax returns in the jurisdictions in which nexus threshold requirements are met.
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the consolidated statements of operations.
F-11
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Advertising Costs
Advertising costs are charged to operations in the year incurred and totaled approximately $
Stock-Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares. The Company accrues for any equity awards at fair value that have been contractually earned but not yet issued.
Fair Value of Stock Options and Warrants
The Company has computed the fair value of stock options and warrants granted using the Black-Scholes option pricing model. Option forfeitures are accounted for at the time of occurrence. The expected term used for options is the estimated period of time that options granted are expected to be outstanding. The expected term used for warrants is the contractual life. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” option grants. The Company does not currently have a sufficient trading history to support its historical volatility calculations. Accordingly, the Company is utilizing an expected volatility figure based on a review of the historical volatility of comparable entities over a period of time equivalent to the expected life of the instrument being valued. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of vested common and dilutive common-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares of options, warrants and convertible notes, if not anti-dilutive.
The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
| For the Years Ended | |||
December 31, | ||||
| 2021 |
| 2020 | |
Stock options |
| |
| |
Restricted stock awards | | — | ||
Restricted stock units | | — | ||
Warrants [1] |
| |
| |
| |
| | |
[1] During 2021, includes shares underlying warrants that are exercisable into an aggregate of (i)
F-12
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02“, “Leases (Topic 842)” (“ASU 2016-02”), as amended, with guidance regarding the accounting for and disclosure of leases. The update requires that a lessee recognize the assets and liabilities related to all leases, including operating leases, with a term greater than 12 months on the balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. In May 2020, the FASB issued ASU 2020-05 that deferred these dates one year for all other entities, including emerging growth companies. This standard is effective for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early adoption is permitted. The Company expects to adopt ASU 2016-02 during the fiscal year ending December 31, 2022 and is evaluating the impact on its statements of operations and cash flows. Based upon the leases currently in place, management believes that its current leases will qualify for the practical expedient for leases with terms less than one year, such that there will be no material impact of adopting the new standard on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). In April 2020, the FASB issued clarification to ASU 2016-13 within ASU 2020-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This guidance is effective for public business entities that meet the definition of a Securities and Exchange Commission filer, excluding eligible smaller reporting companies, for fiscal years beginning after December 15, 2019. For all other entities, including emerging growth companies, it is effective for fiscal years beginning after December 15, 2020. The Company is currently evaluating ASU 2016-13 and its impact on its consolidated financial statements and disclosures.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This update for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted, including adoption in any interim period for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company adopted ASU 2019-12 effective January 1, 2022 and its adoption did not have a material impact on the Company’s consolidated financial statements and disclosures.
In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”) which simplifies the accounting for convertible instruments by eliminating certain accounting models when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. Under this ASU, certain debt instruments with embedded conversion features will be accounted for as a single liability measured at its amortized cost. Additionally, this ASU eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments. The new guidance is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2020-06 effective January 1, 2022 which eliminated the need to assess whether a beneficial conversion feature needed to be recognized upon either (a) the future issuance of new convertible notes; or (b) the resolution of any contingent beneficial conversion features.
F-13
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”). This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU 2021-04 effective January 1, 2022 such adoption did not have a material impact on the Company’s consolidated financial statements or disclosures.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805)” (“ASU 2021-08”). The ASU improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The update is effective for annual and interim periods within the fiscal year beginning after December 15, 2022, and early adoption is permitted, including adoption in an interim period. The Company is evaluating this new standard and its impact on its consolidated financial statements and related disclosures.
NOTE 3 – BUSINESS COMBINATION
On November 30, 2021, Kubient entered into and consummated an Asset Purchase Agreement (the “Purchase Agreement”) between the Company and MediaCrossing Inc., a Delaware corporation (“MediaCrossing”), pursuant to which the Company acquired certain assets and liabilities that were critical to continue to operate the business of MediaCrossing for (i) $
The Earnout Shares consist of up to
MediaCrossing is engaged in the business of providing managed media services to agencies and direct brand advertisers, including media planning, strategy, contracting for media, developing, executing and managing campaigns, reporting and services ancillary to the foregoing.
In connection with the Acquisition and pursuant to the terms of the Purchase Agreement, the Company has offered employment to ten employees of MediaCrossing, including Michael Kalman as President – Agency & Brand Partnerships. In addition, the Purchase Agreement contains customary representations, warranties, post-closing covenants and indemnification provisions.
F-14
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
The aggregate preliminary purchase price was allocated to the assets acquired and liabilities assumed as follows:
Purchase Consideration: |
|
| |
Cash |
| $ | |
Contingent consideration |
|
| |
Total Purchase Consideration |
|
| |
Less: |
|
|
|
Customer contracts and related customer relationships (1) |
|
| |
Restrictive covenant agreements (1) |
|
| |
Debt-free net working capital |
|
| — |
Fair Value of Identified Net Assets |
|
| |
Remaining Unidentified Goodwill Value | $ | |
| (1) | As part of the preliminary valuation analysis, the Company identified (i) customer contracts and related customer relationships and (ii) restrictive covenant agreements as intangible assets. The fair value of the identifiable intangible assets is determined using the “income approach”. The customer contracts and related customer relationships have an estimated useful life of (5) years and the restrictive covenant agreements have an estimated useful life of (3) years. |
The components of debt free net working capital deficit are as follows:
Current Assets: |
|
| |
Prepaid expenses and other current assets | $ | | |
Other receivables |
| | |
Total Current Assets |
| | |
Current Liabilities: |
|
| |
Deferred revenue |
| | |
Accrued expenses and other current liabilities |
| | |
Total Current Liabilities |
| | |
Debt-Free Net Working Capital | $ | — |
Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and the amount is attributable to the reputation of the business acquired, the workforce in place and the synergies to be achieved from this acquisition. Goodwill is deductible for tax purposes.
The consolidated financial statements of the Company include the results of operations of MediaCrossing from November 30, 2021 to December 31, 2021 and do not include results of operations for the year ended December 31, 2020. The results of operations of MediaCrossing from November 30, 2021 to December 31, 2021 included revenues of $
F-15
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
The following table presents the unaudited pro forma consolidated results of operations for the year ended December 31, 2021 as if the Transaction had occurred on January 1, 2020. The pro forma information provided below is compiled from the pre-acquisition financial information of MediaCrossing and includes certain pro forma adjustments for the amortization of intangible assets and transaction costs. The pro forma results are not necessarily indicative of (i) the results of operations that would have occurred had the operations of this acquisition actually been acquired at the beginning of fiscal year 2020 or (ii) future results of operations:
| For the Years Ended | |||||
December 31, | ||||||
2021 |
| 2020 | ||||
Net Revenues | $ | | $ | | ||
Net Loss | $ | ( | $ | ( | ||
NOTE 4 - INTANGIBLE ASSETS
On June 15, 2021, pursuant to an asset purchase agreement dated June 4, 2021, the Company closed on the acquisition of a customer list (the “Customer List”) and other assets of Advisio Solutions, LLC (“Advisio”) for consideration consisting of: (i) $
Intangible assets consist of the following:
| December 31, | |||||
| 2021 |
| 2020 | |||
Acquired data | $ | | $ | | ||
Acquired software |
| |
| | ||
Acquired customer lists |
| |
| — | ||
Restrictive covenant agreements | | — | ||||
| | |||||
Less: accumulated amortization |
| ( |
| ( | ||
Intangible assets, net | $ | | $ | | ||
F-16
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Amortization of intangible assets consists of the following:
|
|
| Acquired |
| Restrictive |
|
| |||||||||||
Acquired | Acquired | Customer | Covenant | Accumulated | ||||||||||||||
Data | Software | Lists | Agreements | Amortization | Total | |||||||||||||
Balance as of January 1, 2020 | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Additions |
| |
| — |
| — |
| — |
| — |
| | ||||||
Amortization expense |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance as of December 31, 2020 |
| |
| |
| — |
| — |
| ( |
| | ||||||
Additions |
| — |
| |
| |
| |
| — |
| | ||||||
Amortization expense |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance as of December 31, 2021 | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Weighted average remaining amortization period at December 31, 2021 (in years) |
|
|
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|
| |||||||||||
|
|
| Acquired |
| Restrictive |
| |||||||||
Acquired | Acquired | Customer | Covenant | Accumulated | |||||||||||
Data | Software | Lists | Agreements | Amortization | |||||||||||
Balance as of January 1, 2020 | $ | — | $ | | $ | — | $ | — | $ | | |||||
Amortization expense |
| |
| |
| — |
| — |
| | |||||
Balance as of December 31, 2020 |
| |
| |
| — |
| — |
| | |||||
Amortization expense |
| |
| |
| |
| |
| | |||||
Balance as of December 31, 2021 | $ | | $ | | $ | | $ | | $ | | |||||
The estimated future amortization expense is as follows:
For the Years Ending December 31, |
| Total | |
2022 | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 and beyond |
| | |
$ | | ||
F-17
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
NOTE 5 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
| December 31, | |||||
| 2021 |
| 2020 | |||
Accrued bonuses | $ | | $ | | ||
Accrued payroll | | — | ||||
Accrued payroll taxes |
| — |
| | ||
Financed director and officer insurance premiums | | — | ||||
Accrued supplier expenses |
| |
| | ||
Accrued legal and professional fees |
| |
| | ||
Accrued commissions |
| |
| | ||
Accrued media commissions | | — | ||||
Credit card payable | | | ||||
Accrued programming expenses |
| |
| | ||
Accrued issuable equity |
| |
| | ||
Accrued interest |
| |
| | ||
Accrued warrant exercise costs | | — | ||||
Other |
| |
| | ||
Total accrued expenses and other current liabilities | $ | | $ | | ||
NOTE 6 — INCOME TAXES
The provision for income taxes consists of the following provisions/(benefits):
| For the Years Ended | |||||
December 31, | ||||||
| 2021 |
| 2020 | |||
Deferred tax benefit: |
|
|
| |||
Federal | $ | ( | $ | ( | ||
State and local |
| ( |
| ( | ||
| ( |
| ( | |||
Change in valuation allowance |
| |
| | ||
Provision for income taxes | $ | — | $ | — | ||
The provision for income taxes differs from the statutory federal income tax rates as follows:
| For the Years Ended |
| |||
December 31, | |||||
| 2021 |
| 2020 |
| |
Tax expense at the federal statutory rate | % | | % | ||
State taxes, net of federal benefit | % | | % | ||
Permanent differences | ( | % | ( | % | |
True-up | | % | ( | % | |
Change in valuation allowance | ( | % | ( | % | |
Effective income tax rate | % | % | |||
F-18
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
The components of deferred tax assets as of December 31, 2021 and 2020 relate to temporary differences and carryforwards as follows:
| December 31, | |||||
| 2021 |
| 2020 | |||
Net operating loss carryforwards | $ | | $ | | ||
Stock-based compensation expense |
| |
| | ||
Deferred Revenue | | — | ||||
Accrued Legal Settlement | | |||||
Other reserve |
| |
| | ||
Intangibles |
| |
| | ||
Tax credits |
| |
| | ||
Deferred tax assets |
| |
| | ||
Fixed assets |
| ( |
| ( | ||
Deferred tax liabilities |
| ( |
| ( | ||
Valuation allowance |
| ( |
| ( | ||
Deferred tax assets, net | $ | — | $ | — | ||
As of December 31, 2021, the Company had approximately $
The Company has assessed the likelihood that deferred tax assets will be realized in accordance with the provisions of ASC 740, Income Taxes (“ASC 740”). ASC 740 requires that such a review considers all available positive and negative evidence, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. After the performance of such reviews as of December 31, 2021 and 2020, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of those dates. Thus, the Company increased the valuation allowance by $
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2021 and 2020. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.
The Company is subject to income taxes in the United States and in various state taxing jurisdictions including New York, New York City and California. No tax audits were commenced or were in process during the years ended December 31, 2021 and 2020.
F-19
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
NOTE 7 – NOTES PAYABLE
During the years ended December 31, 2021 and 2020, the Company recorded cash interest expense of $
During the years ended December 31, 2021 and 2020, the Company recorded cash interest expense – related parties of $
During the years ended December 31, 2021 and 2020, the Company made aggregate principal repayments of notes payable of $
Notes Payable
PPP Loan
On April 6, 2020, the Company received a loan in the amount of approximately $
EIDL Loan
On June 23, 2020, the Company received a loan in the amount of approximately $
Separately, during the year ended December 31, 2020, the Company also received a grant of $
F-20
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Notes Payable – Related Parties
During the year ended December 31, 2020, the Company received aggregate proceeds of $
In addition to these related party notes, on July 28, 2020, the Company received proceeds of $
Convertible Notes Payable
Upon the closing of the initial public offering, the Senior Notes and Junior Notes automatically converted into common stock and warrants at a conversion price of $
Upon the closing of the IPO, a down round feature was triggered in warrants held by holders of Senior Notes and Junior Notes, such that the warrants, which have an exercise price of $
On August 12, 2020, a noteholder exercised its option to convert a convertible note payable in the principal amount of $
On August 14, 2020, a noteholder exercised its option to convert a convertible note payable in the principal amount of $
Due to Related Party
The Company repaid $
F-21
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
NOTE 8 — STOCKHOLDERS’ EQUITY
Authorized Capital
The authorized capital of Kubient consists of
Reverse Stock Split
A 1:9 reverse stock split of the Company’s common stock was affected on August 6, 2020 (the “Reverse Stock Split”). All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.
Public Offerings
On August 14, 2020, the Company consummated its initial public offering of
On August 14, 2020, the Company consummated the closing of a partial exercise of the over-allotment option granted to the underwriters in connection with its IPO to purchase
On August 14, 2020, in connection with its IPO, the Company issued to the underwriters warrants to purchase
On December 28, 2020, the Company consummated a Follow-On Offering of
See Note 6 – Notes Payable for additional details.
F-22
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Equity Incentive Plans
The 2017 Equity Incentive Plan (the “2017 Plan”) was originally adopted by the Company’s board of directors and approved by its stockholders on September 12, 2017 and was subsequently amended and restated on June 5, 2019. The purposes of the 2017 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our service providers and to promote the success of the Company’s business. The Company has reserved
The 2021 Equity Incentive Plan was originally adopted by the Company’s board of directors and approved by its stockholders on June 30, 2021 (the “2021 Plan”). The purposes of the 2021 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our service providers and to promote the success of the Company’s business. The Company has reserved
Founder Employee Incentive Program
On July 2, 2020, the Company’s board of directors adopted the Founder Employee Incentive Program (the “Founder Program”) under the 2017 Plan. The purposes of the Founder Program are to offer near-term and long-term incentives to founder employees of the Company that are intended to keep such employees in the employ of the Company, and that are based on individual performance, the achievement of financial goals of the Company and the total return to the Company’s stockholders. Through December 31, 2021, no awards have been issued by the Company under the Founder Program.
Stock-Based Compensation
For the years ended December 31, 2021 and 2020, the Company recognized stock-based compensation expense related to stock options and common stock as follows:
| For the Years Ended | |||||
December 31, | ||||||
| 2021 |
| 2020 | |||
Sales and marketing | $ | | $ | | ||
Technology |
| |
| | ||
General and administrative |
| |
| | ||
Total | $ | | $ | | ||
As of December 31, 2021, there was approximately $
Common Stock
During the year ended December 31, 2020, the Company issued an aggregate of
During the three months ended March 31, 2021, the Company issued an aggregate of
F-23
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
During the three months ended March 31, 2021, the Company issued an aggregate of
During the three months ended June 30, 2021, the Company issued an aggregate of
During the three months ended December 31, 2021, the Company issued
See Note 4 – Intangible Assets for details regarding the issuance of common stock as partial consideration for the acquisition of intangible assets. See Note 7 – Notes Payable for additional details related to common stock issuances. See Note 9 – Commitments and Contingencies – Employment Agreements for details regarding the grant of a bonus that is payable in common stock of the Company.
Stock Options
On November 9, 2020, the Company granted a
During the year ended December 31, 2021, the holder of an option under the 2017 Plan to purchase
In applying the Black-Scholes option pricing model to stock options granted, the Company used the following approximate assumptions:
| For the Years Ended |
| |||
December 31, |
| ||||
| 2021 |
| 2020 | ||
Expected term (years) |
| N/A | |||
Expected volatility |
| N/A | |||
Risk free interest rate |
| N/A | |||
Expected dividends |
| N/A | |||
A summary of the Company’s stock option activity during the year ended December 31, 2021 is as follows:
|
|
| Weighted Average |
| ||||||
Number | Weighted Average | Remaining Term | Intrinsic | |||||||
| of Options |
| Exercise Price |
| (Years) |
| Value | |||
Outstanding at January 1,2021 |
| | $ | |
|
|
|
| ||
Granted |
| — |
| — |
|
|
|
| ||
Forfeited |
| ( |
| |
|
|
|
| ||
Exercised |
| ( |
| |
|
|
|
| ||
Outstanding at December 31, 2021 |
| | $ | |
| $ | | |||
Exercisable at December 31, 2021 |
| | $ | |
| $ | | |||
F-24
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
The following table presents information related to stock options as of December 31, 2021:
Options Outstanding |
| Options Exercisable | |||||
Weighted | |||||||
Outstanding | Average | Exercisable | |||||
Number of | Remaining Life | Number of | |||||
Exercise Price |
| Options |
| In Years |
| Options | |
$ | |
| |
|
| | |
$ | |
| |
|
| | |
$ | |
| |
|
| | |
$ | |
| |
|
| | |
| |
|
| | |||
Stock Warrants
See Note 6 – Notes Payable – Convertible Notes Payable and Note 7 – Stockholder’s Equity – Public Offerings for details regarding the issuance of warrants during the year ended December 31, 2020.
The Company used the following approximate assumptions in connection with its estimation of fair value of warrants:
| For the Years Ended |
| |||
December 31, |
| ||||
2021 |
| 2020 |
| ||
Expected term (years) |
| N/A | |||
Expected volatility |
| N/A | |||
Risk free interest rate |
| N/A | |||
Expected dividends |
| N/A | |||
A summary of the warrant activity during the year ended December 31, 2021 is presented below:
|
|
|
| Weighted |
|
| ||||
Weighted | Average | |||||||||
Average | Remaining | |||||||||
Number of | Exercise | Life | Intrinsic | |||||||
| Warrants |
| Price |
| In Years |
| Value | |||
Outstanding, January 1, 2021 |
| | $ | |
|
|
|
| ||
Issued |
| |
| |
|
|
|
| ||
Exercised |
| ( |
| |
|
|
|
| ||
Expired |
| — |
| — |
|
|
|
| ||
Outstanding, December 31, 2021[1] |
| | $ | |
| $ | — | |||
Exercisable, December 31, 2021 |
| | $ | |
| $ | — | |||
[1]
F-25
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
The following table presents information related to stock warrants as of December 31, 2021:
Warrants Outstanding |
| Warrants Exercisable | |||||
Weighted | |||||||
Outstanding | Average | Exercisable | |||||
Number of | Remaining Life | Number of | |||||
Exercise Price | Warrants | In Years |
| Warrants | |||
$ | |
| |
|
| | |
$ | |
| |
|
| | |
$ | |
| |
|
| | |
$ | |
| |
|
| | |
$ | |
| |
|
| | |
| |
|
| | |||
NOTE 9 – COMMITMENTS AND CONTINGENCIES
From time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Settlements
On October 6, 2017, the Company entered into a Master Service Agreement for Buyers and Sellers, and an “Engage Buyer Addendum”, with Engage BDR, LLC whereby the Company could gain access to the Engage BDR, LLC proprietary trading technology platform in order to both offer and purchase inventory for the placement of ads. On August 31, 2018, Engage BDR, LLC filed suit against the Company (Engage BDR, LLC v. Kubient, Inc., Los Angeles County Superior Court Case No. SC129764) setting forth claims of breach of contract, unjust enrichment, quantum meruit, accounts stated, and breach of implied covenant of good faith and fair dealing. On November 14, 2018, Engage BDR, LLC obtained a summary default judgment against the Company for $
See Note 11 – Subsequent Events for details of the settlement of previously outstanding litigation.
Obligations Arising from Employment Agreements
On April 9, 2021, the Company entered into an at-will employment agreement with its new Chief Product Officer, Mr. Leon Zemel, that provides for an annual base salary of $
F-26
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
employment with the Company for Good Reason (as defined in the agreement), then
On June 4, 2021 (the “Effective Date”), the Company entered into
On November 29, 2021, Mitchell Berg was appointed to serve as its Chief Technology Officer of the Company. Upon joining the Company as Chief Technology Officer, Mr. Berg will receive an annual base salary of $
F-27
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
NOTE 10 — CONCENTRATIONS
Customer Concentrations
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s net revenues for the following periods:
| For the Years Ended |
| |||
December 31, |
| ||||
Customer |
| 2021 |
| 2020 |
|
Customer A |
| | % | | % |
Customer B |
| N/A | | % | |
Customer C |
| N/A | | % | |
Customer D |
| | % | N/A | |
Customer H | N/A | N/A | |||
Customer I |
| N/A |
| * | |
Total |
| | % | | % |
* | Less than 10%. |
From time to time, certain customers generate negative net revenues that resulted from Supplier Costs that exceeded the Gross Billing. As a result, the Company’s concentrations on net revenues may result in total percentages that exceed 100%.
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s gross accounts receivable as of:
December 31, |
| ||||
Customer |
| 2021 |
| 2020 |
|
Customer A |
| N/A |
| | % |
Customer B |
| | % | N/A | |
Customer E |
| | % | N/A | |
Total |
| | % | | % |
A reduction in sales from or loss of these customers would have a material adverse effect on the Company’s results of operations and financial condition.
F-28
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Supplier Concentrations
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s Supplier Costs for the following periods:
| For the Years Ended |
| |||
December 31, |
| ||||
Supplier |
| 2021 |
| 2019 |
|
Supplier B |
| N/A | | % | |
Supplier C |
| N/A |
| N/A | |
Supplier D |
| N/A | | % | |
Supplier E |
| | % | N/A | |
Total |
| | % | | % |
* | Less than 10%. |
NOTE 11 – SUBSEQUENT EVENTS
The Company has evaluated events that have occurred after the balance sheet and through the date the financial statements were issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed below.
Stock-Based Compensation
Subsequent to December 31, 2021, the Company granted
Subsequent to December 31, 2021, the Company issued an aggregate of
Subsequent to December 31, 2021, the Company’s chief financial officer surrendered to the Company
F-29
Kubient, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Settlement Agreement
On March 11, 2022, the Company, Aureus Holdings, LLC d/b/a Lo70s (“Lo70s”) and JPAR, LLC entered into a Settlement Agreement and Mutual Release (the “Lo70s Settlement Agreement”). Pursuant to the Lo70s Settlement Agreement, the parties agreed to dismiss the litigation (Aureus Holdings, LLC d/b/a Lo70s v. Kubient, Inc., et al., Superior Court of Delaware, Case No. N20C-07-061) and resolve all claims among them, including potential or future claims arising from the letter of intent that the Company and Lo70s had entered into in March 2019, as well as a consulting agreement entered into between the Company and an employee of Lo70s in connection with such letter of intent. On March 14, 2022, the court in the matter entered an order approving the Lo70s Settlement Agreement, and the case was dismissed with prejudice. In the Lo70s Settlement Agreement, the Company expressly denies any and all liability and the dismissal of the case with prejudice was entered by the court without a final judgment of liability entered against the Company Under the terms of the Lo70s Settlement Agreement, the Company made a cash payment of $
F-30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-K. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, and as a result of the material weakness described below, our CEO and CFO have concluded that as of December 31, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on its assessment, our management, including our CEO and CFO, has concluded that our internal control over financial reporting was not effective as of December 31, 2021 and that a material weakness in internal control over financial reporting existed as described as follows:
| ● | The Company had inadequate segregation of duties in its finance and accounting function because of its limited personnel. |
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. These deficiencies listed above, combined with inadequate compensating controls, created a reasonable possibility that a material misstatement to the consolidated financial statements might not be prevented or detected on a timely basis.
Management expects to remediate these control deficiencies during 2022, including by expanding the number of personnel in its finance and accounting department.
Attestation Report of the Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s assessment was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s assessment in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
During 2021, management continued to implement improvements to the Company’s internal control system. Throughout the year, from executive management on down, a strong commitment was made to the importance of internal control and to create and maintain an
24
infrastructure to support the Company’s compliance program. The Audit Committee was actively engaged and exercised continuous oversight throughout the process. Further, management and the Audit Committee fostered open and regular dialogue with the Company’s external auditors. Internal controls were strengthened and, when possible, automated and centralized. The Company’s process included:
| ● | The Company continued its engagement with outside advisory and consulting firms with expertise in evaluating and remediating material weaknesses in internal control over financial reporting, including controls related to our information technology environment. |
| ● | All financially significant business processes and entity-level assessments were documented, evaluated and tested for their adequacy of design. |
| ● | The Company’s information technology security and general controls were documented, evaluated and tested for their adequacy of design. |
| ● | The Company successfully tested for operational effectiveness in its business processes and entity level internal controls and information technology general and security controls. |
Except as described above, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
25
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth information about our directors and executive officers as of March 29, 2022.
Name |
| Age |
| Position(s) |
Executive Officers |
|
|
|
|
|
|
|
|
|
Paul Roberts |
| 45 |
| Chief Executive Officer, Chief Strategy Officer, President and Chairman |
Joshua Weiss |
| 38 |
| Chief Financial Officer |
Mitchell Berg |
| 60 |
| Chief Technology Officer |
Leon Zemel |
| 52 |
| Chief Product Officer |
Non-Employee Directors |
|
|
|
|
|
|
|
| |
Jonathan Bond(2)(4) |
| 64 |
| Director |
Peter A. Bordes |
| 58 |
| Director |
Grainne Coen(1)(3)(4) |
| 49 |
| Director |
Elisabeth H. DeMarse(1)(2)(3)(4) |
| 68 |
| Director |
Lawrence Harris(2)(4) |
| 59 |
| Director |
Jeannie Mun(1)(3)(4) |
| 45 |
| Director |
(1) | Member of the Audit Committee |
(2) | Member of the Business Development and Marketing Committee |
(3) | Member of the Compensation Committee |
(4) | Member of the Nominating and Corporate Governance Committee |
Executive Officers
Paul Roberts, has served as Chief Strategy Officer, President and Chairman since May 15, 2019, prior to which he acted as our Chief Executive Officer and Chairman since May 2017, overseeing the development and commercialization of our Company. Mr. Roberts served as our Interim Chief Executive Officer from October 31, 2020 until December 16, 2021, when the designation of “interim” was removed from Mr. Roberts’ title. From August 2012 to February 2018, Mr. Roberts was the Chief Executive Officer of CenterPoint Media LLC, an online marketing company that helped brands engage with their customers over lifestyle blogs. Mr. Roberts has over 15 years’ experience in digital media, with particular focus on the art of building companies from inception and shepherding those companies growth all the way to their initial public offering of securities. Accordingly, his background and experience also encompasses sales, marketing strategy, brand development and customer engagement, as such disciplines uniquely exist in the technology and advertising industries. From August 2012 to February 2018, Mr. Roberts was the Chief Executive Officer of CenterPoint Media LLC, an online marketing company that helped brands engage with their customers over lifestyle blogs. Mr. Roberts has also held positions at Logical SEO, Inc. d/b/a Logical Media Group from July 2011 to July 2012, TanzAct Media Inc. from November 2006 to November 2008, Yahoo! Inc. (NASDAQ:YHOO) from April 2005 to November 2006, Hotjobs.com, Ltd. (NASDAQ:HOTJ) from April 2005 to November 2006, and Attain Media, Inc. from October 2001 to February 2005. Mr. Roberts attended Long Island University.
Joshua Weiss has served as our Chief Financial Officer since December 23, 2019. From October 2016 to June 2019, Mr. Weiss was employed as a Vice President, Finance at Cambridge Information Group, a family office specializing in education and education technology. From October 2011 to October 2016, Mr. Weiss held various positions at an international accounting firm, including Senior Audit Manager, specializing in the firm’s SEC and Transaction Advisory groups. From August 2005 to October 2011, Mr. Weiss held various positions at a different international accounting firm, including Audit Manager, specializing in Real Estate and Hospitality. Mr. Weiss holds a Bachelor of Science degree in Accounting from Yeshiva University and is a licensed Certified Public Accountant in the State of New York.
26
Mitchell Berg has served as our Chief Technology Officer since November 29, 2021 and has close to 20 years’ experience as a senior information technology executive, including several stints as Chief Technology Officer at a number of leading digital marketplaces. Most recently, Mr. Berg worked as the Chief Technology Officer of Koddi Inc., an ad-tech marketplace, from March 2020 to October 2021. From June 2018 to March, 2020 he served as the Chief Technology Officer of Vroom Inc. (NASDAQ:VRM), an-online car buying marketplace. From August 2016 to March 2018, Mr. Berg served as the Senior Vice President of dailymotion, a publisher-side video advertising platform that is a subsidiary of the international media conglomerate Vivendi SE (Euronext:VIV). From July 2014 to August 2016, he was the Vice President of Display Advertising at IgnitionOne, Inc., a digital display advertising platform that was acquired by the multinational advertising company, Publicis Groupe (Euronext:PUB). From March 2014 to July 2014, he served as the Principal Architect at Cablevision Systems Corporation (NYSE:CVC), a cable television company which was acquired by Altice Europe N.V. (Euronext:ATC). From November 2012 to February 2014 he worked as the Vice President of Engineering at Kikin, Inc., an internet search engine. Mr. Berg has also held senior information technology positions at SEMplest LLC, BenefitPlan Manager Corp. and The Boeing Company (NYSE: BA). Mr. Berg holds a Bachelor of Science in Industrial Engineering and Computer Science from the University at Buffalo, a Master of Engineering in Systems Engineering from the University of Virginia, a Master of Business Administration in Technology Management from the University of Washington, and a Doctor of Philosophy in Industrial Engineering from the University of Pittsburgh.
Leon Zemel has served as our Chief Product Officer since April 12, 2021, and has worked in the area of data analytics, programmatic advertising, and digital strategy for over 20 years. From March 2020 to March 2021, he was the Senior Vice President of Programmatic and Platform Product at DoubleVerify, Inc. (NYSE:DV), a digital advertising marketplace. From July 2017 to March 2020, he was a General Manager of Intelligence Products at MediaMath, an advertising technology company focused on brands and agencies. From August 2016 to June 2018, Mr. Zemel was a member of the adjunct faculty of Columbia University, lecturing on Applied Analytics for the school’s Master of Science program. From June 2015 to June 2017, he was the Senior Vice President of Data and Audience at Sharecare, Inc. (NASDAQ:SHCR), a digital health company. From November 2004 to May 2015, Mr. Zemel served in various roles at x+1, which was acquired by Rocket Fuel, Inc. (NASDAQ:FUEL), a programmatic media-buying platform, eventually becoming the company’s Chief Analytics Officer in April of 2009. Mr. Zemel holds a Bachelor of Arts from Yeshiva University and a Master of Business Administration from Columbia University.
Non-Employee Directors
Jonathan Bond has been a member of our board of directors since June 30, 2021. Mr. Bond is one of the advertising and marketing industry’s most recognized leaders and an entrepreneur with over 35 years of experience. He previously was the Co-Founder and Chief Executive Officer of Kirshenbaum Bond Senecal & Partners, LLC, an integrated advertising and media agency. Prior to his tenure at Kirshenbaum Bond Senecal & Partners, LLC, Mr. Bond served as the Chief Executive Officer of Big Fuel Communications, LLC (now part of Publicis Groupe S.A. (OTCMKTS: PUBGY)), one of the world’s largest social media agencies. He helped establish iballs LLC, one of the first online media agencies, which was sold to Avenue A Inc. (and later acquired as Avenue A / Razorfish by Microsoft Corporation) in July 2006. He also co-founded The Media Kitchen and Varick Media Management LLC under the Kirshenbaum Bond Senecal & Partners, LLC umbrella. From August 2012 to December 2016, Mr. Bond was the founder of Maestro Management, LLC d/b/a Tomorro, an innovation consultancy. From January 2017 to June 2018, Mr. Bond was the Co-Chairman at The Shipyard, LLC, a full-service advertising agency focused on data science, which acquired Maestro Management, LLC d/b/a Tomorro. From June 2017 to July 2020, Mr. Bond was the Chairman and director of SITO Mobile, Ltd. (OTCMKTS:SITOQ), a digital brand insights platform. He has served as fractional Chief Marketing Officer of UCG, Inc. d/b/a Union Cannabis Group since August 2019. Additionally, since April 2013 he has served as a member of the board of advisors of Sonobi, Inc., an advertising technology developer. Since February 2021, he has been employed as the Chief Executive Officer and has served as a member of the board of directors of Signal Hill Acquisition Corp. (NASDAQ:SGHL), a special purpose acquisition company (“SPAC”), since February 2021 he has served as a member of the board of directors of Trajectory Alpha Acquisition Corp. (NYSE:TCOA), a SPAC, and since August 2020, as a member of the board of directors of PAWS, LLC d/b/a Halo Collar, a pet products company. Mr. Bond holds a Bachelor of Arts from Washington University (St. Louis).
Peter Anthony Bordes, Jr. has been a member of our board of directors since May 15, 2019 and served as the Company’s Chief Executive Officer from May 15, 2019 until October 31, 2020. From February 2021 to the present, Mr. Bordes has been employed as the Executive Chairman and Chief Executive Officer of Trajectory Alpha Acquisition Corp. (NYSE:TCOA.U), a SPAC, or blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or companies. Mr. Bordes also serves on the Board of Directors of Alfi, Inc. (NASDAQ: ALF) since March 2021 and is acting as Interim Chief Executive Officer since October 2021. Prior to joining the Company, from January 2011 to June 2019, Mr. Bordes acted as the Founder and Chief Executive Officer of OneQube, Inc., a digital Audience
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Management Platform, which enables its customers to develop, manage and market to custom digital audiences. Mr. Bordes continues to serve as Chairman of the Board of OneQube, Inc. From June 2004 to August 2011, Mr. Bordes was a Co-Founder and Chief Executive Officer of MediaTrust, a real-time performance marketing advertising exchange for direct response marketing. From November 2018 to June 2019, Mr. Bordes acted as the Chairman and Co-Founder of MainBloq, a cloud-based modular Full Stack Execution Management platform for trading digital currencies and investing in digital assets. From January 2017 to June 2019, Mr. Bordes worked as the Co-Founder and Director of TruVest a sustainable affordable housing, real estate investment, development and technology company. Mr. Bordes’ current board service includes seats on the board of directors of Beasley Broadcast Group (NASDAQ: BBGI), Brooklyn School of Music, New England College, Fraud.net, Hoo.be, Ocearch and RevTrax. Mr. Bordes holds a Bachelor of Arts from New England College.
Grainne Coen has been a member of our board of directors since October 2, 2019. Ms. Coen has over 20 years’ experience in financial and investment management. She is responsible for managing the financial and administrative aspects of the Company including finance and accounting, acquisitions, divestitures, financing transactions, financial structuring, insurance, taxes and human resources. Since February 2021, Ms. Coen has been employed as the Chief Financial Officer, President, Treasurer and Secretary of Signal Hill Acquisition Corp. (NASDAQ:SGHL), a SPAC. In November 2021, Ms. Coen became Co-Chairperson of Genesis Unicorn Capital Corp. (NASDAQ:GENQ), a SPAC. In June 2021, Ms. Coen joined the board of Commonwealth Credit Partners BDC I, Inc., a business development company. In May 2018, she founded and has remained a partner of Elevation Investment Partners, LLC, a diversified investment group operating in multiple industries both as strategic consultants and early stage investors. From August 2001 to December 2015, she was a principal and portfolio manager at Columbia Partners, LLC Investment Management, where she co-managed over $1 billion in assets held in the fund’s U.S. Small Cap Equity Fund. From September 1998 to March 2001, she was a General Partner at Kensington Partners, LLC, and from May 1996 to August 1998, she was employed at G&O Partners, LP. Since January 2015, Ms. Coen has also served as Co-Founder and Chairperson of AREA4, LLC, an experiential marketing agency. From March 2019 to December 2020, Ms. Coen served as Chair of the board of directors of ERIE ARMADA, Inc., a non-profit focused on the development of underserved communities in conjunction with New York City’s Parks and Trails Department. Ms. Coen holds a Bachelor of Science from London Guildhall University.
Elisabeth H. DeMarse has been a member of our board of directors since January 7, 2020. From February 2021 to the present, Ms. DeMarse has been employed as the Executive Chairman and Chief Executive Officer of Trajectory Alpha Acquisition Corp. (NYSE:TCOA.U), a Special Purpose Acquisition Company, or blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or companies. From 2012 to March 2016, Ms. DeMarse served as the President and Chief Executive Officer and chair of the board of directors of TheStreet, Inc. Ms. DeMarse diversified The Street, Inc. from a B2C ad supported retail stock picking business to B2B global M&A, data and news businesses. Ms. DeMarse spent 10 years as the Chief Marketing Officer for Bloomberg LP working directly for the founder, Michael Bloomberg. She is currently a member of the board of directors and a chair of the audit committee of Clever Leaves Holdings Inc. (NASDAQ: CLVR). Ms. DeMarse previously served as a member of the boards of directors of AppNexus, CreditCards.com, ZipRealty (ZIPR), InsWeb Corp (INSW), Internet Patents Corporation (INTP), Edgar-Online (EDGR), Heska Corporation (HSKA), Incredimail (MAIL), Stockgroup (SWB), LiveDeal (LIVE), YP.com (YP), Nedsense (NEDSE), All Star Directories and ProNoun. She is also a member of The Committee of 200.Ms. DeMarse holds a Bachelor of Arts from Wellesley College, and a Master of Business Administration from Harvard University.
Lawrence Harris has been a member of our board of directors since June 30, 2021. As the Founder and Chief Executive Officer of Alpha Precision Media, an adtech company that leverages Amazon’s data and technology to build brand value and turbocharge sales that was founded in August 2020, Mr. Harris is seeking to cement his place as a global leader in the advertising technology industry. From September 2019 to the present, Mr. Harris has also acted as the Managing Partner of Glarris Consulting LLC, which provides strategic advisory services to companies, organizations and startups. From October 2016 to December 2019, Mr. Harris served as the Chief Executive Officer of Sightly, a performance video advertising firm. Prior to that time, from July 2007 to June 2010, Mr. Harris was the co-founder and Chief Executive Officer of Ansible Mobile, an Interpublic Group mobile marketing company. From March 2015 to June 2016, he was the Chief Strategy Officer at Kiosked, a publisher of digital advertising, and from February 2012 to November 2014, he was the Chief Marketing Officer of PubMatic, Inc. (NASDAQ:PUBM), an advertising technology company. He has also served as an advisor to a number of companies in the advertising technology industry, including SafeGuard Privacy, Qntfy, Reset Digital, and Thunder11. Mr. Harris holds a Bachelor of Arts from Harvard University.
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Jeannie Mun has been a member of our board of directors since January 7, 2020. From October 2020 to the present, Ms. Mun has served as the Chief Financial Officer of OwnBackup, Ltd., a cloud software data protection platform. In addition, from January 2016 to the present, Ms. Mun has been employed as a consultant for JMM Capital, LLC, a CFO advisory firm. From March 2015 to September 2015, she was the Chief Financial Officer of Oyster Books, a predecessor to the Google Books service. From February 2009 to February 2015, Ms. Mun was the Chief Financial Officer of MediaMath, Inc., a programmatic marketing technology provider. From May 2007 to January 2009, she was employed as a Vice President of Finance and Strategy at SintecMedia Ltd. d/b/a Operative, a media technology company. Ms. Mun holds a Bachelor of Arts from the University of California Los Angeles, and a Master of Business Administration from Harvard University.
Involvement in Certain Legal Proceedings
To our knowledge, none of our current directors or executive officers has, during the past ten years:
| ● | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| ● | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
| ● | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
| ● | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| ● | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| ● | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Except as set forth in our discussion below in “Certain Relationships and Related Party Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
We are not currently a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, we believe will have a material adverse effect on our business, financial condition or operating results.
Family Relationships
There are no family relationships among any of our executive officers or directors.
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Corporate Governance Overview
We are committed to having sound corporate governance principles, which are essential to running our business efficiently and maintaining our integrity in the marketplace. We understand that corporate governance practices change and evolve over time, and we seek to adopt and use practices that we believe will be of value to our stockholders and will positively aid in the governance of the Company. To that end, we regularly review our corporate governance policies and practices and compare them to the practices of other peer institutions and public companies. We will continue to monitor emerging developments in corporate governance and enhance our policies and procedures when required or when our board determines that it would benefit our Company and our stockholders.
In this section, we describe the roles and responsibilities of our board of directors and its committees and describe our corporate governance policies, procedures and related-documents. The charters of the audit, nominating and corporate governance, and compensation committees of our board of directors, our Corporate Governance Guidelines and Code of Business Conduct and Ethics can be accessed electronically under the “Governance” link on the Investor Relations page of our website at https://www.Kubient.com. We will also provide a copy of the audit and compensation committee charters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics without charge upon written request sent to our Investor Relations department at Attn: Investor Relations, Kubient, Inc., c/o Joshua Weiss, 500 7th Avenue, 8th Floor, New York, New York 10018. The inclusion of our website address in this section does not include or incorporate by reference the information on our website into this report.
Board Composition and Leadership Structure
Paul Roberts serves as our Chief Executive Officer, Chief Strategy Officer, President and Chairman. Although the roles of Chief Executive Officer, Chief Strategy Officer, President and Chairman of our board of directors are currently performed by the same person, we do not have a policy regarding the separation of these roles, as our board of directors believes that it is in the best interests of the Company and our stockholders to make that determination from time to time based upon the position and direction of the Company and the membership of our board of directors.
Our board of directors has determined that our leadership structure is appropriate for the Company and our stockholders as it helps to ensure that the board of directors and management act with a common purpose and provides a single, clear chain of command to execute our strategic initiatives and business plans. In addition, our board of directors believes that a combined role of Chief Strategy Officer, President and Chairman is better positioned to act as a bridge between management and our board of directors, facilitating the regular flow of information. Our board of directors also believes that it is advantageous to have a Chairman with an extensive history with and knowledge of our technology and industry (as is the case with our Chief Executive Officer, Chief Strategy Officer and President, Paul Roberts).
Director Independence
Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent, and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. The Nasdaq independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three (3) years, one of our employees, that neither the director nor any of his family members has engaged in various types of business dealings with us and that the director is not associated with the holders of more than five percent (5%) of our common stock. In addition, under applicable Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning their background, employment and affiliations, our board of directors has determined that four of our six directors, do not have relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the listing standards of Nasdaq. In making such determination, our board of directors considered the relationships that each such non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining his independence, including the beneficial ownership of our capital stock by each non-employee director.
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Board’s Role in Risk Oversight and Management
Our board of directors, as a whole and through its committees, is responsible for the oversight of risk management, while our management is responsible for the day-to-day management of risks faced by us. The board of directors receives regular reports from members of senior management on areas of material risk to the Company, including operational, financial, legal, regulatory, strategic and reputational risks. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
Committees of Our Board of Directors
Our board of directors has established an audit committee, a business development and marketing committee, a compensation committee, and a nominating and corporate governance committee. The composition and responsibilities of each committee of our board of directors are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.
Although each committee is directly responsible for evaluating certain enumerated risks and overseeing the management of such risks, the entire board of directors is generally responsible for and is regularly informed through committee reports about such risks and any corresponding remediation efforts designed to mitigate such risks. In addition, appropriate committees of the board of directors receive reports from senior management within the organization in order to enable the board of directors to understand risk identification, risk management and risk mitigation strategies. When a committee receives such a report, the chairman of the relevant committee reports on the discussion to the full board of directors during the committee reports portion of the next board of directors meeting. This enables the board of directors and its committees to coordinate the risk oversight role.
Audit Committee
The members of our audit committee are Grainne Coen, Elisabeth H. DeMarse, and Jeannie Mun. Ms. Coen chairs the audit committee. After reviewing the qualifications of the current members of the audit committee, and any relationships they may have with us that might affect their independence, the board of directors has determined that all current audit committee members are “independent” as that concept is defined in Section 10A of the Exchange Act, all current audit committee members are “independent” as that concept is defined in the applicable rules of The Nasdaq Stock Market, LLC, all current audit committee members are financially literate, and both Ms. Coen and Ms. Mun qualify as an “audit committee financial expert” under the applicable rules promulgated pursuant to the Exchange Act.
The audit committee’s main function is to oversee our accounting and certain financial reporting processes, internal systems of control, independent registered public accounting firm relationships and the audits of our financial statements. The committee’s responsibilities include, among other things:
| ● | appointing, approving the compensation of and assessing the independence of our registered public accounting firm; |
| ● | overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports from such firm; |
| ● | reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures; |
| ● | monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics; |
| ● | overseeing our internal audit function; |
| ● | overseeing our risk assessment and risk management policies; |
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| ● | establishing policies regarding hiring employees from the independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns; |
| ● | meeting independently with our internal auditing staff, independent registered public accounting firm and management; |
| ● | reviewing and approving or ratifying any related person transactions; and |
| ● | preparing the audit committee report required by SEC rules. |
All audit and non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee.
Business Development and Marketing Committee
The members of our business development and marketing committee are Jonathan Bond, Elisabeth DeMarse, and Lawrence Harris. Ms. DeMarse chairs the business development and marketing committee. This committee’s responsibilities include, among other things:
| ● | identifying and creating plans to fulfill relevant short and long-term goals from the Kubient strategic plan; |
| ● | maintaining the integrity and increasing the awareness of the Kubient brand; |
| ● | recommending an annual marketing budget; |
| ● | developing and implementing a comprehensive marketing and communications strategy; |
| ● | working with the executive team on short and long-term marketing needs; |
| ● | setting priorities for marketing efforts; |
| ● | assisting with the continued development of the website and ensuring relevant and current content; |
| ● | determining and engaging audience through various media channels; and |
| ● | identifying collaborative opportunities with businesses and organizations on new and existing events. |
Compensation Committee
The members of our compensation committee are Grainne Coen,Elisabeth DeMarse, and Jeannie Mun. Ms. Mun chairs the compensation committee. Each member of our compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended. The primary purpose of our compensation committee is to discharge the responsibilities of our board of directors in overseeing our compensation policies, plans and programs and to review and determine the compensation to be paid to our executive officers, directors and other senior management, as appropriate. Specific responsibilities of our compensation committee include, among other things:
| ● | reviewing and recommending corporate goals and objectives relevant to the compensation of our chief executive officer and other executive officers; |
| ● | making recommendations to our board of directors with respect to, the compensation level of our executive officers; |
| ● | reviewing and recommending to our board of directors employment agreements and significant arrangements or transactions with executive officers; |
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| ● | reviewing and recommending to our board of directors with respect to director compensation; and |
| ● | overseeing and administering our equity-based incentive plan or plans. |
With respect to director compensation, our compensation committee is responsible for reviewing the compensation paid to members of the board and recommending modifications to board compensation that the compensation committee determines are appropriate and advisable to the board for its approval from time to time. In this regard, the compensation committee may request that management report to the compensation committee periodically on the status of the board’s compensation in relation to other similarly situated companies.
In determining compensation for our executive officers, the compensation committee typically considers, but is not required to accept, the recommendations of our Chief Executive Officer regarding the performance and proposed base salary and bonus and equity awards for the other executive officers, as well as himself. The compensation committee may also request the assistance of our Chief Financial Officer in evaluating the financial, accounting and tax implications of various compensation awards paid to the executive officers. However, our Chief Financial Officer does not determine the amounts or types of compensation paid to the executive officers. Our Chief Executive Officer and certain of our other executive officers may attend compensation committee meetings, as requested by the compensation committee. None of our executive officers, including our Chief Executive Officer, will attend any portion of the compensation committee meetings during which the executive officer’s compensation is established and approved.
Nominating and Corporate Governance Committee
The members of our nominating and corporate governance committee are Jonathan Bond, Grainne Coen, Elisabeth DeMarse, Lawrence Harris, and Jeannie Mun. Ms. DeMarse chairs the nominating and corporate governance committee. This committee’s responsibilities include, among other things:
| ● | identifying and evaluating candidates, including the nomination of incumbent directors for reelection and nominees recommended by stockholders, to serve on our board of directors; |
| ● | considering and making recommendations to our board of directors regarding the composition and chairmanship of the committees of our board of directors; |
| ● | developing and recommending to our board of director’s corporate governance principles, codes of conduct and compliance mechanisms; and |
| ● | overseeing periodic evaluations of the board of directors’ performance, including committees of the board of directors. |
When evaluating director candidates, the nominating and corporate governance committee may consider several factors, including relevant experience, independence, commitment, compatibility with the Chief Executive Officer and the board of directors’ culture, prominence and understanding of the Company’s business, as well as any other factors the corporate governance and nominating committee deems relevant at the time. The corporate governance and nominating committee makes a recommendation to the full board of directors as to any person it believes should be nominated by our board of directors, and our board of directors determines the nominees after considering the recommendation and report of the corporate governance and nominating committee.
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Any director or executive officer of the Company may recommend a candidate to the nominating and corporate governance committee for its consideration. The nominating and corporate governance committee will also consider nominees to our board of directors recommended by stockholders if stockholders comply with the advance notice requirements in our bylaws. Our bylaws provide that a stockholder who wishes to nominate a person for election as a director at a meeting of stockholders must deliver timely written notice to our Corporate Secretary at the following address:
Paul Roberts
Chief Executive Officer
Kubient, Inc.
500 7th Avenue
8th Floor
New York, New York 10018
This notice must contain, as to each nominee, all of the information relating to such person as would be required to be disclosed in a proxy statement meeting the requirements of Regulation 14A under the Exchange Act and certain other information, including: the name and address of the stockholder delivering the notice as it appears on our books; the class and number of shares owned beneficially and of record by such stockholder; information about derivative instruments beneficially owned by such stockholder and any opportunity to profit or share in any profit derived from any increase or decrease in the value of the shares of our stock; any proxy, contract, arrangement, understanding or relationship pursuant to which such stockholder has a right to vote any shares of our stock; any short interest in any of our securities held by such stockholder; any rights to dividends on shares of our stock owned beneficially or of record by such stockholder that are separated or separable from the underlying shares of stock; any proportionate interest in shares of our stock or derivative instruments held by a general or limited partnership in which such stockholder is, or owns a beneficial interest in, the general partner; any performance-related fees to which such stockholder is entitled based on the value of our securities; any arrangement or understanding between such stockholder and the proposed nominee; and whether such stockholder intends to deliver a solicitation notice, as more fully described in our bylaws. The foregoing summary does not include all requirements a stockholder must satisfy in order to nominate a candidate to our board of directors. Stockholders who wish to recommend a nominee to our board of directors should carefully read our bylaws, which are available at https://Kubient.com. The inclusion of our website address in this report does not include or incorporate by reference the information on our website into this report.
Board Diversity
Our nominating and corporate governance committee is responsible for reviewing with board of directors, on an annual basis, the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, will take into account many factors, including the following:
| ● | personal and professional integrity, ethics and values; |
| ● | experience in corporate management, such as serving as an officer or former officer of a publicly-held company; |
| ● | development or commercialization experience in large consumer products companies; |
| ● | experience as a board member or executive officer of another publicly-held company; |
| ● | strong finance experience; |
| ● | diversity of expertise and experience in substantive matters pertaining to our business relative to other board members; |
| ● | diversity of background and perspective, including with respect to age, gender, race, place of residence and specialized experience; |
| ● | conflicts of interest; and |
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| ● | practical and mature business judgment. |
Currently, our board of directors evaluates each individual in the context of the board of directors as a whole, with the objective of assembling a group that can best maximize the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas.
Director Nomination Process
Our board of directors believes that its directors should have the highest professional and personal ethics and values, consistent with the Company’s longstanding values and standards. They should have broad experience at the policy-making level in business, government or civic organizations. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on their own unique experience. Each director must represent the interests of all stockholders. When considering potential director candidates, our board of directors also considers the candidate’s independence, character, judgment, diversity, age, skills, including financial literacy, and experience in the context of our needs and those of our board of directors. Our board of directors believe that diversity is an important attribute of the members who comprise our board of directors and that the members should represent an array of backgrounds and experiences and should be capable of articulating a variety of viewpoints. Our board of directors priority in selecting board members is the identification of persons who will further the interests of our stockholders through his or her record of professional and personal experiences and expertise relevant to our business.
Stockholder Nominations to the Board of Directors
Our bylaws provides that our board of directors will accept for consideration submissions from stockholders of recommendations for the nomination of directors. Acceptance of a recommendation for consideration does not imply that the board of directors will nominate the recommended candidate. Director nominations by a stockholder or group of stockholders for consideration by our stockholders at our annual meeting of stockholders, or at a special meeting of our stockholders that includes on its agenda the election of one or more directors, may only be made pursuant to our bylaws or as otherwise provided by law. Nominations pursuant to our bylaws are made by delivering to our Corporate Secretary, within the time frame described in our bylaws, all of the materials and information that our bylaws require for director nominations by stockholders.
No person shall be eligible to serve as a director of the Company unless nominated in accordance with the procedures set forth in our bylaws and any nominee proposed by a stockholder not nominated in accordance with our bylaws shall not be considered or acted upon for execution at such meeting. Stockholders’ notice for any proposals requested to be included in our proxy statement pursuant to Rule 14a-8 under the Exchange Act (including director nominations), must be made in accordance with that rule.
There were no material changes to the procedures by which stockholders may recommend nominees to the Company’s board of directors during the year ended December 31, 2021.
Role of Board in Risk Oversight Process
Our board of directors has responsibility for the oversight of the Company’s risk management processes and, either as a whole or through its committees, regularly discusses with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving regular reports from board committees and members of senior management to enable our board to understand the company’s risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic and reputational risk.
The audit committee reviews information regarding liquidity and operations, and oversees our management of financial risks. Periodically, the audit committee reviews our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct communication with our external auditors, and discussions with management regarding significant risk exposures and the actions management has taken to limit, monitor or control such exposures. The compensation committee is responsible for assessing whether any of our compensation policies or programs has the potential to encourage excessive risk-taking. The nominating and corporate governance committee manages risks associated with the independence of the board, corporate disclosure practices, and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board is regularly informed through committee reports about such risks. Matters of significant strategic risk are considered by our board of directors as a whole.
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Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our officers, directors, and persons who own more than ten percent of a registered class of our equity securities to file reports of securities ownership and changes in such ownership with the SEC. Officers, directors, and greater-than-ten-percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file.
Based solely upon a review of Forms 3, Forms 4, and Forms 5 furnished to us pursuant to Rule 16a-3 under the Exchange Act, we believe that all such forms required to be filed pursuant to Section 16(a) of the Exchange Act during the year ended December 31, 2021 were timely filed, as necessary, by the officers, directors, and security holders required to file such forms, except for the following:
| ● | Messrs. Bond and Harris did not timely file their respective Forms 3 following their election to our Board of Directors. |
| ● | Mr. Leon Zemel did not timely file a Form 3 following his classification as an officer subject to Section 16(a) of the Exchange Act. |
| ● | Mr. Jonathan Bond did not timely file a Form 4 with respect to one transaction. |
| ● | Ms. Grainne Coen did not timely file a Form 4 with respect to one transaction. |
| ● | Ms. Elisabeth DeMarse did not timely file a Form 4 with respect to one transaction. |
| ● | Mr. Chris Francia did not timely file a Form 4 with respect to one transaction. |
| ● | Ms. Jeannie Mun did not timely file a Form 4 with respect to one transaction. |
| ● | Mr. Christopher Smith did not timely file a Form 4 with respect to one transaction. |
| ● | Mr. Leon Zemel did not timely file a Form 4 with respect to one transaction. |
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of the code is posted on the Corporate Governance section of our website, www.Kubient.com. In addition, we post on our website all disclosures that are required by law or the listing standards of The Nasdaq Capital Market concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this report.
ITEM 11. EXECUTIVE COMPENSATION
As an emerging growth company under the JOBS Act, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act, which permit us to limit reporting of executive compensation to our principal executive officer and our two (2) other most highly compensated named executive officers.
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Summary Compensation Table
The following table provides information regarding the compensation awarded to or earned during 2021 and 2020, as applicable, by our named executive officers.
Option and | All other | |||||||||||||||||||
Name and Principal Position |
| Year |
| Salary |
| Bonus |
| Stock awards (1) |
| warrant awards (1) |
| compensation (2) |
| Total | ||||||
Paul Roberts |
| 2021 | $ | 325,000 | $ | 159,250 | $ | 628,970 | (3) | $ | — | $ | 19,554 | $ | 1,132,744 | |||||
Chief Executive Officer (4) |
| 2020 | $ | 171,458 | $ | 590,000 | (5) | $ | 35,569 | (6) | $ | — | $ | 33 | $ | 797,060 | ||||
Joshua Weiss |
| 2021 | $ | 302,500 | $ | 120,000 | $ | 143,750 | (7) | $ | — | $ | 26,965 | $ | 593,215 | |||||
Chief Financial Officer (8) |
| 2020 | $ | 263,282 | $ | 82,500 | $ | 79,584 | (9) | $ | — | $ | 22,775 | $ | 448,141 | |||||
Pavel Medvedev |
| 2021 | $ | 289,167 | $ | 35,000 | $ | 68,368 | (10) | $ | — | $ | 53,730 | (11) | $ | 446,264 | ||||
Chief Technology Officer (11) |
| 2020 | $ | 219,583 | $ | 90,000 | $ | — | $ | — | $ | 36 | $ | 309,619 | ||||||
| (1) | The amounts reported in these columns represent the grant date fair value of the stock, option and warrant awards granted during the years ended December 31, 2021 and 2020, calculated in accordance with FASB ASC Topic 718. These amounts do not represent cash compensation paid to the named individual. These non-cash amounts represent the aggregate grant date fair value of the restricted stock awards as computed in accordance with the SEC’s Staff Accounting Bulletin 107. For a discussion of the assumptions made in the valuation of the awards, see the discussion under Note 2 and Note 8 to the consolidated financial statements included in this Annual Report on Form 10-K. |
| (2) | Includes health benefits paid for by the Company in the form of health insurance. |
| (3) | On June 29, 2021, Mr. Roberts was issued 109,386 shares of the Company’s common stock for services rendered. |
| (4) | Mr. Roberts served as our Interim Chief Executive Officer from October 31, 2020 to December 16, 2021, when the designation of “interim” was removed from Mr. Roberts’ title. |
| (5) | Consists of (i) a $250,000 cash bonus related to Mr. Robert’s efforts in connection with the Company’s IPO, (ii) a $250,000 cash bonus in related to Mr. Robert’s efforts in connection with the Company’s follow-on offering, and (iii) a $90,000 contractual annual performance bonus. |
| (6) | On November 20, 2020, Mr. Roberts was issued 12,658 shares of the Company’s common stock for services rendered. |
| (7) | On June 29, 2021, Mr. Weiss was issued 25,000 shares of the Company’s common stock for services rendered. |
| (8) | Mr. Weiss began his employment with the Company on December 23, 2019. |
| (9) | Consists of (i) 10,000 shares of the Company’s common stock earned by Mr. Weiss during the year ended December 31, 2020 for services in connection with the Company’s public offering which closed on December 28, 2020 (3,397 of which were ultimately withheld by the Company to satisfy Mr. Weiss’ tax obligations in connection with such award), (ii) 2,222 shares of the Company’s common stock earned by Mr. Weiss on March 22, 2020 pursuant to the terms of his employment agreement, and (iii) 6,329 shares of the Company’s common stock issued to Mr. Weiss on November 20, 2020 for services rendered. |
| (10) | On June 29, 2021, Mr. Medvedev was issued 11,890 shares of the Company’s common stock for services rendered, which Mr. Medvedev forfeited on December 31, 2021 in connection with his resignation from employment with the Company. |
| (11) | Mr. Medvedev served as the Company’s Chief Technology Officer from April 16, 2018 to December 31, 2021, when he resigned from employment with the Company. In connection with his resignation from the Company, he was paid cash severance of $51,666.67. |
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Narrative to Summary Compensation Table
Executive Compensation Considerations
The Company’s compensation committee reviews financial information and other performance metrics relative to the historical compensation of executive management and comparative information prepared internally. The compensation committee also reviews management’s recommendations for compensation levels of all of the Company’s named executive officers and considered these recommendations with reference to relative compensation levels of like-size institutions. The totality of the information reviewed by the compensation committee is considered when establishing current executive salary levels, and similar analysis is expected to be considered when reviewing and establishing future salaries and long-term incentives. The Company’s compensation policies and practices are designed to ensure that they do not foster risk taking above the level of risk associated with the Company’s business model. For this purpose, the compensation committee generally considers the Company’s financial performance, comparing that performance to the performance metrics included in the Company’s strategic plan. The compensation committee also generally evaluates management’s compensation in light of other specific risk parameters. The Company’s compensation programs are aimed at enabling it to attract and retain the best possible executive talent and rewarding those executives commensurate with their ability and performance. The Company’s compensation programs consist primarily of base salary and bonus.
Independent Advice on Pay-Setting Process
In 2021, the compensation committee retained an outside compensation consultant, Mercer LLC (“Mercer”), to benchmark pay levels for the executive leadership team and outside directors, including base salary and short- and long-term incentives. Mercer also assisted with the design of the short- and long-term incentive programs to ensure such programs support the Company’s business strategy and are consistent with market practice. To benchmark pay, Mercer considered data from three sources to reflect the Company’s intersecting talent markets:
| ● | Option Impact Database: This database is made up of private technology companies based in the United States that have completed at least a Post Series B funding round. |
| ● | Mercer Comptryx Database: This database is made up of both private and public technology companies based in the United States with revenues less than $500 million. |
| ● | Public Company Peer Group: Mercer reviewed the public filings and financial statements of 17 publicly traded companies with revenues approximately 0.5x-2.5x that of the Company, and with which the Company competes for talent and that are in industries similar to the Company, including advertising, application/systems software, interactive media and services, and internet and direct marketing retail. |
Mercer also referenced peer practices in assisting with the design of the short- and long-term incentive plans, including metrics and weightings, and payout leverage and performance periods, and equity vehicle prevalence for the long-term plan. Mercer considered the public company peer group practices as well as the practices of larger companies in recommending incentive plan design decisions.
Employment Agreements; Potential Payments Upon Termination or Change-in-Control
We have entered into employment agreements with Mitchell Berg, Paul Roberts, Joshua Weiss, and Leon Zemel.
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The terms of Mr. Berg’s employment agreement, which was entered into on November 18, 2021 with an Effective Date of November 29, 2021, state he will receive an annual base salary of $300,000, a restricted stock unit (“RSU”) award of 80,000 shares of common stock of the Company, and a performance stock unit (“PSU”) award of 50,000 shares of common stock of the Company. Mr. Berg will also be eligible to participate in the Company’s Short Term Incentive Plan (“STIP”) and his target bonus pursuant to the STIP will be $100,000. Provided, however that any payout pursuant to the STIP will be determined by the Company and its board of directors or compensation committee, in its discretion, after considering Mr. Berg’s individual performance and the overall performance of the Company’s business. Upon a termination for any reason, Mr. Berg is entitled to any unpaid but accrued portion of his base salary earned through the date of his termination, payment for any accrued but unused vacation pay, any expenses owed to him pursuant to his employment agreement, and any amounts owed under the Company’s benefit plans. In the event Mr. Berg experiences a Covered Termination (as defined in his employment agreement), Mr. Berg shall be entitled to six month’s salary paid in one lump sum, six months continued healthcare coverage, payment of any Annual Bonus (as defined in his employment agreement) earned but that has not been paid and a pro-rata portion of any Annual Bonus earned in the fiscal year in which the Covered Termination takes place, and immediate vesting of any equity awards that would have become vested and exercisable during the three months after his termination. All outstanding RSU awards due to Mr. Berg automatically vest upon a change in control of the Company.
The terms of Mr. Roberts’ employment agreement, which was entered into on May 26, 2017 and amended October 2, 2019 solely to reflect his change in position at the Company to Chief Strategy Officer and President, provide for an annual base salary of $120,000, plus an annual bonus of up to 30% of his base salary based upon the achievement of certain performance goals to be established by the board of directors or a committee of the board of directors. Upon a termination for any reason, Mr. Roberts is entitled to any unpaid but accrued portion of his base salary earned through the date of his termination, payment for any accrued but unused vacation time, any expenses owed to him pursuant to his employment agreement, and any amounts owed under the Company’s benefit plans. In the event Mr. Roberts is terminated without cause or that Mr. Roberts resigns for Good Reason (as defined in his employment agreement), Mr. Roberts shall be entitled to six month’s salary plus one additional month of salary for each full year of his service to the Company, continued healthcare coverage for the earlier of (i) six months plus one additional month of additional coverage for each full year of his service to the Company, or (ii) until such time as Mr. Roberts becomes eligible for health coverage under another employer’s plan, and immediate vesting of any equity awards that would have become vested and exercisable during the six months after his termination, plus one additional month of salary for each full year of his service to the Company. Mr. Roberts was also granted options to purchase 33,334 shares of the Company’s common stock at $2.97 per share for a five-year period, pursuant to the terms, conditions and vesting schedule set forth in the corresponding Non-Qualified Option Agreement. Upon a change in control, all outstanding awards due to Mr. Roberts automatically vest upon a change in control of the Company. On October 1, 2020, the board of directors increased the Reporting Person’s salary under his employment agreement, to $300,00 per annum to reflect his appointment as Interim Chief Executive Officer of the Company.
The terms of Mr. Weiss’ employment agreement, which was entered into on December 23, 2019, provide for an annual base salary of $150,000, until March 22, 2020, when Mr. Weiss’ base salary was increased to $275,000. Upon execution of his employment agreement, Mr. Weiss was granted options to purchase 16,667 shares of the Company’s common stock at $33.75 per share for a five-year period, pursuant to the terms, conditions and vesting schedule set forth in the corresponding Non-Qualified Option Agreement. Pursuant to the terms of his employment agreement, Mr. Weiss was awarded 2,223 shares of the Company’s common stock on March 22, 2020. Mr. Weiss is also entitled to an annual bonus of up to 30% of his base salary based upon the achievement of certain performance goals to be established by the board of directors or a committee of the board of directors. Upon a termination for any reason, Mr. Weiss is entitled to any unpaid but accrued portion of his base salary earned through the date of his termination, payment for any accrued but unused vacation pay, any expenses owed to him pursuant to his employment agreement, and any amounts owed under the Company’s benefit plans. In the event Mr. Weiss is terminated without cause or that Mr. Weiss resigns for Good Reason (as defined in his employment agreement), Mr. Weiss shall be entitled to six month’s salary paid in one lump sum, six months continued healthcare coverage plus one additional month of salary for each full year of his service to the Company, and immediate vesting of any equity awards that would have become vested and exercisable during the three months after his termination. Upon a change in control, all outstanding awards due to Mr. Weiss automatically vest upon a change in control of the Company.
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The terms of Mr. Zemel’s employment agreement, which was entered into on April 12, 2021, provide for an annual base salary of $390,000. Mr. Zemel is entitled to an annual bonus of up to 20% of his base salary based upon the achievement of certain performance goals to be established by the board of directors or its compensation committee. Subject to the approval of the board of directors or its compensation committee, the Company will take appropriate action within 90 days following April 12, 2021 to make an award of 100,000 shares of the Company’s common stock to Mr. Zemel. The award will vest at the rate ¼1/4th of the total number of shares on April 12, 2022 and 1/36th of the total number of remaining unvested shares each month thereafter. Vesting will depend and be contingent upon Mr. Zemel’s continued employment with the Company through the completion of any vesting date, and any unvested shares will be forfeited upon Mr. Zemel’s termination of employment from the Company for whatever reason. Upon a termination for any reason, Mr. Zemel is entitled to any unpaid but accrued portion of his base salary earned through the date of his termination, payment for any accrued but unused vacation pay, any expenses owed to him pursuant to his employment agreement, and any amounts owed under the Company’s benefit plans. In the event Mr. Zemel is terminated without cause or that Mr. Zemel resigns for Good Reason (as defined in his employment agreement), Mr. Zemel shall be entitled to six month’s salary paid in one lump sum, six months continued healthcare coverage plus one additional month of salary for each full year of his service to the Company, and immediate vesting of any equity awards that would have become vested and exercisable during the three months after his termination. Upon a change in control, all outstanding awards due to Mr. Zemel automatically vest upon a change in control of the Company.
Base Salary
In consultation with Mercer, the compensation committee establishes salary guidelines by comparing the responsibilities of the individual’s position in relation to similar positions at our peer group companies. Base salaries for named executive officers are determined in the same manner as those for other salaried employees.
Under their respective compensatory contracts, the base salaries of our named executive officers as of December 31, 2021 were as follows:
Named Executive Officer |
| Title |
| Base Salary(1) |
Paul Roberts |
| Chief Executive Officer, Chief Strategy Officer, President, and Chairman |
| $ 350,000 |
Joshua Weiss |
| Chief Financial Officer |
| $ 330,000 |
Pavel Medvedev |
| Chief Technology Officer |
| $ 310,000 (2) |
Bonuses
In setting target bonus levels and designing the 2021 bonus plan, after consultation with Mercer, the compensation committee referenced bonuses paid by the Company in previous years, as well as plan designs at 17 of our peer group companies.
Under the terms of his employment agreement, Mr. Roberts is eligible to receive an annual bonus of up to 30% of his base salary based upon the achievement of certain performance goals established by the board of directors or a committee of the board of directors. On February 1, 2022, Mr. Roberts was paid a bonus of $159,250.
Under the terms of his employment agreement, Mr. Weiss is eligible to receive an annual bonus of up to 30% of his base salary based upon the achievement of certain performance goals established by the board of directors or a committee of the board of directors. On February 15, 2022, Mr. Weiss was paid a bonus of $120,000.
Under the terms of his employment agreement, Mr. Medvedev was eligible to receive an annual bonus of eight percent of all net revenue generated by introductions made by Mr. Medvedev to us. On December 15, 2021, Mr. Medvedev was paid a bonus of $35,000.
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Restricted Stock Awards
On June 29, 2021, Mr. Roberts was awarded 109,386 shares of the Company’s common stock for services rendered. The Company’s board of directors determined that such shares had a fair market value of $5.75 per share at the time of transfer, based on the closing price of the Company’s common stock as of June 28, 2021, and shall vest after a period of one year, as described in the award agreement entered into between the Company and Mr. Roberts in connection with such award, and shall be subject to such further terms and conditions included in such award agreement, and the 2017 Plan.
On January 12, 2022, the Company awarded Mr. Roberts with 93,360 performance stock units (“PSUs”) and 233,974 restricted stock units (“RSUs”) in recognition of Mr. Robert’s commitment to the Company and his exceptional performance in the role of Chief Executive Officer of the Company during 2021. The PSUs awarded to Mr. Roberts vest over a period of three years, and the RSUs awarded to Mr. Roberts vest over a period of four years.
On March 22, 2020, Mr. Weiss was issued 2,222 shares of the Company’s common stock pursuant to the terms of his employment agreement of the Company.
On November 20, 2020, Mr. Weiss was issued 6,329 shares of the Company’s common stock for services rendered.
On March 2, 2021, Mr. Weiss was issued 10,000 shares of the Company’s common stock for services rendered in connection with the Company’s public offering that closed on December 28, 2020. On February 25, 2022, Mr. Weiss surrendered to the Company 3,397 shares of the Company’s common stock in order to satisfy a tax withholding obligation of roughly $18,000 in connection with the March 2, 2021 issuance discussed in the preceding sentence.
On June 29, 2021, Mr. Weiss was awarded 25,000 shares of the Company’s common stock for services rendered. The Company’s board of directors determined that such shares had a fair market value of $5.75 per share at the time of transfer, based on the closing price of the Company’s common stock as of June 28, 2021, and shall vest after a period of one year, as described in the award agreement entered into between the Company and Mr. Weiss in connection with such award, and shall be subject to such further terms and conditions included in such award agreement, and the 2017 Plan.
On January 12, 2022, the Company awarded Mr. Weiss with 20,000 performance stock units (“PSUs”) and 80,000 restricted stock units (“RSUs”) in recognition of Mr. Weiss’ commitment to the Company and his exceptional performance in the role of Chief Financial Officer of the Company during 2021. The PSUs awarded to Mr. Weiss vest over a period of three years, and the RSUs awarded to Mr. Weiss vest over a period of four years.
On June 29, 2021, Mr. Medvedev was awarded 11,890 shares of the Company’s common stock for services rendered. The Company’s board of directors determined that such shares had a fair market value of $5.75 per share at the time of transfer, based on the closing price of the Company’s common stock as of June 28, 2021, and shall vest after a period of one year, as described in the award agreement entered into between the Company and Mr. Medvedev in connection with such award, and shall be subject to such further terms and conditions included in such award agreement, and the 2017 Plan. Mr. Medvedev forfeited all 11,890 shares on December 31, 2021 in connection with his resignation from employment with the Company.
All Other Compensation
Each named executive officer was entitled to participate in any benefit plan from time to time in effect for our executives and/or employees generally, subject to the eligibility provisions of that plan.
Section 162(m) of the Code
Section 162(m) of the Code generally limits the corporate tax deduction for compensation in excess of $1 million that is paid to “covered employees”. Section 162(m) of the Code was amended by the Tax Cuts and Jobs Act of 2018 so that the exceptions for payment of “performance-based compensation” or commissions have been eliminated. However, none of our named executive officers received annual compensation in excess of $1 million as of December 31, 2021.
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Resignation, Retirement, or Termination Agreements
On November 30, 2021, the Company entered into a separation agreement and general release with Mr. Medvedev in connection with his resignation from employment with the Company. Under the terms of the separation agreement, the Company paid Mr. Medvedev a total sum of $51,666.67 in severance pay, less applicable taxes and withholding and other legal deductions, on December 15, 2021. Mr. Medvedev’s receipt of the aforementioned payments was conditioned upon the fulfillment of his obligations under the separation agreement, as well as Mr. Medvedev’s compliance with the other standard covenants set forth in such agreement.
Outstanding Equity Awards at 2021 Fiscal Year End
The following table provides information with respect to holdings of unvested options and stock awards held by our named executive officers, at December 31, 2021.
Option Awards | |||||||||
| Number of |
| Number of |
|
| ||||
securities | securities | ||||||||
underlying | underlying | ||||||||
unexercised | unexercised | ||||||||
option | option | Option | Option | ||||||
exercisable | unexercisable | exercise price | expiration | ||||||
Name | (#) | (#) | ($) | date | |||||
Paul Roberts |
| 33,334 |
| — | $ | 2.97 |
| 15/09/2022 | |
Joshua Weiss |
| 8,328 |
| 8,339 | $ | 33.75 |
| 23/12/2029 | |
Warrant Awards | |||||||||
| Number of |
| Number of |
|
| ||||
securities | securities | ||||||||
underlying | underlying | ||||||||
unexercised | unexercised | ||||||||
warrant | warrant | Warrant | Warrant | ||||||
exercisable | unexercisable | exercise price | expiration | ||||||
Name | (#) | (#) | ($) | date | |||||
Paul Roberts |
| 55,541 |
| $ | 5.50 |
| 14/08/2025 | ||
Pavel Medvedev |
| 27,778 |
| $ | 4.95 |
| 16/04/2023 | ||
Option and Warrant Exercises
None of our named executive officers exercised stock options or warrants in 2021.
Securities Authorized for Issuance Under Equity Compensation Plans
The table below provides information on our equity compensation plans as of December 31, 2021:
Number of securities | |||||||
remaining available for | |||||||
Number of securities | future issuance under | ||||||
to be issued upon | Weighted-average | equity compensation | |||||
exercise of outstanding | exercise price of | plans (excluding | |||||
options, warrants and | outstanding options, | securities reflected in | |||||
| rights |
| warrants and rights |
| column (a)) | ||
Plan category | (a) | (b) | (c) | ||||
Equity compensation plans approved by security holders(1)(2) |
| 94,447 | $ | 11.56 |
| 1,411,889 | |
Equity compensation plans not approved by security holders |
| — | — |
| — | ||
Total |
| 94,447 | $ | 11.56 |
| 1,411,889 | |
| (1) | As of December 31, 2021, there were options to purchase 94,447 shares of our common stock with a weighted average exercise price of $11.56 per share that were outstanding under the 2017 Plan. As of December 31, 2021, a total of 236,073 shares of common |
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| stock were issued under the 2017 Plan. Accordingly, as of December 31, 2021, 11,889 shares of common stock remained available for future issuance under the 2017 Plan. |
| (2) | As of December 31, 2021, a total of 100,000 shares of common stock were issued under the 2021 Plan. Accordingly, as of December 31, 2021, 1,400,000 shares of common stock remained available for future issuance under the 2021 Plan. |
Benefit Plans
Kubient, Inc. 2017 Equity Incentive Plan
The 2017 Plan was originally adopted by our board of directors and approved by our stockholders on September 12, 2017, and was subsequently amended and restated on June 5, 2019. The purposes of the 2017 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our service providers and to promote the success of the Company’s business. We have reserved 333,334 shares of our common stock to issue awards under our 2017 Plan.
Kubient, Inc. 2021 Equity Incentive Plan
The 2021 Plan was originally adopted by our board of directors and approved by our stockholders on June 30, 2021. The purposes of the 2021 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our service providers and to promote the success of the Company's business. We have reserved 1,500,000 shares of our common stock to issue awards under our 2021 Plan.
Founder Employee Incentive Program
On July 2, 2020, the Company’s board of directors adopted the Founder Employee Incentive Program (the “Founder Program”) under the 2017 Plan. The purposes of the Founder Program are to offer near-term and long-term incentives to founder employees of the Company that are intended to keep such employees in the employ of the Company, and that are based on individual performance, the achievement of financial goals of the Company and the total return to the Company’s stockholders.
Except for the Founder Program, we currently have no long-term incentive plans. As of March 25, 2022, no awards have been made under the Founder Program.
401(k) Plan
We offer a 401(k) plan pursuant to Section 401(k) of the Code. All full-time United States employees are eligible to participate in the plan. The plan permits pretax contributions by participants not to exceed annual amounts allowable under the Code. Participants are fully vested in their contributions.
Hedging Policy
The Company’s Insider Trading Policy prohibits trading in call or put options involving the Company’s securities and other derivative securities; engaging in short sales of the Company’s securities (i.e., the sale of a security that the seller does not own); engaging in hedging or monetization transactions with respect to the Company’s securities, such as prepaid variable forwards, equity swaps, collars and exchange funds; and holding the Company’s securities in a margin account.
Director Compensation
On March 4, 2021, the board of directors of the Company approved a $50,000 cash retainer to Ms. Coen as the audit committee chair for her service during 2021.
On November 8, 2021, the compensation committee and the board of directors of the Company adopted the Kubient, Inc. Non-Employee Director Compensation Policy (the “2022 Non-Employee Director Policy”), which covers all compensation to be paid by the Company to non-employee directors beginning with fiscal year 2022, including, without limitation, amounts paid or awards granted under the 2021 Plan.
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Under the 2022 Non-Employee Director Policy, on the close of business on the date of each annual shareholders meeting of the Company, each Non-Employee Director then in office shall receive an award of restricted stock that has an aggregate fair value on the date of such annual meeting of $55,000 (as determined based on the average trading price of the shares of common stock for the ten consecutive trading days immediately preceding the date of grant and with the number of shares of common stock of the Company underlying such award subject to adjustment as provided in the Plan). In addition, each Non-Employee Director shall receive an annual cash retainer of $50,000 for their service on the board of directors. Furthermore, the chairpersons of certain board committees shall receive an additional annual cash retainer as follows:
| ● | Audit Committee: $50,000 |
| ● | Compensation Committee: $10,500 |
| ● | Nominating and Corporate Governance Committee: $8,000 |
On March 9, 2022, the compensation committee and the board of directors of the Company approved annual compensation for the services of its non-employee directors during 2021 in the form of an award of restricted common stock of the Company with a fair market value of $25,000 per non-employee director, which such shares vest immediately upon issuance.
The table below shows the equity and other compensation granted to our non-employee directors during fiscal 2021:
| Fees Earned |
| Stock |
| Option |
| All Other |
|
| ||||||
or Paid | Awards (3) | Awards (3) | Compensation | Total | |||||||||||
Jonathan Bond | $ | 21,000 | (1) | $ | — | $ | — | $ | — | $ | 21,000 | ||||
Grainne Coen | $ | 92,000 | (1)(2) | $ | — | $ | — | $ | — | $ | 92,000 | ||||
Elisabeth DeMarse | $ | 42,000 | (1) | $ | — | $ | — | $ | — | $ | 42,000 | ||||
Lawrence Harris | $ | 21,000 | (1) | $ | — | $ | — | $ | — | $ | 21,000 | ||||
Jeannie Mun | $ | 42,000 | (1) | $ | — | $ | — | $ | — | $ | 42,000 | ||||
| (1) | The amounts reported represent $10,500 cash retainer for each quarter of service. |
| (2) | Includes $50,000 cash retainer related to service during 2021 as audit committee chair. |
| (3) | The amounts reported in these columns represent the grant date fair value of the stock awards granted during the year ended December 31, 2021, calculated in accordance with FASB ASC Topic 718. |
Compensation Committee Interlocks and Insider Participation
Not applicable to smaller reporting companies.
Compensation Committee Report
Not applicable to smaller reporting companies.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial ownership of our common stock as of March 25, 2022 by:
| ● | each stockholder known by us to beneficially own more than 5% of our outstanding common stock; |
| ● | each of our directors; |
| ● | each of our named executive officers; and |
| ● | all of our directors and executive officers as a group. |
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We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities. A security holder is also deemed to be, as of any date, the beneficial owner of all securities that such security holder has the right to acquire within 60 days after such date through (i) the exercise of any option or warrant, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar arrangement or (iv) the automatic termination of a trust, discretionary account or similar arrangement. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each person identified in the table has sole voting and investment power over all of the shares shown opposite such person’s name.
The percentage of beneficial ownership is based on 14,303,743 shares of our common stock outstanding as of March 25, 2022.
| Number of |
|
| ||
Name of Beneficial Owner | Shares | Percentage | |||
Executive Officers and Directors |
|
|
|
| |
Paul Roberts(1) |
| 2,212,606 | 15.37 | % | |
Joshua Weiss(2) |
| 27,120 | * | ||
Leon Zemel (3) |
| 7,053 | * | ||
Mitchell Berg(4) |
| — | * | ||
Peter Anthony Bordes, Jr. (5) |
| 767,160 | 5.18 | % | |
Grainne Coen |
| 44,308 | * | ||
Jeannie Mun |
| 18,308 | * | ||
Elisabeth DeMarse |
| 18,308 | * | ||
Jonathan Bond |
| 13,899 | * | ||
Lawrence Harris |
| 6,649 | * | ||
All directors and executive officers as a group(6) |
| 3,115,411 | 20.89 | % | |
5% Shareholders |
| ||||
Mithaq Capital SPC | |||||
c/o Synergy, Anas IBN Malik Road | |||||
Al Malq, Riyadh T0 13521 | 1,737,917 | 12.15 | % |
* | Less than 1% |
| (1) | Includes (i) 666,667 shares of common stock held by the Paul Roberts 2019 Annuity Trust, of which Mr. Roberts is a partial beneficiary, (ii) 33,334 shares of common stock underlying stock options that are exercisable or will become exercisable within 60 days, and (iii) 55,541 shares of common stock underlying stock warrants that are exercisable or will become exercisable within 60 days. Does not include 436,720 shares of common stock underlying unvested restricted stock awards. |
| (2) | Includes 10,066 shares of common stock underlying stock options that are exercisable or will become exercisable within 60 days. Does not include 6,601 shares of common stock underlying unvested stock options or 181,016 shares of common stock underlying unvested restricted stock awards. |
| (3) | Does not include 156,016 shares of common stock underlying unvested restricted stock awards. |
| (4) | Does not include 130,000 shares of common stock underlying unvested restricted stock awards. |
| (5) | Includes (i) 62,470 shares of common stock held by Trajectory Capital, LLC, over which Mr. Bordes has voting and dispositive power, and (ii) 513,638 shares of common stock underlying stock warrants that are exercisable or will become exercisable within 60 days. |
| (6) | Includes 612,579 shares of common stock underlying options or warrants that are exercisable or will become exercisable within 60 days. |
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Policies and Procedures for Related Person Transactions
Our board of directors has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which we are a participant, the amount involved exceeds $120,000 and one of our executive officers, directors, director nominees or 5% stockholders, or their immediate family members, each of whom we refer to as a “related person,” has a direct or indirect material interest.
If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our Chief Financial Officer. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our audit committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chairman of the committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.
A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the committee after full disclosure of the related person’s interest in the transaction. As appropriate for the circumstances, the committee will review and consider:
| ● | the related person’s interest in the related person transaction; |
| ● | the approximate dollar value of the amount involved in the related person transaction; |
| ● | the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss; |
| ● | whether the transaction was undertaken in the ordinary course of our business; |
| ● | whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party; and |
| ● | the purpose of, and the potential benefits to us of, the transaction. |
The audit committee may approve or ratify the transaction only if the committee determines that, under all of the circumstances, the transaction is in our best interests. The committee may impose any conditions on the related person transaction that it deems appropriate.
In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, our board of directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:
| ● | interests arising solely from the related person’s position as an executive officer of another entity (whether or not the person is also a director of such entity) that is a participant in the transaction, where (i) the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, (ii) the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction, and (iii) the amount involved in the transaction is less than the greater of $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction; and |
| ● | a transaction that is specifically contemplated by provisions of our certificate of incorporation, as amended and restated, or bylaws. |
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The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the compensation committee in the manner specified in its charter. We have a written policy regarding the review and approval of related person transactions. With respect to such transactions, it is our policy for our board of directors to consider the nature of and business reason for such transactions, how the terms of such transactions compared to those which might be obtained from unaffiliated third parties and whether such transactions were otherwise fair to and in the best interests of, or not contrary to, our best interests. In addition, all related person transactions required prior approval, or later ratification, by our board of directors.
Related Party Transactions
There were no related party transactions during the year ended December 31, 2021.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed to the Company by Marcum LLP for professional accounting services rendered for the fiscal years ended December 31, 2021 and 2020:
| Fiscal Year 2021 |
| Fiscal Year 2020 | |||
Audit fees (1) | $ | 276,695 | $ | 266,032 | ||
Audit related fees |
| — |
| — | ||
Tax fees (2) |
| — |
| — | ||
All other fees (3) |
| — |
| — | ||
$ | 276,695 | $ | 266,032 | |||
| 1) | Audit fees consist of fees billed for services rendered for the audit of our financial statements and review of our financial statements included in our Quarterly Reports on Form 10–Q. |
| 2) | Tax fees consist of fees billed for professional services related to the preparation of our U.S. federal and state income tax returns. |
| 3) | All other fees consist of fees billed for professional services related to non-recurring fees related to the Registration Statement on Form S-1 and amendments thereto filed with the SEC in those years. |
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PART IV
ITEM 15. EXHIBITS
(a) | Exhibits. |
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101.INS* |
| XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
*Filed herewith.
**Furnished herewith.
+Denotes a management compensatory plan, contract or arrangement
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 30th day of March, 2022.
| KUBIENT, INC. | ||
| By: | /s/ Paul Roberts | |
| Name: | Paul Roberts | |
| Title: | Chief Executive Officer, Chief Strategy Officer, President and Chairman | |
|
| (principal executive officer) | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
| Title |
| Date |
/s/ Paul Roberts | Chief Executive Officer, Chief Strategy Officer, President and Chairman | March 30, 2022 | ||
Paul Roberts | (principal executive officer) | |||
/s/ Joshua Weiss | Chief Financial Officer | March 30, 2022 | ||
Joshua Weiss | (principal financial and accounting officer) | |||
/s/ Jonathan Bond | Director | March 30, 2022 | ||
Jonathan Bond | ||||
/s/ Peter A. Bordes, Jr. | Director | March 30, 2022 | ||
Peter A. Bordes, Jr. | ||||
/s/ Grainne Coen | Director | March 30, 2022 | ||
Grainne Coen | ||||
/s/ Elisabeth DeMarse | Director | March 30, 2022 | ||
Elisabeth DeMarse | ||||
/s/ Lawrence Harris | Director | March 30, 2022 | ||
Lawrence Harris | ||||
/s/ Jeannie Mun | Director | March 30, 2022 | ||
Jeannie Mun |
51