UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from __________ to ________________
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(Exact Name of Registrant as Specified in its Charter)
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(Former Name, former address, and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of exchange on which registered | ||
| The |
Indicate by check mark whether the registrant
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(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☐
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| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
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No
As of July 29, 2024, the registrant had
Table of Contents
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. We have presented financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these unaudited consolidated financial statements, management has evaluated events and transactions for potential recognition or disclosure through the date the unaudited consolidated financial statements were issued by filing with the SEC.
This Quarterly Report on Form 10-Q for the three month period ended March 31, 2024 (this “Quarterly Report”), should be read in conjunction with our audited financial statements for the year ended December 31, 2023, included in our Annual Report on Form 10-K, filed with the SEC on July 10, 2024.
The results of operations for the three month period ended March 31, 2024, are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024.
1
COLLECTIVE AUDIENCE, INC.
CONSOLIDATED BALANCE SHEETS
| March 31, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Related party receivable | ||||||||
| Right of use assets - operating lease | ||||||||
| Intangible Assets | ||||||||
| Property and equipment, net | ||||||||
| Marketable securities held in Trust Account | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Promissory notes, related party | ||||||||
| Convertible promissory notes, related party | ||||||||
| Warrant revenue side-sharing liability | ||||||||
| Deferred underwriting commissions | ||||||||
| Derivative warrant liability | ||||||||
| Related party payable | ||||||||
| Lease liability - operating lease | ||||||||
| Notes payable | ||||||||
| Total liabilities | $ | $ | ||||||
| STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Common stock, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ (deficit) equity | ||||||||
| Total liabilities and stockholders’ (deficit) equity | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements
2
COLLECTIVE AUDIENCE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the three months ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses: | ||||||||
| Professional Fees | ||||||||
| Depreciation and amortization | ||||||||
| General and administrative | ||||||||
| Sales and marketing | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ||||||||
| Interest income | ||||||||
| Change in fair value of derivative warrants liability | ( | ) | ||||||
| Change in fair value of warrant side-sharing liability | ||||||||
| Loss on disposal of assets | ||||||||
| Total other income (expense) | ||||||||
| Net loss before income taxes | ( | ) | ( | ) | ||||
| Income taxes | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
| Weighted average common shares outstanding | ||||||||
See accompanying notes to unaudited consolidated financial statements
3
COLLECTIVE AUDIENCE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| For the periods ended March 31 | ||||||||
| 2024 | 2023 | |||||||
| Net Income / (Loss) | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income / loss | ||||||||
| Net cash and restricted provided by financing activities | ||||||||
| Total other comprehensive income / loss | ( | ) | ( | ) | ||||
| Comprehensive income / (loss) | ||||||||
| Year-end cash | $ | ( | ) | $ | ( | ) | ||
| Comprehensive income / (loss) attributable to Collective Audience | ( | ) | ( | ) | ||||
See accompanying notes to unaudited consolidated financial statements
4
COLLECTIVE AUDIENCE, INC.
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2024
| Additional | ||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Consulting services | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to unaudited consolidated financial statements
5
COLLECTIVE AUDIENCE, INC.
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2023
| Additional | ||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance January 1, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to unaudited consolidated financial statements
6
COLLECTIVE AUDIENCE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in fair value of warrant liabilities | ||||||||
| Share-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts Receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investments in marketable securities held in Trust Account | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Funding from related party | ||||||||
| Proceeds from convertible promissory notes | ||||||||
| party Proceeds from notes payable - related party | ||||||||
| Additional funding to related party | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH | ( | ) | ( | ) | ||||
| Cash - Beginning of period | ||||||||
| Cash - End of period | ||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Accretion of common stock to redemption value | ||||||||
See accompanying notes to unaudited consolidated financial statements
7
COLLECTIVE AUDIENCE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 2024
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Corporate Information and Business Overview
Collective Audience, Inc. (the “Company”) operates primarily through its subsidiaries, DLQ INC., a Nevada corporation ( “DLQ”) and DSL Digital, LLC, a Utah Limited Liability Company (“DSL”)
DLQ
DLQ is a Nevada corporation, originally incorporated in December 2019 as Origin 8, Inc. DLQ has two wholly owned subsidiaries, Tamble, Inc., a Delaware corporation, and Push Interactive, LLC, a Minnesota limited liability company, located in Minneapolis, Minnesota, USA. Tamble, Inc. is not an operating business. Its sole purpose is to hire independent contractors for DLQ’s marketing business.
On January 8, 2020, DLQ’s,
then parent completed the acquisition of substantially all of the assets of Push Holdings, Inc. and the assets were transferred to Push
Interactive, LLC. This acquired business operates a consumer data management platform powered by lead generation, online marketing, and
multichannel reengagement strategies through its owned and operated brands. DLQ has developed a proprietary data management platform and
integrated with several third-party service providers to optimize the return on its marketing efforts. DLQ focuses on consumer engagement
and enrichment to maximize its return on acquisition through repeat monetization of each consumer. As part of the transaction, Logiq,
Inc. issued
On March 31, 2022, DLQ and
its then parent completed the acquisitions of certain customer contractual agreements of Battle Bridge Labs, LLC and Section 2383 LLC,
a Tulsa, Oklahoma based digital brand marketing agency. The purchase price was $
Battle Bridge Acquisition Co., LLC became the third wholly owned subsidiary of DLQ. Battle Bridge is a full-service branding and digital marketing agency serving both external clients and internal parts of the Company. Battle Bridge offers branding and identity development in additional to digital strategy and media busing services, as well as all of the requisite ancillary and supporting services to enable the branding and digital practices.
On September 9, 2022, DLQ and its then parent Logiq Inc. entered into a definitive merger agreement for a business combination whereby it will merge with Abri Merger Sub Inc., a wholly owned subsidiary of Abri SPAC I, Inc., a special purpose acquisition company (“SPAC”).
The business combination between
was be affected through the merger of Abri Merger Sub, Inc. with and into DLQ, with DLQ surviving the merger as a wholly owned subsidiary
of the Company. Upon the closing of the acquisition, the Company changed its name to “Collective Audience, Inc.” Abri issued
The accompanying consolidated financial statements represent the financial position and result of operations of the Company, with its subsidiary DLQ, Inc. as the source of operations.
8
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)
DSL
On June 28, 2024 the Company acquired DSL Digital LLC, a Utah limited liability company (“DSL”). DSL is a global marketing platform with proprietary artificial intelligence technology that enables it to triple the performance of its competitors (for Fortune 500 companies such as SAP and Accenture). DSL’s fast-growing B2B and DTC advertising channels are now able to create unique, never-before-seen programs for brands and publishers using the BeOp platform, forming the basis for the launch of Collective Audience, Inc’s “Audience Service” offering and its expansion into B2B advertising and media.
The Business Combination
As previously announced, on September 9, 2022, Abri SPAC I, Inc., a Delaware corporation (“Abri”), Abri Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Abri (“Merger Sub”), Logiq, Inc., a Delaware corporation (“Logiq or “DLQ Parent”) whose common stock is quoted on OTCQX Market under the ticker symbol “LGIQ” and, DLQ, Inc., a Nevada corporation and wholly owned subsidiary of DLQ Parent (“DLQ”) entered into a Merger Agreement (the “Merger Agreement”).
On November 2, 2023 (the “Closing
Date”), the Business Combination, among other transactions contemplated by the Merger Agreement, was completed (the “Closing”).
On the Closing Date,
On November 3, 2023, the Company’s Common Stock began trading on the Nasdaq Global Market under the symbol “CAUD.” The units previously trading under the symbol “ASPAU” were separated into their separate components and ceased to trade.
The settlement of the Abri
convertible note, related party, in the amount of $
The Merger Consideration and Treatment of Securities
At Closing, pursuant to the terms of the Merger Agreement and after giving effect to the redemptions of shares of Abri Common Stock:
| ● | The total consideration paid at Closing (the “Merger
Consideration”) by Abri to DLQ security holders was |
| ● | Each share of DLQ Common Stock, if any, that was owned by Abri, Merger Sub, DLQ or any other affiliate of Abri immediately prior to the effective time of the Merger (the “Effective Time”) was automatically cancelled and retired without any conversion or consideration; |
| ● | each share of Merger Sub common stock, par value $ |
Concurrent
with Closing, upon issuance of the Consideration Shares, DLQ Parent declared a share dividend of
9
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION (cont.)
The Company has authorized
The settlement of the Abri
convertible note, related party, in the amount of $
On December 19, 2023, the
Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain investors (the “Investors”),
pursuant to which the Company agreed to issue and sell to the Investors in a private placement (the “Offering”) (i)
| Cash - Trust and Escrow | $ | |||
| Less: Transaction Expenses Paid | ||||
| Net proceeds from the Business Combination | ||||
| Less: Recognition of SPAC closing balance sheet | ( | ) | ||
| Reverse capitalization, net | ( | ) |
| Abri common stock outstanding prior to Business Combination | ||||
| Less: Redemption of Abri common stock | ( | ) | ||
| Common stock of Abri | ||||
| Abri private units outstanding | ||||
| Abri founder shares outstanding | ||||
| Other | ||||
| Business Combination shares | ||||
| CAUD common stock | ||||
| Common stock immediately following Business Combination | ||||
| Brownstone investment | ||||
| Timothy Wong (Brownstone) | ||||
| Other shares issued during FY23 | ||||
10
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MERGER
For financial accounting purposes, this acquisition (referred to as the “Merger”) was a reverse acquisition of Abri by DLQ and was treated as a recapitalization with DLQ as the accounting acquirer. Accordingly, the financial statements have been prepared to give retroactive effect of the reverse acquisition completed on November 2, 2023 and represent the operations of DLQ, with one adjustment, which is to retroactively adjust the DLQ legal capital to reflect the legal capital of Abri. Accordingly, historical financial statements have been restated to reflect the recapitalization for all periods occurring after the acquisition that was effective as of November 2, 2023. Such restatement primarily related to common stock, equivalent shares information and basic and diluted per share data.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements reflect the assets, liabilities, revenue and expenses directly attributable to the Company. The Company is a separate legal entity and as such, general and administrative costs have been recorded directly to the books and records of the Company on a specific identification basis. Certain corporate overhead costs have been recorded based upon expenses directly attributable to the Company. Management believes all costs have been appropriately recorded.
USE OF ESTIMATES
The preparation of the Company’s carve-out consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the carve-out consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the carve-out consolidated financial statements are prepared. Actual results could differ from those estimates.
BUSINESS COMBINATIONS
The Company allocates the purchase price of the acquisition to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition related expenses and integration costs are expensed as incurred.
SEGMENT REPORTING
Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the chief operating decision maker, the Chief Executive Officer, in making decisions regarding resource allocation and assessing performance.
The Company views its operations and manages its business as
11
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The assets are valued using a fair market basis as defined in the Financial Accounting Standards Board (FASB ASC 820, Fair Value Measurement). Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. The Company uses a three-level hierarchy established by the Financial Accounting Standards Board (FASB) that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). The levels of the fair value hierarchy are described below:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs with little or no market data available, which require the reporting entity to develop its own assumptions.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most conservative level of input that is significant to the fair value measurement. The fair value of certain assets and liabilities assumed in the acquisition of Push Holdings, Inc. were determined utilizing the level 3 inputs.
LIQUIDITY
The
Company requires substantial amounts of operating cash for operating activities, including salaries and wages paid to the employees and
contractors, general and administrative expenses, and others. As of March 31, 2024, the Company had $
The
Company incurred operating losses and generated negative operating cash flows for the three months ended March 31, 2024, of $(
The Company considers operating results, capital resources and financial position, in combination with current projections and estimates, as part of its plan to fund operations over a reasonable period of time. The future viability of the company beyond 2023 is largely dependent on outside funding . or additional sources of financing.
Management will explore strategic alliances with enterprise investors that have a specific investment focus on digital marketing, advertising technology and lead generation companies. The Company is already acquainted with investment groups that have portfolio companies which could form strategic investment/partnerships with the Company and/or its subsidiaries. The Company will continue to explore these opportunities.
While it is anticipated that one of the above will provide assistance to address the liquidity concerns, these consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
There can be no assurance that the Company will be able to raise additional funds or that the terms and conditions of any future financing will be workable or acceptable to the Company or its stockholders. If the Company is unable to fund its operations from existing cash on hand, operating cash flows, additional borrowings, or raising equity capital, the Company may not continue operations.
12
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
RISKS AND UNCERTAINTIES
The Company relies on cloud-based hosting through a global accredited hosting provider. Management believes that alternate sources are available; however, disruption or termination of this relationship could adversely affect our operating results in the near-term.
GOODWILL
Goodwill is recorded as the difference between the aggregate consideration in a business combination and the fair value of the acquired net tangible and intangible assets. The Company evaluates goodwill for impairment on an annual basis in the fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Based on that qualitative assessment, if it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company conducts a quantitative goodwill impairment test, which involves comparing the estimated fair value of the reporting unit with its carrying value, including goodwill. The Company estimates the fair value of a reporting unit using a combination of the income and market approach. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss is recorded for the difference. There were no impairments recorded for period ended March 31, 2024 and March 31, 2023.
INTANGIBLE ASSETS
The
Company’s intangible assets consist of a trademark name and software technology that was acquired as part of the acquisition of
Push Holdings, Inc. as well as the customer list acquired as part of the Battle Bridge acquisition. The trademark name is amortized using
the straight-line method over
IMPAIRMENT OF LONG-LIVED ASSETS
The Company classifies its long-life assets into: (i) computer and office equipment; (ii) furniture and fixtures, (iii) leasehold improvements, and (iv) finite life intangible assets.
The Company evaluates the recoverability of long-lived assets annually, or more frequently whenever events or changes in circumstances indicate the assets might be impaired. If the carrying value of the long-life asset is not recoverable on a future cash flow basis, an impairment is recognized. As of the period ended March 31, 2024 and March 31, 2023, the Company had recorded no impairment charges.
LEASE
The Company adopted ASU 2016-02, Leases (Topic 842), on January 8, 2020, using a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the carve-out consolidated financial statements.
The Company leases its offices which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The right-of-use asset is recognized at the present value of future lease payments. There were no impairments recorded for the periods ended March 31, 2024 and March 31, 2023.
13
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
ACCOUNTS RECEIVABLE
Accounts receivable consists of trade receivables from customers. The Company records accounts receivable at its net realizable value, recognizing an allowance for doubtful accounts based on our best estimate of probable credit losses on our existing accounts receivable. The Company individually reviews all balances that exceed 90 days from the invoice date and assess for provisions for doubtful accounts based on an assessment of the balance that will be collected. Balances are written off against the allowance after all means of collection have been exhausted and the possibility of recovery is considered remote.
The
allowance for doubtful accounts as of March 31, 2024 and December 31, 2023, amounts to $
ACCOUNTS RECEIVABLE AND DUE TO FACTOR
The
Company factors designated trade receivables pursuant to a factoring agreement with Bayview Funding LLC, and unrelated factor (the “Factor”).
The agreement specifies that eligible trade receivables are factored with recourse. The Company submits selected trade receivables to
the factor and receives up to
Trade receivables assigned to the Factor are carried at the original invoice amount less an estimate made for doubtful accounts. Under the terms of the recourse provision, the Company is required to reimburse the Factor for factored receivables that are not paid on time. Accordingly, these receivables are accounted for as a secured financing arrangement and not as a sale of financial assets. The allowance of doubtful accounts is based on management regular evaluation of individual customer’s receivables and consideration of a customer’s financial condition and credit history. Trade receivables are written off when deemed uncollectable. Recoveries of trade receivables previously written off are recorded when received.
The Company presents the receivables, net of allowances, as current assets and presents the amount potentially due to the Factor as a secured financing in the current liabilities.
For
the period ended March 31, 2024 all factored receivables were settled and balances zeroed. Factored receivables for the year ended December
31, 2023 was in the amount of $
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash on hand, demand deposits, and other short-term highly liquid investments placed with banks, which have original maturities of three months or less and are readily convertible to known amounts of cash.
CONCENTRATIONS OF RISK
The Company’s financial instruments are potentially subject to concentrations of credit risk. The Company places its cash with high quality credit institutions. From time to time, the Company maintains cash balances at certain institutions in excess of the FDIC limit. Management believes that the risk of loss is not significant and has not experienced any losses in such accounts.
During the three months ended March 31, 2024 there were no clients as the company is restructuring post-acquisition deals.
As of March 31, 2024, there were no significant clients in accounts receivable.
As of March 31, 2024, there were no significant vendors in accounts payable.
14
NOTE 3 — INTANGIBLE ASSETS, NET
March 31, 2024 | December 31, 2023 | |||||||
| Trademark/Names | ||||||||
| Software | ||||||||
| Customer List | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Intangibles, net | ||||||||
| 2025 | ||||
| 2026 | ||||
The
amortization expense totaled $
NOTE 4 — REVENUE RECOGNITION
ASC 606, Revenue from Contracts with Customers
Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company measures revenue based on the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service or product to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps (i) identification of contracts with customers; (ii) identification of performance obligations; (iii) determination of the transaction price; (iv) allocation of the transaction price to performance obligations; and (v) recognition of revenue when or as the Company satisfies each performance obligation.
Typical payment terms are between net 30 and net 60 days.
The Company negotiates managed service agreements with the customers to specify the terms and conditions (including rights and obligations) and services to be provided. The services provided are based on three primary streams of revenue: lead generation, affiliate management and reengagement.
Lead Generation Revenue
For its Lead Generation revenue, the Company provides leads by purchasing ads to direct consumers to specific pages which are auctioned to the customer base. The Company’s performance obligation is to deliver the leads to customers in accordance with the terms of the agreement. The Company has concluded that this constitutes a single performance obligation for financial reporting purposes and that such obligation is recognized at a point of time, for which the Company is transferring value to the customer through delivery.
15
NOTE 4 — REVENUE RECOGNITION (cont.)
Affiliate Management Revenue
For its Affiliate Management revenue, the Company places ads on behalf of its customers after identifying the appropriate platforms to place the ads, determining the most advantageous amount of ad spend per platform, determining the prices for each ad, and producing the marketing materials. The Company has concluded that this constitutes a single performance obligation for financial reporting purposes and that such obligation is recognized at a point of time, for which the Company is transferring value to the customer through delivery.
Reengagement Revenue
For its Reengagement revenue, the Company provides links and advertisements via online, email, and In-App that generate views which are paid for by the customer. The Company’s performance obligation is to deliver the activity of clicks on advertisements in accordance with the terms of the agreement. The Company has concluded that this constitutes a single performance obligation for financial reporting purposes and that such an obligation is recognized at a point of time, for which the Company is transferring value to the customer through delivery.
All the streams of revenue above are recorded on a gross basis. The Company is responsible for fulfilling the delivery of services, establishing the selling price for the delivery, and the Company performs billing and collections, including ultimately retaining credit risk. The Company therefore determined that is serves as a principal and that gross presentation of revenue is appropriate.
| Point in Time | ||||||||
| March 31, 2024 | December 31, 2023 | |||||||
| Lead Generation | $ | $ | ||||||
| Affiliate Management | ||||||||
| Reengagement | ||||||||
| Revenue | $ | $ | ||||||
NOTE 5 — PROPERTY AND EQUIPMENT, NET
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Computer and equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Total equipment | ||||||||
| Less accumulated depreciation | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expenses for the three months ended March 31, 2024 and December 31, 2023 respectively, amounted to $
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NOTE 6 — ACCRUED EXPENSES
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Credit cards | $ | $ | ||||||
| Payroll | ||||||||
| Other | ||||||||
| $ | $ | |||||||
NOTE 7 — INCOME TAX
The Company is incorporated in the State of Delaware and is subject to a U.S. federal and state corporate income taxation. The Company is not filing as a member of the U.S. consolidated group of Collective Audience, Inc. and will file the US tax returns on a separate return basis. The tax provision has been prepared using this filing profile and does not include any activity of any entities outside of the Company.
The
Company incurred net operating losses for the three months ended March 31, 2024, and 2023. The Company is subject to U.S. federal
corporate income tax rate of
| March 31, 2024 | December 31, 2023 | |||||||
| Statutory tax rate | % | % | ||||||
| State income tax | % | % | ||||||
| Change in Valuation Allowance | % | % | ||||||
| True-Up | % | % | ||||||
| Change in State Rate | % | % | ||||||
| Total | % | % | ||||||
| Deferred Tax Assets and Liabilities | March 31, 2024 | March 31, 2023 | ||||||
| Startup costs | $ | $ | ||||||
| Depreciation | ||||||||
| Amortization | ( | ) | ||||||
| Net Operating Loss | ||||||||
| Valuation Allowance | ( | ) | ( | ) | ||||
| Net Deferred Tax Assets | $ | $ | ||||||
Management has determined that it is more likely than not that the Company will not realize its net deferred tax asset, and accordingly, a valuation allowance has been deemed necessary. As of March 31, 2024, and 2023, respectively, the valuation allowance is and .
The Company reports income tax related interest and penalties within our income tax line item on our consolidated statements of operations. We likewise report the reversal of income tax-related interest and penalties within such line item to the extent we resolve our liabilities for uncertain tax positions in a manner favorable to our accruals. As of March 31, 2024, and 2023, the Company has not recorded any uncertain tax positions.
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NOTE 8 — STOCKHOLDERS’ EQUITY
Logiq, Inc., the former parent of the Company, authorized a 2020 Equity Incentive Plan, which provides the issuance of common stock and restricted stock units (“RSU”) to be granted to eligible employees and consultants of Logiq, Inc., including those employed by DLQ, Inc.
Logiq,
Inc. issued shares of common stock to certain employees and consultants of the Company for services rendered (the “Compensation
Awards”). The Compensation awards were issued at the grant date fair value derived from OCTQX, the top tier of the three marketplaces
for the OTC trading of stocks, under the symbol “LGIQ”. On August 28, 2020, a total of
RSU’s
vest ratably every six months over three years. In the event the participant ceases to be a service provider for any reason
before participant’s RSUs vest, the RSUs and participant’s right to acquire any shares will immediately terminate. To the
extent actual forfeiture occurs, the amount will be recorded as adjustment to compensation expense in the period in which it occurred.
On November 20, 2020, the Company granted
For
the three month period ended March 31, 2024 and 2023, the company recorded $
Total
shared-based compensation expense related to non-vested awards not yet recognized was approximately $
| Nonvested as of December 31, 2021 | ||||
| Granted | ||||
| Vested | ( | ) | ||
| Forfeited | ( | ) | ||
| Nonvested as of December 31, 2022 | ||||
| Nonvested as of December 31, 2023 | ||||
| Nonvested as of March 31, 2024 |
Warrants
On
February 19, 2024, the “Company entered into a securities purchase agreement (the “February Purchase Agreement”) with
certain investors (the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors in a private
placement (the “Offering”) warrants to purchase up to
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NOTE 9 — LOSS PER SHARE
Basic
loss per share is computed by dividing net income available to Common Stockholders (the numerator) by the weighted average number of Common
Stock outstanding for the period (the denominator).
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
NOTE 10 — COMMITMENTS AND CONTINGENCIES
Operating lease
In
2020, through the Push acquisition, the Company was assigned an operating lease for approximately
Based
on the present value of the lease payments for the remaining lease term acquired on January 8, 2020, the right-of-use assets and
lease liabilities were approximately $
For
the three months ended March 31, 2024 and 2023, the Company recorded approximately $
NOTE 11 — LEGAL
From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material effect on the Company’s business, financial condition, results of operations or cash flows.
In August 2023, a creditor
of Push Interactive, LLC, (“Push”) the wholly-owned subsidiary of DLQ, Inc. filed a complaint against Push in the Superior
Court of the State of California, County of Los Angeles, claiming an unpaid principal amount of $
On February 26, 2024, a former employee of DLQ, Inc. filed a AAA arbitration demand against the Company, Logiq, Inc. and DLQ, Inc. claiming breach of contract and statutory wage payment violations. The parties agreed to stay the arbitration to explore possible resolution of the dispute, subject to rescission. On May 22, 2024 the stay was rescinded and the parties are proceeding with the arbitration, which is in the early stages. Although the Company intends to vigorously defend against these claims, there is no guarantee that they will prevail. The Company is currently unable to determine the ultimate outcome of these proceedings or to determine the amount or range of potential losses associated with the proceedings.
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NOTE 12 — RELATED PARTIES
In
both 2022 and 2021, the Company made advances to two related parties and obtained funding from Logiq, Inc. to support the operations
of the business. The related party receivable as of December 31, 2022 and 2021, amounts to approximately $
On November 8, 2022, the Company entered into a Managed Services Agreement (the “MSA”) with a significant new client (the “Client”) and will provide certain affiliate management, website development, lead generation, email management, and search engine optimization services (collectively, the “Services”) to Client through the Company’s platform. The MSA terminated on October 31, 2023.
In connection with the MSA, on November 8, 2022, DLQ Parent and Client also entered into an Independent Contractor Agreement (the “IC Agreement,” and together with the MSA, the “Agreements”), pursuant to which Client will provide, on a non-exclusive basis, certain business development strategies and execution and consulting services regarding e-commerce, digital marketing, and online advertising, including lead generation, affiliate marketing and brand development to the Company. The term of the IC Agreement coincides with the term of the MSA.
As
compensation for the services to be provided by Client to the Company under the IC Agreement, the Company agreed to issue Client
The compensation expense for the services rendered by the Client to the Company are borne by the Company.
Related Party Unsecured Note
On
March 31, 2024 (the “Promissory Note Closing Date”), the Company entered into a simple promissory note (the “Promissory
Note”) with the Company’s Chief Executive Officer, Peter Bordes, pursuant to which Mr. Bordes lent certain money to the Company.
The Promissory Note is for an aggregate principal amount of up to €
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NOTE 12 — SUBSEQUENT EVENTS
The Company has evaluated subsequent events occurring through the date these financial statements were issued, for their potential impact on the carve-out consolidated financial statements and disclosures and there were the following subsequent events to report:
Sales of Securities
On
April 26, 2024 (the “Execution Date”), the Company entered into an Exercise Price Reset Agreement (the “Reset Agreement”)
with the Investors from the February Private Placement and December Private Placement pursuant to which, among other things, the Company
agreed to reset the exercise price of the February Investor’s February Warrants from $
BeOp Acquisition and License Agreement
On February 29, 2024, the
Company entered into two agreements with The Odyssey SAS (dba BeOp) (“BeOp”), a company organized under the laws of
France specializing in conversational advertising: (i) the parties entered into a binding Letter of Intent (the “Binding LOI”)
whereby the Company is bound to acquire
On August 1, 2024, the Company entered into a
Share Exchange Agreement (the “Purchase Agreement”) by and among the Company, BeOp, and all shareholders of BeOp, as set forth
in exhibit A of the Purchase Agreement (the “Sellers” and each a “Seller”), pursuant to which the Company purchased
one hundred percent (
In consideration for the Acquisition, the Company
issued a total of
As further consideration for the Purchase Agreement,
at the end of December 31, 2025, and upon BeOp reaching its currently forecasted gross revenue and EBITDA for 2024 and 2025, taking into
account and including the Company’s sales under the Interim License Agreement, as set forth on Exhibit F in the Purchase Agreement,
the Company shall pay to Sellers, in accordance with the pro rata allocations designated in Exhibit A, an amount equal to €
As previously disclosed, the closing of the Acquisition
was conditioned, in part on BeOp’s debt restructuring proceedings with the Commercial Court of Paris, France(the “Restructured
Debt”). As part of the Binding LOI, the Company had contributed to an escrow account (at the direction of the Commercial Court of
Paris) €
The Purchase Agreement contains standard representations, warranties, covenants, indemnification and other terms customary in similar transactions.
DSL Acquisition
On June 28, 2024, the Company
entered into an Equity Exchange Agreement (the “DSL Exchange Agreement”) with DSL Digital, LLC, a Utah limited liability
company (“DSL”) and Gregg Greenberg, the sole member of DSL (“Seller”) wherein Seller
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and operating results together with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”). This discussion and analysis contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Quarterly Report. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on July 10, 2024. Readers are cautioned not to place undue reliance on these forward-looking statements.
Overview
We were blank check company incorporated on March 18, 2021 as a Delaware corporation and formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar Business Combination with one or more businesses or IPO and the sale of the Private Placement Units, our capital stock, debt or a combination of cash, stock and debt.
Recent Developments
BeOp Acquisition and License Agreement
On February 29, 2024, the Company entered into two agreements with The Odyssey SAS (dba BeOp) (“BeOp”), a company organized under the laws of France specializing in conversational advertising: (i) the parties entered into a binding Letter of Intent (the “Binding LOI”) whereby the Company is bound to acquire 100% of the ownership of BeOp, subject to certain closing conditions (the “Acquisition”) and (ii) an interim exclusive joint venture and software license agreement (the “Interim License Agreement”) pursuant to which the Company obtained an exclusive license to commercialize the BeOp software in North America during the period between signing the Binding LOI and the expected closing (the “BeOp Closing”).
BeOp has developed a new integrated and simplified media-independent advertising system, designed to (i) increase the performance of advertising campaigns, and (ii) bring advertisers and media agencies closer together, by considerably simplifying the value chain and thus better remunerating publishers. BeOp’s SAAS software suite offers modern programmatic advertising, behavioral and audience data enhancing engagement while increasing advertising spend.
On August 1, 2024, the Company entered into a Share Exchange Agreement (the “Purchase Agreement”) by and among the Company, BeOp, and all shareholders of BeOp, as set forth in exhibit A of the Purchase Agreement (the “Sellers” and each a “Seller”), pursuant to which the Company purchased one hundred percent (100%) of the outstanding equity interests in BeOp, resulting in BeOp becoming a subsidiary of the Company (the “Acquisition”). The Acquisition closed concurrently on August 1, 2024 (the “Closing Date”).
In consideration for the Acquisition, the Company issued a total of 3,006,667 shares of restricted Company common stock (the “Exchange Consideration”), however, the Company retained 666,667 shares of the Exchange Consideration to be held for a period of twelve (12) months following the Closing Date, to the extent not reduced by any indemnification claims as defined in the Purchase Agreement. (the “Holdback Shares”).
As further consideration for the Purchase Agreement, at the end of December 31, 2025, and upon BeOp reaching its currently forecasted gross revenue and EBITDA for 2024 and 2025, taking into account and including the Company’s sales under the Interim License Agreement, as set forth on Exhibit F in the Purchase Agreement, the Company shall pay to Sellers, in accordance with the pro rata allocations designated in Exhibit A, an amount equal to €200,000 worth of Company common stock based on as 20-Day VWAP as of December 31, 2025. (the “Earnout Payment”).
As previously disclosed, the closing of the Acquisition was conditioned, in part on BeOp’s debt restructuring proceedings with the Commercial Court of Paris, France(the “Restructured Debt”). As part of the Binding LOI, the Company had contributed to an escrow account (at the direction of the Commercial Court of Paris) €350,000 (the “Debt Escrow”). As of the Closing Date, the Debt Escrow, at the direction of the Commercial Court of Paris, was released to the Company. Furthermore, as of the Closing Date, the Sellers and BeOp (within the limits of their respective powers and positions in BeOp prior to the Closing), will continue their role in managing the insolvency procedure before the commercial Court of Paris until its completion to facilitate the orderly completion of such proceedings, at no additional cost to Company. BeOp and the Sellers agree to cooperate in good faith following the closing of the Purchase Agreement to effectuate the completion of said court proceedings before the commercial Court of Paris. The Interim License Agreement was terminated as of the Closing Date.
The Purchase Agreement contains standard representations, warranties, covenants, indemnification and other terms customary in similar transactions.
DSL Acquisition
On June 28, 2024, the Company entered into an Equity Exchange Agreement (the “DSL Exchange Agreement”) with DSL Digital, LLC, a Utah limited liability company (“DSL”) and Gregg Greenberg, the sole member of DSL (“Seller”) wherein Seller 51% of the total issued and outstanding membership interests of DSL to the Company in exchange for 3,242,875 shares of Company common stock, (“DSL Exchange Consideration”) 10% of which are held (the “Holdback Shares”) to be released 18 months from the closing date. The DSL Exchange Consideration shall be subject to a lock-up for 2 years from the closing date. As a result, DSL became a majority-owned subsidiary of the Company.
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DSL, a global marketing platform with proprietary artificial intelligence technology that enables it to triple the performance of its competitors (for Fortune 500 companies such as SAP and Accenture). DSL’s fast-growing B2B and DTC advertising channels are now able to create unique, never-before-seen programs for brands and publishers using the BeOp platform, forming the basis for the launch of Collective Audience, Inc’s “Audience Service” offering and its expansion into B2B advertising and media.
Business Combination
As previously announced, on September 9, 2022, we entered into a Merger Agreement with Abri Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Abri (“Merger Sub”), Logiq, Inc., a Delaware corporation (“Logiq” or “DLQ Parent”) whose common stock is quoted on OTCQX Market under the ticker symbol “LGIQ” and, DLQ, Inc., a Nevada corporation and wholly owned subsidiary of DLQ Parent (“DLQ”). On November 2, 2023, the Business Combination, including the Merger, was completed. In connection with the Closing, the registrant changed its name from Abri SPAC I, Inc. to Collective Audience, Inc. As a result of the Business Combination, our operations are primarily through DLQ.
Recent Developments
We continue to evaluate the impact of the Russia-Ukraine war, on the industry and have concluded that, while it is reasonably possible that such could have negative effects on our financial position, results of operations, and/or search for a target company, the specific impacts are not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
On December 9, 2022, we held a special meeting of stockholders at which such stockholders voted to amend our amended and restated certificate of incorporation and investment trust agreement, giving us the right to extend the date by which we must complete our Initial Business Combination up to six times for an additional one month each time, from February 12, 2023 to August 12, 2023, by depositing $87,500 into the Trust Account for each one-month extension. In connection with the special meeting, 4,481,548 shares of common stock were tendered for redemption, resulting in redemption payments of $45,952,279 out of the Trust Account. On August 7, 2023, we held a second special meeting of stockholders at which such stockholders voted to amend our amended and restated certificate of incorporation and investment trust agreement, giving us the right to extend the date by which we must complete our Initial Business Combination from August 12, 2023 to February 12, 2024 with no additional payment to the Trust Account. In connection with the special meeting, 570,224 shares were tendered for redemption. As a result, $6,055,325 ($10.62 per share), after deducting allowable taxes, was removed from our Trust Account to pay such holders. We have 682,148 shares of common stock subject to possible redemption outstanding as of March 31, 2024.
Nasdaq Listing
Nasdaq Delisting Notification
On June 24, 2024, the Company received a notice (the “Delisting Notice”) from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market, LLC (“Nasdaq”) advising the Company that it had initiated the process to delist the Company’s securities from Nasdaq because the Company has not yet regained compliance with either the MVLS Rule or the MVPHS Rule (each defined below). Additionally, the Company’s failure to timely file its Form 10-K for the fiscal year ended December 31, 2023, and its Form 10-Q for the period ended March 31, 2024, served as additional and separate basis for delisting. The Company has requested a hearing on July 1, 2024. However, there can be no assurance that such appeal would be successful. In such event, the Company may also seek to apply for a transfer to The Nasdaq Capital Market if it meets the requirements for continued listing thereon.
MVLS and MCPHS
We received two written notices (the “Nasdaq Notices”), dated December 22, 2023, from the Nasdaq Stock Market (“Nasdaq”) indicating that (i) for the preceding 30 consecutive business days, the market value of our listed securities (“MVLS”) did not maintain a minimum market value of $50,000,000 (the “Minimum MVLS Requirement”) as required by Nasdaq Listing Rule 5450(b)(2)(A), and (ii) for the preceding 30 consecutive business days, the market value of our publicly held shares (“MVPHS”) did not maintain a minimum market value of $15,000,000 (the “Minimum MVPHS Requirement”) as required by Nasdaq Listing Rule 5450(b)(2)(C).
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In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has a compliance period of 180 calendar days, or until June 19, 2024, to regain compliance with the Minimum MVLS Requirement. Compliance may be achieved if the Company’s MVLS closes at $50,000,000 or more for a minimum of ten consecutive business days at any time during the 180-day compliance period, in which case Nasdaq will notify the Company of its compliance and the matter will be closed.
In accordance with Nasdaq Listing Rule 5810(c)(3)(D), we have a compliance period of 180 calendar days, or until June 19, 2024, to regain compliance with the Minimum MVPHS Requirement. Compliance may be achieved if our MVPHS closes at $15,000,000 or more for a minimum of ten consecutive business days at any time during the 180-day compliance period, in which case Nasdaq will notify us of our compliance and the matter will be closed.
As discussed above, on June 24, 2024 Nasdaq issued the Company the Delisting Notice stating that its common stock is subject to delisting. The Company intends to appeal the relevant delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules. However, there can be no assurance that such appeal would be successful. In such event, the Company may also seek to apply for a transfer to The Nasdaq Capital Market if it meets the requirements for continued listing thereon. The Company is presently evaluating potential actions to regain compliance with all applicable requirements for continued listing on the Nasdaq Global Market. There can be no assurance that the Company will be successful in maintaining the listing of its common stock on the Nasdaq Global Market.
Bid Price
Further, on April 19, 2024, we received a notification letter (the “Bid Price Notice”) form the Listing Qualifications Department of Nasdaq notifying us that because the closing bis price for the Company’s comment stock was below $1.00 per share for 32 consecutive trading days, the Company is not currently in compliance with the minimum bid price requirement for continued listing on the Nasdaq Global Market as set forth in Nasdaq Marketplace Rules 5450(a)(1) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), the Company has a period of 180 calendar days from April 19, 2024, or until October 16, 2024, to regain compliance with the Minimum Bid Price Requirement. If at any time before October 16, 2024, the closing bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement, and the matter would be resolved. If the Company does not regain compliance during the compliance period ending on October 16, 2024, then (i) the Company may transfer to The Nasdaq Capital Market, provided that it meets the applicable market value of publicly held shares requirement for continued listing and all other applicable requirements for initial listing on the Nasdaq Capital Market (except for the bid price requirement) and (ii) Nasdaq may grant the Company a second 180 calendar day grace period to regain compliance, provided the Company (a) meets the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and (b) the Company notifies Nasdaq of its intent to cure the deficiency.
The Company intends to continue actively monitoring the closing bid price for the Company’s common stock between now and October 16, 2024, and will consider available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement. As discussed above, the Company received the Delisting Notice stating that its common stock is subject to delisting. The Company intends to appeal the relevant delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules.
Annual Report
On April 24, 2024, the Company received a notification letter (the “Annual Report Notice”) from Nasdaq advising the Company that it was not in compliance with Nasdaq’s continued listing requirements under Nasdaq Listing Rule 5250(c)(1) (the “Filings Rule”) as a result of its failure to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”). The Annual Report Notice has no immediate effect on the listing of the Company’s common stock on The Nasdaq Global Market, and, therefore, the Company’s listing remains fully effective.
Pursuant to the Rule, the Company has 60 calendar days from receipt of the Notice, or until June 24, 2024, to submit a plan to regain compliance with the Rule. As discussed above, the Company received the Delisting Notice on June 24, 2024 stating that its common stock is subject to delisting. The Company subsequently filed its Form 10-K on July 10, 2024. The Company intends to appeal the relevant delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules.
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Quarterly Report
On May 23, 2024, the Company received a notification letter (the “Quarterly Report Notice”) Nasdaq indicating that the Company was not in compliance with Nasdaq Listing Rule 5250(c)(1) which requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission, due to the Company’s failure to timely file its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 (the “Form 10-Q”). The Notice has no immediate effect on the listing of the Company’s common stock on The Nasdaq Global Market, and, therefore, the Company’s listing remains fully effective.
Pursuant to the Rule, the Company had 60 calendar days from receipt of the Annual Report Notice, or until June 24, 2024, to submit the Reports or a plan to regain compliance with the Rule. As discussed above, the Company received the Delisting Notice stating that its common stock is subject to delisting. The Company intends to appeal the relevant delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules.
If Nasdaq delists the Company’s securities from trading on its exchange, we could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for our securities; |
| ● | reduced liquidity with respect to our securities; |
| ● | a determination that our shares are a “penny stock,” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares; |
| ● | a limited amount of news and analyst coverage for our company; and |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
Results of Operations
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023 (in thousands):
Our only activities from March 18, 2021 (inception) through March 31, 2024 were organizational activities, those necessary to consummate the IPO and identify a target company for a Business Combination and restructuring post-acquisition deals. Prior to the Business Combination, we have generated non-operating income in the form of interest income on marketable securities held in the Trust Account. We are incurring expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. On November 2, 2023, we closed the Business Combination, at which time our operations became based primarily on those of our wholly-owned subsidiary, DLQ Inc.
Revenue
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Revenue | $ | 0 | 0 | 0 | 0 | % | ||||||||||
The decrease in Revenue was primarily due to the organization’s focus on completing the Initial Business Combination as announced on October 31, 2023.
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Operating Expenses- Platform Operations
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Platform Operations | $ | 0 | $ | 0 | $ | 0 | 0 | % | ||||||||
The decrease in Platform Operations was primarily due to the organization’s focus on completing the Initial Business Combination as announced on October 31, 2023.
Selling and Marketing Expenses
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Sales and marketing | $ | 50,000 | $ | - | $ | 50,000 | % | |||||||||
The increase in Sales and Marketing expenses was primarily due to the organization’s PR post business combination.
General and Administrative Expenses
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| General and administrative | $ | 788,663 | $ | 157,723 | $ | 625,940 | 397 | % | ||||||||
The increase in general and administrative expenses is primarily due to legal costs post business combination and SEC filings.
Total Other Expense, Net
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Total other expense, net | $ | 377,717 | $ | - | $ | 377,717 | - | % | ||||||||
Total other income, net, for the three months ended March 31, 2024 primarily for amortization.
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Liquidity and Capital Resources
As of March 31, 2024, we had cash of $52,123 and a working capital deficiency of ($1,211,381). As of March 31, 2024, post close of the Initial Business combination, the Trust account was closed. After the Business Combinations, the remaining funds held in the Trust Account was used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our Business Combination if the funds available to us outside of the Trust Account were insufficient to cover such expenses.
Cash used in operating activities for the three months ended March 31, 2024 was $560,060. We expect that we will need additional capital to satisfy our liquidity needs.
As such, DLQ, DLQ Parent, Abri, and the Sponsor have agreed that Sponsor shall be the exclusive financing source of capital up to $30 million, and will use commercially reasonable efforts to enter into a mutually acceptable agreement for that purpose. Currently, while still undetermined and subject to further negotiation and change, the expected terms of an equity investment outlined in such agreement would include a 5% discount to the average 3 lowest VWAPs for the 20 days immediately preceding a funding, but limited to $1,000,000 per month and no more than $500,000 in any 14 day period. Shares underlying such agreement would be registered and could have up to two (2)warrants attached for each share at the then market price. Absent the aforementioned $30 million financing from the Sponsor, and if the Sponsor is unable fund or secure financing up to $30 million, the Company could otherwise be under-capitalized and obliged to seek financing from alternative sources, which it may or may not be able to obtain. Although certain of our initial stockholders, officers and directors or their affiliates have committed to loan us funds from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, there is no guarantee that we will receive such funds.
As of March 31, 2024, we had $52,123 in cash and a working capital deficit of ($1,211,381). This cash on hand was mainly due to that certain investment we received on December 19, 2023 whereby we entered into a securities purchase agreement (the “Purchase Agreement”) with certain investors (the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors in a private placement (i) 465,118 shares (the “Shares”) of common stock of the Company, $0.0001 par value (the “Common Stock”) for a purchase price of $1.29 per share of Common Stock, which was equal to the “Minimum Price” under Nasdaq rules, and (ii) warrants to purchase up to 697,678 shares of Common Stock (the “Warrants” and together with the shares underlying the Warrants, the “Warrant Shares,” and the Shares, the “Securities”) for a total aggregate gross proceeds of approximately $600,000.
Our operating revenues are insufficient to found our operations through the next twelve months. Our losses from operations, negative operating cash flows, working capital deficit and accumulated deficit, as well as the additional capital needed to fund operations within one year of the unaudited consolidated financial statement issuance date, raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements included elsewhere in this Quarterly Report have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
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In the event that we are not able to raise capital on terms described above or otherwise, it will have a significant, impact on our financial condition and our ability to continue as a going concern. It will also have an impact on our business and ability to execute according to management’s plans.
We have received letters from Nasdaq regarding our compliance with the exchange’s continued listing requirements.
Summary Statements of Cash Flows
The following table sets forth a summary of the net cash flow activity for the three months ended March 31, 2024 and 2023 (in thousands):
| For the three months ended | 2024 vs 2022 | |||||||||||||||
| March 31, 2024 | March 31, 2023 | $ Change | % Change | |||||||||||||
| Net cash and restricted cash used in operating activities | $ | (560,095 | ) | $ | (234,463 | ) | $ | (325,632 | ) | 139 | % | |||||
| Net cash and restricted cash used in investing activities | - | (392,513 | ) | 392,513 | -100 | % | ||||||||||
| Net cash and restricted provided by financing activities | 35 | 525,000 | (525,000 | ) | -100 | % | ||||||||||
| Net change in cash | (560,060 | ) | (101,976 | ) | (458,084 | ) | 449 | % | ||||||||
| Cash Beginning | 612,183 | 381,293 | 230,890 | 61 | % | |||||||||||
| Year-end cash | $ | 52,123 | $ | 279,317 | $ | (227,194 | ) | -81 | % | |||||||
Cash Flows from Operating Activities. During the three months ended March 31, 2024 and 2023, the primary use of cash, cash equivalents and restricted cash was legal costs.
Cash Flows from Investing Activities. During the three months ended March 31, 2024 and 2023, the change in net cash, cash equivalents and restricted cash used in investing activities was due entirely to elimination of Trust Account.
Cash Flows from Financing Activities. During the three months ended March 31, 2024, the primary source of cash, cash equivalents and restricted cash was due to issuance of additional promissory notes.
Operating and Capital Expenditure Requirements
Our specific future operating and capital expense requirements are difficult to forecast. However, we can anticipate the general types of expenses and areas in which they might occur. In 2024, while we expect to maintain a lean operating structure at approximately the same level as 2023, should resources become available we may increase marketing spend to drive further sales growth.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2024 and 2023. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an agreement to pay our Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. As of March 31, 2024, and 2023, we owed the Sponsor $0 and $0, respectively, under this agreement, which is included in accounts payable and accrued expenses in the accompanying condensed balance sheets. We began incurring these fees on August 9, 2021 and stopped upon the completion of the Business Combination.
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In connection with our initial business combination, we are obligated to pay our expenses relating thereto, including the deferred underwriting commissions payable to our underwriter in an amount equal to 3.0% of the total gross proceeds raised in the offering, or $1,500,000, upon consummation of our initial business combination.
Upon consummation of our IPO, we sold to our underwriters, for $100, an option to purchase up to a total of 300,000 units (or up to 345,000 if the over-allotment is exercised in full) exercisable, in whole or in part, at $11.50 per unit, commencing on the consummation of our initial business combination. The purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires five years from the commencement of sales in our IPO. The option and the 300,000 units, as well as the 300,000 shares of common stock, and the warrants to purchase 300,000 shares of common stock that may be issued upon exercise of the option have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the effective date of our registration statement, or August 9, 2021.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting estimates.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
Known Trends or Uncertainties
In the current quarter, the media company has observed several notable trends and uncertainties impacting its operations and financial performance. A significant trend is the continued shift towards digital streaming platforms, leading to increased investments in original content and technology upgrades to enhance user experience. However, uncertainties persist due to fluctuating advertising revenues, which are influenced by broader economic conditions and shifts in consumer behavior. Additionally, regulatory changes and the competitive landscape pose potential challenges, requiring adaptive strategies to maintain market share and profitability. The company remains vigilant in monitoring these factors to navigate the dynamic media environment effectively.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4. Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As described in our Annual Report on Form 10-K for the year ended December 31, 2023, we identified material weaknesses in our internal control over financial reporting. As a result of these material weaknesses, our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have concluded that our disclosure controls and procedures are not effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act is recorded, processed, summarized and reported as and when required.
Notwithstanding the conclusion by our CEO and CFO that our Disclosure Controls as of March 31, 2024 were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described more fully under Item 9A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, management believes that the consolidated financial statements and related financial information included in this Quarterly Report on Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows as of the date presented, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
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Remediation Activities
Management continues to evaluate the material weaknesses discussed above and is implementing its remediation plan. However, we cannot provide assurance as to when our remediation efforts will be complete and the material weaknesses cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.
This quarterly report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting because that requirement under Section 404 of the Sarbanes-Oxley Act of 2002 was permanently removed for smaller reporting company filers pursuant to the provisions of Section 989G(a) set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted into federal law in July 2010.
Changes in Internal Control over Financial Reporting
Except for ongoing remediation activities, there were no changes in our internal control over financial reporting during the quarter ended March 31, 2024, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Inherent Limitations of Internal 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 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.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
For a description of our material pending legal proceeding, please see Note 11, Legal, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
Item 1A. Risk Factors.
Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition, or future results. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as updated by our subsequent filings under the Exchange Act. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Warrants
On February 19, 2024, the Company entered into a securities purchase agreement (the “February Purchase Agreement”) with certain investors (the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors in a private placement (the “Offering”) warrants to purchase up to 1,000,000 shares of Company common stock with an exercise price of $5.00 per share (the “Warrants” and together with the common shares underlying the Warrants, the “Warrant Shares,”) pursuant to the terms of the Common Stock Purchase Warrant (the “Warrant Agreement”) for a total aggregate gross proceeds of approximately $10,000. The Offering closed on February 19, 2024. The Warrants are exercisable for shares of Company common stock immediately, at an exercise price of $5.00 per share and expire five years from the date of issuance.
On April 26, 2024 (the “Execution Date”), the Company entered into an Exercise Price Reset Agreement (the “Reset Agreement”) with the Investors from the February Private Placement and December Private Placement pursuant to which, among other things, the Company agreed to reset the exercise price of the February Investor’s February Warrants from $5.00 per share of the Company’s common stock, par value $0.0001 (“Common Stock”), to $0.185 per share of Common Stock (the “Reset Exercise Price”) and to reset the December Investor’s December Warrants from an exercise price of $2.13 per share of Common Stock to the Reset Exercise Price. In consideration of the Company resetting the exercise price of the Warrants to the Reset Exercise Price, the Investors agreed to exercise their Warrants for all of the outstanding shares of Common Stock underlying their respective Warrants within forty-five (45) days of the Execution Date. The Reset Agreement contains a standstill provision prohibiting the Investors from, among other things, disposing of the shares of Common Stock issued for the exercise of the Warrants or the shares of Common Stock that may be issued upon the exercise of the Warrants, until five trading days after the Execution Date.
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Sale of Securities
On March 31, 2024, the Company entered into a securities purchase agreement (the “March Purchase Agreement”) with an accredited investor (the “Holder”), which provided for the issuance and sale by the Company to the Holder of a convertible promissory note (the “March 2024 Convertible Note”) in the aggregate principal amount of $100,000. The March 2024 Convertible Note is convertible into shares of the Company’s common stock, par value $0.0001 (the “Common Stock”) pursuant to certain conditions, as set forth in the March 2024 Convertible Note. The Offering closed on March 31, 2024 (the “Closing Date”). The March 2024 Convertible Note in the aggregate principal amount of $100,000 has a two (2) year maturity from the Closing Date (the “Maturity Date”) with an interest rate of 8% per annum payable on a quarterly basis or, at the option of the Company, added to the principal amount under the note.
Unregistered Shares Issued in Connection with Acquisitions
The Company issued unregistered securities in connection with the acquisition of DSL Digital, LLC and BeOp. The foregoing issuances of restricted shares of common stock were issued under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. The Company believes the issuances of the foregoing restricted shares were exempt from registration as each was a privately negotiated, isolated, non-recurring transaction not involving a public solicitation. No commissions were paid regarding the share issuances, and the share certificates were issued with a Rule 144 restrictive legend.
Repurchase of Equity Securities
We did not repurchase any of our registered equity securities during the period covered by this Quarterly Report on Form 10-Q.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Rule 10b5-1 Trading Plans
During the three months
ended March 31, 2024,
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Item 6. Exhibits.
Exhibit Index
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| * | Filed herewith |
| + | Indicates a management or compensatory plan. |
| † | Schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Registration S-K. The Registrant hereby agrees to furnish a copy of any omitted schedules to the SEC upon request. |
| * | Furnished herewith |
| ** | The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Collective Audience, Inc. | ||
| Date: August 7, 2024 | By: | /s/ Peter Bordes |
| Peter Bordes | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Date: August 7, 2024 | By: | /s/ Chris Andrews |
| Chris Andrews | ||
Chief Operating Officer and Interim Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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