This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of COVID-19 on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "suggests," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements. We discuss many of these risks in other filings we make from time to time with theSecurities and Exchange Commission (the "SEC"). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements. Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with theSEC , including our Annual Report on Form 10-K, filed with theSEC onMarch 30, 2021 , with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Unless the context requires otherwise, references to the "Company," "Kubient ," "we," "us" and "our" refer toKubient, Inc. , aDelaware corporation and its wholly-owned subsidiary,Fidelity Media, LLC , aDelaware limited liability company. For explanations of certain terms used in this prospectus, please read "Glossary" beginning on page A-1.
Overview
the most significant problems facing the global digital advertising industry.
Our experienced team of marketing and technology veterans has developed the Audience Cloud, a modular, highly scalable, transparent, cloud-based software platform for real-time trading of digital, programmatic advertising. 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, even in a pre-bid environment. By becoming a one stop shop for advertisers and publishers, providing them with the technology to deliver meaningful messages to their target audience, all in one place, on a single platform that is computationally efficient, transparent, and as safely fraud-free as possible, we believe that our platform (and the application of its machine learning algorithms) leads to increased publisher revenue, lower advertiser cost, reduced latency and increased economic transparency during the advertising auction process. Furthermore, we believe that our technology allows advertisers to reach entire audiences rather than buying single impressions from disparate sources. We call this approach Audience-Based Marketing. Combining this approach with our proprietary solutions for fraud prevention and the reduction of latency in auctions, we are confident that we are poised to alter the status quo as the next generation of the industry's advertising inventory auction infrastructure. 19 Table of Contents Recent Developments
New Members of the Board of Directors
On
among other things, two new members were elected to the Company’s board of
directors:
Jon Bond brings over 35 years of experience within the advertising and marketing space and is often considered to be one of the industry's most recognized thought leaders and entrepreneurs. He has had significant success holding senior level executive roles and starting companies from the ground up, such asKirshenbaum Bond Senecal & Partners, LLC .Larry Harris currently serves as the Founder and CEO ofAlpha Precision Media, Inc. , an adtech company that leverages Amazon's data and technology to build brand value and turbocharge sales. Additionally, he is also the Managing Partner ofGlarris Consulting, LLC , a consulting firm which provides strategic advisory services to companies, organizations and startups. The Company's board of directors has determined that bothMr. Bond andMr. Harris are each an "independent director" under the listing standards ofThe Nasdaq Stock Market, LLC's standards and are "non-employee directors" for purposes of Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934, as amended. NeitherMr. Bond norMr. Harris has any family relationships with any of the executive officers or directors of the Company, neitherMr. Bond norMr. Harris are a party to any transaction with the Company that would require disclosure under Item 404(a) of Regulation S-K, and there are no arrangements or understandings between each ofMr. Bond orMr. Harris and any other persons pursuant to which they were elected as a director. While the Company does not have a formal policy with respect to compensation payable to its non-employee directors for service as directors, bothMr. Bond andMr. Harris will receive cash compensation of$10,500 per quarter prorated for the amount of time they serve on the Board prior to the determination of the Company's standard non-employee director compensation package for fiscal year 2021, which will include equity awards for each year of service.
New Chief Product Officer
OnApril 9, 2021 ,Leon Zemel was appointed as the Company's new Chief Product Officer to fill the vacancy created by the resignation of the Company's previous Chief Product Officer onMarch 31, 2021 .Mr. Zemel has over 20 years' experience in the area of data analytics, programmatic advertising, and digital strategy, having worked at some of the most successful enterprises in the Company's industry, includingDoubleVerify, Inc. (NYSE:DV),MediaMath , Sharecare, Inc. (NASDAQ:SHCR), andRocket Fuel, Inc. (NASDAQ:FUEL).Mr. Zemel has also served as a member of the adjunct faculty ofColumbia University , lecturing on Applied Analytics for the school's Master of Science program.
Asset Purchase Agreement
OnJune 15, 2021 , pursuant to an asset purchase agreement datedJune 4, 2021 , we closed on the acquisition of a customer list and other assets ofAdvisio Solutions, LLC for consideration consisting of: (i)$1,050,000 paid in cash and (ii) the issuance of an aggregate of 100,000 restricted shares of our common stock.
New Vice Presidents of Performance Media
OnJune 4, 2021 ,Mike Gavigan andMark St. Amour joinedKubient's sales team as Vice Presidents of Performance Media. Messrs. Gavigan andSt. Amour were previously employed byAdvisio Solutions, LLC and have connected consumer brands with their digital target audiences for the past 20 years, executing campaigns from top brands and agencies while using digital acquisition as a core growth strategy for clients. 20 Table of Contents COVID-19 InMarch 2020 , theWorld Health Organization declared COVID-19, a novel strain of coronavirus, a pandemic. During 2020 and continuing into 2021, the global economy has been, and continues to be, affected by COVID-19. While we continue to see signs of economic recovery as certain governments began to gradually ease restrictions, provide economic stimulus and vaccine distribution accelerated, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions causing reinstatement of restrictions in certain jurisdictions. Starting in 2020 and continuing into 2021, the Company has taken proactive measures to protect the health and safety of our employees and customers by closing our offices, requiring employees to work from home and suspending travel, in-person meetings and visits with our customers. We continue to monitor the effectiveness of these measures in light of the daily evolution of the COVID-19 including the spread of the Delta variant, in order to ensure the health and safety of our employees remains our top priority. During the third quarter of 2021, with the easing of many COVID-19 restrictions, we opened our corporate office on a flexible basis. We developed a health-safety plan, designed to adhere to the applicable guidelines of theCDC , state and local officials to protect the safety of our workers. While we continue to monitor the impact of the Delta variant, our employees may continue to work from home for the duration of 2021 and beyond. We experienced improvement in our financial results and noticed an increase in customers' advertising budgets beyond pre-pandemic levels in the latter half of the fiscal year 2020 and through the first three quarters of 2021. The Company observed a corresponding increase in its advertising impression Volumes during the same periods, with such advertising impression Volumes exceeding pre-pandemic levels. However, there can be no assurances that the Company's advertising impression Volumes and profit margins will stay above pre-pandemic levels for the remainder of fiscal 2021 and beyond if there is a new resurgence of the virus or its variants in certain jurisdictions. More specifically, the impact of the Delta variant cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and the response by governmental bodies and regulators. We continue to closely monitor the evolving effects of the COVID-19 pandemic on our business and to implement plans to take appropriate actions to adapt to changing circumstances arising from the pandemic. While advertising impression Volumes increased beyond pre-pandemic levels, the COVID-19 pandemic has, and we expect will continue to have, an adverse effect on our revenues and earnings in 2021, we do expect a recovery throughout the year. We expect to continue to make significant capital investments in the business. However, we continue to monitor the effects of COVID-19 and will adjust our future level of capital investments accordingly. Furthermore, the COVID-19 pandemic could have a long-term impact on the Company's customers through the end of 2021 and well into 2022, which would reduce their demand for Company services and products. The extent to which COVID-19 or any other health epidemic may impact the Company's results beyond 2021 will depend on future developments that could be outside the Company's control, and which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the overall economic impact of the COVID-19 pandemic. Accordingly, COVID-19 could continue to have a material adverse effect on the Company's business, results of operations, financial condition and prospects during 2021 and beyond. The Company's financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Components of Our Results of Operations
Net Revenues
We provide a service to our customers (the buy-side ad networkswho work for advertisers) by connecting advertisers and publishers. For this service, we earn 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. 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. 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. As ofSeptember 30, 2021 , 14 KAI audits of prospective customers have been completed, 8 of which were performed during the three months endedSeptember 30, 2021 . 21 Table of Contents Sales and Marketing Sales and marketing expenses consists of costs associated with the sales and marketing our technology platform, including compensation expenses related to our sales and marketing personnel (including salaries, commissions, bonuses, stock-based compensation and taxes), professional fees and fees for independent contractors. Technology Technology expenses consists of costs associated with the development and operation of our technology platform, including compensation expenses related to our technology personnel (including salaries, commissions, bonuses, stock-based compensation and taxes), fees for independent contractors, computer hosting and technology-related subscription costs, and amortization expense of our intangible assets.
General and Administrative
General and administrative expenses consists primarily of compensation expenses related to our executive, finance and administrative personnel (including salaries, bonuses, stock-based compensation and taxes), professional fees, rent expense, general and administrative related subscription costs fees for independent contractors.
Results of Operations
Three Months Ended
The following table presents the results of operations for the three months
ended
For the Three Months Ended September 30, 2021 2020 Net Revenues$ 676,986 $ 280,401 Operating Expenses: Sales and marketing 715,820 145,755 Technology 776,573 545,639 General and administrative 1,514,913 1,022,106 Total Operating Expenses 3,007,306 1,713,500 Loss From Operations (2,330,320) (1,433,099) Other (Expense) Income: Interest expense (2,098) (392,714)
Interest expense - related parties -
(200,821)
Amortization of beneficial conversion feature -
(1,984,322)
Gain on settlement of notes and other payables -
139,333
Interest income 21,805
3,395
Gain on forgiveness of accounts payable - supplier - - Loss on extinguishment of convertible note payable -
(297,272) Other income - 1,000 Total Other Income (Expense) 19,707 (2,731,401) Net Loss (2,310,613) (4,164,500)
Deemed dividend related to warrant down round adjustment -
(1,682,000)
Net Loss Attributable to Common Shareholders$ (2,310,613)
$ (5,846,500) 22 Table of Contents Net Revenues For the three months endedSeptember 30, 2021 , net revenues increased by$396,585 , or 141%, to$676,986 from$280,401 for the three months endedSeptember 30, 2020 . The increase in revenue as compared to the 2020 period is primarily due to the increase in revenue from one new customer during the three months endedSeptember 30, 2021 .
Sales and Marketing
For the three months endedSeptember 30, 2021 , sales and marketing expenses increased by$570,065 , or 391%, to$715,820 from$145,755 for the three months endedSeptember 30, 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$206,000 arising from an increase in sales and marketing personnel headcount, as well as increased stock-based compensation expense of approximately$65,000 , consulting fees of approximately$79,000 , selling expense of approximately$133,000 and public relations expenses of approximately$65,000 .
Technology
For the three months endedSeptember 30, 2021 , technology expenses increased by$230,934 , or 42%, to$776,573 from$545,639 for the three months endedSeptember 30, 2020 . The increase is primarily due to increases in salary expense of approximately$46,000 arising from an increase in technology personnel headcount, as well as increased stock-based compensation of approximately$30,000 , consulting expenses of approximately$14,000 , amortization of software of approximately$54,000 and cloud hosting costs of approximately$78,000 .
General and Administrative
For the three months endedSeptember 30, 2021 , general and administrative expenses increased by$492,807 , or 48%, to$1,514,913 from$1,022,106 for the nine months endedSeptember 30, 2020 . The increase is primarily due to increases in salary expense of approximately$202,000 arising from an increase in general and administrative headcount, as well as increased stock-based compensation of approximately$201,000 , approximately$131,000 of insurance expense, approximately$93,000 of office related expenses and approximately$48,000
in taxes. Other Income (Expense) For the three months endedSeptember 30, 2021 , we recognized other income of approximately$20,000 as compared to other expense of approximately$2,731,000 recognized during the three months endedSeptember 30, 2020 . The net increase in other income is primarily due to the absence of the amortization of beneficial conversion feature of approximately$1,984,000 and interest expense of approximately$594,000 recognized in the three months endedSeptember 30, 2020 . 23 Table of Contents
Nine Months Ended
30, 2020
The following table presents the results of operations for the nine months endedSeptember 30, 2021 and 2020: For the Nine Months Ended September 30, 2021 2020 Net Revenues$ 1,882,311 $ 1,753,851 Operating Expenses: Sales and marketing 1,977,150 404,712 Technology 1,916,020 1,521,329 General and administrative 3,878,765 2,141,023 Total Operating Expenses 7,771,935 4,067,064 Loss From Operations (5,889,624) (2,313,213) Other (Expense) Income: Interest expense (5,308) (1,122,113)
Interest expense - related parties -
(403,372)
Amortization of beneficial conversion feature -
(1,984,322)
Gain on settlement of notes and other payables -
139,333
Interest income 84,469
3,499
Gain on forgiveness of accounts payable - supplier -
236,248
Loss on extinguishment of convertible note payable -
(297,272) Other income 233 13,294 Total Other Income (Expense) 79,394 (3,414,705) Net Loss (5,810,230) (5,727,918)
Deemed dividend related to warrant down round adjustment -
(1,682,000)
Net Loss Attributable to Common Shareholders$ (5,810,230)
$ (7,409,918) Net Revenues For the nine months endedSeptember 30, 2021 , net revenues increased by$128,460 , or 7%, to$1,882,311 from$1,753,851 for the nine months endedSeptember 30, 2020 . The increase in revenue as compared to the 2020 period is primarily due to increased revenue in the 2021 period of approximately$1.8 million generated from one new customer partially offset by the recognition of approximately$1.3 million of revenue during the 2020 period in connection
with the beta test of KAI. Sales and Marketing
For the nine months endedSeptember 30, 2021 , sales and marketing expenses increased by$1,572,438 , or 389%, to$1,977,150 from$404,712 for the nine months endedSeptember 30, 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$512,000 arising from an increase in sales and marketing personnel headcount, as well as increased stock-based compensation of approximately$274,000 , consulting fees of approximately$153,000 , selling expense of approximately$354,000 and public relations costs of approximately$197,000 . 24 Table of Contents Technology
For the nine months endedSeptember 30, 2021 , technology expenses increased by$394,691 , or 26%, to$1,916,020 from$1,521,329 for the nine months endedSeptember 30, 2020 . The increase is primarily due to increases in salary expense of approximately$131,000 arising from an increase in technology personnel headcount, as well as increased stock-based compensation of approximately$25,000 , consulting expenses of approximately$39,000 , amortization of software of approximately$67,000 and cloud hosting costs of approximately$137,000 .
General and Administrative
For the nine months endedSeptember 30, 2021 , general and administrative expenses increased by$1,737,742 , or 81%, to$3,878,765 from$2,141,023 for the nine months endedSeptember 30, 2020 . The increase is primarily due to increases in salary expense of approximately$708,000 arising from an increase in general and administrative headcount, as well as increased stock-based compensation of approximately$147,000 , approximately$310,000 of insurance expense, approximately$145,000 in taxes, and approximately$430,000 in professional fees, partially offset by approximately$32,000 of office related expenses.
Other Income (Expense)
For the nine months endedSeptember 30, 2021 , we recognized other income of approximately$79,000 as compared to other expense of approximately$3,415,000 recognized during the nine months endedSeptember 30, 2020 . The net increase in other income is primarily due to the amortization of beneficial conversion feature of approximately$1,984,000 and interest expense of approximately$1,525,000 recognized in the nine months endedSeptember 30, 2020 .
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. 25 Table of Contents
For the three and nine months ended
Adjusted EBITDA consisted of the following:
For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net Loss Attributable to Common Shareholders $
(2,310,613)
Interest expense
2,098 392,714 5,308 1,122,113 Interest expense - related parties - 200,821 - 403,372 Interest income
(21,805) (3,395) (84,469) (3,499)
Amortization of beneficial conversion feature
- 1,984,322 - 1,984,322 Depreciation and amortization 144,775 88,210 304,068 227,355 EBITDA (2,185,545) (3,183,828) (5,585,323) (3,676,255) Adjustments:
Deemed dividend related to warrant down round adjustment - 1,682,000 - 1,682,000 Stock-based compensation expense 263,247 (5,465) 523,999 78,477 Adjusted EBITDA$ (1,922,298) $ (1,507,293) $ (5,061,324) $ (1,915,778) Adjusted Loss Per Share$ (0.13) $ (0.27) $ (0.37) $ (0.45)
Weighted Average Common Shares Outstanding – Basic and Diluted 14,252,886 5,676,561 13,627,435 4,300,905
EBITDA and Adjusted EBITDA is a financial measure that is not calculated in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). Management believes that because Adjusted EBITDA excludes (i) certain non-cash expenses (such as depreciation, amortization and stock-based compensation) and (ii) 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 (i) as a measure of operating performance, (ii) for planning and forecasting in future periods, and (iii) 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 withU.S. GAAP. Instead, management believes EBITDA and Adjusted EBITDA should be used to supplement the Company's financial measures derived in accordance withU.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 withU.S. GAAP. Some of the limitations to using non-GAAP measures as an analytical tool are (i) 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, (ii) they do not reflect future requirements for capital expenditures or contractual commitments, and (iii) 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:
September, December 31, 2021 2020 Cash$ 28,746,456 $ 24,782,128 Working capital$ 27,293,660 $ 23,570,158 26 Table of Contents
Availability of Additional Funds
As a result of its public offerings and the related note conversions, the Company believes its 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.
Nine Months Ended
Our sources and uses of cash were as follows:
Cash Flows From Operating Activities
We experienced negative cash flows from operating activities for the nine months endedSeptember 30, 2021 and 2020 in the amounts of$4,577,923 and$2,474,947 , respectively. The net cash used in operating activities for the nine months endedSeptember 30, 2021 was primarily a result of cash used to fund a net loss of$5,810,230 , adjusted for net non-cash expenses of$828,067 , partially offset by$408,579 of net cash provided by changes in the levels of operating assets and liabilities. The net cash used in operating activities for the nine months endedSeptember 30, 2020 was primarily a result of cash used to fund a net loss of$5,727,918 , adjusted for net non-cash expenses of$3,488,774 , and$235,803 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 nine months endedSeptember 30, 2021 and 2020 was$1,157,403 and$806,306 , respectively, which was attributable to purchases of intangible assets and property and equipment.
Cash Flows From Financing Activities
We experienced positive cash flows from financing activities for the nine months endedSeptember 30, 2021 and 2020 in the amounts of$9,699,654 and$11,658,302 , respectively. During the nine months endedSeptember 30, 2021 ,$9,795,510 of net proceeds were provided from exercises of options and warrants, partially offset by$27,510 of cash used to pay deferred offering costs and$72,685 of cash was used to partially repay our loan fromJPMorgan 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 nine months endedSeptember 30, 2020 ,$11,503,488 of proceeds were from the sale of common stock and warrants in our IPO,$1,241,190 of proceeds were received from debt financings, partially offset by$841,376 used for payment of initial public offering costs and$245,000 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. 27 Table of Contents
Critical Accounting Policies and Significant Accounting Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America , orU.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported expenses during the reporting periods. The accounting estimates that require our most significant, difficult and subjective judgments have an impact on revenue recognition, the determination of share-based compensation and financial instruments. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions. The following is not intended to be a comprehensive list of all of our accounting policies or estimates. Our significant accounting policies are more fully described in Note 2 to our condensed consolidated financial statements included elsewhere in this quarterly report.
Revenue Recognition
The Company maintains a contract with each customer and supplier, which specify the terms of the relationship and potential access to the Company's platform. The Company provides a service to its customers (the buy-side ad networkswho 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 Billing 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 theInteractive 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 Billing 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.
Accounts Receivable and Accounts Payable
Accounts receivable are carried at their contractual amounts, less an estimate
for uncollectible amounts. Management estimates the allowance for bad debts
based on existing economic conditions, the financial conditions of the
customers, and the amount and age of past due accounts.
28 Table of Contents
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. 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.
Intangible Assets
Intangible assets are comprised of costs to acquire a customer list as well as costs to acquire and develop computer software, including (i) the costs to acquire third-party data which is used to improve the Company's artificial intelligence platform for client use as well as (ii) the costs to acquire third-party software as well as the related source code. The intangible assets have estimated useful lives of two years for the computer software, five years for the capitalized data and seven years for the customer list. Once placed into service, the Company amortizes the cost of the intangible assets over their estimated useful lives on a straight-line basis.
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.
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