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ADTM > SEC Filings for ADTM > Form 10-Q on 19-Nov-2013All Recent SEC Filings

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Form 10-Q for ADAPTIVE MEDIAS, INC.


19-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information to explain our results of operations and financial condition. You should also read our unaudited interim financial statements and their notes included in this Form 10-Q, and our audited financial statements and their notes, Risk Factors and other information included in our Annual Report on Form 10-K for the year ended December 31, 2012. This report contains forward-looking statements.
Forward-looking statements within this Form 10-Q are identified by words such as "believes," "anticipates," "expects," "intends," "may," "will" "plans" and other similar expressions, however, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are subject to significant risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed in, or implied by, these forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements to reflect events, circumstances or developments occurring subsequent to the filing of this Form 10-Q with the U.S. Securities and Exchange Commission or for any other reason and you should not place undue reliance on these forward-looking statements. You should carefully review and consider the various disclosures the Company makes in this report and our other reports filed with the U.S. Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.

Overview

Adaptive Medias, Inc. f/k/a Mimvi, Inc. (the "Company") was formed on August 7, 2007 under the laws of the State of Nevada. The Company, through its core content monetization platform and technology, provides app developers, publishers and video content developers one of the only end-to-end monetization platforms driven by programmatic algorithms. The company provides these unique capabilities to monetize content efficiently across multiple marketing channels, including mobile, video and online display advertising.

Pursuant to votes of the majority of the Board of Directors and shareholders, effective on November 6, 2013, the Company changed its name to Adaptive Medias, Inc. in order to better and more fully demonstrate the Company's emphasis on providing a supply-side platform for mobile, video and online display advertising. In connection with the name change, effective on November 6, 2013, the Company's ticker symbol was changed to ADTM. The Definitive Schedule 14C filed by the Company on October 7, 2013 incorrectly identified the Company's new name as "Adaptive Media, Inc.", a scrivener's error.

The Company's wholly-owned subsidiary, Adaptive Media, Inc. ("Adaptive Media") is a programmatic audience and content monetization company for website owners, app developers and video publishers who want to more effectively optimize content through advertising. The company provides a foundation for publishers and developers looking to engage brand advertisers through a multi-channel approach that delivers integrated, engaging and impactful ads across multiple devices. Adaptive Media meets the needs of its publishers with an emphasis on maintaining user experience, while delivering timely and relevant ads through its multi-channel ad delivery and content platform.

We are a multi-channel advertising technology ("ad tech") company and work with website owners, app developers and video content publishers to maximize the revenue they receive from targeted advertising placed within or around their content. We work across mobile web and native Android and iOS apps, online and mobile video and standard Internet display advertising. Practically speaking, we partner with companies that have a supply of ad inventory. These are companies or individuals who own websites, mobile apps, and/or video content. We match this supply with demand. Demand comes from our advertising partners that include brands, brand-direct advertisers, ad agencies, advertising networks, exchanges and Demand Side Platforms ("DSPs"). Our programmatic technology platform sits between "supply" and "demand," scaling and most effectively optimizing the two sides, and we keep a margin.

For more information, please visit: www.adaptivem.com. Follow us on Twitter at @adaptive_m.

Industry Overview

According to market research firm eMarketer, the worldwide digital advertising market is expected to exceed $118 billion dollars this year, and grow to $173 billion by 2017. eMarketer forecasts the worldwide mobile and online video advertising market will exceed $16 billion and $4 billion, respectively, in 2013, and is expected to grow to approximately $63 billion and approximately $9 billion, respectively by 2017. eMarketer projects U.S. marketers will spend $3.34billion in 2013 on real-time bided ads ("RTB") , up 73.9% from last year, and expects U.S. advertisers to spend $8.69 billion on RTB ads by 2017.

Business Overview

Adaptive Media, through its core content monetization platform, provides web publishers, app developers and video content providers one of the only end-to-end monetization platforms driven by programmatic algorithms. The opportunity to drive better advertising through our proprietary audience and content discovery technology sets our tech stack apart from companies like Google, RocketFuel, ValueClick and Brightcove.

Further, we provide each publishing client on the supply side with unique capabilities to monetize their content across multiple channels or operating systems, where they can serve a piece of content on a laptop, a tablet and a phone without any additional cost or license. The optimization modules in our technology can be deployed across multiple channels on the platform to prove capabilities such as ad serving, real-time bidding, ad revenue waterfall management and video content management, and necessities like the video player itself.

On the demand side, Adaptive Media's programmatic technology stack is advertiser-friendly in that it enables a brand-safe and transparent marketplace for buying media across mobile, video and display. This is essential for big brand advertisers and brand-direct ecommerce companies who require a high level of safety, context and relevance for their advertisements.

Launching in 2014, the Adaptive Media marketplace will enables publishers a seemingly simple marriage of quality content, users and monetization opportunities side-by-side with advertising partners who drive demand. We'll do this through a complex set of discovery technology solutions, driven by patents, and efficient algorithmic data that cohesively interact in any digital marketing environment where advertising, audience and content must come together.

Recent Developments

Ember Acquisition

On September 24, 2013, we announced the signing of a Letter of Intent to acquire of Ember, Inc. ("Ember"). Ember is focused on shifting TV ad budgets toward online video. Right now, there is limited transparency in online video. Advertisers know where their ads are going on TV, yet are reluctant to shift their budgets toward online video due to the lack of transparency. Ember has created fine-tuned machine learning algorithms, contextual and semantic engines to ensure brand safety, placement and stronger ROI, and a real-time bidding (RTB) platform to optimize ad spends. This acquisition is expected to close before December 31, 2013. For more information, please visit:
http://www.goember.com/.

Partnership with Entrepreneur Media - TrepLabs™

On October 22, 2013, Entrepreneur Media, Inc. ("EMI") announced the launch of TrepLabs™, an innovative discovery program for mobile app developers, created in partnership with Adaptive Media. TrepLabs™ is designed to demystify the process of turning an app into a successful entrepreneurial venture by serving as an incubator, consultant and marketing platform to give otherwise unknown apps the means to reach their full potential. EMI and Adaptive Media will identify existing apps from any category that have not received the attention they deserve - or in some exceptional cases ones that have yet to launch - to work with for up to 24 months. As business partners, we will offer our respective expertise and collaborate with the developer for a second shot at success. EMI and Adaptive Media will receive half of the revenues throughout the duration of the agreed upon partnership. After the term ends, the app developer is again independent with an enhanced version of his or her app.

The growing challenge of discoverability in an increasingly crowded app market is making it harder for the independent app developer to compete. TrepLabs™ is designed to help the mobile developer community reduce its current dependency on app stores, and drive visibility and market traction for their mobile products. Developers that qualify and are accepted into the TrepLabs™ program will have access to product design, business and revenue model enhancement, marketing and user acquisition, media exposure (editorial and social) and more.

Critical Accounting Policies

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions. Reference is also made to the Critical Accounting Policies included in the 2012 Form 10-K. There were no changes in those policies through September 30, 2013.

Nine Months Ended September 30, 2013 compared with Nine Months Ended September 30, 2012

Revenue

For the nine months ended September 30, 2013, we realized revenue of $416,051 compared to $0 for the nine months ended September 30, 2012, an increase of $416,051 or 100%. The increase was primarily due to advertising revenue and the sale of mobile apps.

Cost of goods sold

For the nine months ended September 30, 2013, we incurred of goods sold of $235,620 compared to $0 for the nine months ended September 30, 2012, an increase of $235,620 or 100%. The increase was primarily due to the costs of media buys and mobile app development costs.

Operating Expenses

For the nine months ended September 30, 2013, our operating expenses increased to $7,623,581 compared to $1,838,838 for the nine months ended September 30, 2012, an increase of $5,784,743 or 315%.

For the nine months ended September 30, 2013, stock compensation expense increased to $3,123,079 from $937,759 for the nine months ended September 30, 2012, an increase of $2,185,320 or 233%. The increase was substantially due the Company's significant increase in its operations and the fair value of the options issued based on the Black Scholes Option Pricing Model, which were expensed primarily due to the issuance of options to certain former employees of Lone Wolf, Inc. under their respective employment agreements effective January 7, 2013, the date we closed the merger with Lone Wolf, Inc. and its shareholders. Plus, there were several options granted to the former employees and consultants of the Company.

For the nine months ended September 30, 2013, legal and professional fees increased to $1,357,412 from $549,967 in the nine months ended September 30, 2012, an increase of $807,445 or 147% primarily due to the change in outside law firms, the retention of in-house general counsel in 2012 and activity that required increased amounts of time from our legal counsel due to litigation, financing matters, legacy debt/equity issues, intellectual property and legal counsel for revenue agreements.

For the nine months ended September 30, 2013, the executive compensation that we incurred increased to $318,805 from $177,440 in the nine months ended September 30, 2012, an increase of $141,365 or 80% primarily due to full periods of compensation in 2013 for our CVO, CEO and CFO. Upon the acquisition of Adaptive Media, Inc., on July 2, 2013, our former CVO and CEO resigned. On August 16, 2013, our former CFO resigned.

For the nine months ended September 30, 2013, the research and development expense that we incurred increased to $217,137 from $0 in the nine months ended September 30, 2012, an increase of $217,137 or 100% primarily due to an increase in the software engineering expenses we incurred with our employees and consultants as we continued to develop our products.

For the nine months ended September 30, 2013, the general and administrative expenses including stock compensation that we issued in the form of stock, investor relations expenses, legal and professional fees, outsourced consulting services that we incurred increased to $2,264,538 from $173,672 in the nine months ended September 30, 2012, an increase of $2,090,866 or 1,204% primarily due to significant increase in our operations, specifically investor relations expenses, personnel expenses and other general and administrative expenses.

For the nine months ended September 30, 2013, the impairment of intangibles that we incurred increased to $342,610 from $0 or 100% from the nine months ended September 30, 2012 due to management's impairment test completed as of June 30, 2013 for the intangibles acquired in the Lone Wolf acquisition wherein the value was determined to be $0.

For the nine months ended September 30, 2013, the (gain) loss on settlement of debt that we incurred increased to $(15,988) from $224,969 in the nine months ended September 30, 2012 primarily due to the fair value measurement of restricted common stock issued to vendors in satisfaction of their accounts payable.

For the nine months ended September 30, 2013, the interest expense that we incurred increased to $70,189 from $61,629 in the nine months ended September 30, 2012, an increase of $8,560 or 14% primarily due to the amortization of debt discounts as a result of the beneficial conversion feature on the convertible notes payable.

Net Loss

For the nine months ended September 30, 2013, we incurred a loss of $7,497,351 or $(0.08) basic and diluted loss per share compared to a loss of $2,125,436 or $(0.05) basic and diluted loss per share for the nine months ended September 30, 2012. The increase in the loss is described above in the detailed operating expenses.

Three Months Ended September 30, 2013 compared with Three Months Ended September 30, 2012

Revenue

For the three months ended September 30, 2013, we realized revenue of $373,737 compared to $0 for the three months ended September 30, 2012, an increase of $373,737 or 100%. The increase was primarily due to advertising revenue and the sale of mobile apps.

Cost of goods sold

For the three months ended September 30, 2013, we incurred of goods sold of $215,230 compared to $0 for the three months ended September 30, 2012, an increase of $215,230 or 100%. The increase was primarily due to the costs of media buys and mobile app development costs.

Operating Expenses

For the three months ended September 30, 2013, our operating expenses increased to $2,258,668, compared to $610,106 for the three months ended September 30, 2012, an increase of $1,648,562 or 270%.

For the three months ended September 30, 2013, stock compensation expense increased to $868,899 from $316,721 in the three months ended September 30, 2012, an increase of $552,178 or 174%. The increase was substantially due the Company's significant increase in its operations and the fair value of stock based compensation based on the Black Scholes Option Pricing Model, which were expensed due to the issuance of options to employees and consultants.

For the three months ended September 30, 2013, legal and professional fees increased to $339,713 from $172,004 in the three months ended September 30, 2012, an increase of $167,709 or 98% primarily due to the change in outside law firms, the retention of in-house general counsel in 2012 and activity that required increased amounts of time from our legal counsel due to litigation, financing matters, legacy debt/equity issues, intellectual property and legal counsel for revenue agreements.

For the three months ended September 30, 2013, the executive compensation that we incurred decreased to $47,333 from $58,150 in the three months ended September 30, 2012, a decrease of $10,817 or 19% primarily due to the acquisition of Adaptive Media, Inc., on July 2, 2013, whereby our former CVO and CEO resigned. On August 16, 2013, our former CFO resigned.

For the three months ended September 30, 2013, the research and development expense that we incurred increased to $8,635 from $0 in the three months ended September 30, 2012, an increase of $8,635 or 100% primarily due to an increase in software engineering expenses we incurred with our employees and consultants as we continued to develop our products.

For the three months ended September 30, 2013, the general and administrative expenses including stock compensation that we issued in the form of stock, legal and professional fees, and investor relations expense that we incurred increased to $995,347 from $63,231 in the three months ended September 30, 2012, an increase of $932,116 or 1,474% primarily due to the overall significant increase in our operations, specifically investor relations expenses, personnel expenses and other general/administrative expenses.

For the three months ended September 30, 2013, the (gain) loss on settlement of debt that we incurred decreased to $0 from $224,969 in the three months ended September 30, 2012 primarily due to the fair value measurement of restricted common stock issued to vendors in satisfaction of their accounts payable in 2012.

For the three months ended September 30, 2013, the interest expense that we incurred decreased to $16,497 from $25,099 in the three months ended September 30, 2012, a decrease of $8,602 or 34% primarily due to the amortization of debt discounts as a result of the beneficial conversion feature on the convertible notes payable.

Net Loss

For the three months ended September 30, 2013, we incurred a loss of $2,117,917 or $(.02) basic and diluted loss per share compared to a loss of $860,174 or $(0.02) basic and diluted loss per share for the three months ended September 30, 2012. The increase in the loss is described above in the detailed operating expenses.

Liquidity and Capital Resources

As of September 30, 2013, we had total current assets of $423,807 consisting of $44,483 in cash, $254,266 in accounts receivable, other receivables of $32,529, deferred financing costs of $47,029 net of amortization of $71,427, inventory
(media) of $500 and $45,000 in prepaid expenses.

We had total current liabilities of $1,753,730 consisting of accounts payable and accrued expenses of $1,494,228, due to related parties of $1,700 and notes payable of $257,802 net of an unamortized discount of $177,198.

During the nine months ended September 30, 2013, we raised $1,661,500 in equity and debt financing.

On May 21, 2013, the Company entered into a convertible note agreement for a principal amount of $425,000 with an original issue discount of $25,000, a legal fee payment requirement of $5,000 and a placement agent fee of $32,000 for net proceeds of $363,000. As part of the placement agent fee, 660,000 warrants, with a fair value of $74,955, were issued to purchase common stock of the Company. The value of these warrants was determined using the Black-Scholes model with the following inputs: Discount Rate of 3.90% and Volatility of 400% and a term of three years. The maturity date is December 31, 2013 with an annual interest rate of 8%. At any time after the issuance date until this note is no longer outstanding, this note shall be convertible, in whole or in part, into 4,250,000 common stock of the Company at a per share price of $0.10 at the option of the holder subject to certain conversion limitations. Concurrent with the issuance, the holder was granted a warrant to purchase 4,000,000 shares of the Company's common stock with strike price of $0.25 subject to certain potential adjustments to the strike price and including a cash-less exercise provision. The value of these warrants was determined using the Black-Scholes model with the following inputs: Discount Rate of 3.90% and Volatility of 400% and a term of three years.

On May 15, 2013, the Company entered into an unsecured convertible note agreement with a principal amount of $75,000 and paid financing fees of $4,000 for net proceeds of $71,000. The maturity date was September 1, 2013 with an annual interest rate of 10%. As of September 30, 2013, this note was paid in-full.

On June 14, 2013, the Company entered into a convertible note agreement with a principal amount of $35,000 and paid financing fees of $2,500 for net proceeds of $32,500. The maturity date of this note is July 1, 2013 with an annual interest of 10%. As of September 30, 2013, this note was paid in-full.

We currently have limited funds to pay our currently due debts and liabilities. Should one or more of our creditors seek or demand payment, we are not likely to have the resources to pay or satisfy any such claims. Thus, we face risk of defaulting on our obligations to our creditors with consequential legal and other costs which would adversely impact our ability to continue our existence as a corporate enterprise.

Our insolvent financial condition also may create a risk that we may be forced to file for protection under applicable bankruptcy laws or state insolvency statutes. We also may face the risk that a receiver may be appointed. We face that risk and other risks resulting from our current financial condition.

For these and other reasons, we anticipate that unless we can obtain sufficient capital from an outside source and do so in the very near future, we may be unable to continue to operate as a corporation, continue to meet our filing obligations under the Securities Exchange Act of 1934, or otherwise satisfy our obligations to our stock transfer agent, our accountants, our legal counsel, our EDGAR filing agent, and many others.

For these and other reasons, our management recognizes the adverse difficulties and continuing severe challenges we face. Apart from the funds that we have raised in the nine months ended September 30, 2013 there can be no assurance that we will receive any additional financing or funding from any source or if any financing should be obtained, that existing shareholders will not incur substantial, immediate, and permanent dilution of their existing investment.

Going Concern Uncertainties

As of September 30, 2013, we have only limited working capital with which to pursue our business plan. The amount of capital required to sustain operations until we achieve positive cash flow from operations is subject to future events and uncertainties. It will be necessary for us to secure additional working capital through sales of our common stock and/or debt financing, and there can be no assurance that such funding will be available in the future. These conditions raise substantial doubt about our ability to continue as a going concern.

As of and for the years ended December 31, 2012 and 2011, our former auditor has issued a going concern qualification as part of their opinion in their audit report contained in our December 31, 2012 Form 10-K filed with the SEC.

Capital Expenditures

For the nine months ended September 30, 2013, we have not incurred any material capital expenditures.

Commitments and Contractual Obligations

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be considered material to investors.

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