Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the “Business”
section and Rumble Inc.’s (“Rumble” or the “Company”) consolidated financial statements as of and for the
years ended December 31, 2022 and 2021 (“consolidated financial statements”) and other information included elsewhere in this
Annual Report. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” to “we,” “our,” “Rumble” and “the Company”
refer to the business and operations of Rumble Canada Inc. and its consolidated subsidiaries prior to the Business Combination (as defined
below) and to Rumble Inc. and its consolidated subsidiaries following the consummation of the Business Combination. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking
statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those
discussed in the sections titled “1A. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements”
included elsewhere in this Annual Report and those discussed in our other filings with the SEC. Additionally, our historical results are
not necessarily indicative of the results that may be expected in any future period. Amounts are presented in U.S. dollars.
Overview
We are a high growth, video
sharing platform designed to help content creators manage, distribute, and monetize their content by connecting them with brands, publishers,
and directly to their subscribers and followers. Our registered office is 444 Gulf of Mexico Drive, Longboat Key, Florida, 34228. Our
shares of Class A common stock and warrants are traded on The Nasdaq Global Market (“Nasdaq”) under the symbols “RUM”
and “RUMBW”, respectively.
Significant Events and Transactions
As previously announced, on
December 1, 2021, CF Acquisition Corp. VI, a Delaware corporation (“CFVI”), and Rumble Inc., a corporation formed under the
laws of the Province of Ontario, Canada (“Legacy Rumble”), entered into a business combination agreement (the “Business
Combination”). On September 16, 2022, CFVI and Legacy Rumble consummated the business combination contemplated by the business combination
agreement. In connection with the consummation of the Business Combination, CFVI changed its name
from CF Acquisition Corp. VI to Rumble Inc. and Legacy Rumble changed its name from Rumble Inc. to Rumble Canada Inc.
Refer to Note 2, Significant
Events and Transactions, to the consolidated financial statements.
Revenues
We generate revenues primarily
from advertising and licensing fees. The revenues are generated by delivering content either via our own or third-party platforms. As
with the past two years, our focus remains on growing users and usage consumption — and not maximizing revenue —
while continuing to experiment with various levers to grow revenue.
Advertising fees are generated
by delivering both display advertisements and cost-per-message-read advertisements. Display advertisements are placed on Rumble and third-party
publisher websites or mobile applications. Customers pay for advertisements either directly or through their relationships with advertising
agencies or resellers, based on the number of impressions delivered or the number of actions such as clicks, or purchases taken, by our
users. The Company recognizes revenue from display advertisements when a user engages with the advertisement, such as an impression, click,
or purchase. For cost-per-message-read advertising, customers pay to have their products or services promoted by a content creator and
advertising revenue is recognized when the performance obligation is fulfilled, usually when the message is read.
Licensing fees are charged
on a per video or on a flat-fee per month basis. Licensing fee revenue is recognized as the related performance obligations are satisfied
in line with the nature of the intellectual property being licensed.
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Other revenues include fees
earned from tipping features within the Company’s platform as well as certain cloud, subscription, platform hosting, and professional
services. Fees from tipping features are recognized at a point in time when a user tips on the platform. Both cloud and subscription services
are recognized over time for the duration of the contract. Revenues related to platform hosting are recognized over time as the Company
provides access to the platform. Professional service revenues have stand-alone functionality to the customer and are recognized at a
point in time as services are provided or earned.
Refer to Note 3, Summary
of Significant Accounting Policies, to the consolidated financial statements.
Expenses
Expenses primarily include
costs of services, general and administrative, research and development, sales and marketing, finance costs, share-based compensation,
foreign exchange gain or loss, and amortization and depreciation. The most significant component of our expenses on an ongoing basis are
programming and content, service provider costs, and staffing-related costs.
We expect to continue to invest
substantial resources to support our growth and anticipate that each of the following categories of expenses will increase in absolute
dollar amounts for the foreseeable future.
Cost of Services
Cost of services consists of
costs related to obtaining, supporting and hosting the Company’s product offerings. These costs primarily include:
General and Administrative Expenses
General and administrative expenses
consist primarily of salaries, employee benefits and bonuses related to our executives, finance team, and administrative employees. It
also includes legal and professional fees, business insurance costs, operating lease costs and other costs. As a public company, we expect
to continue to incur additional audit, tax, accounting, legal and other costs related to compliance with applicable securities and other
regulations, as well as additional insurance, investor relations and other costs.
Research and Development Expenses
Research and development expenses
consist primarily of salaries, employee benefits, employee bonuses and consultant fees related to our development activities to originate,
develop and enhance our platforms.
Sales and Marketing Expenses
Sales and marketing expenses consist
primarily of costs related to salaries, employee benefits, employee bonuses, consultant fees, direct marketing costs related to the promotion
of our platforms/solutions. Sales and marketing expenses are expected to increase over time as we promote our platform, increase marketing
activities, grow domestic and international operations, and continues to build brand awareness.
Non-Operating Income and Other Items
Interest Income
Interest income consists of
interest earned on our cash, cash equivalents, and marketable securities. We invest in highly liquid securities such as money market funds,
treasury bills and term deposits.
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Finance Costs
Finance costs consist of transaction
expenses related to the Business Combination and other financing rounds.
Change in Fair Value of Warrant Liability
We account for our outstanding
warrants in accordance with guidance in ASC 815-40, Derivatives and Hedging Contracts in Entity’s Own Equity (“ASC
815-40”), under which the warrants issued in connection with the public offerings, private placements, and forward purchase contract
(“FPA”) entered into with CFAC Holdings VI, LLC (such contract, the “FPA”) do not meet the criteria for equity
classification, and must be recorded as liabilities. As these warrants meet the definition of a liability under ASC 815, Derivatives
and Hedging (“ASC 815”), they are measured at fair value at inception and each reporting date in accordance with the guidance
in ASC 820, Fair Value Measurement (“ASC 820”), with any subsequent changes in fair value recognized in the statement
of operations in the period of change.
Change in Fair Value of Option Liability
Change in the fair value
of option liability relates to the May 14, 2021, issuance of Class A preferred shares of Legacy Rumble, which included the right to exercise
options for an additional 172,070 Class A common shares of Legacy Rumble subject to certain conditions. The grant date fair value was
determined based on the maximum discount available to these Class A preferred shareholders and the probability of the conditions attached
to this option being met. The change in fair value of this option liability is on account of the re-assessment of the probability of
the conditions attached to this option at each reporting period. The option liability associated with these Class A preferred shares
of Legacy Rumble was exercised on November 24, 2021.
Key Business Metrics
To analyze our business performance,
determine financial forecasts and help develop long-term strategic plans, we review the key business metrics described below.
Monthly Active Users (“MAUs”)
We use MAUs as a measure of audience engagement to help us understand
the volume of users engaged with our content on a monthly basis. MAUs represent the total web and app users of Rumble for each month,
which allows us to measure our total user base calculated from data provided by third-party analytics providers using company-set parameters.
The analytics systems and the resulting data have not been independently verified. There is a potential for minor overlap in the resulting
data due to users who access Rumble’s content from both the web and the app in a given measurement period; however, given that we
believe this minor overlap to be immaterial, we do not separately track or report “unique users” as distinct from MAUs. MAUs
do not include embedded video, certain connected TV users, or users of the Locals platform. Like many other major social media companies,
we rely on paid advertising in order to attract users to our platform; however, we cannot be certain that all or substantially all activity
that results from such advertising is genuine. Spam activity, including inauthentic and fraudulent user activity, if undetected, may contribute,
from time to time, to some amount of overstatement of our performance indicators, including reporting of MAUs by our third-party analytics
provider. We continually seek to improve our ability to estimate the total number of spam-generated users, and we eliminate material activity
that is substantially likely to be spam from the calculation of our MAUs. We will not, however, succeed in identifying and removing all
spam.
MAUs were 80 million on average
in the fourth quarter of 2022, an increase of 142% from the fourth quarter of 2021. This growth is attributable to: our growing pool of
content, content creators and formats; our value proposition as competing platforms continue to censor and cancel the voices of creators;
and increased activity due to U.S. mid-term elections.
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Minutes Watched Per Month (“MWPM”)
We use MWPM as a measure of
audience engagement to help us understand the volume of users engaged with our content on a monthly basis and the intensity of users’
engagement with the platform. MWPM represents the monthly average of minutes watched per user within a quarterly period, which helps us
measure user engagement. MWPM is calculated by converting actual bandwidth consumption into minutes watched, using our management’s
best estimate of video resolution quality mix and various encoding parameters. Bandwidth consumption includes video traffic across the
entire Rumble platform (website, apps, embedded video, connected TV, etc.), as well as what our management believes is a nominal amount
of non-video traffic. Starting in the second quarter of 2022 we began transitioning a portion of Locals’ bandwidth consumption to
our infrastructure. While this currently represents an immaterial amount of consumption, we expect this to grow in the coming quarters.
MWPM was 11.1 billion on average
in the fourth quarter of 2022, an increase of 31% from the fourth quarter of 2021. This growth is attributable to: our growing pool of
content creators; our value proposition as competing platforms continue to censor and cancel the voices of creators; and a number of new
platform features.
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Hours of Uploaded Video Per Day
We use the amount of hours
of uploaded video per day as a measure of content creation to help us understand the volume of content being created and uploaded
to us on a daily basis.
Hours of uploaded video per
day were 10,373 on average in the fourth quarter 2022, an increase of 216% from the fourth quarter of 2021. This growth is attributable
to: our growing pool of content creators; our value proposition as competing platforms continue to censor and cancel the voices of creators;
and a number of new platform features.
We regularly review, have adjusted in the past,
and may in the future adjust our processes for calculating our key business metrics to improve their accuracy, including through the application
of new data or technologies or product changes that may allow us to identify previously undetected spam activity. As a result of such
adjustments, our key business metrics may not be comparable period-over-period.
Results of Operations
The following table sets forth our results of operations
data for the periods presented:
Comparisons for the year ended December 31, 2022 and 2021:
The following table sets forth
our consolidated statements of comprehensive loss for the year ended December 31, 2022 and 2021 and the dollar and percentage change
between the two periods:
For the year ended December 31, 2022 2021 Variance ($) Variance (%)
Expenses:
NM*- Percentage change not meaningful.
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Revenues
Revenues increased by $29.9 million to $39.4 million in the year ended
December 31, 2022, compared to the year ended December 31, 2021, of which $24.3 million is attributable to higher advertising and $5.6
million is attributable to higher licensing and other revenue. The increase in advertising revenue was driven by an increase in consumption
as well the introduction of new advertising solutions for creators, publishers and advertisers, including host read advertising and our
online advertising management exchange (“Rumble Advertising Center” or “RAC”), both of which we started to build
and test in the second half of 2022. The increase in licensing and other revenue was driven by tipping features within our platform as
well as certain cloud, subscription, platform hosting fees, provision of one-time content, and professional services.
Cost of Services
Cost of services increased
by $35.9 million to $43.7 million in the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase
was due to an increase in programming and content costs of $30.0 million, hosting expenses of $4.7 million, and other service costs of
$1.2 million.
General and Administrative Expenses
General and administrative expense
increased by $11.4 million to $14.5 million in the year ended December 31, 2022, compared to the year ended December 31, 2021. The
increase was due to a $4.4 million increase in staffing-related costs, as well as a $7.0 million increase in other administrative
expenses, most of which are public company-related and include accounting, legal, investor relations, insurance and other administrative
services.
Research and Development Expenses
Research and development expense
increased by $4.7 million to $6.3 million in the year ended December 31, 2022, compared to the year ended December 31, 2021. The
increase was due to a $3.2 million increase in staffing-related costs, as well as a $1.5 million increase in costs related to computer
software, hardware and other administrative expenses.
Sales and Marketing Expenses
Sales and marketing expense increased
by $3.2 million to $6.1 million in the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase was due
to a $1.6 million increase in staffing-related and consulting services cost, as well as a $1.6 million increase in other marketing
and public relations activities.
Finance Costs
Finance costs decreased by $1.8 million to $1.1 million in the year
ended December 31, 2022, compared to the year ended December 31, 2021. Finance costs for the year ended December 31, 2022 consisted of
$1.1 million in transaction costs, which included legal and other professional fees related to the Business Combination. For the year
ended December 31, 2021, finance costs consisted of $2.9 million related to transaction costs on the issuances of Legacy Rumble Class A
preferred shares and Class A common shares. Additionally, the transaction costs allocated to the debt component of Class A preferred
shares of Legacy Rumble and the Option Liability were recorded as finance costs. Refer to Note 13, Temporary Equity, to the consolidated
financial statements for more details.
Share-based Compensation
Share-based compensation increased
by $0.3 million to $1.7 million in the year ended December 31, 2022, compared to the year ended December 31, 2021, due to the vesting
conditions of certain previously and newly granted restricted stock units and stock options.
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Foreign Exchange Loss
Foreign exchange loss increased
by $41.9 thousand to $49.1 thousand in the year ended December 31, 2022, compared to year ended December 31, 2021. The increase was primarily
due to higher foreign currency rate fluctuation as we maintained the majority of our cash balance in its functional currency as of December
31, 2022.
Amortization and Depreciation
Amortization and depreciation
increased by $1.4 million to $1.6 million in the year ended December 31, 2022, compared to the year ended December 31, 2021 as we commenced
building out our infrastructure subsequent to Q2 2021.
Interest Income
Interest income increased by
$3.0 million to $3.0 million in the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase was primarily
due to carrying a higher balance in cash, cash equivalents, and marketable securities which was the result of the Business Combination
in 2022.
Other Income (Expense)
Other income decreased by $0.2
million to $0 in the year ended December 31, 2022, compared to the year ended December 31, 2021. The decrease was related to the settlement
of litigation during the year ended December 31, 2021. There was no comparable income in the year ended December 31, 2022.
Change in Fair Value of Warrant Liability
Change in fair value of warrant
liability increased by $21.0 million to $21.0 million in the year ended December 31, 2022. The increase relates to the issuance of 8,050,000
warrants in connection with the public offerings, private placements, and FPA. As these warrants meet the classification of a financial
liability in accordance with ASC 815-40, the related warrant liability is measured at its fair value, determined in accordance with ASC
820, at each reporting period. The fair value of this warrant liability was measured using the fair value of the Company’s warrants
listed on the Nasdaq (Level 1 fair value hierarchy input). Refer to Note 2, Significant Events and Transactions, of the consolidated financial
statements.
Change in Fair Value of Option Liability
Change in fair value of the
option liability decreased by $3.2 million to $0 in the year ended December 31, 2022. The decrease is measured in reference to the issuance
of Legacy Rumble’s 606,360 Class A preferred shares, which allowed the holders of these preferred shares to purchase additional
common shares of Legacy Rumble at a discount of 30%, subject to certain conditions. The total fair value of this financing arrangement
was determined to be $35.7 million due to the upper limit on the discount price provided to the investors. Gross proceeds of $25.0 million
were allocated between the Class A preferred shares of Legacy Rumble and the option liability by first determining the fair value of the
option liability at $7.5 million using a probability weighted scenario over the likelihood of this option to be exercised, with the remaining
$17.5 million allocated to equity (using a residual value method). Change in the fair value of the option liability in the amount of $1.1
million was calculated based on an update of management’s estimate related to the likelihood of the option to purchase additional
common shares being exercised (Level 3 fair value hierarchy input). The option liability associated with these Class A preferred shares
of Legacy Rumble was exercised on November 24, 2021.
Income Tax Recovery
Income tax recovery increased
by $216.0 thousand to $215.4 thousand in the year ended December 31, 2022, compared to the year ended December 31, 2021.
Deferred Tax Recovery
Deferred tax recovery decreased by $128.5 thousand
to zero in the year ended December 31, 2022, compared to the year ended December 31, 2021.
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Liquidity and Capital Resources
We have historically financed
operations primarily through cash generated from operating activities and most recently through proceeds from financings. The primary
short-term requirements for liquidity and capital are to fund general working capital and capital expenditures.
As of December 31, 2022, our
cash, cash equivalents, and marketable securities balance was $338.3 million. Cash, cash equivalents, and marketable securities consist
of cash on deposit with banks and amounts held in money market funds, treasury bills, and term deposits. The existing cash, cash equivalents,
and marketable securities are sufficient to fund our liquidity needs for at least the next 12 months. At this time, we do not anticipate
the need to raise additional capital as a result of the completion of the Business Combination on September 16, 2022. Our present focus
is to grow users and usage consumption, experiment with monetization levers, and not to maximize revenue and profitability in the immediate
term. This business strategy could have a negative impact on our liquidity.
The following table shows our
cash flows from operating activities, investing activities and financing activities for the stated periods:
Year Ended December 31,
Net cash provided by (used in):
Operating Activities
Net cash used in operating
activities for the year ended December 31, 2022 was $32.3 million compared to $5.3 million for the year ended December 31, 2021. The increase
was from an overall increase in expenses and prepaid expenses as a result of business growth coupled with a partial offset from an increase
in accounts payable and accrued liabilities.
Investing Activities
Net cash used in investing
activities for the year ended December 31, 2022 was $10.1 million compared to $1.6 million provided for the year ended December 31,
2021. Investing activities for the year ended December 31, 2022, consisted of $8.5 million used in the purchases of capital assets, $1.1
million used in purchase of marketable securities and $0.5 million used in the purchase of intellectual property. Investing activities
for the year ended December 31, 2021, consisted of $1.3 million used in the purchases of capital assets and $0.5 million used in the purchase
of intellectual property, offset by $3.4 million in cash acquired on the acquisition of Locals Technology Inc.
Financing Activities
Net cash provided by financing activities for the year ended December
31, 2022 was $332.8 million compared to $49.1 million provided for the year ended December 31, 2021. Financing activities in the year
ended December 31, 2022, mostly consisted of the cash proceeds, net of transaction costs, from the Business Combination. Financing activities
in the year ended December 31, 2021, mostly consisted of the cash proceeds, net of transaction costs, from the issuance of Legacy Rumble
Class A preferred shares and Class A common shares.
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Summary of Quarterly Results
Information for the most recent quarters presented are as follows:
Critical Accounting Policies and Significant Management Estimates
We prepare our consolidated
financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates
made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement
presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed
below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving
our management’s judgments and estimates. Critical accounting policies and estimates are those that we consider the most important
to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
We believe that the accounting
policies described below involve a significant degree of judgment and complexity. Accordingly, we believe that these are the most critical
to aid in fully understanding and evaluating our financial condition and results of operations. For further information, see Note 3,
Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report.
Revenues
On January 1, 2018, we
adopted ASC Topic 606, Revenue from Contracts with Customers. To determine revenue recognition for contractual arrangements
that we determine are within the scope of ASC 606, we perform the following five steps: (1) identify each contract with a customer;
(2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction
price to performance obligations in the contract; and (5) recognize revenue when (or as) the relevant performance obligation is satisfied.
We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled to
in exchange for the goods or services we provide to the customer.
We generate revenues primarily
from advertising and licensing fees. The revenues are generated by delivering content either via our own or third-party platforms.
Advertising fees are generated
by delivering both display advertisements and cost-per-message-read advertisements. Display advertisements are placed on Rumble and third-party
publisher websites or mobile applications. Customers pay for advertisements either directly or through their relationships with advertising
agencies or resellers, based on the number of impressions delivered or the number of actions such as clicks, or purchases taken, by our
users. The Company recognizes revenue from display advertisements when a user engages with the advertisement, such as an impression, click,
or purchase. For cost-per-message-read advertising, customers pay to have their products or services promoted by a content creator and
advertising revenue is recognized when the performance obligation is fulfilled, usually when the message is read.
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Licensing fees are charged
on a per video or on a flat-fee per month basis. Licensing fee revenue is recognized as the related performance obligations are satisfied
in line with the nature of the intellectual property being licensed.
Other revenues include fees
earned from tipping features within the Company’s platform as well as certain cloud, subscription, platform hosting, and professional
services. Fees from tipping features are recognized at a point in time when a user tips on the platform. Both cloud and subscription services
are recognized over time for the duration of the contract. Revenues related to platform hosting are recognized over time as the Company
provides access to the platform. Professional service revenues have stand-alone functionality to the customer and are recognized at a
point in time as services are provided or earned.
Share-Based Compensation Expense
Stock Options
We estimate the fair value
of stock options granted to employees and directors using the Black-Scholes option-pricing model (“BSM”). The grant date fair
value of stock options is recognized as share-based compensation expense on a straight-line basis over the requisite service period. Forfeitures
are accounted for when they occur.
BSM considers several variables
and assumptions in estimating the fair value of stock-based awards. These variables include:
Fair value of common stock: Because
Legacy Rumble Class A common shares (also referred to as “Rumble’s common stock” below) were not publicly traded
prior to the closing of the Business Combination, we estimated the fair value of our common stock in 2019, 2020 and 2021 using Level 3
inputs as defined in the ASC 820 fair value hierarchy. Our board of directors considers numerous objective and subjective factors to determine
the fair value of our common stock as discussed in “Common Stock Valuations” below. Fair value of Rumble’s Class
A common shares following the closing of the Business Combination is determined based on the Nasdaq closing price of the Company’s
Class A common stock as at the date of measurement.
Expected Term: The
expected term represents the period that our stock-based awards are expected to be outstanding and was determined to be the contractual
term of the options.
Expected Volatility: Since
we have only a limited trading history of our common stock, the expected volatility was derived from the average historical stock volatilities
of several public companies within our industry that we consider to be comparable to our business over a period equivalent to the expected
term of the stock option grants.
Risk-Free Interest Rate: The
risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with the remaining term equivalent
to the expected term.
Expected Dividend: We
have not paid any dividends in our history and do not expect to pay any dividends over the life of the options and, therefore, have estimated
the dividend yield to be zero.
Common Stock Valuations
Prior to the closing of the
Business Combination, given the absence of a public trading market for our common stock and in accordance with the American Institute
of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation,
our board of directors determined the best estimate of fair value of our common stock exercising reasonable judgment and considering numerous
objective and subjective factors. These factors included:
● contemporaneous third-party valuations of our common stock;
● our financial condition, results of operations and capital resources;
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● the industry outlook;
● the valuation of comparable companies;
● the lack of marketability of our common stock;
Our board of directors determined
the fair value of our common stock by first determining the enterprise value of our business, and then using the enterprise value to derive
the per share value of our common stock.
The enterprise value of our
business was estimated by considering several factors, including estimates using the market approach. The market approach was estimated
based on the projected value of comparable public companies in a similar line of business that are publicly traded. In addition to the
market approach described above, our board of directors factored in recent arms-length transactions such as the closest round of equity
financing preceding the date of valuation.
After determining our enterprise
value, an allocation of the enterprise value is assigned to each of our various classes of shares with consideration of the different
rights associated with each share class, including liquidation preferences, seniority of shares, and conversion rights. The value attributed
to common shares through this allocation determines the per share value of our common stock. The BSM implementation of the option pricing
method treats the rights of holders of various classes of securities (common shares, preferred shares, warrants, and options) as call
options on any value of the Company above a series of break points. The values of the break points were calculated by reviewing the liquidation
preferences of preferred shares (including seniority of any series of preferred shares), the participation rights of preferred shares
(including any caps on such participation), and the strike prices of warrants and options.
Application of these approaches
involves the use of estimates, judgments and assumptions that are highly complex and subjective, such as those regarding discount rates,
market multiples, the selection of comparable companies and the probability of possible future events. Changes in any or all of these
estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have
a material impact on the valuation of our common stock.
For valuations after the completion
of the Business Combination, our board of directors determines the fair value of each share of underlying Class A common stock based
on the closing price of Class A common Stock as reported on the date of grant.
Warrants
Measurement of the Company’s
warrants issued to purchase shares of Class A common stock post-closing of the Business Combination is based on the Nasdaq closing price
of the Company’s warrants as at the date of measurement. Warrants issued to purchase common stock of Legacy Rumble prior to the
closing of the Business Combination were freestanding financial instruments classified as equity, and measured using the BSM option pricing
model, which included assumptions related to the inputs of exercise price, fair value of the underlying common stock, risk-free interest
rate, expected term, expected volatility, and expected dividend yield, which were all determined in the same manner as our stock options
detailed in the above “Stock Based Compensation Expense” section. As the outstanding warrants (prior to the closing
of the Business Combination) were also subject to a performance condition, management assessed the probability of the performance condition
being met at each reporting date. These Legacy Rumble warrants were exchanged for 14,153,048 shares of Class A common stock of the Company
as part of the Business Combination, for a par value of $731,281.
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New Accounting Pronouncements
See Note 3, Summary of
Significant Accounting Policies, to our consolidated financial statements for the year ended December 31, 2022 and 2021.
JOBS Act Accounting Election
We are an emerging growth company,
as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until
such time as those standards apply to private companies. We intend to elect to adopt new or revised accounting standards under private
company adoption timelines. Accordingly, the timing of our adoption of new or revised accounting standards will not be the same as other
public companies that are not emerging growth companies or that have opted out of using such extended transition period and our financial
statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
We are exposed to certain market
risks as part of our ongoing business operations.
Credit Risk
We are exposed to credit risk on our cash, cash
equivalents, marketable securities, and accounts receivable. We place cash, cash equivalents, and marketable securities with financial
institutions with high credit standing, and we place excess cash in marketable investment grade debt securities. We are exposed to credit
risk on our accounts receivable in the event of default by a customer. We bill our customers under customary payment terms and review
customers for their creditworthiness. The term between invoicing and payment due date is not significant. A meaningful portion of our
revenue is attributable to service agreements with one customer. For the year ended December 31, 2022, one customer accounted for $17.7
million or 45% of our revenue (2021 – $6.5 million or 69%). As of December 31, 2022, one customer accounted for 66% of our accounts
receivable (2021 — 35%), which has been collected in the month of January 2023.
Interest Rate Risk
We are exposed to interest rate risk on our cash,
cash equivalents and marketable securities. As of December 31, 2022, we had cash, cash equivalents and marketable securities of $338.3 million,
consisting of investments in money market funds, treasury bills, and term deposits for which the fair market value would be affected by
changes in the general level of interest rates. However, due to the short-term maturities and the low-risk profile of our investments,
an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash, cash equivalents and
marketable securities.
45
Item 8. Financial Statements and Supplementary
Data
Consolidated Statements of Comprehensive Loss F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Shareholders’ Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
1. Overview and Basis of Presentation F-7
2. Significant Events and Transactions F-8
3. Summary of Significant Accounting Policies F-12
4. Business Combinations F-23
5. Revenue from Contracts with Customers F-24
6. Cash, Cash Equivalents, and Marketable Securities F-24
7. Capital Assets F-25
8. Right-of-Use Assets and Lease Liabilities F-25
9. Intangible Assets F-26
10. Income Taxes F-27
11. Warrant Liability F-30
12. Other Liability F-31
13. Temporary Equity F-32
14. Shareholders’ Equity F-33
15. Commitments and Contingencies F-41
16. Fair Value Measurements F-42
17. Financial Instrument Risks F-43
18. Related Party Transactions F-44
19. Segment Information F-45
20. Subsequent Events F-46
46
Rumble Inc.
Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the years ended December 31, 2022 and 2021
Rumble Inc.
Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the years ended December 31, 2022 and 2021
Contents
Consolidated Financial Statements
Consolidated Statements of Comprehensive Loss F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Shareholders’ Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to the Consolidated Financial Statements F-7 - F-46
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Rumble
Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheets of Rumble Inc. and its subsidiaries (the Company) as of December 31, 2022 and 2021, and the related consolidated statements
of comprehensive loss, shareholders’ equity (deficit), and cash flows for each of the years in the two year period ended December
31, 2022, and the related notes (collectively referred to as the consolidated financial statements).
In our opinion, the consolidated financial statements
present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the
results of its consolidated operations and its consolidated cash flows for each of the years in the two-year period ended December 31,
2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for
our opinion.
<MNP LLP>
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company’s auditor since 2019.
Toronto, Canada
March 30, 2023
F-2
Rumble Inc.
Consolidated Statements of Comprehensive Loss
(Expressed in
U.S. Dollars)
Expenses
Changes in fair value of warrant liability 21,010,500 -
Changes in fair value of option liability - (3,214,286 )
Deferred tax recovery - 128,459
Loss per share:
Weighted-average shares used to compute loss per share:
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Rumble Inc.
Consolidated Balance Sheets
(Expressed in
U.S. Dollars)
Assets
Current assets
Liabilities and Shareholders’ Equity
Current liabilities
Temporary equity
Commitments and contingencies
Shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Rumble Inc.
Consolidated Statements of Shareholders’ Equity
(Deficit)
(Expressed in
U.S. Dollars)
Number of Common Stock
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Rumble Inc.
Consolidated Statements of Cash Flows
(Expressed in
U.S. Dollars)
Cash flows provided by (used in)
Operating activities
Adjustments to reconcile net loss to cash flows used in operating activities:
Deferred tax expense (recovery) - (128,459 )
Change in lease liabilities due to cash payments (496,835 ) (118,886 )
Gain on change in fair value of warrants (21,010,500 ) -
Loss on change in fair value of option liability - 3,214,286
Realized foreign exchange loss (45,465 ) -
Changes in non-cash working capital:
Income taxes payable - 595
Investing activities
Purchase of marketable securities (1,100,000 ) -
Cash acquired on acquisition of Locals Technology Inc. - 3,420,060
Financing activities
Repayments of bank indebtedness - (337,636 )
Repayments of from long-term debt - (23,556 )
Proceeds from Qualifying Transaction 399,807,596 -
Repurchase of Class C Common Stock (11,000,000 ) -
Supplemental cash flow information:
Cash paid for income taxes $ - $ -
Cash paid for interest 54 6,325
Non-cash transactions related to the Qualifying Transaction (Note 2)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Rumble Inc.
Notes to the Consolidated Financial Statements
(Expressed in
U.S. Dollars)
For the years ended December 31, 2022 and 2021
1. Overview and Basis of Presentation
Nature of Operations
Rumble Inc. (“Rumble” or
“the Company”) is a full-service video technology provider offering customizable video players, original content videos, and
a library of advertisements for use with its video players. The Company’s registered office is 444 Gulf of Mexico Drive, Longboat Key,
Florida, 34228. The Company’s shares of Class A common stock and warrants are traded on The Nasdaq Global Market (“Nasdaq”)
under the symbol “RUM” and “RUMBW”, respectively.
Basis of Presentation
The accompanying consolidated financial
statements (the “financial statements”) are prepared in accordance with generally accepted accounting principles in the United
States of America (“U.S. GAAP”) and include the results of the Company and its wholly-owned subsidiaries (“the Group”).
Any reference in these notes to applicable guidance is meant to refer to the authoritative guidance found in the Accounting Standards
Codification (“ASC”) and Accounting Standards Update (“ASU”). All intercompany balances and transactions have been
eliminated upon consolidation. These financial statements are presented in U.S. dollars, which is the functional currency of the Company,
except where otherwise indicated.