Rumble Inc.
The accompanying notes are an integral part of
these condensed consolidated interim financial statements.
The accompanying notes are an integral part of
these condensed consolidated interim financial statements.
The accompanying notes are an integral part of
these condensed consolidated interim financial statements.
The accompanying notes are an integral part of
these condensed consolidated interim financial statements.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September
30, 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 unaudited condensed
consolidated interim financial statements (“financial statements”) are prepared in accordance with accounting principles generally
accepted 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.
These financial statements should
be read in conjunction with Legacy Rumble’s annual consolidated financial statements for the year ended December 31, 2021 (“2021
Annual Financial Statements”). These financial statements have been prepared using the same accounting policies that were described
in Note 2 to the 2021 Annual Financial Statements.
The Board of Directors approved these
condensed consolidated interim financial statements on November 10th, 2022.
Use of Estimates
The preparation of these financial
statements in conformity with U.S. GAAP requires management to make certain estimates, judgments, 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 financial statements,
as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates the estimates
used, which include but are not limited to the: evaluation of revenue recognition criteria; collectability of accounts receivable; valuation
of stock-based compensation awards; valuation of financial instruments measured at fair value through profit and loss; assessment and
recoverability of long-lived assets; useful lives of long-lived assets, including goodwill; and the realization of tax assets, estimates
of tax liabilities, and valuation of deferred taxes. These estimates, judgments, and assumptions are reviewed periodically and the impact
of any revisions are reflected in the financial statements in the period in which such revisions are made. Actual results could differ
materially from those estimates, judgments, or assumptions, and such differences could be material to the Company’s consolidated financial
position and results of operations.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 2. | Significant Events and Transactions |
On December 1, 2021, Rumble Inc (“Legacy
Rumble”), a corporation incorporated under the laws of the Province of Ontario, entered into a business combination agreement (the
“Business Combination Agreement”) with CF Acquisition Corp. VI, a Delaware corporation (“CFVI”), which among other
things, provided for the exchange of all of the issued and outstanding shares of Legacy Rumble (“Rumble Acquisition”) for
the shares of Class A Common Stock and Class C Common Stock and exchangeable shares in a wholly-owned subsidiary of CFVI, subject to adjustments
and payable in accordance with the terms of the Business Combination Agreement.
CFVI is a special purpose acquisition
company, formed for the purpose of effecting an acquisition of one or more business or assets, by way of Qualifying Transaction, amalgamation,
share exchange, asset acquisition, share repurchase, reorganization, or other similar business combination involving CFVI, referred to
as its qualifying acquisition (“Qualifying Transaction”). CFVI’s sponsor is CFAC Holdings VI, LLC (the “Sponsor”).
On February 23, 2021, CFVI consummated the initial public offering (the “Offering”) of 30,000,000 units (“CFVI Units”)
for gross proceeds of $300,000,000. Each CFVI Unit consists of one share of Class A Common Stock (“CFVI Class A Common Stock”)
and one-fourth of one redeemable warrant (“CFVI Warrant(s)”). Each whole CFVI Warrant entitles the holder to purchase one
share of CFVI Class A Common Stock at a price of $11.50, and is exercisable on the later of 30 days after the completion of Qualifying
Transaction or 12 months from the closing of the Offering, and expires 5 years after the completion of the Qualifying Transaction, or
earlier upon redemption of liquidation. Upon closing of the Offering, the CFVI Units were listed on the Nasdaq. The total proceeds from
the Offering were placed in an escrow account to be released upon consummation of the Qualifying Transaction in accordance with the terms
and conditions of the related escrow agreement. Prior to the closing of the Qualifying Transaction discussed below, CFVI shareholders
were permitted to elect to redeem their shares of CFVI Class A Common Stock for cash even if they approved the Qualifying Transaction.
As a result, actual redemptions by CFVI shareholders were 30,689 CFVI Class A Common Stock and the remaining 29,969,311 shares of CFVI
Class A Common Stock of the Company remained outstanding. Simultaneous with the closing of the Offering, CFVI consummated the sale of
700,000 units (“CFVI Placement Units”) to the Sponsor for gross proceeds of $7,000,000. Additionally, in connection with the
Offering, the Sponsor committed, pursuant to a forward purchase contract (“FPA”) with CFVI, to purchase, in a private placement
for gross proceeds of $15,000,000 to occur concurrently with the consummation of the Qualifying Transaction, 1,500,000 CFVI Units on substantially
the same terms as the sale of CFVI Units in the Offering at $10.00 per CFVI Unit, and 375,000 CFVI Class A Common Stock (for no additional
consideration). The funds from the FPA were to be used as part of the consideration to the sellers in the Qualifying Transaction.
On September 16, 2022 (the “Closing
Date”), pursuant to the terms of the Business Combination Agreement, Legacy Rumble and CFVI announced the completion of the Qualifying
Transaction, which constitutes CFVI’s Qualifying Transaction. In connection with the closing of the Qualifying Transaction, CFVI
was renamed Rumble Inc and Legacy Rumble was renamed Rumble Canada Inc. References herein to “CFVI” and “Legacy Rumble”
are to CF Acquisition Corp. VI and Rumble Inc, respectively, prior to the consummation of the Qualifying Transaction, and references to
the “Company” or “Rumble” are to Rumble Inc following consummation of the Qualifying Transaction.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 2. | Significant Events and Transactions (Continued) |
Consideration
for the Qualifying Transaction pursuant to the terms of the Business Combination Agreement, and in exchange for their respective shares
of capital stock of Legacy Rumble, was as follows:
| ● | For each share of Legacy Rumble capital stock held by eligible electing Canadian shareholders of Legacy Rumble (the “Electing Shareholders”), the Electing Shareholders receive a number of exchangeable shares in 1000045728 Ontario Inc., an indirect, wholly owned Canadian subsidiary of CFVI (“ExchangeCo”, and such shares, the “ExchangeCo Shares”) equal to the quotient obtained by dividing the Price Per Company Share (as defined below) by $10.00 (the “Company Exchange Ratio”), and such Electing Shareholders concurrently subscribed for nominal value for a corresponding number of shares of Class C common stock, par value $0.0001 per share, of the Company (“Class C Common Stock”), a new class of voting, non-economic shares of common stock of the Company created and issued in connection with the Qualifying Transaction. This resulted in the issuance of 168,762,214 shares of Class C Common Stock of the Company for a par value of $16,876; and |
| ● | For
each share of Legacy Rumble capital stock held by all other shareholders of Rumble (the “Non-Electing
Shareholders”, and collectively with the Electing Shareholders, the “Rumble Shareholders”),
such Non-Electing Shareholder received a number of shares of Class A common stock, par value
$0.0001 per share, of the Company (“Class A Common Stock”) equal to the Company
Exchange Ratio. This resulted in the issuance of 48,970,404 shares of Class A Common Stock
of the Company for a par value of $4,897. |
The
“Arrangement Consideration” means $3,186,384,663, representing the sum of $3,150,000,000, plus the cash and cash equivalents
balance held by Legacy Rumble as of the date of the Qualifying Transaction (net of outstanding indebtedness), plus the aggregate exercise
price of all outstanding options to purchase Legacy Rumble stock. The “Price Per Company Share” is obtained by dividing (i)
the Arrangement Consideration by (ii) the number of outstanding shares of capital stock of Legacy Rumble (calculated on a fully diluted
basis in accordance with the Business Combination Agreement). The Company Exchange Ratio was determined to be 24.5713:1.0000.
In
addition, under the Business Combination Agreement:
| ● | All
outstanding options to purchase shares of Legacy Rumble capital stock were exchanged for
options (“Exchanged Company Options”) to purchase (a) a number of shares of Class
A Common Stock (“Base Option Shares”) equal to the product (rounded down to the
nearest whole number) of (i) the number of shares of Legacy Rumble capital stock subject
to such options and (ii) the Option Exchange Ratio (as defined below), and (b) a fraction
of a share of Class A Common Stock with respect to each Base Option Share equal to the Option
Earnout Fraction (as defined below) (such fractional shares, “Tandem Option Earnout
Shares”). The aggregate purchase price per Base Option Share together with the related
fraction of the Tandem Option Earnout Share equals (i) the exercise price of such Legacy
Rumble stock options divided by (ii) the Option Exchange Ratio (rounded up to the nearest
whole cent); and |
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 2. | Significant
Events and Transactions (Continued) |
| ● | The outstanding warrant to purchase shares of Legacy Rumble capital stock was exchanged for a number of shares of Class A Common Stock equal to the product (rounded down to the nearest whole number) of the number of shares of Rumble capital stock subject to the warrant and the Company Exchange Ratio. This resulted in the issuance of 14,153,048 shares of Class A Common Stock of the Company for a par value of $731,281. |
“Option
Earnout Fraction” means the difference between (i) the Company Exchange Ratio divided by the Option Exchange Ratio minus
(ii) 1.00. “Option Exchange Ratio” means the quotient obtained by dividing (x) by (y), where: (x) is the quotient, expressed
as a dollar number, obtained by dividing (i) the sum of (a) $2,136,384,663, representing the sum of $2,100,000,000 plus the cash and
cash equivalents balance held by Legacy Rumble as of the date of the Qualifying Transaction (net of debt), plus the aggregate exercise
price of all outstanding options to purchase shares of Legacy Rumble capital stock, by (ii) the number of outstanding shares of Legacy
Rumble capital stock (calculated on a fully diluted basis in accordance with the Business Combination Agreement); and (y) $10.00.
In addition, for an aggregate purchase
price of $1,000,000, upon the closing of the Qualifying Transaction and pursuant to a subscription agreement entered into between Christopher
Pavlovski, Legacy Rumble’s CEO and founder (“Mr. Pavlovski”) and CFVI, the Company issued and sold to Mr. Pavlovski
a number of shares of Class D common stock, par value $0.0001 per share, of the Company (“Class D Common Stock”), a new class
of non-economic shares of common stock of the Company carrying the right to 11.2663 votes per share created and issued in connecting with
the Qualifying Transaction, such that, taking into account the shares of Class A Common Stock and Class C Common Stock issued to Mr. Pavlovski
at the closing of the Qualifying Transaction, Mr. Pavlovski has approximately 85% of the voting power of the Company on a fully diluted
basis.
The Company also issued, as of the
date of the closing of the Qualifying Transaction, 1,875,000 shares of Class A Common Stock (par value $188) in connection with the FPA.
Further, upon the closing of the Qualifying
Transaction, the Company consummated a private investment in public equity (“PIPE”) via the issuance of 8,300,000 shares of
Class A Common Stock (par value $0.0001 per share) for aggregate proceeds of $83,000,000.
While CFVI was the legal acquirer
of Legacy Rumble, Legacy Rumble was identified as the acquirer for accounting purposes. The Rumble Acquisition is accounted for as a reverse
recapitalization in accordance with U.S. GAAP. Under this method of accounting, CFVI is treated as the acquired company for financial
reporting purposes and Legacy Rumble is treated as the acquiror. This determination is primarily based on the facts that subsequent to
the Qualifying Transaction, the Legacy Rumble shareholders hold a majority of the voting rights in the combined company (Rumble or the
Company), Legacy Rumble will collectively hold voting power giving them the right to appoint the majority of the directors in Rumble,
Legacy Rumble comprises all of the ongoing operations of the combined company, Legacy Rumble comprises all of the senior management of
the combined company, and Legacy Rumble is significantly larger than CFVI in terms of revenue, total assets (excluding cash) and employees.
Accordingly, for accounting purposes, the Qualifying Transaction was treated as the equivalent of Legacy Rumble issuing shares for the
net assets of CFVI, accompanied by a recapitalization.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 2. | Significant Events and Transactions (Continued) |
The net assets of CFVI were stated
at historical costs. No goodwill or other intangible assets were recorded. Operations prior to the Qualifying Transaction are those of
Legacy Rumble.
In connection with the Qualifying Transaction,
the Company received $399,807,596 in gross proceeds from the Qualifying Transaction.
The number of shares of the Company’s
common stock outstanding immediately following the consummation of the Qualifying Transaction was:
| | |
Class A | | |
Class C | | |
Class D | | |
Total | |
| | |
| | |
| | |
| | |
| |
| CFVI Public Shareholders | |
| 29,969,311 | | |
| - | | |
| - | | |
| 29,969,311 | |
| Sponsor Related Parties and Other Holders of Founder’s Shares | |
| 10,075,000 | | |
| - | | |
| - | | |
| 10,075,000 | |
| Rumble Shareholders | |
| 63,123,452 | | |
| 167,662,214 | | |
| 105,782,403 | | |
| 336,568,069 | |
| PIPE Investors | |
| 8,300,000 | | |
| - | | |
| - | | |
| 8,300,000 | |
| Closing shares | |
| 111,467,763 | | |
| 167,662,214 | | |
| 105,782,403 | | |
| 384,912,380 | |
Details of the Qualifying Transaction
are summarized as follows:
| Fair value of shares issued by Rumble | |
$ | 353,039,304 | |
| | |
| | |
| Net assets acquired: | |
| | |
| Cash | |
$ | 300,797,018 | |
| Prepaid expenses | |
| 221,016 | |
| Accounts payable, accruals, and other liabilities | |
| (256,095 | ) |
| Warrant liability | |
| (29,625,500 | ) |
| FPA liability | |
| (8,362,419 | ) |
| | |
| 262,774,020 | |
| | |
| | |
| PIPE escrow proceeds | |
| 83,000,000 | |
| Sponsor FPA proceeds | |
| 15,000,000 | |
| Class D Common Stock proceeds | |
| 1,000,000 | |
| Shares repurchase of Class C Common Stock | |
| (11,000,000 | ) |
| | |
$ | 350,774,020 | |
| | |
| | |
| Excess fair value over net assets acquired – listing fee | |
$ | 2,265,284 | |
The excess fair value over net assets
acquired was recorded as a reduction to additional paid-in capital. Additionally, the Company incurred transaction costs of $53,866,750,
consisting of banking, legal, and other professional fees. The transaction costs were recorded as a reduction to additional paid-in capital
in accordance with Staff Accounting Bulletin Topic 5.A.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 3. | Summary of Significant Accounting Policies |
Foreign Currency
The functional currency of the Group
is the U.S. dollar. Transactions denominated in currencies other than the U.S. dollar are remeasured using end-of-period exchange rates
or exchange rates prevailing at the date of the transaction, and the resulting gains or losses are recognized as a component of operating
expenses.
Fair Value Measurements
The carrying amounts of the Company’s
financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, lease liabilities,
and other liabilities approximated their fair values at September 30, 2022 and December 31, 2021.
The Company evaluates the estimated
fair value of financial instruments using available market information and management’s estimates. The use of different market assumptions
and/or estimation methodologies could have a significant impact on the estimated fair value amounts. See Note 15 for further details.
Concentration Risk
A meaningful portion of the Company’s
revenue (and a substantial portion of the Company’s net cash from operations that it can freely access) is attributable to Service Agreements
with a few customers. See Note 15 for further details.
Revenue Recognition
Revenues
are recognized when the control of promised services is transferred to a customer, in an amount that reflects the consideration the Company
expects to be entitled to in exchange for those services. Sales tax and other similar taxes are excluded from revenues.
The
Company derives revenues primarily from:
| ● | Licensing
fees and other |
Advertising
customers pay on a cost-per-click, cost-per-view or cost-per-message-read basis. For cost-per-click and cost-per-view, Rumble
is paid only when a user clicks or views an advertisement; thus, advertising revenue is recognized when a user engages with the advertisement,
such as when the user clicks or views the advertisement or when the advertisement is displayed. 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.
To achieve the core principle of this
new standard, the Group applies the following steps:
1. Identification of the contract,
or contracts, with the customer
The Company determines to have a contract
with a customer when the contract is approved, the Company can identify each party’s rights regarding the services to be transferred,
the Company can identify the payment terms for the services, the Company has determined the customer has the ability and intent to pay
and the contract has commercial substance.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 3. | Summary of Significant Accounting Policies (Continued) |
Revenue Recognition (Continued)
2. Identification of the performance
obligations in the contract
Performance obligations promised in
a contract are identified based on the services and the products that will be transferred to the customer that are both capable of being
distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available
from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services and the
products is separately identifiable from other promises in the contract. The Company’s performance obligations consist of (i) providing
a hosting platform for advertisements, and (ii) licensing of Rumble player.
3. Determination of the transaction price
The transaction price is determined
based on the consideration to which the Company expects to be entitled in exchange for transferring services to the customer.
4. Allocation of the transaction price to the
performance obligations in the contract
If the contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance
obligations require an allocation of the transaction price to each performance obligation based on a relative stand-alone selling price
(“SSP”). SSP is determined by allocating the transaction price to each performance obligation in an amount that depicts the
amount of consideration the Company expects to be entitled to in exchange for transferring those services to the customer.
5. Recognition of the revenue when,
or as, the Company satisfies each performance obligation
Revenue is recognized at the time the
related performance obligation is satisfied by transferring the control of the promised service to a customer in an amount that reflects
the consideration that the Company expects to receive in exchange for those services.
Licensing Fees and Other
Under bulk license agreements, the
Company’s obligations include hosting the content libraries for access and searching by the customer, updating the libraries with
new content provided by the content owner, and making videos selected by the customer available for download, throughout the term of the
contract.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 3. | Summary of Significant Accounting Policies (Continued) |
Revenue Recognition (Continued)
These services are billed based on
the access to the content regardless of the number of videos downloaded. All of these services are highly interdependent as the customer’s
ability to derive its intended benefit from the contract depends on the entity transferring both the access to the content library overtime
and making the videos available as and when required by the customer for download. These services therefore constitute a single performance
obligation comprised of a series of distinct services transferred to the customer in a similar manner throughout the contract term. The
predominant item in the single performance obligation is a license providing a right to access the content library throughout the license
period. For these arrangements, the Company recognizes the total fixed fees under the contract as revenue rateably over the term of the
contract as the performance obligation is satisfied, as this best depicts the pattern of control transfer.
For license agreements related to the
Rumble player, the Company’s obligations include providing access to the current version the Rumble player throughout the term of
the contract. As part of this arrangement, the customer is required to use the most current version of the player and therefore, the utility
of the player to the customer is significantly affected by Rumble’s ongoing activities to maintain and support the player. Revenue
is therefore recognized rateably over the term of the contract. In addition, certain arrangements related to the license of the Rumble
player include the monetization of content. In these arrangements, Rumble will manage the provision of services to ad providers and share
the revenues with the customers. This revenue is recognized over time as user views occur.
Other revenues include fees earned
from tipping features within the Company’s platform as well as certain cloud, subscription, provision of one-time content, 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 provision of one-time content and professional services
have stand-alone functionality to the customer and are recognized at a point in time as services are provided.
Variable Consideration
Advertising revenues are based on user
engagements. Revenue is recorded at the sales price, which is the transaction price, and includes estimates of variable consideration.
The amount of variable consideration that is included in the transaction price is constrained as it is based on number of views and/or
clicks that will occur, and is included in the sales price only to the extent that it is probable that a significant reversal in the amount
of the cumulative revenue will not occur when the uncertainty is resolved. Further, given that the cost-per-click and/or cost-per-view
may vary based on the location of the user, the revenue per click/view is also not determinable until it occurs, and therefore, constrained.
Given that the transaction price is specifically related to the performance obligation of providing an advertisement hosting platform
that can be viewed and/or clicked by users and the amount of consideration expected by the Company is in exchange for providing these
services, advertising revenues are recognized as usage occurs over the term of the advertising contract in line with ASC 606-10-32-40.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 3. | Summary of Significant Accounting Policies (Continued) |
Revenue Recognition (Continued)
Further, the Company may enter into
certain licensing arrangements where consideration may be paid in exchange for rights to monetize content, and therefore, total consideration
to be received by the Company may be variable in nature. The Company recognizes this non-cash consideration as a contingent payment, and
therefore, does not recognize fair value of the user views promised in these arrangements until control over the content is transferred
over to the Company. Further, the usage-based royalty exemption has been taken by the Company for these arrangements.
Costs to Obtain a Contract
The Company expenses sales commissions
when incurred when the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.
Principal vs Agent
The Company has taken the position
as a principal for both advertising and licensing and other revenues, and therefore recognizes revenues on a gross basis, as it has control
over both the content that is monetized as well as the platform over which the content is displayed. Further, the Company manages the
monetization of content, has discretion over pricing, bears inventory risk and is the only party to the contract with its customers.
Practical Expedients and
Exemptions
The Company does not disclose the value
of unsatisfied performance obligations for contracts with an original expected length of one year or less and for contracts for which
revenue is recognized at the amount to which the Company has the right to invoice for services performed.
Costs of Revenues
Costs of revenues primarily consist
of costs related to obtaining, supporting and hosting the Company’s product offerings. These costs include content acquisition costs primarily
related to payments to content providers from whom videos and other content are licensed; fees are paid to these providers based on revenues
generated. Other fees may also be paid to licensees as part of licensing arrangements discussed above. Other costs of revenues include
third-party service provider costs such as data center and networking, as well as staffing costs directly related to professional services
fees. On January 1, 2022, the Company changed its accounting policy to include amortization and depreciation in the cost of revenues.
This change in accounting policy has been applied retrospectively in these financial statements. The amounts in the condensed consolidated
interim statement of comprehensive loss have been reclassified to conform with the presentation in the current year. During the three
and nine months ended September 30, 2022, the Company allocated amortization and depreciation of $296,622 and $683,520, respectively.
During the three and nine months ended September 30, 2021, the Company allocated amortization and depreciation of $20,995 and $20,995,
respectively.
Deferred Revenue
The Company records amounts that have
been invoiced to its clients in either deferred revenue or revenue depending on whether the revenue recognition criteria described above
have been met. Deferred revenue includes payments received in advance of performance under the contract.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 3. | Summary of Significant Accounting Policies (Continued) |
Contract Assets
The adoption of Topic 606 for revenue
recognition included adoption of Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires deferral
of the incremental costs of obtaining a contract with a customer. The Company does not have significant contract assets.
Marketing Costs
All marketing costs are expensed as
incurred and are included in operating expenses on the condensed consolidated interim statement of comprehensive loss.
Warranties
The Company’s cloud services and software
are generally warranted to perform materially in accordance with user expectation under normal use and circumstances. Warranties may not
be purchased separately from services, and only provide assurance that the services comply with agreed-upon specifications. The Company
has entered into service-level agreements with substantially all of its cloud services customers warranting defined levels of uptime reliability
and performance, and permitting those customers to receive credits if the Company fails to meet those levels.
Share-Based Compensation
The Company offers a stock option plan
for certain of its employees, advisory board members, directors, officers and consultants under which certain stock options have been
issued. The Company applies the provisions of ASC 718, Stock-based Compensation, which requires companies to measure all employee
stock-based compensation awards using the fair value method. Under this method, the fair value of each option grant is estimated on the
date of grant and the Company records compensation expense based on the estimated fair value over the requisite service period for each
award, which generally equals the vesting period. For service-based options, the Company uses the straight-line amortization method for
recognizing share-based compensation expense over the requisite service period.
Vesting period for the stock options
granted is determined by the Board of Directors and the typical vesting for equity awards with service conditions is monthly vesting over
three to five years. Requisite service period for Rumble’s stock options subject to service conditions is coterminous with the vesting
period specific to those stock options.
The Company has also issued equity
awards such as warrants, restricted stock units and/or stock options that are subject to certain performance or service conditions. Typical
performance condition refers to a change in control and/or the Company becoming publicly traded. Vesting condition for such equity awards
is met when either the performance condition is satisfied or deemed likely to be satisfied. Typical service conditions is monthly vesting
over three years.
The Company has granted a warrant to
a non-employee subject only to a performance condition. Under ASC 718, the Company assesses the probability of the performance condition
being achieved at each reporting date and records the compensation cost based on the probability of the performance condition being met.
Performance condition was met as of December 31, 2021.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 3. | Summary of Significant Accounting Policies (Continued) |
Share-Based Compensation (Continued)
The Company values stock options and
warrants using the Black-Scholes option pricing model. The use of this valuation model involves assumptions that are judgmental and highly
sensitive in the determination of compensation expense and include the share price, the expected life of the option and the share price
volatility.
When options or warrants are exercised,
the corresponding additional paid-in capital and the proceeds received by the Company are credited to share capital. If stock options
are repurchased, the excess of the consideration paid over the carrying amount of the stock or stock options repurchased is charged to
additional paid-in capital and/or deficit.
Warrant Liability
The Company accounts for warrants in
connection with the Offering, CFVI Placement Units, and FPA using applicable authoritative guidance in ASC 480, Distinguishing Liabilities
from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers
whether the warrants are freestanding instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet
all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own
shares of common stock and whether the warrant holders count potentially require “net cash settlement” in a circumstance outside
of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional
judgment, is conducted at the time of issuance of the warrants and execution of the Offering, CFVI Placement Units, and FPA and as of
each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that do not meet all the
criteria for equity classification, such warrants are required to be recorded at their initial fair value on the date of issuance, and
on each balance sheet date thereafter. Changes in the estimated fair value of liability-classified warrants are recognized on the condensed
consolidated interim statements of comprehensive loss in the period of change.
The Company accounts for the warrants
in connection with the Offering, CFVI Placement Units, and FPA in accordance with guidance in ASC 815-40, Derivatives and Hedging –
Contracts in Entity’s Own Equity (“ASC 815-40”), pursuant to which the warrants do not meet the criteria for equity
classification and must be recorded as liabilities. See Note 10 for further discussion of the pertinent terms of the warrants and for
further discussion of the methodology used to determine the fair value of the warrants.
Comprehensive Income (Loss)
ASC 220, Comprehensive Income,
establishes standards for reporting and displaying comprehensive loss and its components in the financial statements. Comprehensive loss
consists of net loss and other comprehensive loss.
Interest in a Joint Venture
One of the Group’s subsidiaries
has a 30% membership interest in a joint venture based in Florida, USA named Liberatio Special Ventures LLC (“Liberatio”).
Liberatio is involved in the development and operation of an ecosystem, intended to provide customers with the ability to process payments
and engage in other related value-driven activities. The Group’s interest in Liberatio is accounted for using the equity method
in the financial statements
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 3. | Summary of Significant Accounting Policies (Continued) |
New standards
or amendments
For
the period ended September 30, 2022, no new accounting standard was issued. The following amendments to existing standards are effective
January 1, 2022 and have no material impact on the Company’s financial statements:
| ● | Accounting
Standards Update 2021-04—Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock
Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s
Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging
Issues Task Force) |
| ● | Accounting
Standards Update 2020-06—Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
(applicable to convertible instruments |
The
amended standards relevant to the Company that are issued, but not yet effective, up to the date of issuance of Company’s financial
statements are listed below. The Company intends to adopt these amendments, if applicable, when they become effective and is currently
analyzing them to determine their impact on the financial statements:
| ● | Accounting
Standards Update 2022-03—Fair Value Measurement (Topic 820): Fair Value Measurement
of Equity Securities Subject to Contractual Sale Restrictions |
| ● | Accounting
Standards Update 2021-08—Business Combinations (Topic 805): Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers |
| ● | Accounting
Standards Update 2021-07—Compensation—Stock Compensation (Topic 718): Determining
the Current Price of an Underlying Share for Equity-Classified Share-Based Awards (a consensus
of the Private Company Council) |
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
Acquisition of Locals Technology
Inc.
On October 25, 2021, Legacy Rumble
acquired 100% of the interest in Locals Technology Inc. (“Locals”), a video streaming and content distribution platform, for
a total consideration of $7,039,110. The acquisition was accounted for as a business combination using the acquisition method. The breakdown
of the fair value of the assets acquired and liabilities assumed is presented as follows:
| Cash | |
$ | 3,420,060 | |
| Accounts receivable | |
| 900,207 | |
| Prepaid expenses | |
| 19,726 | |
| Capital assets | |
| 4,591 | |
| Intangible assets | |
| 2,759,000 | |
| Accounts payable, accruals, and other liabilities | |
| (379,914 | ) |
| Deferred revenue | |
| (219,000 | ) |
| Deferred tax liability | |
| (128,459 | ) |
| Fair value of net identifiable assets acquired | |
| 6,376,211 | |
| | |
| | |
| Add: Goodwill | |
| 662,899 | |
| Total net assets acquired | |
$ | 7,039,110 | |
| | |
| | |
| Purchase consideration: | |
| | |
| Common shares | |
$ | 7,038,691 | |
| Additional paid-in capital | |
| 419 | |
| Total consideration | |
$ | 7,039,110 | |
The acquired business contributed revenues
of $367,741 and $1,300,175 for the three and nine months ended September 30, 2022, respectively. Additionally, the acquired business incurred
losses of $1,212,868 and $2,489,857 for the three and nine months ended September 30, 2022, respectively.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 5. | Revenue from Contracts with Customers |
The following table presents revenues
disaggregated by type:
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 30 |
|
|
September 30 |
|
| |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Advertising |
|
$ |
9,208,678 |
|
|
$ |
1,526,547 |
|
|
$ |
13,956,884 |
|
|
$ |
4,920,453 |
|
| Licensing and other |
|
|
1,774,504 |
|
|
|
542,926 |
|
|
|
5,461,375 |
|
|
|
1,606,362 |
|
| Total revenues |
|
$ |
10,983,182 |
|
|
$ |
2,069,473 |
|
|
$ |
19,427,259 |
|
|
$ |
6,526,815 |
|
Deferred Revenue
Deferred revenue recorded at September
30, 2022 is expected to be fully recognized by September 30, 2023. The deferred revenue balance as of September 30, 2022 was $368,739
(December 31, 2021 - $30,014).
| 6. | Cash and Cash Equivalents |
Cash and cash equivalents as of September
30, 2022 and December 31, 2021 consist of the following:
| | |
September 30, 2022 | |
| | |
Contracted | |
Amortized | | |
Fair Market | | |
Balance per
Balance | |
| | |
Maturity | |
Cost | | |
Value | | |
Sheet | |
| | |
| |
| | |
| | |
| |
| Cash | |
Demand | |
$ | 355,580,050 | | |
$ | 355,580,050 | | |
$ | 355,580,050 | |
| Money market funds | |
Demand | |
| 1,100,000 | | |
| 1,100,000 | | |
| 1,100,000 | |
| | |
| |
| | | |
| | | |
| | |
| | |
| |
$ | 356,680,050 | | |
$ | 356,680,050 | | |
$ | 356,680,050 | |
| | |
| |
| | |
December 31, 2021 | |
| | |
Contracted | |
Amortized | | |
Fair Market | | |
Balance per
Balance | |
| | |
Maturity | |
Cost | | |
Value | | |
Sheet | |
| | |
| |
| | | |
| | | |
| | |
| Cash | |
Demand | |
$ | 2,847,375 | | |
$ | 2,847,375 | | |
$ | 2,847,375 | |
| Money market funds | |
Demand | |
| 44,000,000 | | |
| 44,000,000 | | |
| 44,000,000 | |
| | |
| |
| | | |
| | | |
| | |
| | |
| |
$ | 46,847,375 | | |
$ | 46,847,375 | | |
$ | 46,847,375 | |
The Group did not have any short-term
or long-term investments as at September 30, 2022 or December 31, 2021 except for the investment in a joint venture.
As of September 30, 2022, the Group
entered into a guarantee/ standby letter of credit for $1,000,000 which will be used towards the issuance of credit for running the day-to-day
business operations (December 31, 2021 - $nil).
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Computer hardware | |
$ | 6,653,509 | | |
$ | 1,289,702 | |
| Furniture and fixtures | |
| 100,921 | | |
| 33,484 | |
| Leasehold improvements | |
| 420,701 | | |
| 21,065 | |
| | |
| 7,175,131 | | |
| 1,344,251 | |
| Accumulated depreciation | |
| (639,802 | ) | |
| (57,402 | ) |
| Net carrying value | |
$ | 6,535,329 | | |
$ | 1,286,849 | |
Depreciation expense on capital assets
in cost of revenues and operating expenses for the three months ended September 30, 2022 was $204,688 and $91,509, respectively (three
months ended September 30, 2021 - $10,805 and $3,601). Depreciation expense on capital assets in cost of revenues and operating expenses
for the nine months ended September 30, 2022 was $412,338 and $170,062, respectively (nine months ended September 30, 2021 - $10,805 and
$6,315).
| 8. | Right-of-Use Assets and Lease Liabilities |
The Group leases several facilities
under non-cancelable operating leases with no right of renewal. Right-of-use assets represent the right to use an underlying asset for
the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets are
recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide
an implicit rate, the Group uses its respective incremental borrowing rate based on the information available at commencement date in
determining the present value of lease payments.
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
Accumulated | | |
| | |
Accumulated | |
| | |
Cost | | |
Depreciation | | |
Cost | | |
Depreciation | |
| Right-of-use assets | |
$ | 2,066,882 | | |
$ | 566,125 | | |
$ | 1,698,049 | | |
$ | 182,208 | |
| Net book value | |
| | | |
$ | 1,500,757 | | |
| | | |
$ | 1,515,841 | |
Amortization expense on the right-of-use
asset recognized in cost of revenue and operating expenses for the three months ended September 30, 2022 was $6,291 and $137,337, respectively
(three months ended September 30, 2021 - $1,727 and $11,119). Amortization expense on the right-of-use asset recognized in cost of revenue
and operating expenses for the nine months ended September 30, 2022 was $14,253 and $369,664, respectively (nine months ended September
30, 2021 - $1,727 and $36,143).
Interest expense recognized for the
three and nine months ended September 30, 2022 was $9,538 and $28,146, respectively (three and nine months ended September 30, 2021 -
$518 and $2,210).
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 8. | Right-of-Use Assets and Lease Liabilities (Continued) |
As of September 30, 2022, the weighted-average
remaining lease term and weighted-average incremental borrowing rate for the operating leases were 3.41 years and 2.40%, respectively
(December 31, 2021 – 4.43 years and 2.1%).
The following shows the undiscounted
cash flows for the remaining years under the lease arrangement as at September 30, 2022.
| 2022 | |
$ | 167,242 | |
| 2023 | |
| 599,154 | |
| 2024 | |
| 296,339 | |
| 2025 | |
| 261,461 | |
| 2026 | |
| 264,883 | |
| 2027 | |
| 26,468 | |
| | |
| 1,615,547 | |
| Less: imputed interest | |
| 51,092 | |
| | |
| 1,564,455 | |
| Current portion | |
$ | 579,345 | |
| Long-term portion | |
$ | 985,110 | |
| | |
September 30, 2022 | |
| | |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Net Carrying Amount | |
| Intellectual property | |
$ | 123,143 | | |
$ | - | | |
$ | 123,143 | |
| Domain name | |
| 500,448 | | |
| 44,315 | | |
| 456,133 | |
| Brand (Note 4) | |
| 1,284,000 | | |
| 119,869 | | |
| 1,164,131 | |
| Technology (Note 4) | |
| 1,475,000 | | |
| 275,401 | | |
| 1,199,599 | |
| | |
$ | 3,382,591 | | |
$ | 439,585 | | |
$ | 2,943,006 | |
| | |
December 31, 2021 | |
| | |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Net
Carrying
Amount | |
| Intellectual property | |
$ | 123,143 | | |
$ | - | | |
$ | 123,143 | |
| Domain name | |
| 500,448 | | |
| 19,293 | | |
| 481,155 | |
| Brand (Note 4) | |
| 1,284,000 | | |
| 23,569 | | |
| 1,260,431 | |
| Technology (Note 4) | |
| 1,475,000 | | |
| 54,151 | | |
| 1,420,849 | |
| | |
$ | 3,382,591 | | |
$ | 97,013 | | |
$ | 3,285,578 | |
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 9. | Intangible Assets (Continued) |
Amortization expense related to intangible
assets in cost of revenues and operating expenses for the three months ended September 30, 2022 was $85,643 and $28,548, respectively
(three months ended September 30, 2021 - $8,463 and $2,821). Amortization expense related to intangible assets in cost of revenues and
operating expenses for the nine months ended September 30, 2022 was $256,929 and $85,643, respectively (nine months ended September 30,
2021 - $8,463 and $2,821).
Warrant liability
comprises of 8,050,000 warrants issued by the Company in public offerings, private placements, and forward purchase contracts as follows:
| ● | Public
warrants: As described in Note 2, as a result of the Business Combination Agreement, the Company acquired 7,500,000 warrants previously
issued by CFVI with regards to the Offering of 30,000,000 CFVI Units completed on February 23, 2021 (“Public Warrant(s)”). |
| ● | Private placement warrants: As described in Note 2, as a result of
the Business Combination Agreement, the Company also acquired 175,000 warrants previously issued by CFVI with regards to the sale of 700,000
units (including 175,000 warrants) (“Private Placement Warrants”). |
| ● | Forward
purchase warrants: As described in Note 2, the Company issued 1,500,000 shares in the Class
A Common Stock of the Company and 375,000 warrants (“Forward Purchase Warrants”)
to the Sponsor in relation to the CFVI FPA, for gross proceeds of $15,000,000. |
Each whole Public Warrant, Private Placement
Warrant and Forward Purchase Warrant (“Warrants”) entitles the holder to purchase one share of common stock of the Company,
par value $0.0001 per share, for $11.50 per share . The Warrants will become exercisable on the later of 30 days after the completion
of the Qualifying Transaction or 12 months from the closing of the IPO and will expire 5 years after the completion of the Qualifying
Transaction, or earlier upon redemption or liquidation. The exercise price and entitlement of the Warrants is subject to certain adjustments
including:
| i. | If the number of outstanding shares of common stock is increased
by a stock dividend payable in shares of common stock, or by a split-up of shares of common stock or other similar event, then the number
of shares of common stock issuable on exercise of each Warrant shall be increased in proportion to such increase in the outstanding shares
of common stock. |
| ii. | If the Company pays a dividend or makes a distribution in
cash, securities or other assets to the holders of the common stock, the Warrant price shall be decreased by the amount of cash and/or
the fair market value of any securities or other assets paid on each share of common stock in respect of such extraordinary dividend. |
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 10. | Warrant Liability (Continued) |
| iii. | If the number of outstanding shares of common stock is decreased by a consolidation, combination, reverse
stock split or other similar event, then the number of shares of common stock issuable on exercise of each Warrant shall be decreased
in proportion to such decrease in outstanding shares of common stock. |
| iv. | Whenever the number of shares of common stock purchasable upon the exercise of the Warrants is adjusted,
the warrant price shall be adjusted by multiplying such warrant price immediately prior to such adjustment by a fraction the numerator
of which shall be the number of shares of common stock purchasable upon the exercise of the Warrants immediately prior to such adjustment,
and the denominator of which shall be the number of shares of common stock so purchasable immediately thereafter. |
The exercise of the Warrants may be
settled in cash upon the occurrence of a tender offer or exchange that involves 50% or more of the Company’s Class A shareholders.
Not all of the shareholders need to participate in such tender offer or exchange to trigger the potential cash settlement and the Company
does not control the occurrence of such an event.
The Warrants may be redeemed, at the
option of the Company, at a price of $0.01 per Warrant, provided that the last sales price of the common stock has been at least $18.00
per share during the 20 trading day period starting on the trading day prior to the day of the close of the Qualifying Transaction.
These Warrants are traded publicly with
fair value being determined as their market price. The warrant liability was valued at $3.86 per warrant on September 16, 2022, the date
of Qualifying Transaction. As these are financial liabilities measured at fair value through profit or loss, these Warrants were revalued
at September 30, 2022 using the observable market price of $3.15 per warrant resulting in a gain of $5,715,500. As the transfer of Private
Placement Warrants and Forward Purchase Warrants to anyone who is not a permitted transferee would result in Private Placement Warrants
and Forward Purchase Warrants having substantially the same terms as those issued in public offerings, the Company determined that the
fair value of Private Placement Warrants and Forward Purchase Warrants are equivalent to that of the Public Warrants. The Warrants are
measured at level 1 and level 2 respectively, of the fair value measurement hierarchy.
Further, as these warrants may be exercised
by holders on a cashless basis, and the exercise of these warrants may be settled in cash that does not require the participation of all
shareholders to trigger the potential cash settlement, the Company has concluded that all of its warrants do not meet the ASC 815-40 conditions
of equity classification.
The Company has received certain amounts
from a third party to assist with certain operating expenditures of the Company. These amounts are to be repaid upon settlement of those
expenditures, are non-interest bearing, and have been treated as a long-term liability. As of September 30, 2022, an amount of $500,000
related to these expenses is recorded in other liability (December 31, 2021 - $250,000).
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
Preference Shares
Authorized
Legacy Rumble’s Articles of Incorporation
authorized an unlimited number of preference shares for issuance.
Legacy Rumble filed Articles of Amendment
dated May 14, 2021 to create and authorize 607,360 Class A preferred shares for issuance and to remove the class of preference shares
previously authorized. These Class A preferred shares rank senior to the common shares and have conversion rights that allow each Class
A preferred share to be converted at the option of the holder at any time and without payment of additional consideration into such number
of fully paid and non-assessable Voting Common Shares as is determined by dividing the original issue price of such Class A preferred
share by the conversion price at the time of conversion, which is initially equal to the original issue price subject to various adjustments.
Issued and outstanding
On May 14, 2021, Legacy Rumble issued
606.36 Class A preferred shares, which were subsequently converted into 606,360 Class A preferred shares on a stock split in the ratio
of 1,000-to-1. No other preference shares have been issued. These Class A preferred shares are redeemable for Class A common shares of
Legacy Rumble upon a change of control event. As part of the transaction, the holders of these Class A preferred shares were also granted
an option to purchase additional Class A common shares in Legacy Rumble (the “Option Liability”) at a discount of 30%, subject
to certain conditions. The total fair value of this financing arrangement was determined to be $35,714,286 due to the upper limit on the
discount price provided to the investors. Gross proceeds of $25,000,000 were allocated between the Class A preferred shares and the Option
Liability by first determining the fair value of the Option Liability at $7,500,000 using a probability weighted scenario over the likelihood
of this option to be exercised, with the remaining $17,500,000 allocated to equity (using a residual value method). Because these Class
A preferred shares are redeemable upon an event that is outside the control of Legacy Rumble, these have been classified and presented
as temporary equity on the condensed consolidated interim balance sheet.
Transaction costs of $1,015,424 were
allocated pro rata between the two components: expenses of $304,627 related to the Option Liability are recorded as finance costs in the
consolidated statements of comprehensive loss for the year ended December 31, 2021 with the remaining balance recorded against the value
of the Class A preferred shares.
On September 16, 2022, in connection
with the Qualifying Transaction, all previously issued and outstanding Class A preferred shares were converted into an equivalent number
of shares of Legacy Rumble Class A common shares on a 1-to-1 basis, then multiplied by the exchange ratio of 24.5713 shares pursuant to
the Business Combination Agreement, and exchanged for shares of Class A Common Stock of the Company. See Note 2 for further details regarding
the Qualifying Transaction.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 12. | Temporary Equity (Continued) |
Option Liability
As described above, on May 14, 2021,
the Class A preferred shareholders were granted the right to exercise options for an additional 172.07 Class A common shares (172,020
post stock split) in 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 Legacy Rumble’s re-assessment of the probability of the conditions attached
to this option at each reporting period. As the Option Liability was exercised on November 24, 2021, a change in fair value of the Option
Liability of $3,214,286 was recorded in the consolidated statements of comprehensive loss (representing the maximum benefit of $10,714,286)
in the 2021 Annual Financial Statements, and the balance of the liability was extinguished via an increase to the value of the Class A
common shares issued. See Note 13 for further details.
Common Shares
Authorized
Legacy Rumble’s Articles of Incorporation
authorized an unlimited number of common shares for issuance.
Articles of Amendment, effective on
September 4, 2020, by Legacy Rumble created two classes of common shares initially named Voting Common Shares, subsequently renamed Class
A common shares, and Non-Voting Common Shares, subsequently renamed Class B common shares. Legacy Rumble is authorized to issue an unlimited
number of each of these classes of common shares.
The Company’s Certificate of
Incorporation was amended and restated in its entirety and will be effective on the Closing Date. The Company is authorized to issue 1,000,000,000
shares, consisting of:
| (i) | 700,000,000 shares of Class A Common Stock with a par value of $0.0001 per share |
| (ii) | 170,000,000 shares of Class C Common Stock with a par value of $0.0001 per share |
| (iii) | 110,000,000 shares of Class D Common Stock with a par value of $0.0001 per share |
| (iv) | 20,000,000 shares of preferred stock with a par value of $0.0001 per share |
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 13. | Shareholders’ Equity (Continued) |
Common Shares (Continued)
Legacy Rumble Class A Common Shares
The holders of Legacy Rumble Class
A common shares are entitled to receive dividends at the discretion of the board of directors and are entitled to one vote for each Legacy
Rumble Class A common share held at any meeting of shareholders of Legacy Rumble. The holders of Legacy Rumble Class A common shares are
entitled to receive the remaining property of Legacy Rumble upon liquidation, dissolution, or winding-up, whether voluntary or involuntary,
and any other distribution of assets of Legacy Rumble among its shareholders for the purpose of winding-up of its affairs subject to the
rights of the preference shares described in Note 12.
On September 16, 2022, in connection
with the Qualifying Transaction, all previously issued and outstanding Legacy Rumble Class A common shares held by Electing Shareholders,
were exchanged for 168,762,214 shares of Class C Common Stock, using the Company Exchange Ratio of 24.5713:1.0000 pursuant to the Business
Combination Agreement. Additionally, all previously issued and outstanding Legacy Rumble Class A common shares held by Non-Electing Shareholders,
were exchanged for 45,647,873 shares of Class A Common Stock pursuant to the Business Combination Agreement. See Note 2 for further details.
Legacy Rumble Class B Common Shares
The holders of Legacy Rumble Class
B common shares are entitled to receive dividends at the discretion of the board of directors. The holders of Legacy Rumble Class B common
shares are also entitled to receive the remaining property of Legacy Rumble upon liquidation, dissolution, or winding-up, whether voluntary
or involuntary, and any other distribution of assets of Legacy Rumble among its shareholders for the purpose of winding-up of its affairs
subject to the rights of the preference shares described in Note 12. The holders of Legacy Rumble Class B common shares are not entitled
to vote and will not receive notice of any meeting of shareholders of Legacy Rumble.
On September 16,
2022, in connection with the Qualifying Transaction, all previously issued and outstanding Legacy Rumble Class B common shares held by
Non-Electing Shareholders were exchanged for 3,322,531 shares of Class A Common Stock pursuant to the Business Combination Agreement.
See Note 2 for further details.
Class A Common Stock
The holders of shares of Class A Common
Stock are entitled to one vote for each share of Class A Common Stock held at any meeting of shareholders of the Company. The holders
of Class A Common Stock are entitled to receive dividends and other distributions declared or paid by the Company. The holders of Class
A Common Stock are entitled to receive the remaining property of the Company upon liquidation, dissolution, or winding-up, whether voluntary
or involuntary, and any other distribution of assets of the Company among its shareholders for the purpose of winding-up of its affairs
subject to the rights of the preferred shares.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 13. | Shareholders’
Equity (Continued) |
Common
Shares (Continued)
On
September 16, 2022, in connection with the Qualifying Transaction, the following transactions occurred with regards to Class A Common
Stock:
| ● | All
Legacy Rumble shares and warrants held by Non-Electing Shareholders were exchanged for 48,970,404
and 14,153,048 shares of Class A Common Stock, respectively. |
| ● | CFVI
Units in connection with the CFVI Placement Units and FPA were exchanged for 700,000 and
1,875,000 shares of Class A Common Stock, respectively. |
| ● | The
Company issued 8,300,000 Class A Common Stock through the PIPE. |
| ● | CFVI
Units in connection with the Offering were exchanged for 29,969,311 shares of Class A Common
Stock. |
| ● | CFVI
Class B Common Stock were exchanged for 7,500,000 shares of Class A Common Stock. |
Class
C Common Stock
The
holders of shares of Class C Common Stock are entitled to one vote for each share of Class C Common Stock held at any meeting of
shareholders of the Company. The holders of Class C Common Stock are not entitled to receive dividends and other distributions declared
or paid by the Company. The holders of shares of Class C Common Stock are not entitled to receive the remaining property of Company upon
liquidation, dissolution, or winding-up, whether voluntary or involuntary, and any other distribution of assets of the Company among
its shareholders for the purpose of winding-up of its affairs subject to the rights of the preferred shares and Class A Common Stock.
On
September 16, 2022, in connection with the Qualifying Transaction, the following transactions occurred with regards to Class C Common
Stock:
| ● | All
issued and outstanding Legacy Rumble shares (including Legacy Rumble warrants) held by Electing
Shareholders were exchanged for 168,762,214 shares of Class C Common Stock using the Company
Exchange Ratio of 24.5713:1.0000 pursuant to the Business Combination Agreement. |
| ● | Concurrently
with the Qualifying Transaction on September 16, 2022, the Company entered into a share repurchase
agreement with Mr. Pavlovski. Upon closing of the Qualifying Transaction, the Company repurchased
shares of 1,100,000 Class C Common Stock for a total purchase price of $11,000,000. Of the
$11,000,000 of proceeds, Mr. Pavlovski reinvested $1,000,000 to pay the purchase price for
the Company’s Class D Common Stock. |
Class D Common Stock
The holders of shares of Class D Common
Stock are entitled to 11.2663 votes for each share of Class D Common Stock held at any meeting of shareholders of the Company. The holders
of shares of Class D Common Stock are not entitled to receive dividends and other distributions declared or paid by the Company. The holders
of shares of Class D Common Stock are not entitled to receive the remaining property of Company upon liquidation, dissolution, or winding-up,
whether voluntary or involuntary, and any other distribution of assets of the Company among its shareholders for the purpose of winding-up
of its affairs subject to the rights of the preferred shares and Class A Common Stock.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 13. | Shareholders’ Equity (Continued) |
Common Shares (Continued)
For an aggregate price of $1,000,000,
upon closing of the Qualifying Transaction, the Company issued and sold to Mr. Pavlovski 105,782,403 shares of the Company’s Class
D Common Stock.
Issued and outstanding
The following shares of common
stock are issued and outstanding at:
| | |
September 30, 2022 | | |
December 31, 2021 | |
| | |
Number | | |
Amount | | |
Number | | |
Amount | |
| | |
| | |
| | |
| |
| Legacy Rumble Class A common shares | |
| - | | |
$ | - | | |
| 8,119,690 | | |
$ | 43,223,609 | |
| Legacy Rumble Class B common shares | |
| - | | |
| - | | |
| 135,220 | | |
| 129,761 | |
| Class A Common Stock | |
| 111,467,763 | | |
| 741,013 | | |
| - | | |
| - | |
| Class C Common Stock | |
| 167,662,214 | | |
| 16,766 | | |
| - | | |
| - | |
| Class D Common Stock | |
| 105,782,403 | | |
| 10,578 | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Balance | |
| 384,912,380 | | |
$ | 768,357 | | |
| 8,254,910 | | |
$ | 43,353,370 | |
On October 25, 2021, Legacy Rumble
effected a stock split of the then outstanding Legacy Rumble common and preference shares at a ratio of 1,000-to-1. Stockholders received
a whole share for fractional shares (if applicable) and the par value per common stock remains unchanged. A proportionate adjustment was
made to the maximum number of shares issuable under the stock option plan, as amended.
On November 24, 2021, Legacy Rumble
issued 172,070 Legacy Rumble Class A common shares upon the exercise of the Option Liability at a price of $145.29 per share for gross
cash proceeds of $25,000,000.
Former holders of the Legacy Rumble’s
common shares are eligible to receive up to an aggregate of 76,412,604 additional shares of the Company’s Class A Common Stock if
the closing price of the Company’s Class A Common Stock is greater than or equal to $15.00 and $17.50, respectively (with 50% released
at each target, or if the latter target is reached first, 100%) for a period of 20 trading days during any 30 trading-day period. The
term is five years from the closing of the Qualifying Transaction. If there is a change in control within the five-year period following
the closing of the Qualifying Transaction that results in a per share price equal to or in excess of the $15.00 and $17.50 share price
milestones not previously met, then the Company shall issue the earnout shares to the holders of Legacy Rumble common shares. The shares
are currently being held in escrow until the contingency is met.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 13. | Shareholders’ Equity (Continued) |
Common Shares (Continued)
The Sponsor’s common shares are
eligible to receive up to an aggregate of 1,963,750 additional shares of the Company’s Class A Common Stock if the closing price
of the Company’s Class A Common Stock is greater than or equal to $15.00 and $17.50, respectively (with 50% released at each target,
or if the latter target is reached first, 100%) for a period of 20 trading days during any 30 trading-day period. The term is five years
from the closing of the Qualifying Transaction. If there is a change in control within the five-year period following the closing of the
Qualifying Transaction that results in a per share price equal to or in excess of the $15.00 and $17.50 share price milestones not previously
met, then the Company shall issue the earnout shares to the Sponsor. The shares are currently being held in escrow until the contingency
is met.
Warrants
On September 14, 2020, Legacy Rumble
issued a warrant to an arm’s length party in exchange for services. This warrant is convertible to Legacy Rumble Class B common shares
equal to 5% undiluted interest in the Legacy Rumble’s total equity at an exercise price of $0.01 CAD per Legacy Rumble Class B common
share and expiration term of 20 years. The warrant is subject to a performance condition that was met as of December 31, 2021 and the
fair value of the warrant on the grant date, estimated to be $731,281 was recorded in additional paid-in capital as of December 31, 2021.
On September 16, 2022, in connection
with the Qualifying Transaction, the warrant to purchase Legacy Rumble Class B common shares were exchanged for 14,153,048 shares of Class
A Common Stock, using the Company Exchange Ratio of 24.5713:1.0000 pursuant to the Business Combination Agreement. See Note 2 for further
details.
Restricted Stock Units
During the year ended December 31,
2021, Legacy Rumble issued 10,625 Restricted Class B common shares as part of certain employment agreements as well as consideration for
the Locals’ acquisition (Note 4). Certain of these Restricted Class B common shares had a performance based vesting condition that
was met as of December 31, 2021 and the fair value of the restricted stock units on the grant date, estimated to be $110,838 was recorded
in Legacy Rumble Class B common shares as of December 31, 2021.
On September 16, 2022, in connection
with the Qualifying Transaction, the Legacy Rumble Restricted Class B common shares were converted into an equivalent number of shares
of Class A Common Stock on a 1-to-1 basis, then multiplied by the Company Exchange Ratio of 24.5713:1.0000 pursuant to the Qualifying
Transaction agreement. See Note 2 for further details.
In connection with the Qualifying Transaction,
the Company issued 1,100,000 restricted stock units (“RSUs”) as part of an employment agreement. The fair value of the RSUs
is $13,244,000 based on the fair value of the restricted stock units on the grant date and will vest over a three years period. The total
unrecognized compensation cost for the RSUs issued is $13,072,319 which is expected to be recognized over a weighted-average period of
2.96 years.
The Company recognized share-based
compensation expense on RSUs for the three and nine months ended September 30, 2022 of $171,681 and $171,681, respectively (three and
nine months ended September 30, 2021 - $nil and $nil).
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 13. | Shareholders’ Equity (Continued) |
Stock Options
On September 1,
2020, the Board of Directors of Legacy Rumble authorized and approved a stock option plan which was amended and restated on April 1, 2021,
October 21, 2021 and September 15, 2022. The amendment dated September 16, 2022 (the “Plan”) replaces and supersedes the previous
stock option plans of Legacy Rumble. The Plan was assumed in its entirety by Rumble on the Closing Date.
Immediately prior to the Closing Date,
all outstanding options to purchase Legacy Rumble’s Class A common shares were exchanged into an option to purchase a number of
shares of the Company’s Class A Common Stock equal to the number of shares of Legacy Rumble’s Class A common share multiplied
by 16.4744, rounded down to the nearest whole share, at an exercise price per share equal to the current exercise price per share for
such option divided by 16.4744, rounded up to the nearest whole cent.
Additionally, the option holders are
eligible to receive up to an aggregate of 28,587,396 shares of Class A Common Stock in respect of the options they hold if the closing
price of the Company’s Class A Common Stock is greater than or equal to $15.00 and $17.50, respectively (with 50% released at each
target, or if the latter target is reached first, 100%) for a period of 20 trading days during any 30 trading-day period. The term is
five years from the closing of the Qualifying Transaction. If there is a change in control within the five-year period following the closing
of the Qualifying Transaction that results in a per share price equal to or in excess of the $15.00 and $17.50 share price milestones
not previously met, then the Company shall issue the earnout shares to the option holders.
All options to
purchase common shares of Rumble which were granted pursuant to earlier plans shall remain outstanding in accordance with their terms,
provided that from the effective date of the Plan such existing options shall be governed by this Plan.
Conditions
related to the performance based options had been met as of December 31, 2021, and as such, the fair value of the stock options was recognized
in additional paid-in capital as of December 31, 2021.
The
grant date fair values of the Legacy Rumble options issued under the Plan on various dates were in the range of $0.27 to $30.57 per option
and were determined using the Black-Scholes option pricing model based upon the following assumptions:
| Share price | |
| $1.93-$41.23 | |
| Exercise price | |
| $0.48-$165.80 | |
| Risk free interest rate | |
| 0.52%-1.33% | |
| Volatility | |
| 60%-85% | |
| Expected life | |
| 3-20 years | |
| Dividend rate | |
| 0.00% | |
The
Company estimated the volatility by reference to comparable companies that are publicly traded.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 13. | Shareholders’ Equity (Continued) |
Stock Options (Continued)
Stock option transactions
are summarized as follows:
| | |
Nine months ended September 30, 2022 | | |
Twelve months ended
December 31, 2021 | |
| | |
Number | | |
Weighted Average Exercise Price | | |
Number | | |
Weighted Average Exercise Price | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| |
| Outstanding, beginning of year | |
| 3,531,064 | | |
$ | 2.25 | | |
| 3,433,000 | | |
$ | 0.48 | |
| Granted | |
| - | | |
| - | | |
| 98,064 | | |
| 64.28 | |
| Forfeited | |
| (404 | ) | |
| 165.80 | | |
| - | | |
| - | |
| Increase on conversion | |
| 54,634,745 | | |
| 0.14 | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Outstanding, end of period | |
| | | |
| | | |
| | | |
| | |
| | |
| 58,165,405 | | |
$ | 0.14 | | |
| 3,531,064 | | |
$ | 2.25 | |
| | |
| | | |
| | | |
| | | |
| | |
| Vested and exercisable | |
| 57,651,201 | | |
$ | 0.07 | | |
| 3,493,297 | | |
$ | 1.17 | |
The total unrecognized compensation
cost for stock options issued as at September 30, 2022 is $89,293 (December 31, 2021 - $141,672) which is expected to be recognized over
a weighted-average period of 1.57 years (December 31, 2021 – 2.32 years).
The weighted average fair value of
the outstanding options as of September 30, 2022 was $0.73 (December 31, 2021 - $0.73). Share options outstanding at September 30, 2022
and December 31, 2021 have the following expiry dates and exercise prices:
| | |
September 30, 2022 | | |
December 31, 2021 | |
| | |
Exercise | | |
Share | | |
Exercise | | |
Share | |
| Expiry | |
Price | | |
Options | | |
Price | | |
Options | |
| | |
| | |
| | |
| | |
| |
| 2024 | |
$ | 2.50 | | |
| 157,001 | | $ |
| 41.23 | | |
| 9,530 | |
| 2026 | |
| 2.50 | | |
| 376,769 | | |
| 41.23 | | |
| 22,870 | |
| 2031 | |
| 0.27 | | |
| 137,905 | | |
| 4.52 | | |
| 8,370 | |
| 2031 | |
| 2.50 | | |
| 40,033 | | |
| 41.23 | | |
| 2,430 | |
| 2031 | |
| 10.06 | | |
| 332,947 | | |
| 165.80 | | |
| 20,614 | |
| 2040 | |
| 0.03 | | |
| 56,556,503 | | |
| 0.48 | | |
| 3,433,000 | |
| 2041 | |
| 2.50 | | |
| 564,247 | | |
| 41.23 | | |
| 34,250 | |
| Total | |
| | | |
| 58,165,405 | | |
| | | |
| 3,531,064 | |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average remaining contractual life of options outstanding | |
| | | |
18 years | | |
| | | |
19 years | |
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 13. | Shareholders’ Equity (Continued) |
Stock Options (Continued)
The
Company recognized share-based compensation expense on stock options for the three and nine months ended September 30, 2022 of $16,986
and $50,958, respectively (three and nine months ended September 30, 2021 - $43,834 and $43,834).
Loss
per Share
Basic
loss per share is computed by dividing net loss attributable to the Company by the weighted-average number of Class A and Class C Common
Stock outstanding, excluding those held in escrow as these are deemed to be contingently returnable shares that must be returned if the
earnout contingency is not met, in line with guidance within ASC 260-10-45, Earnings per Share – Presentation, Other Presentation
Matters, during the three and nine-month period. Shares of Class D Common Stock do not share in earnings and not participating securities
(ie non-economic shares) and therefore, have been excluded from the calculation of weighted-average number of shares outstanding.
Diluted
loss per share is computed giving effect to all potentially dilutive shares. Diluted loss per share for all periods presented is the
same as basic loss per share as the inclusion of potentially issuable shares would be antidilutive.
| 14. | Commitments and Contingencies |
In the normal course of business, to
facilitate transactions in services and products, the Company indemnifies certain parties. The Company has agreed to hold certain parties
harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims
made against certain parties. Several of these agreements limit the time within which an indemnification claim can be made and the amount
of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and its bylaws contain
similar indemnification obligations to its agents.
Furthermore, many of the Company’s agreements
with its customers and partners require the Company to indemnify them for certain intellectual property infringement claims against them,
which would increase costs as a result of defending such claims, and may require that we pay significant damages if there were an adverse
ruling in any such claims. Customers and partners may discontinue the use of the Company’s services and technologies as a result of injunctions
or otherwise, which could result in loss of revenues and adversely impact the business.
It is not possible to make a reasonable
estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in
each particular agreement. As of September 30, 2022 and December 31, 2021, there were no material indemnification claims that were probable
or reasonably possible.
As of September 30, 2022, Rumble had
received notification of two claims 1) a lawsuit against the Company and one of its shareholders seeking a variety of relief including
rescission of a share redemption sale agreement with the Company or damages alleged to be worth $419.0 million and 2) a patent infringement
lawsuit against the Company. The Company is defending the claims and considers that the likelihood that it will be required to make a
payment to plaintiffs to be remote.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 14. | Commitments and Contingencies (Continued) |
Subsequent to quarter end, Rumble received
notification of a putative class action lawsuit alleging violations of the Video Privacy Protection Act in the United States District
Court for the Middle District of Florida. The Company is defending the claim and considers that the likelihood that it will be required
to make a payment to the plaintiffs to be remote.
| 15. | Fair Value Measurements |
The Company follows ASC 820, “Fair
Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value in U.S. GAAP,
and expands disclosures about fair value measurements.
ASC 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the most advantageous market for the asset
or liability in an orderly transaction. Fair value measurement is based on a hierarchy of observable or unobservable inputs. The standard
describes three levels of inputs that may be used to measure fair value.
| Level 1 - |
Inputs to the valuation methodology are quoted prices available
in active markets for identical investments as of the reporting date; |
|
Level 2 - | Inputs to the valuation methodology other than quoted
prices in active markets, which are either directly or indirectly observable as of the reporting date, and the fair value can be determined
through the use of models or other valuation methodologies; and |
| Level 3 - |
Inputs to the valuation methodology are unobservable
inputs in situations where there is little or no market activity of the asset and liability and the reporting entity makes estimates
and assumptions relating to the pricing of the asset or liability, including assumptions regarding risk. This includes certain cash flow
pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
In instances where the determination
of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy
within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement
in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or liability.
The Company may measure eligible assets
and liabilities at fair value, with changes in value recognized in profit and loss. Fair value treatment may be elected either upon initial
recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting.
The Company did not elect to remeasure any of its existing financial assets or liabilities, and did not elect the fair value option for
any financial assets or liabilities transacted in the three and nine months ended September 30, 2022 and 2021.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 16. | Financial Instrument Risks |
The Company is exposed to the following
risks that arise from its use of financial instruments:
Market Risk
Market risk is the risk of loss that
may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices.
Interest Rate Risk
Interest rate risk is the risk that
the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company
has no variable interest-bearing debt and therefore, exposure to interest rate risk is minimal at this time.
Foreign Currency Risk
For the Company’s foreign currency
transactions, the fluctuations in the respective exchange rates relative to the Canadian dollar will create volatility in the Company’s
cash flows on a period-to-period basis. Additional earnings variability arises from the translation of monetary assets and liabilities
denominated in foreign currencies at the rates of exchange at each consolidated balance sheet date, the impact of which is reported as
a foreign exchange gain or loss in the determination of comprehensive loss for the period.
Liquidity Risk
Liquidity risk is the risk that the
Company encounters difficulty in meeting its obligations associated with financial liabilities. Liquidity risk includes the risk that,
as a result of operational liquidity requirements, the Company will not have sufficient funds to settle a transaction on the due date;
will be forced to sell financial assets at a value which is less than what they are worth; or may be unable to settle or recover a financial
asset. Liquidity risk arises primarily from the Company’s accounts payable and accrued liabilities.
The Company focuses on maintaining adequate
liquidity to meet its operating working capital requirements and capital expenditures. The majority of the Company’s financial liabilities
are due within one year.
Credit Risk
Credit risk is the risk that one party
to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company is exposed
to credit risk resulting from the possibility that a customer or counterparty to a financial instrument defaults on their financial obligations
or if there is a concentration of transactions carried out with the same counterparty. Financial instruments that potentially subject
the Company to concentrations of credit risk include cash and cash equivalents and accounts receivable.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
| 16. | Financial Instrument Risks (Continued) |
The Company’s cash and cash equivalents
are held in reputable banks in its country of domicile and management believes the risk of loss to be remote. The Company is exposed to
credit risk in the event of default by its customers. Accounts receivable are recorded at the invoiced amount, do not bear interest, and
do not require collateral. For the three and nine months ended September 30, 2022, a few customers accounted for $7,916,653 and $12,163,616
or 72% and 63% of revenue, respectively. For the three and nine months ended September 30, 2021, a few customers accounted for $1,657,651
and $5,595,704 or 80% and 86% of revenue, respectively. As of September 30, 2022, a few customers accounted for 80% of accounts receivable
(December 31, 2021 - 90%); the expected credit loss is not considered material.
| 17. | Related Party Transactions |
The Company’s related parties include
directors, shareholders and key management.
Compensation paid to related parties
totaled $1,130,804 and $1,828,824 for the three and nine months ended September 30, 2022, respectively (three and nine months ended September
30, 2021 - $229,254 and $1,013,131). In addition, the Company paid share-based compensation to key management amounting to $174,950 and
$180,852 for the three and nine months ended September 30, 2022, respectively (three and nine months ended September 30, 2021 - $nil and
$nil).
On May 25, 2021, the Company purchased
the rights to the domain license for $500,449 from a related party. The purchase price of the domain license was determined based on a
contractually agreed price.
The Company incurred related party
expenses for personnel services of $422,598 and $1,213,765 during the three and nine months ended September 30, 2022, respectively (three
and nine months ended September 30, 2021 - $312,726 and $760,000). As of September 30, 2022, accounts payable for personnel service was
$170,314 (December 31, 2021 - $115,485).
As of September 30, 2022, the Company
is owed $390,000 from related parties carrying an interest rate of 0.19% per annum, for a Company’s subsidiary’s domain name
(December 31, 2021 - $nil).
There were no other related party transactions
during these periods.
Rumble Inc.
Notes to the Condensed Consolidated Interim
Financial Statements
(Expressed in
U.S. Dollars)
(Unaudited)
For the three and nine months ended September 30, 2022 and 2021
Disclosure requirements about segments
of an enterprise establish standards for reporting information regarding operating segments in annual financial statements. These requirements
include presenting selected information for each segment. Operating segments are identified as components of an enterprise for which separate
discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding how to
allocate resources and assess performance. The Company’s chief decision-maker is its chief executive officer. The Company and its chief
decision-maker view the Company’s operations and manage its business as one operating segment.
The following presents the revenue by geographic
region:
| | |
Three
months ended | | |
Nine months ended | |
| | |
September 30 | | |
September 30 | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
| | |
| | |
| | |
| |
| United States | |
$ | 10,748,228 | | |
$ | 1,930,899 | | |
$ | 18,887,940 | | |
$ | 6,214,898 | |
| Canada | |
| 109,074 | | |
| 109,025 | | |
| 266,303 | | |
| 132,741 | |
| Other | |
| 125,880 | | |
| 29,549 | | |
| 273,016 | | |
| 179,176 | |
| | |
| | | |
| | | |
| | | |
| | |
| | |
$ | 10,983,182 | | |
$ | 2,069,473 | | |
$ | 19,427,259 | | |
$ | 6,526,815 | |
The Company tracks assets by physical
location. Long-lived assets consists of capital assets, net, and are shown below:
| | |
September 30 | | |
December 31, | |
| | |
2022 | | |
2021 | |
| United States | |
$ | 6,078,158 | | |
$ | 927,322 | |
| Canada | |
| 457,171 | | |
| 359,527 | |
| | |
$ | 6,535,329 | | |
$ | 1,286,849 | |
In October 2022, Rumble received notification
of a putative class action lawsuit alleging violations of the Video Privacy Protection Act in the United States District Court for the
Middle District of Florida. The Company is defending the claim and considers that the likelihood that it will be required to make a payment
to the plaintiffs to be remote.
In accordance with ASC 855, the Company’s
management reviewed all material events through November 10th, 2022, and there were no material subsequent events other than
those disclosed above.