Consolidated Statements of Cash Flows

Half Year Ended 30 June 2022

Notes to Consolidated Financial Statements

Half Year Ended 30 June 2022

NOTE 1            ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation:

Public Policy Holding Company, Inc. ("PPHC-Inc.") was incorporated on February 4, 2021. From PPHC-Inc.'s incorporation until December 10, 2021 (the "Conversion Date"), all of the issued and outstanding shares of stock of PPHC-Inc. were owned by Public Policy Holding Company, LLC ("PPHC-LLC"), which (i) was organized as a Delaware limited liability company on July 1, 2014, and (ii) owned certain wholly-owned operating subsidiaries, all organized as Delaware limited liability companies (the "Subsidiaries," and collectively with PPHC-Inc., the "Company"). On the Conversion Date, PPHC-LLC contributed and assigned substantially all of its assets and liabilities (including all of the Subsidiaries, but excluding certain specified assets and liabilities) to PPHC-Inc. in exchange for the issuance by PPHC-Inc. of 100,000,000 shares (the "Contribution Shares") of Common Stock, par value $0.001 per share ("Common Stock") of PPHC-Inc. Pursuant to a formula approved by the Executive Board and General Board of PPHC-LLC (the "Waterfall"), PPHC LLC then liquidated and distributed the Contribution Shares to each of PPHC-LLC's owners who (other than The Alpine Group, Inc.), in turn, distributed such shares to their respective owners in accordance with the Waterfall (collectively, the "Company Conversion").

The Company provides governmental and public affairs consulting services exclusively in the United States of America ("U.S."). 

These unaudited interim condensed consolidated financial statements for the six months ended June 30, 2022 have been prepared in accordance with the accounting policies set out in the Annual Report and Financial statements of the Company for the year ended December 31, 2021 using the recognition and measurement principles in conformity with generally accepted accounting principles in the United States of America ("GAAP"). Such consolidated financial statements reflect all adjustments that are, in management's opinion, necessary to present fairly, in all material respects, the Company's financial position, results of operations and cash flows, and are presented in U.S. Dollars. All material intercompany transactions and balances have been eliminated in consolidation.

Principles of Consolidation:

The consolidated financial statements include all of the accounts of the entities listed below:

Parent company:

            Public Policy Holding Company, Inc.

Wholly owned operating subsidiaries:

            Crossroads Strategies, LLC

            Forbes Tate Partners, LLC

            Blue Engine Message & Media, LLC, doing business as Seven Letter

            O'Neill & Partners LLC, doing business as O'Neill & Associates

            Alpine Group Partners, LLC

Initial Public Offering:

On December 16, 2021, PPHC-Inc. completed an initial public offering and placement ("IPO") of its shares of Common Stock, and the admission of Common Stock to trading on the AIM market of the London Stock Exchange.

The PPHC-LLC Limited Liability Company Agreement ("LLC Agreement") provided for the payment of a "Holdings Distribution Discount" in connection with a sale or IPO of the Company, amounting to $4,462,540 (excluding an interest accrual which is being waived). The Holdings Distribution Discount represents the difference between an operating subsidiary paying three percent of its revenues annually to PPHC-LLC (which has historically been paid by all operating subsidiaries other than Crossroads Strategies, LLC and Forbes Tate Partners, LLC), and each of Crossroads Strategies, LLC and Forbes Tate, LLC, which, as the founding businesses acquired by PPHC-LLC, have paid approximately five percent of their respective revenues annually to PPHC-LLC. Historically, PPHC-LLC and its members viewed this obligation of PPHC-LLC (triggered by the IPO) as an obligation to refund Crossroads Strategies, LLC and Forbes Tate, LLC, their relative overpayments (compared to the other operating subsidiaries) because had those overpayments not been made to PPHC-LLC, those amounts could have been paid as additional bonuses or distributions to the owners of Crossroads Strategies, LLC and Forbes Tate, LLC. This obligation of PPHC-LLC has been contributed and assigned to and assumed by the Company as part of the Contribution Agreement entered into in connection with the Company Conversion. Upon the Company's payment of the Holdings Distribution Discount to Crossroads Strategies, LLC and Forbes Tate, LLC, it is anticipated that Crossroads Strategies, LLC and Forbes Tate, LLC will, in turn, distribute such amounts to their respective owners including but not limited to Stewart Hall and Zachary Williams. As of June 30, 2022 and December 31, 2021, the Holdings Distribution Discount of approximately $1,539,000 and $4,463,000 is included in the amounts owed to related parties in the Company's Consolidated Balance Sheets. 

In addition, certain assets and liabilities were not contributed by PPHC-LLC to the Company as part of the Company Conversion.  As of December 31, 2021, the net amount owed to the PPHC-LLC members approximates $2,234,000 and is included in amounts owed to related parties in the Company's Consolidated Balance Sheets.

During 2021, all of the ultimate owners of PPHC-LLC ("Group Executives") entered into Executive Employment Agreements. The Group Executives sold some of their Common Stock in conjunction with the IPO ("Liquidated Pre-IPO Shares") but retained the majority of their shares ("Retained Pre-IPO Shares"). The Retained Pre-IPO Shares are subject to a vesting schedule under which the Common Stock held by each Group Executive will vest in equal installments on the first five anniversaries of the effective date of the IPO, provided that the Group Executive remains continuously employed by the employer; this vesting schedule applies to all the Company's employees holding Common Stock at the time of the IPO. In the event that a Group Executive's employment terminates (other than on death or "disability", or by the employer without "cause", or by the Group Executive for what is deemed to be for a "good reason") then the unvested proportion of the Retained Pre-IPO Shares which have not vested, will not vest and will be automatically forfeited and clawed back as of the date of such termination. In the event a Group Executive's employment terminates on death or "disability," or by the employer without "cause," or by the Group Executive for what is deemed to be "good reason," then all unvested shares will vest automatically as of the date of such termination. The Executive Employment Agreements also contain certain provisions which enable cash derived from the sale of Liquidated Pre-IPO Shares and Retained Pre-IPO Shares that have vested to be clawed back and forfeited on certain events of termination of employment or breaches of certain provisions of the Executive Employment Agreements. Pursuant to the Executive Employment Agreements for Group Executives employed by Alpine Group Partners, a pro-rata portion of the Retained Pre-IPO Shares held by (and the Liquidated Pre-IPO Shares sold by) The Alpine Group Inc. are subject to vesting, forfeiture and claw back based on the employment of certain of those Group Executives.

The addition of the vesting provisions to previously issued shares creates a share-based accounting charge in accordance with the accounting guidance in Accounting Standards Codification ("ASC") 718-10-S99-2, Compensation-Stock Compensation. See Note 5.  

Revenue Recognition:

The Company generates the majority of its revenue by providing consulting services related to lobbying and public affairs. In determining the method and amount of revenue to recognize, the Company has to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions may require management's judgment in interpreting the contract to determine the appropriate accounting, including whether the promised services specified in an arrangement are distinct performance obligations and should be accounted for separately, and how to allocate the transaction price, including any variable consideration, to the separate performance obligations. When a contract contains multiple performance obligations, the Company allocates the transaction price to each performance obligation based on its estimate of the stand-alone selling price. Other judgments include determining whether performance obligations are satisfied over-time or at a point-in-time and the selection of the method to measure progress towards completion.

The Company's general practice is to establish an agreement with a client with a fixed monthly payment at the beginning of each month for the month's service to be performed. Most of the consulting service contracts are based on one of the following types of contract arrangements:

·      Fixed-fee arrangements require the client to pay a fixed fee in exchange for a predetermined set of professional services. The Company recognizes revenue at the beginning of the month for that month's services.

·      Additional services include items such as 1) advertisement placement and management, 2) video production, and 3) website development, in which third-party companies may be engaged to achieve specific business objectives. These services are either in a separate contract or within the fixed-fee consulting contract, in which the Company usually receives a fixed 15% markup on the cost incurred by the Company. The Company recognizes revenues earned to date in an amount that is probable or unlikely to reverse and by applying the proportional performance method when the criteria for revenue recognition is met. Any out-of-pocket administrative expenses incurred are billed at cost. 

Certain services provided by the Company include the utilization of a third-party in the delivery of those services.  These services are primarily related to the production of an advertising campaign or media buying services.  The Company has determined that it acts as an agent and is solely arranging for the third-parties to provide services to the customer.  Specifically, the Company does not control the specified services before transferring those services to the customer, and is not primarily responsible for the performance of the third-party services, nor can the Company redirect those services to fulfill any other contracts.  The Company does not have discretion in establishing the third-party pricing in its contracts with customers.  For these performance obligations for which the Company acts as an agent, the Company records revenue as the net amount of the gross billings less amounts remitted to the third-party.

The following table provides disaggregated revenue by revenue type for the periods ended:

See the Segment Reporting Note 8 for a description of the principal activities, by reportable segment, from which the Company generates revenue.

As of January 1, 2022 and 2021, the accounts receivable, net and deferred revenue was $8,214,002 and $1,942,536 and $6,622,571 and $1,502,176, respectively. The following table provides information about receivables, contract assets and contract liabilities from contracts with customers as of:

Contract liabilities relate to advance consideration received from customers under the terms of the Company's contracts primarily related to retainer fees and reimbursements of third-party expenses, both of which are generally recognized shortly after billing. 

Accounts Receivable:

The Company provides for an allowance for doubtful accounts based on management's best estimate of possible losses determined principally on the basis of historical experience and specific allowances for known troubled accounts, if needed. Accounts are generally considered past due after the contracted payment terms, which are generally net 30 day terms. All accounts or portions thereof that are deemed to be uncollectible or that require an excessive collection cost are written off to the allowance for doubtful accounts. As of June 30, 2022 and 2021, the balance of allowance for doubtful accounts approximated $250,000 and $62,000, respectively. The Company determined that no allowance for doubtful accounts was necessary as of December 31, 2021.

Leases:

A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company accounts for its leases in accordance with the guidance in Accounting Standards Codification ("ASC") 842 ("ASC 842"). Substantially all of the leases in which the Company is the lessee are comprised of real estate property for remote office spaces and corporate office space. Substantially all of the leases are classified as operating leases.

As of June 30, 2022, June 30, 2021 and December 31, 2021, the Company had approximately $14,475,000, $17,418,000 and $15,908,000, respectively, of operating lease ROU assets and $17,088,000, $20,025,000 and $18,638,000, respectively of operating lease liabilities on the Company's Consolidated Balance Sheets. The Company has elected not to recognize right-of-use ("ROU") assets and lease liabilities arising from short-term leases, leases with initial terms of twelve months or less, or equipment leases (deemed immaterial) on the Consolidated Balance Sheets.

These leases may contain terms and conditions of options to extend or terminate the lease, which are recognized as part of the ROU assets and lease liabilities when an economic benefit to exercise the option exists and there is a significant probability that the Company will exercise the option. If these criteria are not met, the options are not included in the Company's ROU assets and lease liabilities.

As of June 30, 2022, these leases do not contain material residual value guarantees or impose restrictions or covenants related to dividends or the Company's ability to incur additional financial obligations.

The discount rate for operating leases was based on market rates from a bank for obligations with comparable terms effective at the lease inception date. The following table presents the future minimum lease payments as of June 30, 2022:

Goodwill and indefinite-lived intangible assets:

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in business combinations and is allocated to the appropriate reporting unit when acquired. Acquired intangible assets are recorded at fair value.

Goodwill is evaluated for impairment annually during the fourth quarter, or more frequently if an event occurs, or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying value. Goodwill is typically assigned to the reporting unit, which consolidates the acquisition. Components within the same reportable segment are aggregated and deemed a single reporting unit if the components have similar economic characteristics. As of June 30, 2022, the Company's reporting units consisted of Lobbying Consulting and Public Affairs Consulting. Goodwill is evaluated for impairment using either a qualitative or quantitative approach for each of the Company's reporting units. Generally, a qualitative approach is first performed to determine whether a quantitative goodwill impairment test is necessary. If management determines, after performing an assessment based on qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount or that a fair value of the reporting unit substantially in excess of the carrying amount cannot be assured, then a quantitative goodwill impairment test would be required. The quantitative test for goodwill impairment is performed by determining the fair value of the related reporting units. Fair value is measured based on the discounted cash flow method, which requires management to estimate a number of factors for each reporting unit, including projected future operating results, anticipated future cash flows and discount rates. Management has performed its evaluation and determined the fair value of each reporting unit is greater than the carrying amount and, accordingly, the Company has not recorded any impairment charges related to goodwill for the six months ended June 30, 2022 and 2021 and the year ended December 31, 2021.

Indefinite-lived intangible assets are tested for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that could more likely than not reduce the fair value below its carrying value. The Company's indefinite-lived intangible assets consist of trademarks acquired through various business acquisitions. The Company has the option to first assess qualitative factors to determine whether events or circumstances indicate it is more likely than not that the fair value of the trademarks is greater than the carrying amount, in which case a quantitative impairment test is not required. Management has performed its evaluation and determined that the trademarks are not impaired for the six months ended June 30, 2022 and 2021 and the year ended December 31, 2021.  

Customer relationship asset:

The Company's definite-lived intangible asset consists of customer relationships that have been acquired through various acquisitions. The Company amortized these assets over their estimated useful lives. 

Impairment of long-lived assets:

Long-lived assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for an amount by which the carrying amount of the asset exceeds the fair value of the asset.  The Company has not recorded any impairment charges related to long-lived assets for the six months ended June 30, 2022 and 2021 and for the year ended December 31, 2021.

Syndication costs:

Deferred offering costs consist primarily of consulting fees related to the initial public offering (IPO). Prior to the IPO, all deferred offering costs were capitalized and included in the consolidated balance sheets and totaled approximately $2,167,000 as of June 30, 2021. During December 2021, total syndication costs of approximately $4,797,000 were recorded as a reduction to stockholders' equity.

Deferred revenue:

Deferred revenue represents prepayment by the customers for services that have yet to be performed. As of June 30, 2022, June 30, 2021 and December 31, 2021, deferred revenue was approximately $2,501,000, $2,481,000 and $1,943,000, respectively.  Deferred revenue is expected to be recognized as revenue within a year.

Income taxes:

Prior to the Conversion Date, PPHC-LLC was a limited liability company whereby the tax attributes were passed through to and reported on the members of PPHC-LLC's tax returns.

After the Conversion Date, the Company utilizes the asset and liability method in the Company's accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets when realization of the tax benefit is uncertain.

A valuation allowance is recorded, if necessary, to reduce net deferred taxes to their realizable values if management believes it is more likely than not that the net deferred tax assets will not be realized.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Profit bonuses:

Prior to the IPO, annual bonus payments were paid as compensation for services to senior executives and employees based on the profits of the Company.

Estimates:

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Share-based accounting charge and stock option expense:

The Company accounts for its share-based accounting (ASC 718-10-S99-2) charge using the fair value method.  The fair value method requires the Company to estimate the grant-date fair value of its share-based awards and amortize this fair value to expense over the requisite service period or vesting term.  For restricted and nonvested stock awards, the grant-date fair value is based upon the market price of the Company's common stock on the date of the grant.  For stock options, the grant-date fair value is based on the Black-Scholes Option Pricing Model. The Company records forfeitures as they occur.

Segment information:

GAAP requires segmentation based on an entity's internal organization and reporting of revenue and operating income based upon internal accounting methods commonly referred to as the "management approach." Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker ("CODM"), or decision making group, in deciding how to allocate resources and in assessing performance. The Company's CODM is its Chief Executive Officer. The Company's operations are conducted in two reportable segments. These segments consist of Lobbying Consulting and Public Affairs Consulting.

Reclassification:

Certain balances as of June 30, 2021 and for the six month period then ended have been reclassified to conform to the current presentation.  These reclassifications had no impact on total net assets.

Basic and diluted earnings (loss) per share:

The Company computes earnings (loss) per share in accordance with ASC 260, Earnings per Share, which requires presentation of both basic and diluted earnings per share on the face of the consolidated statements of operations. Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of outstanding shares during the period. Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. The Company's dilutive instruments consist of 2,644,859 stock options issued in 2022. However,  due to their anti-dilutive effect, the calculation of diluted net loss per share does not include these options, and accordingly, basic and dilutive earnings (loss) per share are equal.

Subsequent events:

Management has evaluated the subsequent events for disclosure in these consolidated financial statements.

NOTE 2            RELATED PARTY TRANSACTIONS

On November 1, 2018, PPHC-LLC advanced $833,000 to the original members of Blue Engine Message & Media, LLC for the purchase of the ownership interest of JDA Frontline Partners, LLC in the form of a promissory note. The note was scheduled to mature on October 31, 2022, and required the borrowers to make 16 quarterly installment payments of $52,063 commencing on February 15, 2019. Interest on the note is the London Interbank Offered Rate ("LIBOR") daily floating rate plus 2.4%. The note receivable was repaid in full in April 2022. The note receivable and accrued interest balance as of June 30, 2021 and December 31, 2021, was approximately $312,000 and $264,000, respectively, which are recorded in note receivable - related party.

During December 2021, the Company entered into a term note agreement ("2021 Note") with The Alpine Group, Inc. ("Alpine Inc").  The 2021 Note provided Alpine Inc with the ability to request a one-time borrowing of up to $750,000 from the Company at any time prior to December 31, 2022. The purpose of the 2021 Note was to provide Alpine Inc with funds to cover certain federal and state income taxes to be owed by Alpine Inc in connection with the sale of shares of the Company's common stock in the IPO. During April 2022, the Company advanced $513,000 to Alpine Inc in accordance with the terms of the 2021 Note. The interest rate on the 2021 Note is equal to the Prime Rate as published in the Wall Street Journal. The 2021 Note requires an annual payment of accrued and unpaid interest on the last business day of December each year and through the maturity date of January 16, 2025. The note receivable and accrued interest balance as of June 30, 2022 was approximately $517,000, which are recorded in note receivable - related party.

As of June 30, 2022, the amounts owed to related parties consisted of the Holding Distribution Discount of approximately $1,539,000. See Note 1.

As of June 30, 2021, the amounts owed to related parties includes accrued bonuses owed to operating subsidiary members of approximately $9,101,000 as well as funds advanced from the owners of contributing subsidiaries of approximately $93,000.  These amounts were paid in 2021. 

As of December 31, 2021, the amounts owed to related parties include the Holding Distribution Discount of approximately $4,463,000 and the amount owed to PPHC-LLC members as part of the Company Conversion of approximately $2,234,000. See Note 1.

NOTE 3            GOODWILL AND INTANGIBLE ASSETS

Goodwill and Tradenames

The Company's indefinite-lived assets consist of goodwill and tradenames as of: 

As of June 30, 2022, June 30, 2021 and December, 31, 2021, there have been no impairments to goodwill or tradenames. 

Goodwill is allocated to each segment as follows, as of:

Intangible Assets

The Company's definite lived intangible assets consist of customer relationship assets acquired through various acquisitions. The estimated useful lives for these assets range from 7 to 9 years. The cost and accumulated amortization of the Company's customer relationships is as follows as of:

Amortization expense for customer relationship assets approximated $942,000 for the six months ended June 30, 2022 and 2021 and $1,885,000 for the twelve months ended December 31, 2021.

The approximate estimated future amortization expense for the next five years is as follows:

NOTE 4            LINE OF CREDIT AND NOTES PAYABLE

A)   Line of credit

The Company had a $2,000,000 revolving line of credit, which was secured by all business assets. As a sub-facility under the line, standby letters of credit could be issued up to $750,000 to secure office leases. During 2021, the Company repaid the outstanding balance on the line of credit and closed the line of credit. As of June 30, 2021, the outstanding balance on the line of credit was approximately $1,362,000. Interest on the line of credit was at LIBOR's daily floating rate plus 2.5%.

B) Note payable - landlord

The Company executed a lease amendment on March 23, 2018, and received a loan of approximately $316,000 to fund certain tenant improvements. The Company shall repay the loan in equal monthly principal and interest installments over the lease term at an interest rate of 8%, with the final payment due on March 1, 2029. Notwithstanding the foregoing, the Company may submit a notice to the landlord to prepay the outstanding balance upon terms to be agreed upon by the landlord and the Company. The balance on the loan as of June 30, 2022, June 30, 2021 and December 31, 2021, was approximately $223,000, $247,000 and $237,000, respectively. 

NOTE 5            STOCKHOLDERS' EQUITY AND SHARE-BASED ACCOUNTING CHARGE

As of June 30, 2022, the authorized capital of the Company consists of 1,100,000,000 shares of capital stock, $0.001 par value per share, of which 1,000,000,000 shares are designated as common stock and 100,000,000 shares are designated as preferred stock.  There are no shares of preferred stock outstanding.

As discussed in Note 1, during 2021 the Company entered into Executive Employment Agreements with Group Executives.  As a result, the addition of the vesting provisions to previously issued shares created a share-based accounting charge in accordance with the accounting guidance in ASC 718-10-S99-2, Compensation-Stock Compensation.  As a result, the Company recorded a share-based accounting (ASC 718-10-S99-2) charge of approximately $15,576,000 for the six months ended June 30, 2022 and $27,609,000 for the year ended December 31, 2021. 

As of June 30, 2022, the total number of Liquidated Pre-IPO Shares subject to the clawback provisions totaled 14,463,713.  During the six months ended June 30, 2022, there were 136,147 Retained Pre-IPO Shares that were forfeited.  As of June 30, 2022, there were 85,400,140 Retained Pre-IPO Shares subject to vesting requirements and none of these shares were fully vested.  The weighted-average grant date fair value of these shares was $1.82 as of June 30, 2022 and December 31, 2021.  As of June 30, 2022, the unrecognized compensation cost from these restricted shares was approximately $139,000,000, which is expected to be recognized over a weighted-average period of 4.5 years.

NOTE 6            OMNIBUS INCENTIVE PLAN

During 2021, the Company adopted the Public Policy Holding Company, Inc. 2021 Omnibus Incentive Plan (the "Omnibus Plan"), under which Options (both nonqualified options, and incentive stock options subject to favorable U.S. income tax treatment), stock appreciation rights, restricted stock units, restricted stock, unrestricted stock, cash-based awards and dividend equivalent rights may be issued.  An award may not be granted if the number of common shares committed to be issued under that award exceeds ten percent of the ordinary shares of the Company in issue immediately before that day, when added to the number of common shares which have been issued, or committed to be issued, to satisfy awards under the Omnibus Plan, or options or awards under any other employee share plan operated by the Company, granted in the five previous years.

As of December 31, 2021, no awards were outstanding under the Omnibus Plan.  As of June 30, 2022, the total amount of shares authorized under the Omnibus Plan was 2,705,852. During the six months ended June 30, 2022 the Company granted 2,644,859 stock options to employees.

Determining the appropriate fair value model and the related assumptions requires judgment.  The fair value of each option granted is estimated using a Black-Scholes option-pricing model on the date of grant as follows: 

The expected volatility rates are estimated based on the actual volatility of comparable public companies over the expected term.  The expected term represents the average time that options that vest are expected to be outstanding.  Due to limited historical data, the Company calculates the expected life based on the midpoint between the vesting date and the contractual term, which is in accordance with the simplified method.  The risk-free rate is based on the United States Treasury yield curve during the expected life of the option. 

The following summarizes the stock option activity for the six months ended June 30, 2022:

The following table summarizes certain information about the stock options outstanding and exercisable as of June 30, 2022:

Stock option expense for the six months ended June 30, 2022 was approximately $61,000. As of June 30, 2022, there was approximately $1,473,000 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, which is expected to be recognized over a weighted-average period of 2.9 years.

NOTE 7            INCOME TAXES

Prior to December 10, 2021, the net income (loss) related to the Company's operations were reported as part of a partnership income tax return for federal and state income tax purposes. Because the partnership entity was not subject to income tax at the Company level, no provision for income taxes was required for periods prior to December 10, 2021. 

Due to the Company Conversion that occurred on December 10, 2021, an initial net deferred tax liability was recorded in conjunction with the Company's operations that would be taxable at the corporate entity level. An initial deferred tax liability in the amount of $2,942,400 was recorded, with a corresponding adjustment to stockholders' equity.

The Company recorded the following income tax expense (benefit) for the six month period ended June 30, 2022.

The Company recorded the following income tax expense (benefit) for the period December 10, 2021 through December 31, 2021.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  None of the goodwill that is reported on the Consolidated Balance Sheets is deductible for income tax purposes.

Significant components of the Company's deferred tax assets and liabilities are as follows as of June 30, 2022 and December 31, 2021:

A reconciliation for the difference between actual income tax expense (benefit) compared to the amount computed by applying the statutory federal income tax rate to net loss before income tax of ($2,206,477) for the six month period ended June 30, 2022, is as follows:

A reconciliation for the difference between actual income tax expense (benefit) compared to the amount computed by applying the statutory federal income tax rate to net loss before income tax of ($25,778,400) for the period between December 10, 2021 and December 31, 2021, is as follows:

As of June 30, 2022 and December 31, 2021, there are no known items that would result in a material liability related to uncertain tax positions, as such, there are no unrecognized tax benefits. The Company's policy is to recognize interest and penalties related to uncertain tax positions in the provision for income taxes. As of June 30, 2022 and December 31, 2021, the Company had no accrued interest or penalties related to uncertain tax positions.  The Company's 2021 tax year is open under the statute of limitations for examination by the taxing authorities.

NOTE 8            SEGMENT REPORTING

As of December 31, 2021, the Company has two reportable segments; Lobbying Consulting and Public Affairs Consulting.  Lobbying Consulting services include federal and state advocacy, strategic guidance, political intelligence and issue monitoring.  Public Affairs Consulting services include crisis communications, community relations, social and digital podcasting, public opinion research, branding and messaging, relationship marketing and litigation support.

Corporate is primarily comprised of selling, general and administrative expenses.  These expenses include corporate office expenses and certain other centrally managed expenses that are not fully allocated to operating divisions, salaries, annual bonuses and other miscellaneous benefits for corporate office employees, financial statement audits and legal, information technology and other consulting services that are engaged and managed through the corporate office, and rental expense for properties occupied by corporate office employees.

The Company measures the results of its segments using, among other measures, each segment's net revenue and operating income, which includes certain corporate overhead allocations. Information for the Company's segments, as well as for corporate and support, including the reconciliation to income (loss) from operations is provided in the following tables: