UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________________ to _______________________
Commission file number 1-12471
THEMAVEN,THE ARENA GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 68-0232575 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
200 Vesey Street,24th Floor New York, New York | 10281 | |
(Address of principal executive offices) | (Zip Code) |
(775) 600-2765(212)321-5002
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:None
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 | AREN | NYSE American |
Securities registered pursuant to Section 12(g) of the Act:Common Stock $0.01 par value
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ ☒ No¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ ☒ No¨ ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act. (Check one):Act).
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company |
Emerging growth company | ☐ |
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(b)13(a) of the Exchange Act¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨☐ or Noþ☒
As of November 13, 2017,May 2, 2022, the Registrant had 28,516,009 shares of common stock outstanding.
TABLE OF CONTENTS
Form 10-Q
For the quarter ended September 30, 2017
Table of Contents
2 |
Cautionary Statement Regarding Forward-Looking InformationStatements
This report by theMaven,Quarterly Report on Form 10-Q (this “Quarterly Report”) of The Arena Group Holdings, Inc. (“Parent”), which includes information for its wholly owned subsidiary theMaven Network, Inc. (“Subsidiary”) (collectively “theMaven,(the “Company,” “Company” or “we”“we,” “our,” and “us”) contains “forward-lookingcertain forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning the Company’sour business strategy, future revenues, market growth, capital requirements, product introductions, and expansion plans and the adequacy of the Company’sour funding. Other statements contained in this Quarterly Report that are not historical facts are also forward-looking statements. The Company hasWe have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates”“estimates,” and other comparable terminology.
The Company cautionsWe caution investors that any forward-looking statements presented in this report,Quarterly Report, or that the Companywe may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information currently available to, the Company.us. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond the Company’sour control or ability to predict. Although the Company believeswe believe that itsour assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, the Company’sour actual future results can be expected to differ from itsour expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements, which are based only on known results and trends at the time they are made, to anticipate future results or trends. CertainOther risks are discusseddetailed by us in this Report and also from time to time in the Company’s otherour public filings with the Securities and Exchange Commission (the “SEC”), including in Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 1, 2022 (the “Form 10-K”). The discussion in this Quarterly Report should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and our Annual Report.
This reportQuarterly Report and all subsequent written and oral forward-looking statements attributable to the Companyus or any person acting on itsour behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. The Company doesWe do not undertake any obligation to release publicly any revisions to itsour forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.
3 |
PartPART I - Financial Information– FINANCIAL INFORMATION
ItemITEM 1. FINANCIAL INFORMATION
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 1,699,061 | $ | 598,294 | ||||
Accounts receivable | 3,482 | - | ||||||
Deferred contract costs | 15,986 | - | ||||||
Prepayments and other current assets | 102,265 | 121,587 | ||||||
Total current assets | 1,820,794 | 719,881 | ||||||
Fixed assets, net | 2,515,930 | 547,804 | ||||||
Intangible assets | 20,000 | 20,000 | ||||||
Total assets | $ | 4,356,724 | $ | 1,287,685 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 51,568 | $ | 154,361 | ||||
Accrued expenses | 442,061 | 54,789 | ||||||
Deferred revenue | 31,634 | - | ||||||
Conversion feature liability | 130,238 | 137,177 | ||||||
Total current liabilities | 655,501 | 346,327 | ||||||
Commitments and contingencies | ||||||||
Redeemable convertible preferred stock, $0.01 par value, 1,000,000 shares authorized; 168 shares issued and outstanding ($168,496 aggregate liquidation value) | 168,496 | 168,496 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized; 26,005,140 and 22,047,531 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 260,051 | 220,475 | ||||||
Common stock to be issued in private placement | 1,566,000 | 9,375 | ||||||
Additional paid-in capital | 8,265,925 | 2,730,770 | ||||||
Accumulated deficit | (6,559,249 | ) | (2,187,758 | ) | ||||
Total stockholders’ equity | 3,532,727 | 772,862 | ||||||
Total liabilities and stockholders’ equity | $ | 4,356,724 | $ | 1,287,685 |
See accompanying notes to consolidated financial statements.
4 |
theMaven, Inc. and SubsidiaryTHE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenue | $ | 6,064 | $ | - | $ | 6,064 | $ | - | ||||||||
Expenses: | ||||||||||||||||
Service Costs | 449,567 | - | 641,606 | - | ||||||||||||
Research and development | 30,776 | 374,944 | 104,095 | 374,944 | ||||||||||||
General and administrative | 1,300,767 | 1,110,461 | 3,639,204 | 1,110,461 | ||||||||||||
Loss from operations | (1,775,046 | ) | (1,485,405 | ) | (4,378,841 | ) | (1,485,405 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest and dividend income, net | 61 | - | 411 | - | ||||||||||||
Interest expense | - | (4,044 | ) | - | (4,044 | ) | ||||||||||
Change in fair value of conversion feature | (3,311 | ) | - | 6,939 | - | |||||||||||
Total other income (expense) | (3,250 | ) | (4,044 | ) | 7,350 | (4,044 | ) | |||||||||
Net loss | $ | (1,778,296 | ) | $ | (1,489,449 | ) | (4,371,491 | ) | (1,489,449 | ) | ||||||
Basic and diluted net loss per common share | $ | (0.11 | ) | $ | (0.35 | ) | $ | (0.33 | ) | $ | (0.35 | ) | ||||
Weighted average number of shares outstanding – basic and diluted | 16,367,424 | 4,243,607 | 13,091,231 | 4,243,607 |
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2022 (unaudited) | December 31, 2021 | |||||||
($ in thousands, except share data) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 22,480 | $ | 9,349 | ||||
Restricted cash | 502 | 502 | ||||||
Accounts receivable, net | 19,998 | 21,660 | ||||||
Subscription acquisition costs, current portion | 24,940 | 30,162 | ||||||
Royalty fees | 7,500 | 11,250 | ||||||
Prepayments and other current assets | 4,972 | 4,748 | ||||||
Total current assets | 80,392 | 77,671 | ||||||
Property and equipment, net | 593 | 636 | ||||||
Operating lease right-of-use assets | 493 | 528 | ||||||
Platform development, net | 10,013 | 9,299 | ||||||
Subscription acquisition costs, net of current portion | 7,307 | 8,235 | ||||||
Acquired and other intangible assets, net | 52,255 | 57,356 | ||||||
Other long-term assets | 587 | 639 | ||||||
Goodwill | 19,619 | 19,619 | ||||||
Total assets | $ | 171,259 | $ | 173,983 | ||||
Liabilities, mezzanine equity and stockholders’ deficiency | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 7,070 | $ | 11,982 | ||||
Accrued expenses and other | 17,425 | 24,011 | ||||||
Line of credit | 9,291 | 11,988 | ||||||
Unearned revenue | 48,519 | 54,030 | ||||||
Subscription refund liability | 2,534 | 3,087 | ||||||
Operating lease liability | 387 | 374 | ||||||
Liquidated damages payable | 5,369 | 5,197 | ||||||
Current portion of long-term debt | 5,847 | 5,744 | ||||||
Total current liabilities | 96,442 | 116,413 | ||||||
Unearned revenue, net of current portion | 12,362 | 15,277 | ||||||
Operating lease liability, net of current portion | 683 | 785 | ||||||
Liquidating damages payable, net of current portion | - | 7,008 | ||||||
Other long-term liabilities | 7,527 | 7,556 | ||||||
Deferred tax liabilities | 376 | 362 | ||||||
Long-term debt | 64,929 | 64,373 | ||||||
Total liabilities | 182,319 | 211,774 | ||||||
Commitments and contingencies (Note 15) | - | - | ||||||
Mezzanine equity: | ||||||||
Series G redeemable and convertible preferred stock, $168; Series G shares issued and outstanding: ; common shares issuable upon conversion: at March 31, 2022 and December 31, 2021 | par value, $ per share liquidation value and shares designated; aggregate liquidation value: $168 | 168 | ||||||
Series H convertible preferred stock, $14,556 and $15,066; Series H shares issued and outstanding: and ; common shares issuable upon conversion: and at March 31, 2022 and December 31, 2021, respectively | par value, $ per share liquidation value and shares designated; aggregate liquidation value: $13,207 | 13,718 | ||||||
Total mezzanine equity | 13,375 | 13,886 | ||||||
Stockholders’ deficiency: | ||||||||
Common stock, $ | par value, authorized shares; issued and outstanding: and shares at March 31, 2022 and December 31, 2021, respectively175 | 126 | ||||||
Common stock to be issued | - | - | ||||||
Additional paid-in capital | 246,052 | 200,410 | ||||||
Accumulated deficit | (270,662 | ) | (252,213 | ) | ||||
Total stockholders’ deficiency | (24,435 | ) | (51,677 | ) | ||||
Total liabilities, mezzanine equity and stockholders’ deficiency | $ | 171,259 | $ | 173,983 |
See accompanying notes to condensed consolidated financial statements.statements.
5 |
theMaven, Inc. and SubsidiaryTHE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders’ Equity (Unaudited)
Nine Months Ended September 30, 2017CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Common Stock | To Be Issued | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Balance at January 1, 2017 | 22,047,531 | $ | 220,475 | 8,929 | $ | 9,375 | $ | 2,730,770 | $ | (2,187,758 | ) | $ | 772,862 | |||||||||||||||
Common stock to be issued in private placement, net of issuance costs | - | - | 1,521,739 | $ | 1,566,000 | - | - | $ | 1,566,000 | |||||||||||||||||||
Common stock to be issued | 8,929 | 89 | (8,929 | ) | (9,375 | ) | 9,286 | - | - | |||||||||||||||||||
Issuance of common stock, net of offering costs | 3,765,000 | 37,650 | - | - | 3,281,014 | - | 3,318,664 | |||||||||||||||||||||
Shares issued for investment banking fees | 162,000 | 1,620 | - | - | 199,260 | - | 200,880 | |||||||||||||||||||||
Exercise of stock options | 21.680 | 217 | (217) | - | ||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 2,045,812 | - | 2,045,812 | |||||||||||||||||||||
Net loss | - | - | - | - | (4,371,491 | ) | (4,371,491 | ) | ||||||||||||||||||||
Balance at September 30, 2017 | 26,005,140 | $ | 260,051 | 1,521,739 | $ | 1,566,000 | $ | 8,265,925 | $ | (6,559,249 | ) | $ | 3,532,727 |
(unaudited)
2022 | 2021 | |||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
($ in thousands, except per share data) | ||||||||
Revenue | $ | 48,243 | $ | 33,615 | ||||
Cost of revenue (includes amortization of developed technology and platform development for 2022 and 2021 of $2,311 and $2,167, respectively) | 28,497 | 28,208 | ||||||
Gross profit | 19,746 | 5,407 | ||||||
Operating expenses | ||||||||
Selling and marketing | 17,216 | 17,529 | ||||||
General and administrative | 13,514 | 5,638 | ||||||
Depreciation and amortization | 4,202 | 3,963 | ||||||
Loss on impairment of assets | 257 | - | ||||||
Total operating expenses | 35,189 | 27,130 | ||||||
Loss from operations | (15,443 | ) | (21,723 | ) | ||||
Other expenses | ||||||||
Change in valuation of warrant derivative liabilities | - | (665 | ) | |||||
Interest expense | (2,820 | ) | (2,820 | ) | ||||
Liquidated damages | (172 | ) | (255 | ) | ||||
Total other expenses | (2,992 | ) | (3,740 | ) | ||||
Loss before income taxes | (18,435 | ) | (25,463 | ) | ||||
Income taxes | (14 | ) | - | |||||
Net loss | $ | (18,449 | ) | $ | (25,463 | ) | ||
Basic and diluted net loss per common share | $ | (1.20 | ) | $ | (2.44 | ) | ||
Weighted average number of common shares outstanding – basic and diluted | 15,381,306 | 10,456,052 |
See accompanying notes to condensed consolidated financial statements.statements.
6 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash FlowsCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
Nine Months Ended | ||||||||
September 30, 2017 | September 30, 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (4,371,491 | ) | $ | (1,489,449 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Change in fair value of conversion feature | (6,939 | ) | - | |||||
Stock based compensation | 1,357,510 | 935,058 | ||||||
Depreciation and amortization | 233,990 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepayments and other current assets | 19,322 | (5,222 | ) | |||||
Accounts receivable | (3,482 | ) | - | |||||
Deferred costs | (15,986 | ) | - | |||||
Accounts payable | (102,793 | ) | 30,600 | |||||
Deferred revenue | 31,634 | - | ||||||
Accrued expenses | 203,271 | 36,992 | ||||||
Net cash used in operating activities | (2,654,964 | ) | (492,021 | ) | ||||
Cash flows from investing activities: | ||||||||
Website development costs and fixed assets | (1,513,813 | ) | - | |||||
Net cash used in investing activities | (1,513,813 | ) | - | |||||
Cash flows from financing activities: | ||||||||
Proceeds from common stock to be issued in private placement | 1,750,000 | - | ||||||
Proceeds from notes payable | - | 638,351 | ||||||
Net proceeds from issuance of common stock | 3,519,544 | 2,952 | ||||||
Net cash provided by financing activities | 5,269,544 | 641,303 | ||||||
Net increase in cash | 1,100,767 | 149,282 | ||||||
Cash at beginning of period | 598,294 | - | ||||||
Cash at end of period | $ | 1,699,061 | $ | 149,282 | ||||
Supplemental disclosures of noncash investing and financing activities: | ||||||||
Reclassification of stock-based compensation to website development costs | 688,302 | - | ||||||
Accrual of stock issuance costs | 184,000 | - | ||||||
Shares issued for investment banking fees | 200,880 | - |
(unaudited)
See accompanying notes to consolidated financial statements
Three Months Ended March 31, 2022
Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
($ in thousands, except number of shares) | ||||||||||||||||||||||||||||
Balance at January 1, 2022 | 12,632,947 | $ | 126 | 49,134 | $ | - | $ | 200,410 | $ | (252,213 | ) | $ | (51,677 | ) | ||||||||||||||
Issuance of restricted stock awards to the board of directors | - | - | - | - | - | - | - | |||||||||||||||||||||
Issuance of restricted stock awards to the board of directors, shares | - | - | - | - | - | - | - | |||||||||||||||||||||
Issuance of common stock upon conversion of series H preferred stock | 70,380 | 1 | - | - | 510 | - | 511 | |||||||||||||||||||||
Issuance of common stock for restricted stock units in connection with an acquisition | 16,760 | - | - | - | - | - | - | |||||||||||||||||||||
Issuance of common stock in connection with professional services | 14,617 | - | - | - | 184 | - | 184 | |||||||||||||||||||||
Issuance of common stock in connection with settlement of liquidated damages | 505,671 | 5 | - | - | 6,680 | - | 6,685 | |||||||||||||||||||||
Gain upon issuance of common stock in connection with settlement of liquidated damages | - | - | - | - | 323 | - | 323 | |||||||||||||||||||||
Issuance of common stock for restricted stock units | 155,211 | 2 | - | - | (2 | ) | - | - | ||||||||||||||||||||
Common stock withheld for taxes upon issuance of underlying shares for restricted stock units | (67,023 | ) | (1 | ) | - | - | (555 | ) | - | (556 | ) | |||||||||||||||||
Repurchase restricted stock classified as liabilities | (8,064 | ) | - | - | - | - | - | - | ||||||||||||||||||||
Issuance of common stock in connection with public offering | 4,181,603 | 42 | - | - | 30,448 | - | 30,490 | |||||||||||||||||||||
Stock-based compensation | - | - | - | - | 8,054 | - | 8,054 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (18,449 | ) | (18,449 | ) | |||||||||||||||||||
Balance at March 31, 2022 | 17,502,102 | $ | 175 | 49,134 | $ | - | $ | 246,052 | $ | (270,662 | ) | $ | (24,435 | ) |
7 |
theMaven, Inc. and SubsidiaryTHE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
Notes
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Three Months Ended March 31, 2021
Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
($ in thousands, except number of shares) | ||||||||||||||||||||||||||||
Balance at January 1, 2021 | 10,412,963 | $ | 104 | 49,134 | $ | - | $ | 141,856 | $ | (162,273 | ) | $ | (20,313 | ) | ||||||||||||||
Balance | 10,412,963 | $ | 104 | 49,134 | $ | - | $ | 141,856 | $ | (162,273 | ) | $ | (20,313 | ) | ||||||||||||||
Issuance of restricted stock awards to the board of directors | 36,599 | - | - | - | - | - | - | |||||||||||||||||||||
Repurchase restricted stock classified as liabilities | (6,049 | ) | - | - | - | - | - | - | ||||||||||||||||||||
Issuance of common stock for restricted stock units in connection with an acquisition | 11,667 | - | - | - | - | - | - | |||||||||||||||||||||
Issuance of common stock in connection with professional services | 14,205 | - | - | 125 | - | 125 | ||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 5,408 | - | 5,408 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (25,463 | ) | (25,463 | ) | |||||||||||||||||||
Balance at March 31, 2021 | 10,469,385 | $ | 104 | 49,134 | $ | - | $ | 147,389 | $ | (187,736 | ) | $ | (40,243 | ) | ||||||||||||||
Balance | 10,469,385 | $ | 104 | 49,134 | $ | - | $ | 147,389 | $ | (187,736 | ) | $ | (40,243 | ) |
See accompanying notes to Consolidated Financial Statementscondensed consolidated financial statements.
September 30, 2017
(Unaudited)
1. Nature of Operations
theMaven, Inc. (“Parent”) and theMaven Network, Inc. (“Subsidiary”) (collectively “theMaven” or the “Company”) are developing an exclusive network of professionally managed online media channels, with an underlying technology platform. Each channel will be operated by a “invite only” “Channel Partner” drawn from subject matter experts, reporters, group evangelists and social leaders. Channel Partners will publish content and oversee an online community for their respective channels, leveraging a proprietary, socially-driven, mobile-enabled, video-focused technology platform to engage niche audiences within a single network.
During the second quarter of 2017 the Company’s platform and media channel operations were launched in beta stage and by the end of the third quarter there were a total of 23 channel partners operating on theMaven Network. Internet users since the launch of our channels are able to utilize the platform on desktop, laptop and mobile devices for these channels. We expect that during the fourth quarter additional channels will be launched. As of November 13, 2017, we have over sixty signed channel partners and 28 channel partners operating on theMaven Network. We do not expect to have significant revenue during the fourth quarter as we continue development of our technology and the commencement of business operations establishing a media audience.
2. Basis of Presentation
theMaven Network, Inc. was incorporated in Nevada on July 22, 2016, under the name “Amplify Media, Inc.” On July 27, 2016, the corporate name was amended to “Amplify Media Network, Inc.” and on October 14, 2016, the corporate name was changed to “theMaven Network, Inc.”.
theMaven, Inc. was formerly known as Integrated Surgical Systems, Inc., a Delaware corporation (“Integrated”). From June 2007 until November 4, 2016, Integrated was a non-active “shell company” as defined by regulations of the Securities and Exchange Commission (SEC). On August 11, 2016, Integrated entered into a loan to Subsidiary that provided initial funding totaling $735,099 for the Subsidiary’s operations. Integrated’s Board of Directors structured the loan to the Subsidiary as fully secured so that Integrated would receive cash at maturity of the loan if negotiations for a combination did not result in the consummated Recapitalization transaction. If the loan was not repaid then the remedies in the event of default were to pursue (a) the personal guarantee and/or (b) the mortgaged real estate collateral. The loan was not secured by the intellectual property of the Subsidiary, but there was a covenant that the Subsidiary would not, without prior written consent, sell or assign the business or intellectual property. This negative covenant did not give Integrated control or rights other than as a creditor. The loan did not provide Integrated with an equity interest or other ownership or control rights in the Subsidiary. The loan did not have any rights to conversion into equity in the Subsidiary. The note, and the associated payable, was cancelled as part of the Recapitalization and the proceeds from the borrowing from Integrated was considered as cash received due to the Recapitalization in addition to the net assets acquired.
On October 14, 2016, Integrated entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Subsidiary and the shareholders of Subsidiary holding all of the issued and outstanding shares of Subsidiary (collectively, “Subsidiary Shareholders”). The Share Exchange Agreement was amended on November 4, 2016, to include certain newly issued shares of Subsidiary in the transaction and make related changes to the agreement and the Share Exchange was consummated. The transaction resulted in Parent acquiring Subsidiary by the exchange of all of the outstanding shares of Subsidiary for 12,517,152 newly issued shares of the common stock, $0.01 par value (the “Common Stock”) of Parent, representing approximately 56.7% of the issued and outstanding shares of Common Stock of Parent immediately after the transaction.
In determining the accounting treatment for the Share Exchange Agreement, the primary factor was determining which party, directly or indirectly, holds greater than 50 percent of the voting shares has control and is considered to be the acquirer. Because the former shareholders of the Subsidiary received 56.7 percent voting control of the issued and outstanding shares of the Company after the transaction, the transaction was considered to be a reverse recapitalization for accounting purposes. Other factors that indicated that the former stockholders of the Subsidiary had control of the Company after the transaction included, (1) fully diluted equity interests, (2) composition of senior management, (3) former officers of the Parent ceded day-to-day responsibilities to officers of the Subsidiary, and (4) composition of Board of Directors. On a fully diluted basis, the former shareholders of the Subsidiary received 53.5 percent of the equity interests in the Company. All the members of senior management of the Company, other than the part-time Chief Financial Officer, were former shareholders of the Subsidiary. The former officers of the non-active shell ceded day-to-day management to officers of the Subsidiary. The Board of Directors, immediately after the Recapitalization included three members from the Parent and two members from the Subsidiary. Because the former shareholders of the Subsidiary could vote to make changes in the Board composition, the conclusion was that control of the Board, in substance, was vested in the former shareholders of the Subsidiary.
8 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
2022 | 2021 | |||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
($ in thousands) | ||||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (18,449 | ) | $ | (25,463 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation of property and equipment | 114 | 110 | ||||||
Amortization of platform development and intangible assets | 6,399 | 6,020 | ||||||
Amortization of debt discounts | 660 | 694 | ||||||
Loss on impairment of assets | 257 | - | ||||||
Change in valuation of warrant derivative liabilities | - | 665 | ||||||
Accrued interest | - | 1,866 | ||||||
Liquidated damages | 172 | 255 | ||||||
Stock-based compensation | 7,367 | 5,099 | ||||||
Deferred income taxes | 14 | - | ||||||
Other | 183 | (509 | ) | |||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | 1,594 | 2,917 | ||||||
Subscription acquisition costs | 6,150 | (8,349 | ) | |||||
Royalty fees | 3,750 | 3,750 | ||||||
Prepayments and other current assets | (224 | ) | (1,630 | ) | ||||
Other long-term assets | 52 | (238 | ) | |||||
Accounts payable | (4,912 | ) | 1,920 | |||||
Accrued expenses and other | (7,444 | ) | 1,821 | |||||
Unearned revenue | (8,358 | ) | 9,039 | |||||
Subscription refund liability | (553 | ) | 737 | |||||
Operating lease liabilities | (54 | ) | (215 | ) | ||||
Other long-term liabilities | (29 | ) | - | |||||
Net cash used in operating activities | (13,311 | ) | (1,511 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (71 | ) | (98 | ) | ||||
Capitalized platform development | (1,582 | ) | (868 | ) | ||||
Net cash used in investing activities | (1,653 | ) | (966 | ) | ||||
Cash flows from financing activities | ||||||||
Repayments under line of credit, net of borrowings | (2,697 | ) | (1,752 | ) | ||||
Proceeds from public offering of common stock, net of offering costs | 32,058 | - | ||||||
Payment of tax withholdings of common stock withheld | (556 | ) | - | |||||
Payment of restricted stock liabilities | (710 | ) | (280 | ) | ||||
Net cash provided by (used for) financing activities | 28,095 | (2,032 | ) | |||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | 13,131 | (4,509 | ) | |||||
Cash, cash equivalents, and restricted cash – beginning of period | 9,851 | 9,535 | ||||||
Cash, cash equivalents, and restricted cash – end of period | $ | 22,982 | $ | 5,026 | ||||
Cash, cash equivalents, and restricted cash | ||||||||
Cash and cash equivalents | $ | 22,480 | $ | 4,525 | ||||
Restricted cash | 502 | 501 | ||||||
Total cash, cash equivalents, and restricted cash | $ | 22,982 | $ | 5,026 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 2,160 | $ | 260 | ||||
Cash paid for income taxes | - | - | ||||||
Noncash investing and financing activities | ||||||||
Reclassification of stock-based compensation to platform development | $ | 687 | $ | 309 | ||||
Offering costs included in accrued expenses and other | 1,568 | - | ||||||
Issuance of common stock in connection with settlement of liquidated damages | 7,008 | - | ||||||
Issuance of common stock upon conversion of series H preferred stock | 511 | - |
See accompanying notes to condensed consolidated financial statements.
9 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
($ in thousands, unless otherwise stated)
1. | Summary of Significant Accounting Policies |
Basis of Presentation
The transaction is referred tocondensed consolidated financial statements include the accounts of The Arena Group Holdings, Inc. (formerly known as the “Recapitalization.” The Recapitalization was consummated on November 4, 2016, as a result of which theMaven Network,TheMaven, Inc. became a) and its wholly owned subsidiary of Integrated (the “Closing”). subsidiaries (“The note payable between IntegratedArena Group” or the “Company”), after eliminating all significant intercompany balances and Subsidiary was an interdependent transaction with the Recapitalization and was cancelled upon closing of the Recapitalization. On December 2, 2016, Integrated amendedtransactions. The Company does not have any off-balance sheet arrangements. The Company changed its Certificate of Incorporationcorporate name to change its nameThe Arena Group Holdings, Inc. from “Integrated Surgical Systems,TheMaven, Inc.” to “theMaven, Inc.” on February 8, 2022.
From June 2007 until the closing of the Recapitalization, Integrated was a non-active “shell company” as defined by regulations of the SEC and, accordingly, the Recapitalization was accounted for as a reverse recapitalization rather than a business combination. As the Subsidiary is deemed to be the purchaser for accounting purposes under reverse recapitalization accounting, the Company’s financial statements are presented as a continuation of Subsidiary, and the accounting for the Recapitalization is equivalent to the issuance of stock by Subsidiary for the net monetary assets of Parent as of the Closing accompanied by a recapitalization. See Note 9 Stockholders’ Equity for summary of the assets acquired, transaction costs and the consideration exchanged in the Recapitalization.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance withpursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for Form 10-Q. The Balance Sheet at December 31, 2016 has been derived from the Company’s auditedcomplete financial statements.
In the opinion of management, these financial statements reflect all normal recurring, and other adjustments, necessary for a fair presentation. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in the Company’sThe Arena Group’s Annual Report on Form 10-K for the year ended December 31, 2016. Operating2021, filed with the SEC on April 1, 2022.
The condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, are unaudited but, in management’s opinion, include all adjustments necessary for a fair presentation of the results of interim periods. All such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet as of December 31, 2021, was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for interim periods are not necessarily indicative of operatingthe results to be expected for anthe entire fiscal year. The Company’s impact during the first quarter of 2022 by the novel coronavirus (“COVID-19”) pandemic has been to a lesser extent than in 2021. With the initial onset of COVID-19, the Company faced significant change in its advertisers’ buying behavior. Since May 2020, there has been a steady recovery in the advertising market in both pricing and volume, which coupled with the return of professional and college sports yielded steady growth in revenues. Given that the Sports Illustrated media business relies on sporting events to generate content and comprises a material portion of the Company’s revenues, the cash flows and results of operations are susceptible to a widespread cancellation of sporting events or a general limitation of societal activity akin to what is widely known to have occurred in the Unites States and elsewhere during the 2020 calendar year or any other future periods.
Comparative Period from Inceptionand, to a lesser extent, during the 2021 calendar year. Future widespread shutdowns of in-person economic activity could have a material impact on July 22, 2016 to September 30, 2016
theMaven Network, Inc. was incorporated on July 22, 2016 and initially issued shares of its common stock on August 1, 2016 in exchange for cash at par value. Through September 30, 2016, the previously reported financial statements of Integrated did not include the operations of theMaven Network, Inc. However, unaudited financial statements of theMaven Network, Inc. for the three months ended September 30, 2016 were previously issued.Company’s business. As a result of the accounting forCompany’s advertising revenue declining in early 2021 caused by the Recapitalization aswidespread cancellations of sporting events, the November 4, 2016 effective dateCompany is vulnerable to a risk of loss in the transaction,near term and it is at least reasonably possible that events or circumstances may occur that could cause an impact in the near term, that depend on the actions taken to prevent the further spread of COVID-19.
The Company operates in one reportable segment.
Reverse Stock Split
The accompanying condensed consolidated financial statements of theMaven Network, Inc. becameand notes to the condensed consolidated financial statements of Integratedgive effect to the reverse stock split for all periods previously presented. Subsequently, in conjunction with the preparation of audited consolidated financial statements of the Company for the year ended December 31, 2016, the Company recorded certain stock-based compensation adjustments to reflect the accounting for the fair value of thepresented that was effective on February 9, 2022. The shares of common stock retained a par value of $ per share. Accordingly, stockholders’ deficiency reflects the reverse stock split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the reverse stock split. Any fractional shares that would otherwise be issued by theMaven Network, Inc. in August 2016 that were subject to vesting and redemption provisions (see Note 9). Asas a result the accompanying consolidated unaudited statements of operations for the three months ended September 30, 2016 include stock-based compensation costs of $935,058, of which $67,842 was allocated to research and development expense and $867,216 was allocated to general and administrative expense. These stock-based compensation adjustments did not have any effect on cash flows from operating activities for the three months ended September 30, 2016 or on total stockholders’ equity as of September 30, 2016.
3. Going Concern
The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s activities are subject to significant risks and uncertainties, including the need for additional capital, as described below.
The Company has not generated significant revenues since July 22, 2016 (Inception) and has financed its operations through (a) the Recapitalization transaction with Parent, (b) a loan from Parent that was cancelled upon closing of the Recapitalization and (c) two private placements of commonreverse stock in April 2017 and in October 2017. The Company has incurred operating losses and negative operating cash flows, and it expectssplit were rounded up to continue to incur operating losses and negative operating cash flows for at least the next few years. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern, and the Company’s independent registered public accounting firm, in its report on the Company’s 2016 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.nearest whole share.
As fully described in Note 9 Stockholders’ Equity, in April 2017, the Company completed a private placement of its common stock, raising proceeds of $3.5 million net of cash offering costs. As described in Note 13 Subsequent Events the Company completed a second private placement raising gross proceeds of $2.75 million in October 2017, of which $1.75 million had been received as of September 30, 2017. The Company believes that it does not have sufficient funds to support its operations through the end of the first quarter of 2018. In order to continue business operations past that point, the Company currently anticipates that it will need to raise additional debt and/or equity capital in the first quarter of 2018.
There can be no assurances that the Company will be able to secure any such additional financing on acceptable terms and conditions, or at all. If cash resources become insufficient to satisfy the Company’s ongoing cash requirements, the Company will be required to scale back or discontinue its technology development programs, or obtain funds, if available (although there can be no certainty), or to discontinue its operations entirely.
10 |
4. Significant Accounting Policies and Estimates
Principles of Consolidation
The accompanying consolidated financial statements include the financial position, results of operations and cash flows for the three and nine months ended September 30, 2017 and the three months ended September 30, 2016. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparationPreparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaGAAP requires management to make estimates and assumptions that affect the amounts reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date ofdisclosed in the financial statements and revenues and expenses for the reporting period.accompanying notes. Actual results could differ materially differ from these estimates. On an ongoing basis, the Company evaluates its estimates, including those estimates.
Digital Media Content
related to the allowance for credit losses, fair values of financial instruments, capitalization of platform development, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, fair value of assets acquired and liabilities assumed in the business acquisitions, determination of the fair value of stock-based compensation and valuation of derivatives liabilities and contingent liabilities, among others. The Company intends to operate a network of online media channelsbases its estimates on assumptions, both historical and will provide digital media (text, audio and video) over the Internet that users may access on demand. As a broadcaster that transmits third party content owned by our channel partners via digital media, the Company applies ASC 920, “Entertainment – Broadcasters”. The channel partners generally receive variable amounts of considerationforward looking, that are dependent upon the calculation of revenue earned by the channel in a given month, referred to as a “revenue share”, that are payable in arrears. In certain circumstances, there is a monthly fixed fee minimum or a fixed yield (“revenue per 1000 impressions”) based on the volume of advertising impressions served. We disclose fixed dollar commitments for channel content licenses in Note 12 Commitments and Contingencies. Channel partner agreements that include fixed yield based on the volume of impressions served are not included in Note 12 because they cannot be quantified, but are expectedbelieved to be significant. The expense relatedreasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Recently Adopted Accounting Standards
In August 2020, the FASB issued ASU 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), which updates various codification topics to channel partner agreements are reportedsimplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in “Service Costs” inan entity’s own equity and amends the Statement of Operations. The cash payments related to channel partner agreements are classified within “Net cash used in operating activities” on the Statement of Cash Flows. Also under ASC 920, if channel partner agreements are structured such that the fee paid precedes the right to use the content because the broadcasts will occur in future periods, the Company will record a Content Asset and a related Content Obligation when all of the following conditions are met, (1) the cost of the content is known or reasonably determinable, (2) the content has been accepted and (3) the content is availablediluted EPS computation for broadcasting under the terms of the channel partner agreement. Capitalized content cost will be amortized on a systematic basis over the agreement term on a straight-line method or an accelerated method depending on the economic and agreement terms. Capitalized content costs will be evaluated for impairment at least annually or whenever circumstances indicate that Content Assets may be impaired.
Revenue Recognition
During the third quarter of 2017,these instruments. On January 1, 2022, the Company adopted ASC 606, “RevenueASU 2020-06 with no material impact to its condensed consolidated financial position, results of operations or cash flows.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), 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 Emerging Issues Task Force (EITF), to provide explicit guidance on accounting by issuers for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. On January 1, 2022, the Company adopted ASU 2021-04 with no material impact to its condensed consolidated financial position, results of operations, cash flows or disclosures.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”Customers, which requires an acquirer to account for revenue contracts acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. The acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired contracts. This update should lead to recognition and measurement consistent with what’s reported in the acquiree’s financial statements, provided that the acquiree prepared financial statements in accordance with GAAP. The new standard marks a change from current GAAP, under which assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts, are generally recognized at fair value at the acquisition date. On January 1, 2022, the Company adopted ASU 2021-08 with no material impact to its condensed financial position, results of operations or cash flows. This new accounting standard for revenue recognition. Since the Company had not previously generated revenue from customers the Company did not havewill be applied prospectively to transition its accounting method from ASC 605, “Revenue Recognition”.business combinations.
Revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company generates all of its revenue from contracts with customers. The following is a description of the principal activities from which the Company generates revenue:
11 |
The Company enters into contracts with advertising networks to serve display or video advertisements on the digital media pages associated with our various channels. In accordance with ASC 606 the Company recognizes revenue from advertisements at the point in time when each ad is viewed as reported by our advertising network partners. The quantity of advertisements, the impression bid prices and revenue are reported on a real-time basis. Although reported advertising transactions are subject to adjustment by the advertising network partners, any such adjustments are known within a few days of month end. The Company owes our independent publisher channel partners a revenue share of the advertising revenue earned and this is recorded as service costs in the same period in which the associated advertising revenue is recognized.
Membership
The Company enters into contracts with Internet users that subscribe to premium content on the digital media channels. These contracts provide Internet users with a subscription to access the premium content for a given period of time, which is generally one year. In accordance with ASC 606 the Company recognizes revenue from each membership subscription over time based on a daily calculation of revenue during the reporting period. Subscribers make payment for a subscription by credit card and the amount of the subscription collected in cash is initially recorded as deferred revenue on the balance sheet. As the Company provides access to the premium content over the subscription term the Company recognizes revenue and proportionately reduces the deferred revenue balance. The Company owes our independent publisher channel partners a revenue share of the membership revenue earned and this is initially deferred as deferred contract costs. The Company recognizes deferred contract costs over the subscription term in the same pattern that the associated membership revenue is recognized.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by product line, geographical market and timing of revenue recognition:
Three months ended September 30, 2017 | Nine months ended September 30, 2017 | ||||||
Advertising | Membership | Total | Advertising | Membership | Total | ||
By Product Lines: | $2,146 | $3,918 | $6,064 | $2,146 | $3,918 | $6,064 | |
United States | Other | Total | United States | Other | Total | ||
By Geographical Markets: | $6,064 | $- | $6,064 | $6,064 | $- | $6,064 | |
At a Point in Time | Over Time | Total | At a Point in Time | Over Time | Total | ||
By Timing of Revenue Recognition: | $2,146 | $3,918 | $6,064 | $2,146 | $3,918 | $6,064 |
Contract Balances
The following table provides information about contract balances as of September 30, 2017:
Advertising | Membership | Total | |||||
Accounts receivables | $2,074 | $1,408 | $3,482 | ||||
Short-term contract assets (deferred contract costs) | - | $15,986 | $15,986 | ||||
Short-term contract liabilities (deferred revenue) | - | $31,634 | $31,634 |
The Company receives payments from advertising customers based upon contractual payment terms; accounts receivable are recorded when the right to consideration becomes unconditional and generally collected within 90 days. The Company generally receives payments from membership customers at the time of sign up for each subscription; accounts receivable from merchant credit card processors are recorded when the right to consideration becomes unconditional and generally collected weekly. Contract assets include contract fulfillment costs related to revenue shares owed to channel partners, which are amortized along with the associated revenue. Contract liabilities include payments received in advance of performance under the contract and are recognized as revenue over time. The Company had no asset impairment charges related to contract assets in the period.
Contract acquisition costs and practical expedients
For contracts that have a duration of less than one year, the Company follows ASC 606 practical expedients and expenses these costs when incurred; for contracts with life exceeding one year, which did not apply during the current period, the Company records these costs in proportion to completion of each completed performance obligation. The Company generally expenses sales commissions when incurred because the amortization period would have been less than one year. The Company records these costs within general and administrative expenses.
Fixed Assets
Fixed assets are recorded at cost. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in income and expense when realized. Depreciation and amortization are provided using the straight-line method over the following estimated useful lives:
Intangible Assets
The intangible assets consist of the cost of a purchased website domain name with an indefinite useful life.
Impairment of Long-Lived Assets
The long-lived assets, consisting of fixed assets and intangible assets, held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. Management has determined that there was no impairment in the value of long-lived assets during the period ended September 30, 2017.
Website Development Costs
In accordance with authoritative guidance, the Company begins to capitalize website and software development costs for internal use when planning and design efforts are successfully completed and development is ready to commence. Costs incurred during planning and design, together with costs incurred for training and maintenance, are expensed as incurred and recorded in research and development expense within the consolidated statement of operations. The Company places capitalized website and software development assets into service and commences depreciation/amortization when the applicable project or asset is substantially complete and ready for its intended use. Once placed into service, the Company capitalizes qualifying costs of specified upgrades or enhancements to capitalized website and software development assets when the upgrade or enhancement will result in new or additional functionality. Certain website and software development assets are placed into service and amortized and the Company continues to capitalize costs associated with other website and software development assets that are still in the development stage.
The Company capitalizes internal labor costs, including compensation, benefits and payroll taxes, incurred for certain capitalized website and software development projects related to the Company’s technology platform. The Company’s policy with respect to capitalized internal labor stipulates that labor costs for employees working on eligible internal use capital projects are capitalized as part of the historical cost of the project when the impact, as compared to expensing such labor costs, is material.
Research and Development
Research and development costs are charged to operations in the period incurred and amounted to $30,776 and $104,095 for the three and nine months ended September 30, 2017. Research and development costs are amounted to $374,944 for the three months ended September 30, 2016.
Fair Value Measurements
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820“Fair Value Measurements and Disclosures” clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, FASB ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
In accordance with FASB ASC 820, the Company measures its derivative liability at fair value. The Company’s derivative liability is classified within Level 3.
The carrying value of other current assets and liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments.
Concentrations of Credit Risk
Cash
The Company maintains cash at a bank where amounts on deposit may exceed the Federal Deposit Insurance Corporation limit throughout the year. The Company has not experienced losses in such accounts and believes it is not exposed to significant credit risk regarding its cash.
Stock-based Compensation
The Company provides stock-based compensation in the form of (a) restricted stock awards to employees, (b) vested stock grants to directors, (c) stock option grants to employees, directors and independent contractors, and (d) common stock warrants to Channel Partners and other independent contractors.
The Company applies FASB ASC 718, “Stock Compensation,” when recording stock based compensation to employees and directors. The estimated fair value of stock based awards is recognized as compensation expense over the vesting period of the award. The Company has adopted ASU 2016-09 in 2016 with early application and account for actual forfeitures of awards as they occur.
The fair value of restricted stock awards by Subsidiary at Inception was estimated on the date of the award using the exchange value used by Integrated and the Subsidiary to establish the relative voting control ratio in the Recapitalization.
Restricted stock that was subject to an escrow arrangement and/or a performance condition in conjunction with the Recapitalization was remeasured and fair value was estimated using the quoted price of our common stock on the date of the Recapitalization. The Company uses a Monte Carlo simulation model to determine the number of shares expected to be released from the performance condition escrow. Each quarter the Company reevaluates the number of shares expected to be released from the performance condition escrow until the final determination is made as of December 31, 2017.
The fair value of fully vested stock awards is estimated using the quoted price of our common stock on the date of the grant. The fair value of stock option awards is estimated at grant date using the Black-Scholes option pricing model that requires various highly judgmental assumptions including expected volatility and option life.
The Company accounts for stock issued to non-employees in accordance with provisions of FASB ASC 505-50, “Equity Based Payments to Non-Employees.” FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliability measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date). Equity grants with performance conditions that do not have sufficiently large disincentive for non-performance may be measured at fair value that is not fixed until performance is complete. The fair value of common stock warrants is estimated at grant date using the Black-Scholes option pricing model that requires various highly judgmental assumptions including expected volatility and option life. The Company recognizes expense for equity based payments to non-employees as the services are received. The Company has specific objective criteria, such as the date of launch of a Channel on the Company’s platform, for determination of the period over which services are received and expense is recognized.
The Company uses a Monte Carlo simulation model to determine the number of shares expected to be earned by Channel Partners based on performance obligations to be satisfied over a defined period which will commence at the launch of a Channel on the Company’s platform.
The Company issues common stock upon exercise of equity awards and warrants.
Income Taxes
The Company recognizes the tax effects of transactions in the year in which such transactions enter into the determination of net income regardless of when reported for tax purposes. Deferred taxes are provided in the financial statements to give effect to the temporary differences which may arise from differences in the bases of fixed assets, depreciation methods and allowances based on the income taxes expected to be payable in future years. Deferred tax assets arising primarily as a result of net operating loss carry-forwards, and research and development credit have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods.
The Company recognizes interest accrued relative to unrecognized tax benefits in interest expense and penalties in operating expense. During the three and nine months ended September 30, 2017 and the three months ended September 30, 2016, the Company recognized no income tax related interest and penalties. The Company had no accruals for income tax related interest and penalties at September 30, 2017.
Basic and Diluted Loss per Common Share
Basic income or loss per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of common stock equivalent shares, such as stock options, restricted stock, and warrants. RestrictedAll restricted stock isawards are considered outstanding andbut are included in the computation of basic income or loss per common share only when the underlying restrictions expire, and the shares are no longer forfeitable.forfeitable, and are thus vested. All restricted stock units are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. Contingently issuable shares are included in basic loss per common share only when there are no circumstances under which those shares would not be issued. Diluted incomeloss per common share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method.
Schedule of which 13,417,951Net Income (Loss) Per Common Share
2022 | 2021 | |||||||
As of March 31, | ||||||||
2022 | 2021 | |||||||
Series G convertible preferred stock | 8,582 | 8,582 | ||||||
Series H Preferred Stock | 2,004,971 | 2,699,312 | ||||||
Restricted Stock Awards | 194,806 | 14,394 | ||||||
Financing Warrants | 116,118 | 131,003 | ||||||
ABG Warrants | 999,540 | 999,540 | ||||||
AllHipHop warrants | 5,681 | 5,681 | ||||||
Publisher Partner Warrants | 26,893 | 35,889 | ||||||
2016 Plan | 286,151 | 321,761 | ||||||
2019 Plan | 6,326,538 | 7,179,349 | ||||||
Outside Options | 138,637 | 138,637 | ||||||
Total | 10,107,917 | 11,534,148 |
2. | Balance Sheet Components |
The components of certain balance sheet amounts are not currently registered and/or subject to future vesting conditions. Included in these totalsas follows:
Accounts Receivable – Accounts receivable are 6,663,244 common stock equivalents that must be exercised which would result in aggregate proceeds from the salepresented net of stock to the Companyallowance for doubtful accounts. The allowance for doubtful accounts as of $6,735,000.March 31, 2022 and December 31, 2021 was $1,578.
RisksSubscription Acquisition Costs – As of March 31, 2022 and Uncertainties
The Company has a limited operating history and has not generated revenue to date. The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-termDecember 31, 2021, subscription acquisition costs were $32,247 (short-term of $24,940 and long-term interest rates, inflation, fluctuations in debtof $7,307) and equity capital markets$38,397 (short-term of $30,162 and the general conditionlong-term of the U.S. and world economies. A host$8,235), respectively. Subscription acquisition costs as of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse developments in these general business and economic conditions could have a material adverse effect on the Company’s financial condition and the resultsMarch 31, 2022 presented as current assets of its operations.
In addition, the Company will compete with many companies that currently have extensive and well-funded projects, marketing and sales operations as well as extensive human capital. The Company may be unable to compete successfully against these companies. The Company’s industry is characterized by rapid changes in technology and market demands. As a result, the Company’s products, services, and/or expertise may become obsolete and/or unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer and market demands, and enhance its current technology under development.
Recently Adopted Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (ASC 606) - Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. This ASU will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. The standard’s core principle is that revenue is recognized when promised goods or services$24,940 are transferred to customers in an amount that reflects the consideration to which the entity expectsexpected to be entitled in exchangeamortized over a one year period, or through March 31, 2023 and $7,307 presented as long-term assets are expected to be amortized after the one year period ending March 31, 2023.
Property and Equipment – Property and equipment are summarized as follows:
Schedule of Property and Equipment
March 31, 2022 | December 31, 2021 | |||||||
As of | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Office equipment and computers | $ | 1,407 | $ | 1,341 | ||||
Furniture and fixtures | 1 | 1 | ||||||
Gross property and equipment | 1,408 | 1,342 | ||||||
Less accumulated depreciation and amortization | (815 | ) | (706 | ) | ||||
Net property and equipment | $ | 593 | $ | 636 |
Depreciation and amortization expense for those goods or services. To achieve that core principle, an entity should apply the following steps:three months ended March 31, 2022 and 2021 was $114 and $110, respectively.
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The guidance in ASU 2014-09 also specifies the accounting for some costs to obtain or fulfill a contract with a customer. ASC 606 requires the Company to make significant judgments and estimates. ASC 606 also requires more extensive disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
12 |
Platform Development – Platform development costs are summarized as follows:
The FASB has also issued several additional ASUs which amend ASU 2014-09. The amendments do not changeSummary of Platform Development Costs
March 31, 2022 | December 31, 2021 | |||||||
As of | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Platform development | $ | 16,699 | $ | 21,997 | ||||
Less accumulated amortization | (6,686 | ) | (12,698 | ) | ||||
Net platform development | $ | 10,013 | $ | 9,299 |
A summary of platform development activity for the core principlethree months ended March 31, 2022 is as follows:
Summary of Platform Development Cost Activity
Platform development beginning of period | $ | 21,997 | ||
Payroll-based costs capitalized | 1,582 | |||
Less dispositions | (7,356 | ) | ||
Total capitalized costs | 16,223 | |||
Stock-based compensation | 687 | |||
Impairments | (211 | ) | ||
Platform development end of period | $ | 16,699 |
Amortization expense for the three months ended March 31, 2022 and 2021, was $1,344 and $1,069, respectively. Amortization expense for platform development is included in cost of revenues on the condensed consolidated statements of operations. For the three months ended March 31, 2022 and 2021, impairment charges of $211 and $0, respectively, have been record for platform development.
Intangible Assets – Intangible assets subject to amortization consisted of the guidancefollowing:
Schedule of Intangible Assets Subjects to Amortization
As of March 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||
Carrying Amount | Accumulated Amortization | Net Carrying Amount | Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Developed technology | $ | 17,333 | $ | (12,214 | ) | $ | 5,119 | $ | 17,579 | $ | (11,465 | ) | $ | 6,114 | ||||||||||
Trade name | 3,328 | (851 | ) | 2,477 | 3,328 | (782 | ) | 2,546 | ||||||||||||||||
Brand name | 5,175 | (427 | ) | 4,748 | 5,175 | (298 | ) | 4,877 | ||||||||||||||||
Subscriber relationships | 73,459 | (36,252 | ) | 37,207 | 73,459 | (32,623 | ) | 40,836 | ||||||||||||||||
Advertiser relationships | 2,240 | (629 | ) | 1,611 | 2,240 | (570 | ) | 1,670 | ||||||||||||||||
Database | 2,397 | (1,304 | ) | 1,093 | 2,397 | (1,104 | ) | 1,293 | ||||||||||||||||
Subtotal amortizable intangible assets | 103,932 | (51,677 | ) | 52,255 | 104,178 | (46,842 | ) | 57,336 | ||||||||||||||||
Website domain name | - | - | - | 20 | - | 20 | ||||||||||||||||||
Total intangible assets | $ | 103,932 | $ | (51,677 | ) | $ | 52,255 | $ | 104,198 | $ | (46,842 | ) | $ | 57,356 |
Amortization expense for the three months ended March 31, 2022 and 2021 was $5,055 and $4,951, respectively, of which amortization expense for developed technology of $967 and $1,098, respectively, is included in ASC 606.cost of revenues on the condensed consolidated statements of operations. For the three months ended March 31, 2022 and 2021, impairment charges of $46 and $0, respectively, have been recorded for the intangible assets.
3. | Leases |
The Company’s real estate lease for the use of office space was subleased during the year ended December 31, 2021 (as further described below). The Company’s current lease is a long-term operating lease with a remaining fixed payment term of 2.51 years.
13 |
PublicThe table below presents supplemental information related to operating leases:
Schedule of Supplemental Information Related to Operating Leases
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Operating lease costs during the period (1) | $ | 179 | $ | 2,718 | ||||
Cash payments included in the measurement of operating lease liabilities during the period | $ | 117 | $ | 2,787 | ||||
Weighted-average remaining lease term (in years) as of period-end | 2.51 | 11.02 | ||||||
Weighted-average discount rate during the period | 9.9 | % | 13.6 | % |
(1) | Operating lease costs is presented net of sublease income that is not material. |
The Company generally utilizes its incremental borrowing rate based on information available at the commencement of the lease in determining the present value of future payments since the implicit rate for the Company’s leases is not readily determinable.
Variable lease expense includes rental increases that are not fixed, such as those based on amounts paid to the lessor based on cost or consumption, such as maintenance and utilities.
The components of operating lease costs were as follows:
Schedule of Operating Lease Costs
2022 | 2021 | |||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Operating lease costs: | ||||||||
Cost of revenue | $ | - | $ | 1,797 | ||||
Selling and marketing | - | 516 | ||||||
General and administrative | 234 | 423 | ||||||
Total operating lease costs (1) | 234 | 2,736 | ||||||
Sublease income | (55 | ) | (18 | ) | ||||
Operating cost | $ | 179 | $ | 2,718 |
(1) | Includes certain costs associated with a business membership agreement that permits access to certain office space of $170, see below. |
Maturities of the operating lease liability as of March 31, 2022 are summarized as follows:
Summary of Maturity of Lease Liabilities
Years Ending December 31, | ||||
2022 (remaining nine months of the year) | $ | 355 | ||
2023 | 486 | |||
2024 | 373 | |||
Minimum lease payments | 1,214 | |||
Less imputed interest | (144 | ) | ||
Present value of operating lease liability | $ | 1,070 | ||
Current portion of operating lease liability | $ | 387 | ||
Long-term portion of operating lease liability | 683 | |||
Total operating lease liability | $ | 1,070 |
Sublease Agreement – In November 2021, the Company entered into an agreement to sublease its leased office space for the duration of its operating lease through September 2024. As of March 31, 2022, the Company is entitled to receive sublease income of $582.
Business Membership – Effective October 1, 2021, the Company entered into a business entities are requiredmembership agreement with York Factory LLC, doing business as SaksWorks, that permits access to applycertain office space with furnishings, referred to as SaksWorks Memberships (each membership provides a certain number of accounts that equate to the guidanceuse of ASC 606the space granted). The term of the agreement was for 27 months, with 21 months remaining at $57 per month for 110 accounts.
14 |
4. | Line of Credit |
On December 6, 2021, the Company entered into an amendment to annual reporting periods beginning afterits financing and security agreement for its line of credit with FPP Finance LLC (“FastPay”) that was originally entered into on February 27, 2020, pursuant to which (i) the maximum amount of advances available was increased to $25,000 from $15,000, (ii) the interest rate on the facility applicable margin was decreased to 6.0% per annum from 8.5% per annum (the facility bears interest at the LIBOR rate plus the applicable margin), and (iii) the maturity date was extended to February 28, 2024. The line of credit is for working capital purposes and is secured by a first lien on all the Company’s cash and accounts receivable and a second lien on all other assets. As of March 31, 2022 and December 31, 2021, the balance outstanding under the FastPay line of credit was $9,291 and $11,988, respectively.
5. | Restricted Stock Liabilities |
On December 15, 2017 (20182020, the Company entered into an amendment for certain restricted stock awards and units that were previously issued to certain employees in connection with a previous merger (the “HubPages merger”). Pursuant to the amendment, the Company committed to repurchase vested restricted stock awards as of December 31, 2020 at a price of $ per share in 24 equal monthly installments on the second business day of each calendar year end reporting companies), including interim reporting periods within that reporting period. Early adoption is permitted.month beginning January 4, 2021, subject to certain conditions.
The following table presents the components of the restricted stock liabilities:
Schedule of Components of Restricted Stock Liabilities
March 31, 2022 | December 31, 2021 | |||||||
As of | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Restricted stock liabilities (before imputed interest) | $ | 2,307 | $ | 3,801 | ||||
Less imputed interest | (78 | ) | (177 | ) | ||||
Present value of restricted stock liabilities | 2,229 | 3,624 | ||||||
Less payments during the period | (710 | ) | (1,472 | ) | ||||
Restricted stock liabilities at end of period (reflected in accrued expenses and other) | $ | 1,519 | $ | 2,152 |
The Company has adopted ASC 606 inrecorded the current quarterrepurchase of and shares of the Company’s restricted common stock during the three months ended September 30, 2017March 31, 2022 and began recognition2021, respectively, on the condensed consolidated statements of revenue from contracts with customersstockholders’ deficiency. On April 4, 2022, the Company paid $1,597 for the remaining shares of the Company’s restricted common stock that were outstanding as of March 31, 2022 that were subject to repurchase.
6. | Liquidated Damages Payable |
Liquidated damages were recorded as a result of the launch of its network operations. Sincefollowing: (i) certain registration rights agreements provide for damages if the Company haddoes not previously generated revenue from customersregister certain shares of the Company’s common stock within the requisite time frame (the “Registration Rights Damages”); and (ii) certain securities purchase agreements provide for damages if the Company diddoes not have to transitionmaintain its accounting method from ASC 605, “Revenue Recognition”periodic filings with the SEC within the requisite time frame (the “Public Information Failure Damages”).
In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (ASU 2015-17), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU 2015-17 did not have any impact on Company’s financial statement presentation or disclosures.
Recent Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU 2016-02 is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently assessing the potential impact of adopting ASU 2016-02 on its financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 refines how companies classify certain aspects of the cash flow statement in regards to debt prepayment, settlement of debt instruments, contingent consideration payments, proceeds from insurance claims and life insurance policies, distribution from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. No early adoption is permitted. Management is currently assessing the potential impact of adopting ASU 2016-15 on the financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718 to a change in terms or conditions of a share-based payment award. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. The ASU should be applied prospectively on and after the effective date. The Company is evaluating the impact of this ASU.
15 |
5. Fixed AssetsObligations with respect to the liquidated damages payable are summarized as follows:
Summary of Liquidated Damages
As of March 31, 2022 | ||||||||||||||||
Registration Rights Damages | Public Information Failure Damages | Accrued Interest | Balance | |||||||||||||
MDB common stock to be issued (1) | $ | 15 | $ | - | $ | - | $ | 15 | ||||||||
Series H convertible preferred stock | 618 | 625 | 457 | 1,700 | ||||||||||||
Convertible debentures | - | 704 | 216 | 920 | ||||||||||||
Series J convertible preferred stock | 932 | 932 | 356 | 2,220 | ||||||||||||
Series K convertible preferred stock | 95 | 379 | 40 | 514 | ||||||||||||
Total | $ | 1,660 | $ | 2,640 | $ | 1,069 | $ | 5,369 |
As of December 31, 2021 | ||||||||||||||||
Registration Rights Damages | Public Information Failure Damages | Accrued Interest | Balance | |||||||||||||
MDB common stock to be issued (1) | $ | 15 | $ | - | $ | - | $ | 15 | ||||||||
Series H convertible preferred stock | 1,164 | 1,172 | 792 | 3,128 | ||||||||||||
Convertible debentures | - | 873 | 242 | 1,115 | ||||||||||||
Series I convertible preferred stock | 1,386 | 1,386 | 613 | 3,385 | ||||||||||||
Series J convertible preferred stock | 1,560 | 1,560 | 490 | 3,610 | ||||||||||||
Series K convertible preferred stock | 180 | 722 | 50 | 952 | ||||||||||||
Total | $ | 4,305 | $ | 5,713 | $ | 2,187 | $ | 12,205 |
(1) | Consists of shares of common stock issuable to MDB Capital Group, LLC (“MDB”). |
At September 30, 2017 andThe Company will continue to accrue interest on the liquidated damages balance at 1.0% per month based on the balance outstanding as of March 31, 2022, or $5,369, until paid. There is no scheduled date when the unpaid liquidated damages become due.
As of December 31, 2016, fixed assets, net consisted2021, the short-term and long-term liquidated damages payable were $5,197 and $7,008, respectively. The long-term portion was converted into shares of the following:Company’s common stock on January 24, 2022, as further described below.
September 30, 2017 | December 31, 2016 | |||||||
Office equipment and computers | $ | 29,871 | $ | 8,048 | ||||
Furniture and Equipment | 21,220 | - | ||||||
Website development costs | 2,699,219 | 540,146 | ||||||
2,750,310 | 548,194 | |||||||
Accumulated depreciation and amortization | (234,380 | ) | (390 | ) | ||||
Fixed assets, net | $ | 2,515,930 | $ | 547,804 |
In June 2017,On January 24, 2022, the Company launched certain elementsentered into several stock purchase agreements with several investors the Company was liable to for liquidated damages, pursuant to which the Company issued an aggregate of its website and began amortization of capitalized website development costs, and accordingly, $173,000 and $226,000 of amortization expense was recorded during the three and nine months ended September 30, 2017, respectively. In the nine months ended September 30, 2017, depreciation expense of approximately $8,000 was recorded.
6. Investments in Available-for-Sale Securities
The Company maintained an investment portfolio consisting of available-for-sale-securities during the period ended December 31, 2016, which it had acquired through the Recapitalization. All available-for-sale-securities either matured or were liquidated prior to December 31, 2016.
7. Redeemable Convertible Preferred Stock
The Company’s Certificate of Incorporation authorized 1,000,000 shares of undesignated, serial preferred stock. Preferred stock may be issued from time to time in one or more series. The Board of Directors is authorized to determine the rights, preferences, privileges, and restrictions granted to and imposed upon any wholly unissued series of preferred stock and designation of any such series without any further vote or action by the Company’s stockholders.
As of September 30, 2017, the Company’s only outstanding series of convertible preferred stock is the Series G Convertible Preferred Stock (“Series G”).
The Series G stock has a stated value of $1,000 per share, and is convertible intoits common stock at a conversion price equal to 85% of the lowest sale price of the common stock on its listed market over the five trading days preceding the date of conversion (“Beneficial Conversion Feature”), subject to a maximum conversion price. The number of shares of common stock that may be converted is determined by dividing the stated value of the number of shares of Series G to be converted by the conversion price. The Company may elect to pay the Series G holder in cash at the current market price multiplied by the number of shares of common stock issuable upon conversion.
For the three and nine months ended September 30, 2017, no shares of Series G were converted into shares of common stock. At September 30, 2017, the outstanding Series G shares were convertible into a minimum of 172,374 shares of common stock.
Upon a change in control, sale or similar transaction, as defined in the Certificate of Designation for the Series G, each holder of the Series G has the option to deem such transaction as a liquidation and may redeem his or her shares at the liquidation value of $1,000, $per share for an aggregate amount of $168,496. The sale of all the assets on June 28, 2007 triggered the preferred stockholders’ redemption option. As such redemption is not in the control of the Company, the Series G stock has been accounted for as if it was redeemable preferred stock and is classified(determined based on the balance sheet between liabilities and stockholders’ equity.
The conversion feature of the preferred stock is considered a derivative according to ASC 815 “Derivatives and Hedging”, therefore, the fair value of the derivative is reflected in the financial statements as a liability, which was determined to be $130,238 and $137,177 as of September 30, 2017 and December 31, 2016, respectively and has been included as “conversion feature liability” on the accompanying balance sheets.
The fair value of the conversion feature liability is calculated under a Black-Scholes Model, using the marketvolume-weighted average price of the Company’s common stock at the close of trading on eachthe sixty (60) previous trading days), to the investors in lieu of an aggregate of $7,008 owed in liquidated damages. The Company agreed that it would prepare and file as soon as reasonably practicable, a registration statement covering the balance sheet dates presented, the expected dividend yield, the expected liferesale of the redemption and the expected volatilitythese shares of the Company’s common stock.
stock issued in lieu of payment of these liquidated damages in cash. The Company’s assessmentCompany recorded $6,685 in connection with the issuance of shares of the significanceCompany’s common stock and recognized a gain of a particular input to$323 on the settlement of the liquidated damages, which was recorded within additional paid-in capital on the condensed consolidated statement of stockholders’ deficiency.
7. | Fair Value Measurements |
The Company estimates the fair value measurement requiresof financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and considering factors specifica high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts the Company would realize upon disposition.
16 |
The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
● | Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
● | Level 2. Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and | |
● | Level 3. Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates. |
The Company accounted for certain warrants (as described under the heading Common Stock Warrants in Note 10) as derivative liabilities, which required the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. As of December 31, 2021, the Strome Warrants and B. Riley Warrants (as described in Note 10) were classified within equity.
For the three months ended March 31, 2021, the change in valuation of warrant derivative liabilities of $665 was recognized as other expense on the condensed consolidated statement of operations.
8. | Long-term Debt |
Senior Secured Note
As of March 31, 2022 and December 31, 2021, the Company’s outstanding obligation under its senior secured note with BRF Finance Co., LLC, an affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for the purchasers and as purchaser, is summarized as follows:
● | On March 24, 2020, the Company entered into a second amended and restated note when the principal balance outstanding under its note issued on June 19, 2019 was $51,336 (including accrued interest), due on June 14, 2022 (as further amended). The terms of the note also permitted the Company to enter into a Delayed Draw Term Note (as described below), in the aggregate principal amount of $12,000; | |
● | On October 23, 2020, the Company entered into a first amendment to second amended and restated note issued on March 24, 2020 (“Amendment 1”), where the maturity date was changed to December 31, 2022 (as further amended) from June 14, 2022, subject to certain acceleration conditions and interest payable on the note on September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 will be payable in-kind in arrears on the last day of such fiscal quarter. Alternatively, at the option of the holder, such interest amounts originally could have been paid in shares of previously designated Series K convertible preferred stock (the “Series K Preferred Stock”); however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, such interest amounts can be converted into shares of the Company’s common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock, subject to certain adjustments; |
17 |
● | On May 19, 2021, the Company entered into a second amendment to the second amended and restated note issued March 24, 2020 (“Amendment 2”), pursuant to which: (i) the interest rate on the Senior Secured Note, as defined below, decreased from a rate of 12.0% per annum to a rate of 10.0% per annum; and (ii) the Company agreed that within one (1) business day after receipt of cash proceeds from any issuance of equity interests, it will prepay the certain obligations in an amount equal to such cash proceeds, net of underwriting discounts and commissions; provided, that, this mandatory prepayment obligation does not apply to any proceeds that the Company received from shares of the Company’s common stock issued pursuant to a certain securities purchase agreement during the 90-day period commencing on May 20, 2021; | |
● | On December 6, 2021, the Company entered into a third amendment to the second amended and restated note issued March 24, 2020 (“Amendment 3”), where the Company was permitted to increase the FastPay line of credit in an aggregate principal amount not to exceed $25,000; and | |
● | On January 23, 2022, the Company entered into a fourth amendment to the second amended and restated note issued March 24, 2020 (“Amendment 4”), where the maturity date on the note was extended to (i) December 31, 2023 from December 31, 2022 upon the consummation of the equity financing on February 15, 2022 (further details are provided below), or (ii) the date accelerated pursuant to certain terms of Amendment 4. |
Collectively, the second amended and restated note and Amendment 1, Amendment 2, Amendment 3 and Amendment 4 thereto are referred to as the “Senior Secured Note,” with all borrowings collateralized by substantially all assets of the Company.
After the date of Amendment 4, interest on the note will be payable, at the agent’s sole discretion, either (a) in cash quarterly in arrears on the last day of each fiscal quarter or (b) by continuing to add such interest due on such payment dates to the principal amount of the note. Interest on the Senior Secured Note will accrue for each calendar quarter on the outstanding principal amount of the note at an aggregate rate of 10.0% per annum, subject to adjustment in the event of default. Further, interest that was payable during fiscal years 2020 and 2021 and added to the principal amount under the note remains subject to the conversion feature liability. Since someelection under Amendment 1.
Delayed Draw Term Note
As of March 31, 2022 and December 31, 2021, the Company’s outstanding obligation under its delayed draw term note with B. Riley is summarized as follows:
● | On March 24, 2020, the Company entered into a delayed draw term note (the “Delayed Draw Term Note”) with an interest rate of 15.0% per annum, pursuant to the second amended and restated note purchase agreement, in the aggregate principal amount of $12,000. The terms of the note provided that up to $8,000 in principal amount was due on March 31, 2021; | |
● | On March 24, 2020, the Company drew down $6,914 under the Delayed Draw Term Note, with interest payable in-kind in arrears on the last day of each fiscal quarter; | |
● | On October 23, 2020, pursuant to the terms of Amendment 1, the maturity date of the Delayed Draw Term Note was changed to March 31, 2022 (as further amended) from March 31, 2021. Amendment 1 also provided that the holder, could originally elect, in lieu of receipt of cash for payment of all or any portion of the interest due or cash payments up to a certain conversion portion of the Delayed Draw Term Note, to receive shares of Series K Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, the holder may elect, in lieu of receipt of cash for such amounts, shares of the Company’s common stock at the price the Company last sold shares of the Company’s common stock; | |
● | On October 23, 2020, $3,367, including principal and accrued interest of the Delayed Draw Term Note, converted into shares of the Company’s Series K Preferred Stock, which shares were further converted into shares of the Company’s common stock; |
18 |
● | On May 19, 2021, pursuant to Amendment 2, the interest rate on the Delayed Draw Term Note decreased to a rate of 10.0% per annum from a rate of 15.0% per annum; | |
● | On December 28, 2021, the Company drew down $5,086 under the Delayed Draw Term Note, and after payment of commitment and funding fees paid of $509, the Company received net proceeds of $4,578; and | |
● | On February 15, 2023, pursuant to Amendment 4, the maturity date on the Delayed Draw Term Note was extended to (i) December 31, 2022 from March 31, 2022 for $5,925 of principal due and (ii) December 31, 2023 from March 31, 2022 for $4,000 of principal due, subject to certain acceleration terms. |
Amendment 4 also provided that interest will be payable, at the agent’s sole discretion, either (a) in cash quarterly in arrears on the last day of each fiscal quarter or (b) in kind quarterly in arrears on the last day of each fiscal quarter, and will accrue for each fiscal quarter on the principal amount outstanding under the note at an aggregate rate of 10.0% per annum, subject to adjustment in the event of default.
The following table summarizes the long-term debt:
Schedule of Long Term Debt
As of March 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||
Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | |||||||||||||||||||
Senior Secured Note, as amended, matures December 31, 2023 | $ | 62,691 | $ | (1,584 | ) | $ | 61,107 | $ | 62,691 | $ | (1,935 | ) | $ | 60,756 | ||||||||||
Delayed Draw Term Note, as amended, matures December 31, 2023 | 9,928 | (259 | ) | 9,669 | 9,928 | (567 | ) | 9,361 | ||||||||||||||||
Total | $ | 72,619 | $ | (1,843 | ) | $ | 70,776 | $ | 72,619 | $ | (2,502 | ) | $ | 70,117 | ||||||||||
Current portion | $ | 5,847 | $ | 5,744 | ||||||||||||||||||||
Long-term portion | 64,929 | 64,373 | ||||||||||||||||||||||
Total | $ | 70,776 | $ | 70,117 |
As of March 31, 2022 and December 31, 2021, the Company’s Delayed Draw Term Note, as amended, carrying value of $9,669 and $9,361, respectively, was as follows: (1) $5,847 and $5,744 for the first draw (including accrued interest and less unamortized discount and debt issuance costs of $78 and $180), respectively; and (2) $3,822 and $3,617 for the second draw (including accrued interest and less unamortized discount and debt issuance costs of $181 and $387), respectively. As of March 31, 2022, the effective interest rate of the assumptions used bySenior Secured Note, Delayed Draw Term Note first draw and second draw were 11.4%, 11.7% and 12.5%, respectively.
The following table summarizes principal maturities of long-term debt:
Schedule of Principal Maturities of Long-term Debt
Years Ending December 31, | ||||
2022 | $ | 5,924 | ||
2023 | 66,695 | |||
Total | $ | 72,619 |
19 |
9. | Preferred Stock |
The Company has the authority to issue shares of preferred stock, $ par value per share, consisting of authorized and/or outstanding shares as of March 31, 2022 as follows:
● | 168 shares are outstanding. authorized shares designated as “Series G Convertible Preferred Stock”, of which | |
● | authorized shares designated as “Series H Convertible Preferred Stock” (as further described below), of which shares are outstanding. |
Series H Preferred Stock
The Company recorded the issuance of shares of the Company’s common stock upon conversion of shares of the Company’s series H convertible preferred stock (the “Series H Preferred Stock”) during the three months ended March 31, 2022, as reflected on the condensed consolidated statements of stockholders’ deficiency.
Series L Preferred Stock
On May 4, 2021, a special committee of the Board declared a dividend of one preferred stock purchase right to be paid to the stockholders of record at the close of business on May 14, 2021 for (i) each outstanding share of the Company’s common stock and (ii) each share of the Company’s common stock issuable upon conversion of each share of the Company’s Series H Preferred Stock. Each preferred stock purchase right entitles the registered holder to purchase, subject to a rights agreement, from the Company are unobservable, the conversion feature liability is classified within the level 3 hierarchy in the fair value measurement.
The expected volatilityone one-thousandth of a share of the conversion feature liability was based onCompany’s newly created Series L Junior Participating Preferred Stock, par value $ per share (the “Series L Preferred Stock”), at a price of $4.00, subject to certain adjustments. The Series L Preferred Stock will be entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the historical volatilitygreater of (i) $1.00 per share or (ii) 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions paid to the holders of the Company’s common stock. The expected life assumption was basedSeries L Preferred Stock will be entitled to 1,000 votes on the expected remaining lifeall matters submitted to a vote of the underlying preferred stock redemption. The risk-free interest rate for the expected termstockholders of the conversion feature liability was based onCompany. In the average market rate on U.S. treasury securitiesevent of any merger, consolidation or other transaction in effect during the applicable quarter. The dividend yield reflected historical experience as well as future expectations over the expected term of the underlying preferred stock redemption. Therefore, the fair value of the conversion feature liability is sensitive to changes in above assumptions and changeswhich shares of the Company’s common stock price.
The table below showsare converted or exchanged, the quantitative information aboutSeries L Preferred Stock will be entitled to receive 1,000 times the significant unobservable inputs used in the fair value measurement of level 3 conversion feature liability at September 30, 2017:
The changes in the fair value of the derivative are as follows:
Beginning as of January 1, 2017 | $ | 137,177 | ||
Decrease in fair value | (6,939 | ) | ||
Ending balance as of September 30, 2017 | $ | 130,238 |
8. Recapitalization
As described in Note 2 Basis of Presentation, the Company has accounted for the Recapitalization, which closed on November 4, 2016, as a reverse recapitalization. Because Integrated was a non-operating public shell corporation the transaction is considered to be a capital transaction in substance rather than a business combination. The transaction is equivalent to the issuance of stock by the Subsidiary for the net monetary assets of the Parent accompanied by a recapitalization.
Prior to the Recapitalization, Integrated had 9,530,379 issued and outstanding shares of common stock. In the Recapitalization, holders of Subsidiary’s common stockamount received 4.13607 shares of Parent common stock for each Subsidiaryper one share totaling 12,517,152 shares. After the Recapitalization a total of 22,047,531 shares of Parent common stock were outstanding.
As of September 30, 2017, as a result of other equity transactions described in Note 9 Stockholders’ Equity, a total of 26,005,140 shares of Parent common stock are issued and outstanding.
Integrated and Subsidiary agreed to the terms of Recapitalization to reflect the arms-length negotiated fair value of the Subsidiary as $2.5 million relative to the fair value of Integrated’s cash and available for sale investment securities. This resulted in the former shareholders of Subsidiary obtaining 56.7% voting control of the Company’s issuedcommon stock.
The rights agreement pursuant to the Series L Preferred Stock was set to expire on May 3, 2022; however, the board of directors elected to extend the expiration date, which extension is evidenced by an amended and outstanding common stock. The intent of the Recapitalization was to provide funding for Subsidiary’s operations initially under a loan that was canceled upon closing of the Recapitalization.
In determining the accounting treatment for the Share Exchange Agreement, the primary factor was determining which party, directly or indirectly, held greater than 50 percent of the voting shares has controlrestated rights agreement, dated May 2, 2022, by and is considered to be the acquirer. Because the former shareholders of the Subsidiary received 56.7 percent voting control of the issued and outstanding shares ofbetween the Company after the transaction, the transaction was considered to be a reverse recapitalization for accounting purposes. Other factors that indicated that the former stockholders of the Subsidiary had control of the Company after the transaction included, (1) fully diluted equity interests, (2) composition of senior management, (3) former officers of the Parent ceded day-to-day responsibilities to officers of the Subsidiary, and (4) composition of Board of Directors. On a fully diluted basis, the former shareholders of the Subsidiary received 53.5 percent of the equity interests in the Company. All the members of senior management of the Company, other than the part-time Chief Financial Officer, were former shareholders of the Subsidiary. The former officers of the non-active shell ceded day-to-day management to officers of the Subsidiary. The Board of Directors, immediately after the Recapitalization included three members from the Parent and two members from the Subsidiary. Because the former shareholders of the Subsidiary could vote to make changes in the Board composition, the conclusion was that control of the Board, in substance, was vested in the former shareholders of the Subsidiary.
The following table summarizes the calculation of the relative voting control at the time of the Recapitalization:
Shares | Per Share | Fair Value | Voting % | |||||||||||||
Integrated shareholders pre-Recapitalization | 9,530,379 | $ | 0.20 | $ | 1,903,464 | 43.3 | % | |||||||||
Integrated options pre-Recapitalization | 175,000 | - | 0.0 | % | ||||||||||||
Warrant issued to MDB Capital Group | 1,169,607 | - | 0.0 | % | ||||||||||||
TheMaven Network, Inc. shareholders | 12,517,152 | $ | 0.20 | 2,500,000 | 56.7 | % | ||||||||||
Total fully diluted shares | 23,392,138 | $ | 4,403,464 | 100.0 | % | |||||||||||
Shares issued and outstanding as of Closing | 22,047,531 |
In accordance with the Investment Banking Advisory Agreement more fully described in Note 11 Related Parties, Integrated issued warrants to MDB Capital Group, LLC (“MDB”) to purchase 1,169,607 shares of Parent common stock. The warrants have an exercise price of $0.20 per share and expire on November 4, 2021. Integrated incurred transaction costs of $921,698 consisting of $744,105 for the fair value of warrants issued to MDB and $177,593 in cash for legal and related transaction costs. The costs incurred by Integrated were recorded in financial statements of the Parent prior to Recapitalization and reduced the net monetary assets acquired. The aggregate intrinsic value of the warrants issued to MDB at September 30, 2017 is $1,111,000.
The Recapitalization resulted in the acquisition of gross assets of $1,447,000 consisting primarily of cash and available for sale investment securities and the assumption of $470,000 of liabilities. Included in the total liabilities assumed was 168 shares of Class G Preferred Stock,rights agent, and which extension is reported as a liability at aggregated liquidation value of $168,496 because it is a redeemable instrument at the option of the holder (see Note 7 Redeemable Convertible Preferred Stock).
Priorsubject to the closing of the Recapitalization, the Subsidiary had received $735,099 in multiple borrowings from Integrated on a note payable beginning on August 11, 2016 and ending on November 4, 2016. Integrated’s Board of Directors structured the loan to the Subsidiary as a loan that was fully secured so that Integrated would receive cash at maturity of the loan if the negotiations did not result in the consummated Recapitalization transaction. If the loan was not repaid then the remedies in the event of default were to pursue (a) the personal guarantee and/or (b) the mortgaged real estate collateral. The loan was not securedratification by the intellectual property of theMaven, but there was a covenant that theMaven would not, without prior written consent, sell or assign the business or intellectual property. This negative covenant did not give Integrated control or rights other than as a creditor. The loan did not provide Integrated with an equity interest or other ownership or control rights in theMaven. The Note did not have any rights to conversion into equity in theMaven. The note payable was cancelled as part of the Recapitalization and the proceeds from the borrowing from Integrated is considered as cash received due to the Recapitalization in addition to the net assets acquired. Legal and transaction costs incurred by Subsidiary of $50,000 related to the capital transaction were expensed and charged to General and Administrative expense in 2016.Company’s stockholders.
10. | Stockholders’ Equity |
9. Stockholders’ EquityCommon Stock
The Company has authorized 100,000,000the authority to issue shares of common stock, $0.01$ par value per share.
On February 15, 2022 and March 11, 2022, the Company raised gross proceeds of which 26,005,140 shares were issued and outstanding as of September 30, 2017. As of September 30, 2017, the Company’s Directors and Officers held 12,202,885 or 45.33% of the issued and outstanding shares.
Restricted Stock Awards
On August 11, 2016, management and employees of Subsidiary in conjunction with the incorporation on July 22, 2016, received 12,209,677 shares of common stock as adjusted for the Recapitalization exchange ratio of 4.13607. These shares are subject$34,498 pursuant to a Company option to buy back the shares at the original cash consideration paid, which totaled $2,952 or approximately $0.0002 per share. A totalfirm commitment underwritten public offering of 7,966,070 4,181,603shares were subject to the Company buy back right as of August 1, 2016, and 4,094,708 were made subject to the Company buy back right on November 4, 2016, in conjunction with the Recapitalization. The employees vest their ownership in these shares over a three-year period beginning August 1, 2016, with one-third vesting on August 1, 2017, and the balance monthly over the remaining two years. The fair value of these shares of Subsidiary stock was estimated on the date of the award using the exchange value used by Integrated and the Subsidiary to establish the relative voting control ratio in the Recapitalization (See Note 8 Recapitalization). Because these shares require continued service to the Company the estimated fair value is recognized as compensation expense over the vesting period of the award.
On October 13, 2016, Subsidiary granted 62,041 shares of common stock to an employee. On October 16, 2016, an additional 245,434 shares of Subsidiary common stock were granted to a director. The fair value of these shares of Subsidiary stock was estimated on the date of the awards based on the quoted closing stock price on November 4, 2016, since the Recapitalization was pending. These shares are subject to a Company option to buy back the shares at the original cash consideration paid.
As a condition of the Recapitalization, a total of 4,094,708 shares were required to be placed into an escrow arrangement for purposes of enforcement of the Company option to buy back shares for the balance of the three-year service period. A total of 4,381,003 shares, which includes 35% of the 4,094,708 shares added to the buyback option, are escrowed and subject to a performance condition requiring the Company to achieve certain operating metrics regarding monthly unique users by December 31, 2017. Pursuant to a negotiated schedule the performance condition can be satisfied in partial increments up to the full number of shares escrowed. The Company uses a Monte Carlo simulation model to determine the number of shares expected to be released from the performance condition escrow.
Pursuant to FASB ASC 718, escrowed share arrangements in a capital raising transaction are considered to be compensatory, as such, the shares subject to these escrow provisions were re-measured as of November 4, 2016, the date of the Recapitalization. The estimated fair value of these shares was determined based on the quoted closing stock price on November 4, 2016. Because these shares require continued service to the Company the estimated fair value is recognized as compensation expense over the vesting period of the award.
At December 31, 2016, it was estimated that 72.5% of the shares subject to the performance condition will be released. At September 30, 2017, the expected achievement of the performance condition was reevaluated and it was determined that the shares estimated to be released had increased to 100%.
Restricted stock award activity for the period from July 22, 2016 (Inception) to September 30, 2017, including the reevaluation of the shares estimated to be release, was as follows:
Shares | Shares Remeasured | Weighted- Average Price | ||||||||||
Stock awards granted at Inception | 12,209,677 | $ | 0.20 | |||||||||
Granted October 13, 2016 | 62,041 | 0.70 | ||||||||||
Granted October 16, 2016 | 245,434 | 0.70 | ||||||||||
Remeasurement at November 4, 2016 | - | 5,837,788 | * | 0.43 | ||||||||
Vested | - | - | ||||||||||
Reevaluation of shares expected to be released as of March 31, 2017 | - | 1,007,633 | * | 0.06 | ||||||||
Reevaluation of shares expected to be released as of June 30, 2017 | - | 197,145 | * | 0.01 | ||||||||
Total at September 30, 2017 | 12,517,152 | $ | 0.48 | |||||||||
Vested at September 30, 2017 | 4,504,180 | $ | 0.48 | |||||||||
Expected to vest after September 30, 2017 | 8,012,972 | $ | 0.48 |
|
At September 30, 2017, total compensation cost related to restricted stock awards but not yet recognized was $3,372,000. This cost will be amortized on a straight-line method over a period of approximately 1.85 years.
Stock Options
On December 19, 2016, the Company’s Board of Directors approved the 2016 Stock Incentive Plan (“Plan”) and reserved 1,670,867 shares of common stock for issuance under the Plan, including options and restricted performance stock awards. On June 28, 2017, the Board of Directors approved an increase in the total number of shares reserved from 1,670,867 to 3,000,000. The Plan is administered by the Board of Directors, and there were no grants prior to the formation of the Plan. Shares of common stock that are issued under the Plan or subject to outstanding incentive awards will be applied to reduce the maximum number of shares of common stock remaining available for issuance under the Plan, provided, however, that that shares subject to an incentive award that expire will automatically become available for issuance. Options issued under the Plan may have a term of up to ten years and may have variable vesting provisions.
The estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award. The fair value of restricted stock awards is determined based on the number of shares granted and the quoted price of the Company’s common stock on the date of grant. The fair value of stock option awards are estimated at the grant date as calculated using the Black-Scholes option-pricing model. The Black-Scholes model requires various highly judgmental assumptions including expected volatility and option life. The fair values of our stock option grants were estimated with the following average assumptions:
The fair value of stock options granted during the period ended September 30, 2017 were estimated with the following assumptions:
First Quarter | Second Quarter | Third Quarter | ||||||||||
Expected life in years | 6.0 | 5.9 | 6.0 | |||||||||
Risk-free interest rate | 2.13 | % | 1.97 | % | 2.01 | % | ||||||
Expected annual volatility | 114.20 | % | 117.87 | % | 115.13 | % | ||||||
Dividend yield | 0.00 | % | 0.00 | % | 0.00 | % |
For the six months ended September 30, 2017 stock option activity was as follows:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at January 1, 2017 | 275,137 | $ | 0.48 | 5.15 | ||||||||||||
. | ||||||||||||||||
Granted | 1,914,000 | 1.28 | 9.04 | |||||||||||||
Exercised | (25,000 | ) | .17 | 1.62 | ||||||||||||
Forfeited | (95,000 | ) | 1.41 | 9.64 | ||||||||||||
Outstanding at September 30, 2017 | 2,069,137 | $ | 1.24 | 9.02 | $ | 170,218 | ||||||||||
Vested and expected to vest at September 30, 2017 | 2,069,137 | $ | 1.24 | 9.02 | $ | 170,218 | ||||||||||
Exercisable at September 30, 2017 | 309,967 | $ | 0.85 | 5.83 | $ | 147,000 |
As of September 30, 2017, the Company has granted 1,914,000 options under the Plan, of which 159,967 are vested. In the three and nine months ended September 30, 2017, the Company recorded stock-based compensation of $259,508 and $508,635, respectively related to the options granted under the Plan. Of the total stock-based compensation in the three months, $216,920 was expensed in General and Administrative expenses and $42,588 was capitalized as Website Development Costs. Of the total stock-based compensation in the nine months, $440,268 was expensed in General and Administrative expenses and $68,367 was capitalized as Website Development Costs.
At September 30, 2017, total compensation cost related to stock options granted under the Plan but not yet recognized was $1,574,000. This cost will be amortized on a straight-line method over a period of approximately 1.67 years. The aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options that were in-the-money at September 30, 2017.
In addition, the Company assumed 175,000 fully-vested options in connection with the Recapitalization with an exercise price of $0.17 per share which expire on May (on February 15, 2019. During the quarter ended September 30, 2017, 25,000 of these options were cashless exercised into 21,680 common shares and 150,000 options are outstanding.
The following table summarizes certain information about stock options for the nine months ended September 30, 2017:
Weighted average grant-date fair value for options granted during the year | $ | 1.28 | ||
Vested options in-the-money at September 30, 2017 | 150,000 | |||
Aggregate intrinsic value of options exercised during the year | $ | 27,750 |
The following table summarizes the common shares reserved for future issuance under the Plan:
Common Stock Warrants – Channel Partner Program
On December 19, 2016, the Company’s Board of Directors approved a program to be administered by management that authorized the Company to issue up to 5,000,000 common stock warrants to provide equity incentive to its Channel Partners to motivate and reward them for their services to the Company and to align the interests of the Channel Partners with those of stockholders of the Company.
The following table summarizes the activity in Channel Partner Warrants during the nine months ended September 30, 2017:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at January 1, 2017 | 350,000 | $ | 1.05 | 4.75 | ||||||||||||
Granted | 3,074,500 | 1.33 | 4.51 | |||||||||||||
Exercised | - | - | - | |||||||||||||
Forfeited | - | - | - | |||||||||||||
Outstanding at September 30, 2017 | 3,424,500 | $ | 1.30 | 4.48 | $ | 120,000 | ||||||||||
Vested and expected to vest at September 30, 2017 | 1,556,000 | $ | 1.30 | 4.48 | $ | 55,000 | ||||||||||
Exercisable at September 30, 2017 | - | - | - | - |
In the nine months ended September 30, 2017,2022 the Company issued 3,074,500 common stock warrants shares and on March 11, 2022 the Company issued shares pursuant to Channel Partners.the underwriter’s overallotment that was exercised on March 10, 2022), at a public offering price of $ per share. The warrants have a performance conditionCompany received net proceeds of $32,058, after deducting underwriting discounts and vest over three yearscommissions and expire in five years from issuance. The exercise prices range from $1.05 to $1.90 with a weighted average of $1.33. The performance conditions are generally based on the average number of unique visitors on the Channel operatedother offering costs payable by the Channel Partner generated during the period from July 1, 2017, to December 31, 2017, or the revenue generated during the period from issuance date through September 30, 2019. Equity grants with performance conditions that do not have sufficiently large disincentive for non-performance may be measured at fair value that is not fixed until performance is complete. The Company recognizes expense for equity based payments to non-employees as the services are received. The Company has specific objective criteria, such as the date of launch of a Channel on the Company’s platform, for determination of the period over which services are received and expense is recognized.
The Company uses a Monte Carlo simulation model to determine the number of shares expected to be earned by Channel Partners based on performance obligations to be satisfied over a defined period which will commence at the launch of a Channel on the Company’s platform. As of September 30, 2017,Company. In additions, the Company has estimated that 1,556,000directly incurred offering costs of Channel Partner Warrants will be earned. The Company$1,568 and recorded in Service Costs a total of $35,000 and $115,000 of stock-based compensation related to Channel Partner warrants in$30,490 upon the three and nine months ended September 30, 2017, respectively.
Other Warrants
In accordance with the Investment Banking Advisory Agreement more fully described in Note 11 Related Parties, Integrated issued warrants to MDB Capital Group, LLC to purchase 1,169,607 shares of Parent common stock. The warrants have an exercise price of $0.20 per share and expire on November 4, 2021. The aggregate intrinsic value of the warrants at September 30, 2017, is $1,111,000
Common Stock – Private Placement of Common Stock
On April 4, 2017, the Company completed a private placementissuance of its common stock, selling 3,765,000as reflected on the condensed consolidated statement of stockholders’ deficiency.
Common Stock Warrants
The Company issued warrants to purchase shares at $1.00 per share, for total gross proceeds of $3,765,000. In connection with the offering, the Company paid $188,250 and issued 162,000 shares ofCompany’s common stock to MDB Capital Group, LLC (the “MDB Warrants”), Strome Mezzanine Fund LP (the “Strome Warrants”), and B. Riley (the “B. Riley Warrants”) in connection with various financing transactions (collectively, the “Financing Warrants”).
The Financing Warrants outstanding and exercisable as of March 31, 2022 are summarized as follows:
Schedule of Common Stock Financing Warrants Outstanding and Exercisable
Exercise Price | Expiration Date | Total Outstanding and Exercisable (Shares | ||||||||
Strome Warrants | $ | 11.00 | June 15, 2023 | 68,182 | ||||||
B. Riley Warrants | 7.26 | October 18, 2025 | 39,773 | |||||||
MDB Warrants | 25.30 | October 19, 2022 | 5,435 | |||||||
MDB Warrants | 55.00 | October 19, 2022 | 2,728 | |||||||
Total | 116,118 |
The intrinsic value of exercisable but unexercised in-the-money stock warrants as of March 31, 2022 was $ , based on a fair market value of the Company’s common stock of $ per share on March 31, 2022.
20 |
11. | Compensation Plans |
The Company provides stock-based compensation in the form of (a) restricted stock awards to certain employees (referred to as the “Restricted Stock Awards”), (b) stock option grants to employees, directors and consultants under the 2016 Plan (as described below), (c) stock option awards, restricted stock awards, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants under the 2019 Plan (as described below), (d) stock option awards outside of the 2016 Plan and 2019 Plan to certain officers, directors and employees (referred to as the “Outside Options”), (e) common stock warrants to the Company’s publisher partners (referred to as the “Publisher Partner Warrants”), and (f) common stock warrants to ABG-SI, LLC (referred to as the “ABG Warrants”).
Summary of Stock-based Compensation
Restricted Stock Awards | 2016 Plan | 2019 Plan | Outside Options | ABG Warrants | Totals | |||||||||||||||||||
During the Three Months Ended March 31, 2022 | ||||||||||||||||||||||||
Cost of revenue | $ | 430 | $ | 14 | $ | 1,714 | $ | - | $ | - | $ | 2,158 | ||||||||||||
Selling and marketing | - | 9 | 591 | - | - | 600 | ||||||||||||||||||
General and administrative | - | 48 | 3,941 | 105 | 515 | 4,609 | ||||||||||||||||||
Total costs charged to operations | 430 | 71 | 6,246 | 105 | 515 | 7,367 | ||||||||||||||||||
Capitalized platform development | - | 5 | 682 | - | - | 687 | ||||||||||||||||||
Total stock-based compensation | $ | 430 | $ | 76 | $ | 6,928 | $ | 105 | $ | 515 | $ | 8,054 | ||||||||||||
During the Three Months Ended March 31, 2021 | ||||||||||||||||||||||||
Cost of revenue | $ | 24 | $ | 127 | $ | 1,290 | $ | 2 | $ | - | $ | 1,443 | ||||||||||||
Selling and marketing | - | 5 | 972 | 75 | - | 1,052 | ||||||||||||||||||
General and administrative | 3 | 117 | 2,128 | - | 356 | 2,604 | ||||||||||||||||||
Total costs charged to operations | 27 | 249 | 4,390 | 77 | 356 | 5,099 | ||||||||||||||||||
Capitalized platform development | 5 | 3 | 299 | 2 | - | 309 | ||||||||||||||||||
Total stock-based compensation | $ | 32 | $ | 252 | $ | 4,689 | $ | 79 | $ | 356 | $ | 5,408 |
Unrecognized compensation expense and expected weighted-average period to be recognized related to the stock-based compensation awards and equity-based awards as of March 31, 2022 was as follows:
Schedule of Unrecognized Compensation Expense
Restricted | ||||||||||||||||||||||||
Stock | 2016 | 2019 | Outside | ABG | ||||||||||||||||||||
Awards | Plan | Plan | Options | Warrants | Totals | |||||||||||||||||||
Unrecognized compensation cost | $ | 1,925 | $ | - | $ | 44,563 | $ | - | $ | 1,988 | $ | 48,476 | ||||||||||||
Expected weighted-average period expected to be recognized (in years) | - | - |
Stock Option Repricing
On March 18, 2022, the Company approved a repricing of certain outstanding stock options (the “Stock Option Repricing”) granted under the Company’s 2016 Stock Incentive Plan (the “2016 Plan”) and the 2019 Equity Incentive Plan (the “2019 Plan”) that had an exercise price above $actedrepricing is still subject to stockholder approval. As a result of the Stock Option Repricing, the exercise prices were set to $ per share, which was the closing sale price of the Company’s common stock as placement agent. The transaction costslisted on the NYSE American exchange on March 18, 2022. Except for the repricing of $446,000, including $201,000the stock options under the 2019 Plan, all terms and conditions of non-cash expenses, have been recordedeach stock option remains in full force and effect. For the repricing of the stock options under the 2019 Plan, the Company (i) modified the exercise price; (ii) will allow cashless exercise as a reductionmethod of paying the exercise price, and (iii) will waive a lock-up provision in paid-in capital.the stock option agreements. All other term and conditions of each of the stock options under the 2019 Plan remains in full force and effect. per share, including certain outstanding stock options held by senior management of the Company. The Stock Option Repricing also included certain outstanding stock options granted outside of the 2016 Plan and 2019 Plan, which
Stock-based Compensation
21 |
The impact onStock Option Repricing of approximately stock option grants (for 340 employees) that were issued to employees of the Company, including senior management, resulted in incremental cost of $, of which $was recognized at the time of the Stock Option Repricing for the fully vested awards and included in our resultscondensed consolidated statement of operations, and $5,918 will recognized over the remaining vesting term of recording stock-based compensation expensethe original award at the repricing date.
12. | Revenue Recognition |
Disaggregation of Revenue
The following table provides information about disaggregated revenue by category, geographical market and timing of revenue recognition:
Schedule of Disaggregation of Revenue
2022 | 2021 | |||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Revenue by category: | ||||||||
Digital revenue | ||||||||
Digital advertising | $ | 21,646 | $ | 9,540 | ||||
Digital subscriptions | 6,461 | 7,085 | ||||||
Other revenue | 3,465 | 746 | ||||||
Total digital revenue | 31,572 | 17,371 | ||||||
Print revenue | ||||||||
Print advertising | 1,368 | 1,533 | ||||||
Print subscriptions | 15,303 | 14,711 | ||||||
Total print revenue | 16,671 | 16,244 | ||||||
Total | $ | 48,243 | $ | 33,615 | ||||
Revenue by geographical market: | ||||||||
United States | $ | 47,321 | $ | 32,528 | ||||
Other | 922 | 1,087 | ||||||
Total | $ | 48,243 | $ | 33,615 | ||||
Revenue by timing of recognition: | ||||||||
At point in time | $ | 41,782 | $ | 26,530 | ||||
Over time | 6,461 | 7,085 | ||||||
Total | $ | 48,243 | $ | 33,615 |
Contract Balances
The timing of the Company’s performance under its various contracts often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. A contract asset is recognized when a good or service is transferred to a customer and the Company does not have the contractual right to bill for the related performance obligations. A contract liability is recognized when consideration is received from the customer prior to the transfer of goods or services.
The following table provides information about contract balances:
Schedule of Contract with Customer, Asset and Liability
March 31, 2022 | December 31, 2021 | |||||||
As of | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Unearned revenue (short-term contract liabilities): | ||||||||
Digital revenue | $ | 12,815 | $ | 14,693 | ||||
Print revenue | 35,704 | 39,337 | ||||||
Total unearned revenue (short-term contract liabilities) | $ | 48,519 | $ | 54,030 | ||||
Unearned revenue (long-term contract liabilities): | ||||||||
Digital revenue | $ | 1,321 | $ | 1,446 | ||||
Print revenue | 11,041 | 13,831 | ||||||
Total unearned revenue (long-term contract liabilities) | $ | 12,362 | $ | 15,277 |
Unearned Revenue – Unearned revenue, also referred to as contract liabilities, include payments received in advance of performance under the contracts and are recognized as revenue over time. The Company records contract liabilities as unearned revenue on the condensed consolidated balance sheets.
22 |
13. | Income Taxes |
The provision for income taxes in interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly provision for income taxes, and estimate of the Company’s annual effective tax rate, are subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company conducts business, and tax law developments.
The provision effective tax rate for the three months ended September 30, 2017March 31, 2022 and 2021 was as follows:
Restricted | Channel | |||||||||||||||||||
Stock at | Stock | Partner | ||||||||||||||||||
Inception | Options | Warrants | Warrants | Total | ||||||||||||||||
Service Costs | $ | - | $ | - | $ | 35,000 | $ | - | $ | 35,000 | ||||||||||
Research and development | - | - | - | - | - | |||||||||||||||
General and administrative | 261,749 | 216,920 | - | 478,669 | ||||||||||||||||
$ | 261,749 | $ | 216,920 | $ | 35,000 | $ | - | $ | 513,669 |
In addition, during0.1% and 0.0%, respectively. The deferred income taxes for the three months ended September 30, 2017, stock-based compensation totaling $243,484 duringMarch 31, 2022 was primarily due to discrete items.
The realization of deferred tax assets is dependent upon a variety of factors, including the applicationgeneration of future taxable income, the reversal of deferred tax liabilities, and development stage was capitalized for website development.tax planning strategies. Based upon the Company’s historical operating losses and the uncertainty of future taxable income, the Company has provided a valuation allowance against most of the deferred tax assets as of March 31, 2022 and 2021.
14. | Related Party |
The impact on our results of operations of recording stock-based compensation expense forFor the ninethree months ended September 30, 2017, was as follows:March 31, 2022, the Company had certain transactions with B. Riley, a principal stockholder, where it paid fees associated with the common stock public offering totaling $2,440.
Restricted | Channel | |||||||||||||||||||
Stock at | Stock | Partner | ||||||||||||||||||
Inception | Options | Warrants | Warrants | Total | ||||||||||||||||
Service Costs | $ | - | $ | - | $ | 115,000 | $ | - | $ | 115,000 | ||||||||||
Research and development | - | - | - | - | - | |||||||||||||||
General and administrative | 801,743 | 408,432 | - | 32,335 | 1,242,510 | |||||||||||||||
$ | 801,743 | $ | 408,432 | $ | 115,000 | $ | 32,335 | $ | 1,357,510 |
In addition, duringFor the ninethree months ended September 30, 2017, stock-based compensation totaling $688,302 duringMarch 31, 2022 and 2021, the applicationCompany paid in cash or accrued interest that was added to the principal on the Senior Secured Note and development stageDelayed Draw Term Note due to B. Riley, a principal stockholder, of $1,815 (paid in cash) and $1,852 (accrued interest that was capitalizedadded to the principal), respectively.
Service and Consulting Contracts
For the three months ended March 31, 2022 and 2021, the Company paid James C. Heckman, its former Chief Executive Officer, consulting fees of $165 and $52, respectively, in connection with a consulting agreement, as amended from time to time. For the three months ended March 31, 2022, the Company paid an entity affiliated with Mr. Heckman, Roundtable Media, L.L.C., a net revenue share amount of $82 in connection with a partner agreement.
Repurchases of Restricted Stock
On December 15, 2020, the Company entered into an amendment for website development.certain restricted stock awards and units that were previously issued to certain employees in connection with the HubPages merger, pursuant to which the Company agreed to repurchase from certain key personnel of HubPages, Inc., including Paul Edmondson, one of the Company’s officers, and his spouse, an aggregate of shares of the Company’s common stock at a price of $per share each month for a period of 24 months, for aggregate proceeds to Mr. Edmondson and his spouse of $67 per month (see Note 5).
23 |
15. | Commitments and Contingencies |
10. Income TaxesContingent Liability
The Company accounts for income taxes under FASB ASC 740 “Accounting for Income Taxes.” Deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities inIn connection with the Company’s financial statements and their tax bases. Deferred tax assets are reduced byunderwritten public offering in February 2022, the Company may have a valuation allowance when, in the opinioncontingent liability arising out of management, it is more likely than not that all or some portionpossible violations of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effectsSecurities Act of changes1933, as amended (the “Securities Act”) in tax laws and rates on the date of enactment.
The Parent’s net operating loss carryforwards (NOL) and credit carryforwards are subject to limitations on the use of the NOLs by the Company in consolidated tax returns after the Reverse Recapitalization. Where there is a “change in ownership” within the meaning of Section 382 of the Internal Revenue Code, the Parent’s net operating loss carryforwards and credit carryforwards are subject toconnection with an annual limitation. The Company believes that such an ownership change occurred because the shareholders of the Subsidiary acquired 56.7 percent of the Parent’s stock. Because the Parent’s value at the date of recapitalization was attributable solely to non-business assets, the utilization of the carryforwards is limited such that the majority of the carryforwards will never be available. Accordingly, the Company has not recorded those NOL carryforwards and credit carryforwards in its deferred tax assets.
The Parent is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2012. The Company currently is not under examination by any tax authority.
As of September 30, 2017, the Company had deferred tax assets primarily consisting of net operating losses, stock-based compensation and accrued liabilities not currently deductible. However, because of the current loss since Inception, the Company has recorded a full valuation allowance such that its net deferred tax asset is zero.
Deferred tax assets consist of the following components:
September 30, 2017 | December 31, 2016 | |||||||
Deferred tax assets: | ||||||||
Accrued liabilities not currently deductible | $ | 80,520 | $ | 64,210 | ||||
Deferred revenue net of deferred costs | 5,320 | - | ||||||
Stock-based compensation | 137,936 | - | ||||||
Net operating loss and capital loss carryforwards | 1,906,109 | 506,259 | ||||||
Gross deferred tax assets | 2,129,885 | 570,469 | ||||||
Valuation allowance | (1,553,776 | ) | (417,581 | ) | ||||
Gross deferred tax assets net of valuation allowance | 576,109 | 152,888 | ||||||
Deferred tax liabilities | ||||||||
Stock-based compensation | 16,625 | 16,625 | ||||||
Website development costs and fixed assets | 559,484 | 136,263 | ||||||
Net deferred tax asset | $ | - | $ | - |
The Company must make judgments as to whether the deferred tax assets will be recovered from future taxable income. To the extent that the Company believes that recovery is not likely, it must establish a valuation allowance. A valuation allowance has been established for deferred tax assetsinvestor presentation, which the Company doespublicly filed. Specifically, the furnishing of the investor presentation publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the investor presentation may be deemed to be a prospectus that did not believe meet the “more likely than not” criteria. The Company’s judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. Ifrequirements of Section 10 of the Company’s assumptions and consequently its estimates change in the future, the valuation allowances it has established may be increased or decreased,Securities Act, resulting in a respective increase or decrease in income tax expense.
At September 30, 2017, the Company had net operating loss carryforwardspotential violation of approximately $5.6 million for federal income tax purposes. The NOL carryforward may be used to reduce taxable income, if any, in future years through their expiration in 2036 and 2037.
The provision for income taxes on the consolidated statement of operations differs from the amount computed by applying the statutory Federal income tax rate to income before the provision for income taxes for the nine months ended September 30, 2017 and three months ended September 30, 2016, as follows:
September 30, 2017 | September 30, 2016 | |||||||||||||||
Federal expense (benefit) expected at statutory rate | $ | (1,486,307 | ) | 34.0 | % | $ | (506,413 | ) | 34.0 | % | ||||||
Permanent differences | 331,628 | -7.6 | % | 317,920 | -21.3 | % | ||||||||||
Change in valuation allowance | 1,154,679 | -26.4 | % | 188,493 | -12.7 | % | ||||||||||
Tax benefit and effective tax rate | $ | - | 0 | % | $ | - | 0 | % |
The Company recognizes tax benefits from an uncertain position only if it is “more likely than not” that the position is sustainable, based on its technical merits. The Company’s policy is to include interest and penalties in general and administrative expenses. There were no interest and penalties recorded for the nine months ended September 30, 2017. The Company has evaluated and concluded that there are no uncertain tax positions requiring recognition in the Company’s financial statements for the nine months ended September 30, 2017.
11. Related Party Transactions
The Parent entered into an Investment Banking Advisory Services agreement in November 2007 with MDB Capital Group LLC (“MDB”), and the parties extended the agreement indefinitely in April 2009. The agreement terminated on completionSection 5(b)(1) of the Recapitalization. Under the agreement, MDB acted as an advisor to the Parent in connection with the Recapitalization. At the closing of the Recapitalization, the Parent paid MDB a cash fee of $54,299 (including $4,299 to reimburse MDB’s expenses in connection with the Recapitalization) and issued to MDB and its designees, Mr. Christopher A. Marlett, Robert Levande, and Mr. Schuman, a 5-year warrants to purchase an aggregate of 1,169,607 shares of Common Stock, with an exercise price of $0.20 per share, representing 5% ofSecurities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon the investor presentation. If a claim were brought by any such investor and a court were to conclude that the public disclosure of such investor presentation constituted a violation of the Parent on a fully diluted basis immediately afterSecurities Act, the Closing.Company could be required to repurchase the shares sold to the investors at the original purchase price, plus statutory interest. The fair valueCompany could also incur considerable expense in contesting any such claims. As of the warrants using Black Scholes Option Pricing model was determined to be $744,105. These amounts were recorded in theissuance date of these consolidated financial statements, no legal proceedings or claims have been made or threatened by any investors. The likelihood and magnitude of the Parent prior to the Recapitalization.this contingent liability, if any, is not determinable at this time.
Prior toClaims and interdependent upon the closing of the Recapitalization, the Parent provided a series of advances for an aggregated amount of approximately $735,000 to the Subsidiary under a promissory note (the “Term Note”). The Term Note was guaranteed by MDB in the amount of $150,000 and Mr. Heckman in the amount of $350,000 and secured by a mortgage held by the Parent on certain properties owned by Mr. Heckman located in the State of Washington and the Province of British Columbia (“Mortgage”). At the Closing of the Recapitalization, the Term Note was cancelled and the Personal Guarantee, the Mortgage and the MDB Guarantee were terminated.Litigation
On August 17, 2016 the Subsidiary borrowed $35,000 from a shareholder on demand. This loan was non-interest bearing and repaid on September 16, 2016 with proceeds from a loan from Integrated.
On April 4, 2017, the Company completed a private placement of its common stock, selling 3,765,000 shares at $1.00 per share, for total gross proceeds of $3,765,000. In connection with the offering, the Company paid $188,250 and issued 162,000 shares of common stock, valued at $201,000, to MDB Capital Group LLC, which acted as placement agent.
Mr. Christopher Marlett, a director of the Company, is also the Chief Executive Officer of MDB. Mr. Gary Schuman, who was the Chief Financial Officer of the Company until May 15, 2017, is also the Chief Financial Officer and Chief Compliance Officer of MDB. The Company compensated Mr. Schuman for his services at the rate of $3,000 per month totaling $18,000 until June 30, 2017.
Effective on September 20, 2017, the Company entered into a six-month contract, with automatic renewals unless cancelled, with a company located in Nicaragua that is owned by Mr. Christopher Marlett, a director of the Company to provide content conversion services. The estimated monthly costs are expected to be less than $5,000 per month.
12. Commitments and Contingencies
From time to time, the Company may be subject to claims and litigation arising in the ordinary course of business. The Company is not currently a party to any pending or threatened legal proceedings that it believes would reasonably be expected to have a material adverse effect on the Company’s business, financial condition, or results of operations.operations or cash flows.
16. | Subsequent Events |
The Company may haveperformed an evaluation of subsequent events through the date of filing of these condensed consolidated financial statements with the SEC. Other than the below described subsequent events, there were no material subsequent events which affected, or could affect, the amounts or disclosures on the condensed consolidated financial statements.
Compensation Plans
From April 1, 2022 through the date these condensed consolidated financial statements were issued, the Company granted common stock options, restricted stock units and restricted stock awards totaling , all of which remain outstanding.
Acquisition of Athlon Holdings, Inc.
On April 1, 2022, the Company acquired 100% of the issued and outstanding capital stock of Athlon Holdings, Inc. (“Athlon”) for a liability for additional state franchise taxes payable inpurchase price of $18,100, comprised of (i) a cash portion of $15,100, with $11,800 paid at closing (including cash acquired of $1,800) and $3,200 to be paid post-closing (as further described below) and (ii) the amountissuance of approximately $44,000, plus interest at 18% per annum,shares of the Company’s common stock with a fair market value of $3,000 (the fair market value of the common stock issuance was determined based on the average closing price of the Company’s common stock for the years 2008-2014. Because of state statutory provisions,10 trading days preceding the underpaid amount will only be due once assessed and demanded by the state. The tax liability and associated interest has not been includedApril 1, 2022 closing date), subject to a customary working capital adjustment based on current assets less current liabilities as an accrued liability because management has determined that the likelihood of the state makingclosing date. Certain of Athlon’s key employees entered into either advisory agreements or employment agreements with the assessment is low. DependingCompany.
The amount to be paid post-closing of $3,200 will be paid as follows: (i) $3,000 will be paid on circumstances, management may change its estimatethe nine-month anniversary of the probability of an assessmentclosing date, or January 1, 2023, and establish either an accrual or record a payment for(ii) $245 will be paid within two business days from the tax liability if assessed.
The Company’s offices are leased with a term that expires January 31, 2018, with approximately$25,000 commitment, subject to renewal with 30 days advance notice.
On a select basis,date the Company has provided revenue share guarantees to certain independent publishers that transition their publishing operationsreceives proceeds from another platform to theMaven.net. These arrangements generally guarantee the publishersale of all or a monthly amount of income for a period of 12 to 24 months from inceptionportion of the publisher contract that is the greater of (a) fixed monthly minimum, or (b) the calculated earned revenue share. To the extent that the fixed monthly minimum paid exceeds the earned revenue share (defined as an Over Advance)equity interest in any month during the first 12 to 24 months (“the Guarantee Period”), then the Company may recoup the aggregate Over AdvanceJust Like Falling Off a Bike, LLC that was expensed in the Guarantee Period during the 12 months following the Guarantee Periodheld by Athlon as of the publisher contract to the extent that the earned revenue share exceeds the monthly minimum in those future months. As of September 30, 2017, the aggregate commitment is $1,215,000 and the Over Advance contingentclosing date (this amount that the Company may recoup is $264,000. The following table shows the aggregate commitment by year:was paid on April 4, 2022).
Commitment | ||||
2017 | $ | 300,000 | ||
2018 | 775,000 | |||
2019 | 140,000 | |||
$ | 1,215,000 |
24 |
The Company may have a liability for additional state franchise taxes in the amount of approximately $44,000, plus interest at 18% per annum for certain annual periods prior to 2014. Because of state statutory provisions, the underpaid amount will only be due once assessed and demanded by the state. The tax liability and associated interest has not been included as an accrued liability because management has determined that the likelihood of the state making the assessment is low. Depending on circumstances, management may change its estimate of the probability of an assessment and establish either an accrual or record a payment for the tax liability if assessed.
13. Subsequent Events
On October 19, 2017, the Company completed a private placement of its common stock, selling 2,391,304 shares at $1.15 per share, for total gross proceeds of $2,750,000. In connection with the offering, the Company issued 119,565 shares of common stock and 119,565 warrants to acquire common stock at a price of $1.15 per share to MDB Capital Group LLC, which acted as placement agent. The estimated transaction costs of $320,000, including $282,000 of non-cash expenses, have been recorded as a reduction in paid-in capital. MDB Capital Group LLC is a related party as discussed in Note 11 Related Parties.
Related to the private placement completed on October 19, 2017, the Company filed a registration statement on Form S-1 to register the shares issued in the common stock offering. The Securities and Exchange Commission declared the registration effective on November 6, 2017.
ItemITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2022 and 2021 should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the Company’saudited consolidated financial statements including theand notes thereto appearing elsewherefor the year ended December 31, 2021 included in this report. Thisthe Form 10-K filed with the SEC on April 1, 2022. The following discussion may contain certain forward-looking statements based on current expectationscontains “forward-looking statements” that involve risksreflect our future plans, estimates, beliefs and uncertainties. Actualexpected performance. Our actual results and timing of certain events may differ significantlymaterially from those projectedcurrently anticipated and expressed in such forward-looking statements due toas a result of a number of factors, including those set forth elsewhereabove. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Forward-Looking Statements.”
Overview
We operate a best-in-class technology platform empowering premium publishers who impact, inform, educate and entertain. We operate the print and digital business at SI.com for Sports Illustrated (“Sports Illustrated”), own and operate TheStreet, Inc. (the “TheStreet”), own and operate more than 40 brands with our HubPages, Inc. (“HubPages”) business; own and operate Athlon Holdings, Inc. (“Parade”), which includes titles such as Parade, Spry, and Relish, and the brands Athlon Sports and Athlon Outdoors with more than 25 special interest titles including Harris’ Farmer’s Almanac and Mopar Action, and we power more than 200 independent brands. Our proprietary technology platform (the “Platform”) provides digital publishing, distribution, data, marketing and monetization capabilities for the Sports Illustrated and TheStreet businesses as well as a subset of independent, professionally managed, online media publishers (each a “Publisher Partner”).
Of the more than 200 Publisher Partners, a large majority of them publish content within one of our three verticals of sports, finance or lifestyle, and oversee an online community for their respective sites, leveraging our Platform, monetization operation, distribution channels and data and analytics offerings and engages the collective audiences within a single network. Our lifestyle vertical will also see significant benefits with the acquisition of Parade and as we apply our existing technology to this new acquisition. Generally, Publisher Partners are independently owned, strategic partners who receive a share of revenue from the interaction with their content. Audiences expand and advertising revenue may improve due to the scale we have achieved by combining all Publisher Partners onto a single platform and a large and experienced sales organization. They may also benefit from our membership marketing and management systems, which we believe will enhance their revenue. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in this Report.the vertical while each of them adds to the breadth and quality of content. While they benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management.
OverviewOur growth strategy is to continue to expand by adding new premium publishers with high quality brands and content either as independent Publisher Partners or by acquiring publishers as owned and operated entities.
The Company was incorporated underLiquidity and Capital Resources
Cash and Working Capital Facility
As of March 31, 2022, our principal sources of liquidity consisted of cash of $22,480. In addition, as of March 31, 2022, we had the nameuse of Integrated Surgical Systems, Inc.additional proceeds from our working capital facility with FPP Finance LLC (“Integrated”FastPay”) in Delaware in 1990. It was foundedthe amount of $15,709, subject to design, manufacture, sell and service image-directed, computer-controlled robotic software and hardware products for use in orthopedic surgical procedures. On June 28, 2007, Integrated sold substantially alleligible accounts receivable. As of its operating assets, and Integrated no longer engaged in any business activities other than seeking to locate a suitable acquisition target to complete a business combination. From June 2007 untilMarch 31, 2022, the closingoutstanding balance of the Recapitalization (as defined in Note 2 BasisFastPay working capital facility was $9,291. We also had accounts receivable, net of Presentationour advances from FastPay of Item 1. Financial Statements) on November 4, 2016, Integrated was a non-active “shell company”$10,707 as defined by regulationsof March 31, 2022. Our cash balance as of the SEC. As a resultissuance date of the Recapitalization, on a going forward basis, the Company continued to file its public reports with the SEC on an operating company basis. On December 2, 2016, the corporate name was changed from “Integrated Surgical Systems, Inc.” to “theMaven, Inc.”
In determining the accounting treatment for the Share Exchange Agreement, the primary factor was determining which party, directly or indirectly, holds greater than 50 percent of the voting shares has control and is considered to be the acquirer. Because the former shareholders of the Subsidiary received 56.7 percent voting control of the issued and outstanding shares of the Company after the transaction, the transaction was considered to be a reverse recapitalization for accounting purposes. Other factors that indicated that the control of the Company after the transaction included, (1) fully diluted equity interests, (2) composition of senior management, (3) former officers of the Parent ceded day-to-day responsibilities to officers of the Subsidiary, and (4) composition of Board of Directors. On a fully diluted basis, the former shareholders of the Subsidiary received 53.5 percent of the equity interests in the Company. All the members of senior management of the Company, other than the part-time Chief Financial Officer, were former shareholders of the Subsidiary. The former officers of the non-active shell ceded day-to-day management to officers of the Subsidiary. The Board of Directors, immediately after the Recapitalization included three members from the Parent and two members from the Subsidiary. Because the former shareholders of the Subsidiary could vote to make changes in the Board composition, the conclusion was that control of the Board, in substance, was vested in the former shareholders of the Subsidiary.
theMaven Network, Inc. was incorporated in Nevada on July 22, 2016, under the name “Amplify Media, Inc.” On July 27, 2016, the corporate name was amended to “Amplify Media Network, Inc.” and on October 14, 2016, the corporate name was changed to “theMaven Network, Inc.” theMaven Network, Inc. is a 100% owned subsidiary of the theMaven, Inc.
Going Concern
The Company’sour accompanying condensed consolidated financial statements is $13,179.
25 |
Material Contractual Obligations
We have been presented on the basismaterial contractual obligations that it is a going concern, which contemplates the realization of assets and satisfaction of liabilitiesarise in the normal course of business. The Company’s activitiesbusiness primarily consisting of employment contracts, consulting agreements, leases, liquidated damages, debt and related interest payments. Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are subject to significant risks and uncertainties, including the need for additional capital, as described below.
The Company has not generated significant revenues since July 22, 2016 (Inception) and has financed its operations through (a) the Recapitalization transaction with Parent, (b) a loan from Parent that was cancelled upon closing of the Recapitalization and (c) two private placements of common stockdue in April 2017 and in October 2017. The Company has incurred operating losses and negative operating cash flows, and it expects to continue to incur operating losses and negative operating cash flows for at least the next few years. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern,12 months. See Notes 3, 6 and the Company’s independent registered public accounting firm,8 in its report on the Company’s 2016our accompanying condensed consolidated financial statements has raised substantial doubt aboutfor amounts outstanding as of March 31, 2022, related to leases, liquidated damages and long-term debt. There have been no material changes from the Company’s abilitydisclosures in our Form 10-K.
Contingent Liability
Finally, we may have a contingent liability arising out of possible violations of the Securities Act in connection with an investor presentation, which we furnished as Exhibit 99.2 to continueour Current Report on Form 8-K and Current Report on Form 8-K/A filed on January 31, 2022 and February 1, 2022, respectively. Specifically, the furnishing of the investor presentation publicly may have constituted an “offer to sell” as a going concern.
As fully described in Note 9 Stockholders’ Equity, in April 2017,Section 5(b)(1) of the Company completedSecurities Act and the investor presentation may be deemed to be a private placement of its common stock, raising proceeds of $3.5 million net of cash offering costs. As described in Note 13 Subsequent Events and completed a second private placement raising $2.75 million in October 2017, of which $1.75 million has been received as of September 30, 2017. The Company believesprospectus that it does not have sufficient funds to support its operations throughmeet the endrequirements of Section 10 of the first quarterSecurities Act, resulting in a potential violation of 2018. In orderSection 5(b)(1) of the Securities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon such investor presentation that may have constituted a potential violation of Section 5 of the Securities Act. If a claim were brought by any such ‘recipients’ of such investor presentation and a court were to continueconclude that the public disclosure of such investor presentation constituted a violation of Section 5 of the Securities Act, we could be required to repurchase the shares sold to the investors who reviewed such investor presentation at the original purchase price, plus statutory interest. We could also incur considerable expense in contesting any such claims. As of the date of the filing of this Quarterly Report, no legal proceedings or claims have been made or threatened by any investors in our offering. Such payments and expenses, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, past that point, the Company currently anticipates that it will needor force us to raise additional debt and/or equity capital in the first quarter of 2018.
There canfunding, which funding may not be no assurances that the Company will be able to secure any such additional financingavailable on acceptablefavorable terms, and conditions, orif at all. If
Working Capital Deficit
We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of March 31, 2022 and December 31, 2021 was as follows:
As of | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Current assets | $ | 80,392 | $ | 77,671 | ||||
Current liabilities | (96,442 | ) | (116,413 | ) | ||||
Working capital deficit | (16,050 | ) | (38,742 | ) |
As of March 31, 2022, we had a working capital deficit of $16,050, as compared to $38,742 as of December 31, 2021, consisting of $80,392 total current assets and $96,442 total current liabilities. As of December 31, 2021, our working capital deficit consisted of $77,671 in total current assets and $116,413 in total current liabilities.
Our cash resources become insufficient to satisfyflows during the Company’s ongoing cash requirements,three months ended March 31, 2022 and 2021 consisted of the Company will be required to scale back or discontinue its technology development programs, or obtain funds, if available (although there can be no certainty), or to discontinue its operations entirely.following:
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net cash used in operating activities | $ | (13,311 | ) | $ | (1,511 | ) | ||
Net cash used in investing activities | (1,653 | ) | (966 | ) | ||||
Net cash provided by (used in) financing activities | 28,095 | (2,032 | ) | |||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 13,131 | $ | (4,509 | ) | |||
Cash, cash equivalents, and restricted cash, end of period | $ | 22,982 | $ | 5,026 |
26 |
Results of Operations
Because the Company was founded in July 2016, the operating results in the three-month period ended September 30, 2016 are not directly comparable to the results in the 2017 three- and nine-month periods ended September 30, 2017. The 2016 period was primarily focused on the initial planning and design phase of technology development, Company organization and negotiation of the terms of the Recapitalization transaction completed on November 4, 2016 with Integrated. The 2017 period was primarily focused on the actual software development of the Company’s technology, the recruitment and selection of independent publisher channel partners and the development of advertising network business relationships.
For the three and nine months ended September 30, 2017, total loss from operations was:
Three Months | Nine Months | |||||||
Revenue | $ | 6,064 | $ | 6,064 | ||||
Expenses: | ||||||||
Service Costs | 449,567 | 641,606 | ||||||
Research and development expenses | 30,776 | 104,095 | ||||||
General and administrative expenses | 1,300,767 | 3,639,204 | ||||||
Loss from operations | $ | (1,775,046 | ) | $ | (4,378,841 | ) | ||
Basic and diluted net loss per share | $ | (0.11 | ) | $ | (0.33 | ) |
During the second quarter of 2017 the Company’s platform and media channel operations were launched in beta stage and by the end of the third quarter there were a total of 23 channel partners operating on theMaven Network. Internet users since the launch of our channels are able to utilize the platform on desktop, laptop and mobile devices for these channels. We expect that during the fourth quarter additional channels will be launched. As of November 13, 2017, we have over sixty signed channel partners and 28 channel partners operating on theMaven Network. We do not expect to have significant revenue during the fourth quarter as we continue development of our technology and the commencement of business operations establishing a media audience.
Service Costs
Service costs are the costs incurred to operate and maintain the Company’s technology platform and exclusive network of professionally managed online media channels. Service costs include hosting and bandwidth costs, amortization of website development costs, revenue share or guaranteed minimum payments to independent publishers for licensed content, advertising network costs and other operational costs. During the three and nine months ended September 30, 2017, the Company incurred $449,567 and $641,606 of Service Costs, respectively. The following table provides detail of service costs for the three and nine months ended September 30, 2017:
Three Months | Nine Months | |||||||
Amortization of website development costs | $ | 173,000 | $ | 226,000 | ||||
Channel partner guarantees – See Note 12 | 164,000 | 203,000 | ||||||
Stock-based compensation - Channel Partner warrants | 35,000 | 115,000 | ||||||
Hosting and bandwidth costs | 49,000 | 65,000 | ||||||
Other cost of service | 29,000 | 33,000 | ||||||
$ | 450,000 | $ | 642,000 |
As described in Note 4 – Significant Accounting Policies and Estimates, the Company capitalizes the costs incurred to develop theMaven Network technology platform, and these costs are amortized to service costs over a period of 36 months. As described in Note 12 – Commitments and Contingencies, the Company has agreed to pay revenue share guarantees to certain independent publisher channel partners for a finite period of time. It is expected these costs will be significant in the next few quarters prior to network operations reaching full scale. As revenue increases the Company will have an expense for revenue share payments to Channel Partners that will be approximately 30 to 50% of revenue. In the periods ended September 30, 2017, revenue share payments to Channel Partners, other than guarantees, were not material.
As described in Note 9 – Stockholders’ Equity, the Company has a common stock warrant program to provide equity incentives to its Channel Partners to motivate and reward them for their service to the Company and align the interests of Channel Partners with those of stockholders of the Company. The stock-based compensation expense associated with Channel Partner warrants is estimated each quarter and is subject to a significant degree of variability since these are performance based equity awards with the value determined as a function of the Company’s stock price (using Black-Scholes option pricing model) and the relative performance to the criteria established for each Channel Partner at the time that they complete the performance conditions. The estimated value of the awards are expensed over the services period which is approximately three years. We expect that by December 31, 2017 the majority of Channel Partners will have completed the performance conditions and we will be able to complete the final calculation of the value of these awards. Hosting and bandwidth costs during the periods ended September 30, 2017 reflect that the Company’s network was in beta launch stage and not at full scale. As the number of Channel Partners launch in the fourth quarter the hosting and bandwidth costs will increase.
Research and development expenses
Research and development costs are charged to operations in the period incurred and amounted to $30,776 and $104,095 for the three and nine months ended September 30, 2017. The costs charged to research and development costs are primarily certain compensation expenses and expenses for computer software and supplies. Note that during 2017, the majority of the Company’s engineering team was devoted to developing theMaven Network technology with the associated costs capitalized as website development costs.
Research and development costs amounted to $374,944 for the three months ended September 30, 2016 because the Company was in the planning and design phase of developing theMaven Network technology and these costs were expensed as incurred. There were no costs incurred for website development that were capitalized in the three months ended September 30, 2016.
General and administrative expenses
General and administrative expenses for the three and nine months ended September 30, 2017, were $1,300,767 and $3,639,204, respectively. Included in general and administrative expenses is stock based compensation of $478,669 and $1,242,510 for the three and nine -month periods, respectively. Our general administrative expenses of carrying on our business consist of a variety of costs that are primarily compensation related for employees and professional resources and consultants. The following table provides detail of general and administrative expenses for the three and nine months ended September 30, 2017:
Three Months | Nine Months | |||||||
Stock-based compensation | $ | 479,000 | $ | 1,243,000 | ||||
Wages of employees | 447,000 | 1,074,000 | ||||||
Professional and consulting fees | 105,000 | 512,000 | ||||||
Travel, meals and conferences | 85,000 | 336,000 | ||||||
Insurance and payroll and other taxes | 85,000 | 249,000 | ||||||
Board of Directors stipends | 34,000 | 101,000 | ||||||
Rent | 18,000 | 51,000 | ||||||
Other | 48,000 | 73,000 | ||||||
$ | 1,301,000 | $ | 3,639,000 |
Liquidity and Capital Resources
Working Capital
The Company had working capital of approximately $1.49 million as of September 30, 2017, excluding liabilities that will not be settled in cash. This was an increase of approximately $1.1 million is due to the receipt of net proceeds of $5.3 million received during the year from two private placements, net of stock issuance costs and cash used in operations of $2,7 million and cash used for investment of $1.5 million during the nine months ended September 30, 2017.
September 30, 2017 | December 31, 2016 | |||||||
Current Assets | $ | 1,820,794 | $ | 719,881 | ||||
Current Liabilities | $ | (330,338 | ) | $ | (346,327 | ) | ||
Working Capital, net of liabilities that will not be settled in cash | $ | 1,490,456 | $ | 373,554 |
The following table summarizes the Company’s cash flows during the nine months ended September 30, 2017 and the three months ended September 30, 2016:
September 30, 2017 | September 30, 2016 | |||||||
Net Cash Used in Operating Activities | $ | (2,654,964 | ) | $ | (492,021 | ) | ||
Net Cash Used in Investing Activities | (1,513,813 | ) | - | |||||
Net Cash Provided by Financing Activities | 5,269,544 | 641,303 | ||||||
Increase in Cash during the Period | $ | 1,100,767 | $ | 149,282 | ||||
Cash at Beginning of Period | 598,294 | - | ||||||
Cash at End of Period | $ | 1,699,061 | $ | 149,282 |
For the nine months ended September 30, 2017,March 31, 2022, net cash used in operating activities was $2,654,964 which was$13,311, consisting primarily dueof $58,227 of cash paid (i) to the net lossemployees, Publisher Partners, expert contributors, suppliers, and vendors, and (ii) for revenue share arrangements, advance of $4,371,491 reducedroyalty fees and professional services; and (iii) $2,160 of cash paid for interest, offset by non-cash expenses for stock-based compensation$47,076 of approximately $1,358,000 and amortization and depreciationcash received from customers (including payments received in advance of $234,000 and increased by working capital changes of approximately $125,000. The Company used cash of $1,514,000 for investment in website development costs and fixed assets. Operating activities and investment expenditures were funded by the beginning cash of hand as of January 1, 2017 of approximately $600,000 and primarily by two private placements completed in April and October 2017 that raised approximately $5.3 million net of stock issuance expenses in the nine months ended September 30, 2017.
performance obligations). For the three months ended September 30, 2016,March 31, 2021, net cash used in operating activities was $492,021 which$1,511, consisting primarily of $39,210 cash paid (i) to employees, Publisher Partners, suppliers, and vendors, (ii) for revenue share arrangements, advance of royalty fees and professional services; and (iii) $260 of cash paid for interest offset by $37,959 of cash received from customers (including payments received in advance of performance obligations).
For the three months ended March 31, 2022, net cash used in investing activities was $1,653, consisting primarily dueof $1,582 for capitalized costs for our Platform and $71 for property and equipment. For the three months ended March 31, 2021, net cash used in investing activities was $966 consisting primarily of $868 for capitalized costs for our Platform and $98 for property and equipment.
For the three months ended March 31, 2022, net cash provided by financing activities was $28,095, consisting primarily of $32,058 (excludes accrued offering costs of $1,568) in net proceeds from the public offering of common stock less (i) $2,697 from repayments of our FastPay line of credit; (ii) $710 related to payments of restricted stock liabilities; and (iii) $556 for tax payments relating to the withholding of shares of common stock for certain employees. For the three months ended March 31, 2021, net cash used in financing activities was $2,032 consisting primarily of $1,752 from repayments of our FastPay line of credit and $280 in payments of restricted stock liabilities.
Results of Operations
Three Months Ended March 31, 2022 and 2021
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Revenue | $ | 48,243 | $ | 33,615 | $ | 14,628 | 43.5 | % | ||||||||
Cost of revenue | 28,497 | 28,208 | 289 | 1.0 | % | |||||||||||
Gross profit | 19,746 | 5,407 | 14,339 | 265.2 | % | |||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 17,216 | 17,529 | (313 | ) | -1.8 | % | ||||||||||
General and administrative | 13,514 | 5,638 | 7,876 | 139.7 | % | |||||||||||
Depreciation and amortization | 4,202 | 3,963 | 239 | 6.0 | % | |||||||||||
Loss of impairment of assets | 257 | - | 257 | 100.0 | % | |||||||||||
Total operating expenses | 35,189 | 27,130 | 8,059 | 29.7 | % | |||||||||||
Loss from operations | (15,443 | ) | (21,723 | ) | 6,280 | -28.9 | % | |||||||||
Total other expenses | (2,992 | ) | (3,740 | ) | 748 | -20.0 | % | |||||||||
Loss before income taxes | (18,435 | ) | (25,463 | ) | 7,028 | -27.6 | % | |||||||||
Income taxes | (14 | ) | - | (14 | ) | 100.0 | % | |||||||||
Net loss | $ | (18,449 | ) | $ | (25,463 | ) | $ | 7,014 | -27.5 | % | ||||||
Basic and diluted net loss per common share | $ | (1.20 | ) | $ | (2.44 | ) | $ | 1.24 | -50.8 | % | ||||||
Weighted average number of common shares outstanding – basic and diluted | 15,381,306 | 10,456,052 | 4,925,254 | 47.1 | % |
For the three months ended March 31, 2022, the net loss was $18,449, as compared to $25,463 for the three months ended March 31, 2021, which represents an improvement of $1,489,449$7,014. The primary driver for the improvement in net loss is due to an $14,628 increase in revenue, which was partially offset by an increase in operating expenses of $8,059 during the three months ended March 31, 2022. The increase in revenues was attributable to management’s decision to make a strategic shift to focus on premium content providers and reduced reliance on Partner Publisher guarantees in September 2020 as well as the addition of the results of The Spun, which was acquired in June 2021.
27 |
Revenue
The following table sets forth revenue, cost of revenue, and gross profit:
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Revenue | $ | 48,243 | $ | 33,615 | $ | 14,628 | 43.5 | % | ||||||||
Cost of revenue | 28,497 | 28,208 | 289 | 1.0 | % | |||||||||||
Gross profit | $ | 19,746 | $ | 5,407 | $ | 14,339 | 265.2 | % |
For the three months ended March 31, 2022 we had gross profit of $19,746, as compared to $5,407 for the three months ended March 31, 2021, an improvement of $14,339. Gross profit percentage for the three months ended March 31, 2022 was 40.9%, as compared to 16.1% for the three months ended March 31, 2021.
The improvement in gross profit percentage was driven by non-cash expensesour strategic shift to eliminate most Publisher Partner guarantees near the end of fiscal 2020. As a result, Publisher Partner revenue share as a percentage of digital advertising revenue was 23.3% for stock-based compensationthe three months ended March 31, 2022, as compared to 55.0% for the three months ended March 31, 2021. In addition, we continue to experience high contributions from our digital advertising.
The following table sets forth revenue by category:
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Digital revenue | ||||||||||||||||
Digital advertising | $ | 21,646 | $ | 9,540 | $ | 12,106 | 126.9 | % | ||||||||
Digital subscriptions | 6,461 | 7,085 | (624 | ) | -8.8 | % | ||||||||||
Other revenue | 3,465 | 746 | 2,719 | 364.5 | % | |||||||||||
Total digital revenue | 31,572 | 17,371 | 14,201 | 81.8 | % | |||||||||||
Print revenue | ||||||||||||||||
Print advertising | 1,368 | 1,533 | (165 | ) | -10.8 | % | ||||||||||
Print subscriptions | 15,303 | 14,711 | 592 | 4.0 | % | |||||||||||
Total print revenue | 16,671 | 16,244 | 427 | 2.6 | % | |||||||||||
Total revenue | $ | 48,243 | $ | 33,615 | $ | 14,628 | 43.5 | % |
For the three months ended March 31, 2022, total revenue increased $14,628 to $48,243 from $33,615 for the three months ended March 31, 2021. The primary sources of approximately $935,000revenue for the three months ended March 31, 2022 were as follows: (i) digital advertising of $21,646, (ii) digital subscriptions of $6,461, (iii) other digital revenue of $3,465, (iv) print advertising of $1,368 and (iv) print subscriptions of $15,303.
The primary driver of the increase in our total revenue is derived from our digital advertising revenue which increased by working capital changes of approximately $62,000. Operating activities were funded primarily by proceeds from notes payable from Integrated prior to the completion$12,106. The main drivers of the Recapitalization on November 4, 2016.increase in digital advertising revenue include an additional $6,018 of revenue generated as a result of The Spun business, which was acquired during the second quarter of 2021, $4,073 from Sports Illustrated due to an increase in advertising sponsorships, $759 generated from TheStreet; and $1,256 generated from other business. Our other digital revenue, primarily consisting of licensing and e-commerce revenue, increased by $2,719 due to additional revenue for certain licensing agreements related to, SI Swim and other Sports Illustrated media businesses.
28 |
We anticipate needing a substantial amount
Cost of additional capitalRevenue
The following table sets forth cost of revenue by category:
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Publisher Partner revenue share payments | $ | 5,042 | $ | 5,250 | $ | (208 | ) | -4.0 | % | |||||||
Hosting, bandwidth, and software licensing fees | 481 | 601 | (120 | ) | -20.0 | % | ||||||||||
Fees paid for data analytics and to other outside services providers | 1,380 | 667 | 713 | 106.9 | % | |||||||||||
Royalty fees | 3,750 | 3,750 | - | 0.0 | % | |||||||||||
Content and editorial expenses | 9,744 | 9,636 | 108 | 1.1 | % | |||||||||||
Printing, distribution and fulfillment costs | 2,747 | 3,498 | (751 | ) | -21.5 | % | ||||||||||
Amortization of developed technology and platform development | 2,311 | 2,167 | 144 | 6.6 | % | |||||||||||
Stock-based compensation | 2,157 | 1,444 | 713 | 49.4 | % | |||||||||||
Other cost of revenue | 885 | 1,195 | (310 | ) | -25.9 | % | ||||||||||
Total cost of revenue | $ | 28,497 | $ | 28,208 | $ | 289 | 1.0 | % |
For the three months ended March 31, 2022, we recognized cost of revenue of $28,497, as compared to sustain our current operations and implement$28,208 for the current business planthree months ended March 31, 2021, which represents an increase of the Company as now budgeted. We do not believe that the proceeds$289. Cost of the private placement of common stock completed on October 19, 2017, will be sufficient to allow us to implement our business plan to the point where our revenues will cover our operating costs and the expansion of our business offerings. Without additional funding, we will have to modify our longer-term business plan. The funds that we will need may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. We anticipate thereafter that we will need additional capital inrevenue for the first quarter of 2018 as we expand our operations,2022, was impacted by increases in (i) stock-based compensation of $713, and do not anticipate that our income will cover our full(ii) fees paid for data analytics and outside service providers of $713, partially offset by decreases in (iii) printing, distribution, and fulfillment costs of $751, and (iv) other costs of revenue related to SI Swim of $310.
Operating Expenses
The following table sets forth operating expenses:
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Selling and marketing | $ | 17,216 | $ | 17,529 | $ | (313 | ) | -1.8 | % | |||||||
General and administrative | 13,514 | 5,638 | 7,876 | 139.7 | % | |||||||||||
Depreciation and amortization | 4,202 | 3,963 | 239 | 6.0 | % | |||||||||||
Loss on impairment of assets | 257 | - | 257 | 100.0 | % | |||||||||||
Total operating expenses | $ | 35,189 | $ | 27,130 | $ | 8,059 | 29.7 | % |
Operating expenses for the foreseeable future.three months ended March 31, 2022 increased by $8,059 to $35,189 from $27,130 for the three months ended March 31, 2021.
Selling and Marketing. For the three months ended March 31, 2022, we incurred selling and marketing costs of $17,216, as compared to $17,529 for the three months ended March 31, 2021. The decrease in selling and marketing costs of $313 is primarily related to a $2,205 decrease in payroll of selling and marketing account management support teams due to a reclass to general and administrative expense offset by an increase in circulation costs of $1,893. The increase in circulation costs reflects the effects of acquisition accounting where agency fees were excluded from subscribers that existed upon acquisition, and benefited the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2022.
General and Administrative. For the three months ended March 31, 2022, we incurred general and administrative costs of $13,514 as compared to $5,638 for the three months ended March 31, 2021. The $7,876 increase in general and administrative expenses is primarily due to an increase in payroll, along with the related benefits and stock-based compensation, of $7,382 and other general corporate expenses of $390.
29 |
Other Expenses
The following table sets forth other expenses:
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Change in valuation of warrant derivative liabilities | $ | - | $ | (665 | ) | $ | 665 | -100.0 | % | |||||||
Interest expense | (2,820 | ) | (2,820 | ) | - | 0.0 | % | |||||||||
Liquidated damages | (172 | ) | (255 | ) | 83 | -32.5 | % | |||||||||
Total other expenses | $ | (2,992 | ) | $ | (3,740 | ) | $ | 748 | -20.0 | % |
Change in Valuation of Warrant Derivative Liabilities. The change in valuation of warrant derivative liabilities for the three months ended March 31, 2022 was the result of the decrease in the fair value of the warrant derivative liabilities as of March 31, 2022, as compared to the change in the valuation for the three months ended March 31, 2021. The change in the valuation is not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock.
Interest Expense. We have no contracts or arrangementsincurred interest expense of $2,820 for any additional funding at this time. There canthe three months ended March 31, 2022 and 2021.
Liquidated Damages. We recorded $172 accrued interest as liquidated damages, during the three months ended March 31, 2022 primarily from the issuance of our convertible debentures, Series H convertible preferred Stock, Series I convertible preferred stock, Series J convertible preferred stock and Series K convertible preferred stock since we determined that: (i) the registration statements registering for resale the shares of our common stock issuable upon conversion of such securities would not be no assurancedeclared effective within the requisite time frame; and (ii) that we will be able to raise any funding or will be able to meet our accrued obligations. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we willwould not be able to meetbecome current in our otherperiodic filing obligations as they become due. In such event, we will be forcedwith the SEC in order to scale down or perhaps even cease our operations. These estimates may change significantly depending onsatisfy the naturepublic information requirements under the applicable securities purchase agreements. We recorded liquidated damages, including the accrued interest thereon, of our business activities and our ability to raise capital$255 in for the three months ended March 31, 2021 primarily from our shareholders or other sources.
There are no assurances that we will be able to obtain further funds required for our continued operations. We will pursue various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.
Contractual Obligations
As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, including any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Seasonality
Once we are actively providing services to our customer base, we expect to experience typical media company ad and sponsorship sales seasonality, which is strong in the fourth quarter and slower in the first quarter.
Effects of Inflation
To date inflation has not had a material impact on our business or operating results.
Significant Accounting Policies and Estimates
The Company’s discussion and analysisissuance of the financial condition and results of operations issame securities as outlined above based upon the Company’s auditedreasons set forth above.
Use of Non-GAAP Financial Measures
We report our financial statements included elsewhere in this Report, which have been preparedresults in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Company; however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We believe Adjusted EBITDA provides visibility to the following critical accounting policies affectunderlying continuing operating performance by excluding the Company’s more significant judgmentsimpact of certain items that are noncash in nature or not related to our core business operations. We calculate Adjusted EBITDA as net loss, adjusted for (i) interest expense, (ii) income taxes, (iii) depreciation and estimatesamortization, (iv) stock-based compensation, (v) change in derivative valuations, (vi) liquidated damages, (vii) loss on impairment of assets, (viii) professional and vendor fees, and (ix) employee restructuring payments.
Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by other companies, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP Adjusted EBITDA as superior to, or a substitute for, the preparationequivalent measures calculated and presented in accordance with GAAP. Some of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.limitations is that Adjusted EBITDA:
● | does not reflect stock-based compensation and, therefore, does not include all of our compensation costs; | |
● | does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements; | |
● | does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us; | |
● | does not reflect deferred income taxes, which is a noncash expense; |
30 |
● | does not reflect the change in derivative valuations and, although this is a noncash expense, the change in the valuations each reporting period are not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock; | |
● | does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to); | |
● | does not reflect any losses from the impairment of assets, which is a noncash operating expense; | |
● | does not reflect the professional and vendor fees incurred by us for services provided by consultants, accountants, lawyers, and other vendors, which services were related to certain types of events that are not reflective of our business operations; and | |
● | does not reflect payments related to employee restructuring changes for our former Chief Executive Officer. |
PrinciplesThe following table presents a reconciliation of Consolidation
The accompanying consolidated financial statements includeAdjusted EBITDA to net loss, which is the financial position, results of operations and cash flowsmost directly comparable GAAP measure, for the three and nine months ended September 30, 2017 and the three months ended September 30, 2016. All intercompany transactions and balances have been eliminated in consolidation.periods indicated:
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net loss | $ | (18,449 | ) | $ | (25,463 | ) | ||
Add: | ||||||||
Interest expense (1) | 2,820 | 2,820 | ||||||
Deferred income taxes | 14 | - | ||||||
Depreciation and amortization (2) | 6,513 | 6,130 | ||||||
Stock-based compensation (3) | 7,367 | 5,099 | ||||||
Change in derivative valuations | - | 665 | ||||||
Liquidated damages (4) | 172 | 255 | ||||||
Loss on impairment of assets (5) | 257 | - | ||||||
Professional and vendor fees (6) | - | 1,719 | ||||||
Employee restructuring payments (7) | 174 | 61 | ||||||
Adjusted EBITDA | $ | (1,132 | ) | $ | (8,714 | ) |
Use of Estimates
(1) | Represents interest expense of $2,820 and $2,820, for the three months ended March 31, 2022 and 2021, respectively. Interest expense is related to our capital structure. Interest expense varies over time due to a variety of financing transactions. Interest expense includes $660 and $694 for amortization of debt discounts for the three months ended March 31, 2022 and 2021, respectively, which are a noncash item and presented in our condensed consolidated statements of cash flows. Investors should note that interest expense will recur in future periods. | |
(2) | Represents depreciation and amortization related to our developed technology and Platform included within cost of revenues of $2,311 and $2,167 and depreciation and amortization included within operating expenses of $4,202 and $3,963 for the three months ended March 31, 2022 and 2021, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods. | |
(3) | Represents noncash costs arising from the grant of stock-based awards to employees, consultants and directors. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future. |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses for the reporting period. Actual results could materially differ from those estimates.
Digital Media Content
The Company intends to operate a network of online media channels and will provide digital media (text, audio and video) over the Internet that users may access on demand. As a broadcaster that transmits third party content owned by our channel partners via digital media, the Company applies ASC 920, “Entertainment – Broadcasters”. The channel partners generally receive variable amounts of consideration that are dependent upon the calculation of revenue earned by the channel in a given month, referred to as a “revenue share”, that are payable in arrears. In certain circumstances, there is a monthly fixed fee minimum or a fixed yield (“revenue per 1000 impressions”) based on the volume of advertising impressions served. We disclose fixed dollar commitments for channel content licenses in Note 12 Commitments and Contingencies. Channel partner agreements that include fixed yield based on the volume of impressions served are not included in Note 12 because they cannot be quantified, but are expected to be significant. The expense related to channel partner agreements are reported in “Service Costs” in the Statement of Operations. The cash payments related to channel partner agreements are classified within “Net cash used in operating activities” on the Statement of Cash Flows. Also under ASC 920, if channel partner agreements are structured such that the fee paid precedes the right to use the content because the broadcasts will occur in future periods, the Company will record a Content Asset and a related Content Obligation when all of the following conditions are met, (1) the cost of the content is known or reasonably determinable, (2) the content has been accepted and (3) the content is available for broadcasting under the terms of the channel partner agreement. Capitalized content cost will be amortized on a systematic basis over the agreement term on a straight-line method or an accelerated method depending on the economic and agreement terms. Capitalized content costs will be evaluated for impairment at least annually or whenever circumstances indicate that Content Assets may be impaired.
Revenue Recognition
During the third quarter of 2017, the Company adopted ASC 606, “Revenue from Contracts with Customers” as the accounting standard for revenue recognition. Since the Company had not previously generated revenue from customers the Company did not have to transition its accounting method from ASC 605, “Revenue Recognition”.
Revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company generates all of its revenue from contracts with customers. The following is a description of the principal activities from which the Company generates revenue:
Advertising
The Company enters into contracts with advertising networks to serve display or video advertisements on the digital media pages associated with our various channels. In accordance with ASC 606 the Company recognizes revenue from advertisements at the point in time when each ad is viewed as reported by our advertising network partners. The quantity of advertisements, the impression bid prices and revenue are reported on a real-time basis. Although reported advertising transactions are subject to adjustment by the advertising network partners, any such adjustments are known within a few days of month end. The Company owes our independent publisher channel partners a revenue share of the advertising revenue earned and this is recorded as service costs in the same period in which the associated advertising revenue is recognized.
Membership
The Company enters into contracts with Internet users that subscribe to premium content on the digital media channels. These contracts provide Internet users with a subscription to access the premium content for a given period of time, which is generally one year. In accordance with ASC 606 the Company recognizes revenue from each membership subscription over time based on a daily calculation of revenue during the reporting period. Subscribers make payment for a subscription by credit card and the amount of the subscription collected in cash is initially recorded as deferred revenue on the balance sheet. As the Company provides access to the premium content over the subscription term the Company recognizes revenue and proportionately reduces the deferred revenue balance. The Company owes our independent publisher channel partners a revenue share of the membership revenue earned and this is initially deferred as deferred contract costs. The Company recognizes deferred contract costs over the subscription term in the same pattern that the associated membership revenue is recognized.
31 |
Disaggregation of Revenue
The following table provides information about disaggregated revenue by product line, geographical market and timing of revenue recognition:
Three months ended September 30, 2017 | Nine months ended September 30, 2017 | ||||||
Advertising | Membership | Total | Advertising | Membership | Total | ||
By Product Lines: | $2,146 | $3,918 | $6,064 | $2,146 | $3,918 | $6,064 | |
United States | Other | Total | United States | Other | Total | ||
By Geographical Markets: | $6,064 | $- | $6,064 | $6,064 | $- | $6,064 | |
At a Point in Time | Over Time | Total | At a Point in Time | Over Time | Total | ||
By Timing of Revenue Recognition: | $2,146 | $3,918 | $6,064 | $2,146 | $3,918 | $6,064 |
Contract Balances
The following table provides information about contract balances as of September 30, 2017:
Advertising | Membership | Total | |||||
Accounts receivables | $2,074 | $1,408 | $3,482 | ||||
Short-term contract assets (deferred contract costs) | - | $15,986 | $15,986 | ||||
Short-term contract liabilities (deferred revenue) | - | $31,634 | $31,634 |
The Company receives payments from advertising customers based upon contractual payment terms; accounts receivable are recorded when the right to consideration becomes unconditional and generally collected within 90 days. The Company generally receives payments from membership customers at the time of sign up for each subscription; accounts receivable from merchant credit card processors are recorded when the right to consideration becomes unconditional and generally collected weekly. Contract assets include contract fulfillment costs related to revenue shares owed to channel partners, which are amortized along with the associated revenue. Contract liabilities include payments received in advance of performance under the contract and are recognized as revenue over time. The Company had no asset impairment charges related to contract assets in the period.
Contract acquisition costs and practical expedients
For contracts that have a duration of less than one year, the Company follows ASC 606 practical expedients and expenses these costs when incurred; for contracts with life exceeding one year, which did not apply during the current period, the Company records these costs in proportion to completion of each completed performance obligation. The Company generally expenses sales commissions when incurred because the amortization period would have been less than one year. The Company records these costs within general and administrative expenses.
Fixed Assets
Fixed assets are recorded at cost. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in income and expense when realized. Depreciation and amortization are provided using the straight-line method over the following estimated useful lives:
(4) | Represents damages (or interest expense related to accrued liquidated damages) we owe to certain of our investors in private placements offerings conducted in fiscal years 2018 through 2020, pursuant to which we agreed to certain covenants in the respective securities purchase agreements and | ||||
(5) | |||||
(6) |
Intangible Assets
The intangible assets consist of the cost of a purchased website domain name with an indefinite useful life.
Impairment of Long-Lived Assets
The long-lived assets, consisting of fixed assets and intangible assets, held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. Management has determined that there was no impairment in the value of long-lived assets during the period ended September 30, 2017.
Website Development Costs
In accordance with authoritative guidance, the Company begins to capitalize website and software development costs for internal use when planning and design efforts are successfully completed and development is ready to commence. Costs incurred during planning and design, together with costs incurred for training and maintenance, are expensed as incurred and recorded in research and development expense within the consolidated statement of operations. The Company places capitalized website and software development assets into service and commences depreciation/amortization when the applicable project or asset is substantially complete and ready for its intended use. Once placed into service, the Company capitalizes qualifying costs of specified upgrades or enhancements to capitalized website and software development assets when the upgrade or enhancement will result in new or additional functionality. Certain website and software development assets are placed into service and amortized and the Company continues to capitalize costs associated with other website and software development assets that are still in the development stage.
The Company capitalizes internal labor costs, including compensation, benefits and payroll taxes, incurred for certain capitalized website and software development projects related to the Company’s technology platform. The Company’s policy with respect to capitalized internal labor stipulates that labor costs for employees working on eligible internal use capital projects are capitalized as part of the historical cost of the project when the impact, as compared to expensing such labor costs, is material.
Research and Development
Research and development costs are charged to operations in the period incurred and amounted to $30,776 and $104,095 for the three and nine months ended September 30, 2017. Research and development costs amounted to $374,944 for the three months ended September 30, 2016.
Fair Value Measurements
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820“Fair Value Measurements and Disclosures” clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, FASB ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
(7) | Represents severance payments to our former Chief Executive Officer for the three months ended March 31, 2022 and 2021. |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
In accordance with FASB ASC 820, the Company measures its derivative liability at fair value. The Company’s derivative liability is classified within Level 3.
The carrying value of other current assets and liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments.
Concentrations of Credit Risk
Cash
The Company maintains cash at a bank where amounts on deposit may exceed the Federal Deposit Insurance Corporation limit throughout the year. The Company has not experienced losses in such accounts and believes it is not exposed to significant credit risk regarding its cash.
Stock-based Compensation
The Company provides stock-based compensation in the form of (a) restricted stock awards to employees, (b) vested stock grants to directors, (c) stock option grants to employees, directors and independent contractors, and (d) common stock warrants to Channel Partners and other independent contractors.
The Company applies FASB ASC 718, “Stock Compensation,” when recording stock based compensation to employees and directors. The estimated fair value of stock based awards is recognized as compensation expense over the vesting period of the award. The Company has adopted ASU 2016-09 in 2016 with early application and account for actual forfeitures of awards as they occur.
The fair value of restricted stock awards by Subsidiary at Inception was estimated on the date of the award using the exchange value used by Integrated and the Subsidiary to establish the relative voting control ratio in the Recapitalization.
Restricted stock that was subject to an escrow arrangement and/or a performance condition in conjunction with the Recapitalization was remeasured and fair value was estimated using the quoted price of our common stock on the date of the Recapitalization. The Company uses a Monte Carlo simulation model to determine the number of shares expected to be released from the performance condition escrow. Each quarter the Company reevaluates the number of shares expected to be released from the performance condition escrow until the final determination is made as of December 31, 2017.
The fair value of fully vested stock awards is estimated using the quoted price of our common stock on the date of the grant. The fair value of stock option awards is estimated at grant date using the Black-Scholes option pricing model that requires various highly judgmental assumptions including expected volatility and option life.
The Company accounts for stock issued to non-employees in accordance with provisions of FASB ASC 505-50, “Equity Based Payments to Non-Employees.” FASB ASC 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliability measurable. The measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date). Equity grants with performance conditions that do not have sufficiently large disincentive for non-performance may be measured at fair value that is not fixed until performance is complete. The fair value of common stock warrants is estimated at grant date using the Black-Scholes option pricing model that requires various highly judgmental assumptions including expected volatility and option life. The Company recognizes expense for equity based payments to non-employees as the services are received. The Company has specific objective criteria, such as the date of launch of a Channel on the Company’s platform, for determination of the period over which services are received and expense is recognized.
The Company uses a Monte Carlo simulation model to determine the number of shares expected to be earned by Channel Partners based on performance obligations to be satisfied over a defined period which will commence at the launch of a Channel on the Company’s platform.
The Company issues common stock upon exercise of equity awards and warrants.
Income Taxes
The Company recognizes the tax effects of transactions in the year in which such transactions enter into the determination of net income regardless of when reported for tax purposes. Deferred taxes are provided in the financial statements to give effect to the temporary differences which may arise from differences in the bases of fixed assets, depreciation methods and allowances based on the income taxes expected to be payable in future years. Deferred tax assets arising primarily as a result of net operating loss carry-forwards, and research and development credit have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods.
The Company recognizes interest accrued relative to unrecognized tax benefits in interest expense and penalties in operating expense. During the three and nine months ended September 30, 2017 and the three months ended September 30, 2016, the Company recognized no income tax related interest and penalties. The Company had no accruals for income tax related interest and penalties at September 30, 2017.
Basic and Diluted Loss per Common Share
Basic income or loss per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as options, restricted stock, and warrants. Restricted stock is considered outstanding and included in the computation of basic income or loss per share when underlying restrictions expire and the shares are no longer forfeitable. Diluted income per share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive. Unvested but outstanding restricted stock (which are forfeitable) are included in the diluted income per share calculation. In a period where there is a net loss, the diluted loss per share is computed using the basic share count. At September 30, 2017, potentially dilutive shares outstanding amounted to 14,737,558, of which 13,417,951 are not currently registered and/or subject to future vesting conditions. Included in these totals are 6,663,244 common stock equivalents that must be exercised which would result in aggregate proceeds from the sale of stock to the Company of $6,735,000.
Risks and Uncertainties
The Company has a limited operating history and has not generated revenue to date. The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economies. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse developments in these general business and economic conditions could have a material adverse effect on the Company’s financial condition and the results of its operations.
In addition, the Company will compete with many companies that currently have extensive and well-funded projects, marketing and sales operations as well as extensive human capital. The Company may be unable to compete successfully against these companies. The Company’s industry is characterized by rapid changes in technology and market demands. As a result, the Company’s products, services, and/or expertise may become obsolete and/or unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer and market demands, and enhance its current technology under development.
Recently Adopted Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (ASC 606) - Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. This ASU will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. The standard’s core principle is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The guidance in ASU 2014-09 also specifies the accounting for some costs to obtain or fulfill a contract with a customer. ASC 606 requires the Company to make significant judgments and estimates. ASC 606 also requires more extensive disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The FASB has also issued several additional ASUs which amend ASU 2014-09. The amendments do not change the core principle of the guidance in ASC 606.
Public business entities are required to apply the guidance of ASC 606 to annual reporting periods beginning after December 15, 2017 (2018 for calendar year end reporting companies), including interim reporting periods within that reporting period. Early adoption is permitted.
The Company has adopted ASC 606 in the current quarter ended September 30, 2017 and began recognition of revenue from contracts with customers as a result of the launch of its network operations. Since the Company had not previously generated revenue from customers the Company did not have to transition its accounting method from ASC 605, “Revenue Recognition”.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (ASU 2015-17), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU 2015-17 did not have any impact on Company’s financial statement presentation or disclosures.
Recent Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU 2016-02 is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently assessing the potential impact of adopting ASU 2016-02 on its financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 refines how companies classify certain aspects of the cash flow statement in regards to debt prepayment, settlement of debt instruments, contingent consideration payments, proceeds from insurance claims and life insurance policies, distribution from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. No early adoption is permitted. Management is currently assessing the potential impact of adopting ASU 2016-15 on the financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718 to a change in terms or conditions of a share-based payment award. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. The ASU should be applied prospectively on and after the effective date. The Company is evaluating the impact of this ASU.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable to a “smaller reporting company” as defined in Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required10(f)(1) of smaller reporting companies.SEC Regulation S-K.
ItemITEM 4. Controls and ProceduresCONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
DisclosureOur management is responsible for establishing and maintaining a system of disclosure controls and procedures are(as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports filedwe file or submittedsubmit under the Securities and Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized, and reported, within the time periodperiods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports filedthat it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Chief Executive Officerits principal executive officer(s) and Chief Financial Officer. We carried outprincipal financial officer(s), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017 (the “Evaluation Date”). Based upon the evaluation of our disclosure controls and procedures asend of the Evaluation Date, theperiod covered by this Quarterly Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective becauseas of the identification of material weaknessessuch date in providing reasonable assurance that information required to be disclosed in our internal control over financial reporting that were disclosedreports filed or submitted under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in Item 9A. Controlsthe SEC’s rules and Procedures in our 2016 annual report on Form 10-K.forms.
Changes in Internal Control over Financial Reporting
In connection with our continued monitoring and maintenance of our controls procedures as part of the implementation of Section 404 of the Sarbanes, we continue to review, test, and improve the effectiveness of our internal controls. There were nohave not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2017,March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
32 |
PartPART II – Other Information- OTHER INFORMATION
ItemITEM 1. Legal ProceedingsLEGAL PROCEEDINGS
From time to time, the Companywe may be subject to other claims and litigation arising in the ordinary course of business. The Company isWe are not currently a partysubject to any pending or threatened legal proceedings that it believeswe believe would reasonably be expected to have a material adverse effect on the Company’sour business, financial condition, or results of operations.operations or cash flows.
ItemITEM 1A. Risk FactorsRISK FACTORS
There have been no material changes in theare numerous factors that affect our business and operating results, many of which are beyond our control. The risk factors set forthdescribed in Part I, Item 1A, “Risk“Item IA. Risk Factors” in our Annual Report on Form 10-K, for the periodyear ended December 31, 2016.2021, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with SEC in connection with evaluating us, our business and the forward-looking statements contained in this Quarterly Report on Form 10-Q. Additional risks and uncertainties not known to us at present, or that we currently deem immaterial, may affect us. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following sets forth certain unregistered sales of our equity securities during the three months ended March 31, 2021 through the date of filing this Quarterly Report that have not been previously disclosed:
Item2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 19, 2017,March 7, 2022, we closed on securities purchase agreements with 13 purchasers (the “Investors”), which provided for the sale by us of an aggregate of 2,391,304 shares of our common stock, at a price of $1.15 per share. The proceeds from this private placement offering will be used for general working capital purposes to support the business operations of the Company. The Securities and Exchange Commission declared the registration effective on November 6, 2017.
The Company also issued to MDB Capital Group LLC, in partial consideration for its services as placement agent for the offering, 119,56588,188 shares of common stock and 119,565 warrants to purchase commonMr. Ross Levinsohn in connection with the vesting of outstanding restricted stock at $1.15units. The per share. Theshare fair value on the issuance date was $8.36. In connection with the issuance, we withheld an additional 67,023 shares of common stock issued in the offering and to the placement agentfor taxes due which were offered and sold exclusively to accredited investors inwithhold at a transactionper share fair value of $8.28. The issuance was exempt from the registration underrequirements of the Securities Act by virtue of 1933, as amended,Section 4(a)(2) thereof as a transaction not involving a public offering, pursuant to Section 4(a)(2)offering.
On March 22, 2022, we issued 34,500 shares of our common stock upon the conversion of 250 shares of Series H Convertible Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.thereunder as transactions not involving a public offering.
On December 19, 2016,March 23, 2022, we issued 16,760 shares of our common stock pursuant to the Registrant’s Board of Directors approved the ability of management to issue warrants to Channel Partners that would allow the warrant holders toasset purchase up to a maximum of 5,000,000 warrants in the aggregate.agreement, dated March 9, 2020, by and between us and Petametrics Inc., doing business as LiftIgniter. The warrants will be issued to individual Channel Partners with individualized vesting criteria under a program designed to encourage the Channel Partner to drive user traffic and generate new Channel Partner participants on TheMaven Platform. The warrants have a composition of vesting that is time based and performance based. The Registrant has granted since inception of the program an aggregate of 3,024,500 warrants through June 30, 2017 at exercise prices ranging from $0.95 to $1.90 per share with expiration periods ending from December 19, 2021 to June 30, 2022. These Channel Partner warrants have no registration rights, and vest over three years. None of the Channel Partner warrants are yet vested. The warrants were issuedfair value on the basis of being a private placement under Section 4(a)(2)issuance date was $9.51. The issuance was exempt from the registration requirements of the Securities Exchange Act by virtue of 1933,Section 4(a)(2) thereof as amended.a transaction not involving a public offering.
On March 22, 2022, we issued 34,500 shares of our common stock upon the conversion of 250 shares of Series H Convertible Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.
On March 25, 2022, we issued 1,380 shares of our common stock upon the conversion of 10 shares of Series H Convertible Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.
On April 1, 2022, we issued 314,103 shares of our common stock pursuant to the stock purchase agreement, dated April 1, 2022, by and between us and Athlon Holdings, Inc. The number of shares issued was based on the average closing price of our common stock on the 10 trading days preceding April 1, 2022, the closing date. The per share fair value on the issuance date was $10.00. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering.
ItemITEM 3. DEFAULTS UPON SENIOR SECURITIESDefault Upon Senior Securities
None.
ItemITEM 4. Mine Safety DisclosureMINE SAFETY DISCLOSURES
Not applicable.
ItemITEM 5. Other InformationOTHER INFORMATION
None.
33 |
The following documents are filed as part of this Quarterly Report:
* Filed herewith.
34 |
Pursuant toIn accordance with the requirements of the Securities and Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 4, 2022 | By: | /s/ |
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: May 4, 2022 | By: | |
Spiros Christoforatos | ||
Chief | ||
(Principal Accounting Officer) |
Dated: November 14, 2017
35 |