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, 2023
☐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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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 8, 2023, 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.stylistic variants denoting forward-looking statements.
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. Such statements are based on assumptions,as well as our beliefs and theassumptions. The actual outcome related to forward-looking statements 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. CertainWe detail other risks are discussed 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 Part I, Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023. The discussion in this Quarterly Report should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report and our consolidated financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022.
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 Report.Quarterly Report except as may be required by law.
3 |
PartPART I - Financial Information– FINANCIAL INFORMATION
ItemITEM 1. FINANCIAL INFORMATION
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements
4 |
Consolidated Balance Sheets
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
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 |
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
($ in thousands, except share data) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 15,961 | $ | 13,871 | ||||
Restricted cash | 502 | 502 | ||||||
Accounts receivable, net | 23,561 | 33,950 | ||||||
Subscription acquisition costs, current portion | 31,908 | 25,931 | ||||||
Prepayments and other current assets | 12,037 | 4,441 | ||||||
Total current assets | 83,969 | 78,695 | ||||||
Property and equipment, net | 565 | 735 | ||||||
Operating lease right-of-use assets | 327 | 372 | ||||||
Platform development, net | 10,189 | 10,330 | ||||||
Subscription acquisition costs, net of current portion | 12,460 | 14,133 | ||||||
Acquired and other intangible assets, net | 54,844 | 58,970 | ||||||
Other long-term assets | 1,025 | 1,140 | ||||||
Goodwill | 41,329 | 39,344 | ||||||
Total assets | $ | 204,708 | $ | 203,719 | ||||
Liabilities, mezzanine equity and stockholders’ deficiency | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 15,458 | $ | 12,863 | ||||
Accrued expenses and other | 21,467 | 23,102 | ||||||
Line of credit | 9,559 | 14,092 | ||||||
Unearned revenue | 60,584 | 58,703 | ||||||
Subscription refund liability | 940 | 845 | ||||||
Operating lease liability | 442 | 427 | ||||||
Contingent consideration | 1,060 | - | ||||||
Liquidated damages payable | 5,970 | 5,843 | ||||||
Bridge notes | 35,433 | 34,805 | ||||||
Term debt | 65,932 | 65,684 | ||||||
Total current liabilities | 216,845 | 216,364 | ||||||
Unearned revenue, net of current portion | 21,234 | 19,701 | ||||||
Operating lease liability, net of current portion | 242 | 358 | ||||||
Liquidated damages payable, net of current portion | 124 | 494 | ||||||
Other long-term liabilities | 5,314 | 5,307 | ||||||
Deferred tax liabilities | 472 | 465 | ||||||
Total liabilities | 244,231 | 242,689 | ||||||
Commitments and contingencies (Note 18) | - | - | ||||||
Mezzanine equity: | ||||||||
Series G redeemable and convertible preferred stock, $168; Series G shares issued and outstanding: ; common shares issuable upon conversion: at March 31, 2023 and December 31, 2022 | par value, $ per share liquidation value and shares designated; aggregate liquidation value: $168 | 168 | ||||||
Series H convertible preferred stock, $14,356; Series H shares issued and outstanding: ; common shares issuable upon conversion: at March 31, 2023 and December 31, 2022 | par value, $ per share liquidation value and shares designated; aggregate liquidation value: $13,008 | 13,008 | ||||||
Total mezzanine equity | 13,176 | 13,176 | ||||||
Stockholders’ deficiency: | ||||||||
Common stock, $ | par value, authorized shares; issued and outstanding: and shares at March 31, 2023 and December 31, 2022, respectively217 | 182 | ||||||
Common stock to be issued | - | - | ||||||
Additional paid-in capital | 289,532 | 270,743 | ||||||
Accumulated deficit | (342,448 | ) | (323,071 | ) | ||||
Total stockholders’ deficiency | (52,699 | ) | (52,146 | ) | ||||
Total liabilities, mezzanine equity and stockholders’ deficiency | $ | 204,708 | $ | 203,719 |
See accompanying notes to condensed consolidated financial statements.
5 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
theMaven, Inc. and SubsidiaryCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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 |
(unaudited)
2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
($ in thousands, except per share data) | ||||||||
Revenue | $ | 51,380 | $ | 48,243 | ||||
Cost of revenue (includes amortization of platform development and developed technology for 2023 and 2022 of $2,369 and $2,311, respectively) | 30,035 | 28,497 | ||||||
Gross profit | 21,345 | 19,746 | ||||||
Operating expenses | ||||||||
Selling and marketing | 17,969 | 17,216 | ||||||
General and administrative | 13,053 | 13,514 | ||||||
Depreciation and amortization | 4,766 | 4,202 | ||||||
Loss on impairment of assets | 119 | 257 | ||||||
Total operating expenses | 35,907 | 35,189 | ||||||
Loss from operations | (14,562 | ) | (15,443 | ) | ||||
Other expenses | ||||||||
Change in fair value of contingent consideration | (499 | ) | - | |||||
Interest expense | (4,182 | ) | (2,820 | ) | ||||
Liquidated damages | (127 | ) | (172 | ) | ||||
Total other expenses | (4,808 | ) | (2,992 | ) | ||||
Loss before income taxes | (19,370 | ) | (18,435 | ) | ||||
Income tax provision | (7 | ) | (14 | ) | ||||
Net loss | $ | (19,377 | ) | $ | (18,449 | ) | ||
Basic and diluted net loss per common share | $ | (1.04 | ) | $ | (1.20 | ) | ||
Weighted average number of common shares outstanding – basic and diluted | 18,718,555 | 15,381,306 |
See accompanying notes to condensed consolidated financial statementsstatements.
6 |
.
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Three Months Ended March 31, 2023
Shares | Par Value | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||
Common Stock | Common Stock to be Issued | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||
($ in thousands, except per share data) | ||||||||||||||||||||||||||||
Balance at January 1, 2023 | 18,303,193 | $ | 182 | 41,283 | $ | - | $ | 270,743 | $ | (323,071 | ) | $ | (52,146 | ) | ||||||||||||||
Issuance of common stock in connection with the acquisition of Fexy Studios | 274,692 | 3 | - | - | 1,997 | - | 2,000 | |||||||||||||||||||||
Issuance of common stock in connection with settlement of liquidated damages | 35,486 | - | - | - | 324 | - | 324 | |||||||||||||||||||||
Gain upon issuance of common stock in connection with settlement of liquidated damages | - | - | - | - | 46 | - | 46 | |||||||||||||||||||||
Issuance of common stock for restricted stock units | 397,376 | 4 | - | - | (4 | ) | - | - | ||||||||||||||||||||
Common stock withheld for taxes | (202,382 | ) | (2 | ) | - | - | (1,421 | ) | - | (1,423 | ) | |||||||||||||||||
Issuance of common stock upon exercise of stock options | 795 | - | - | - | - | |||||||||||||||||||||||
Issuance of common stock in connection with registered direct offering | 2,963,918 | 30 | - | - | 11,181 | - | 11,211 | |||||||||||||||||||||
Reclassification to liability upon modification of common stock option | - | - | - | - | (68 | ) | - | (68 | ) | |||||||||||||||||||
Stock-based compensation | - | - | - | - | 6,734 | - | 6,734 | |||||||||||||||||||||
Issuance of common stock upon conversion of Series H convertible preferred stock | ||||||||||||||||||||||||||||
Issuance of common stock upon conversion of Series H convertible preferred stock, shares | ||||||||||||||||||||||||||||
Issuance of common stock for restricted stock units in connection with an acquisition | ||||||||||||||||||||||||||||
Issuance of common stock for restricted stock units in connection with an acquisition, shares | ||||||||||||||||||||||||||||
Issuance of common stock in connection with professional services | ||||||||||||||||||||||||||||
Issuance of common stock in connection with professional services, shares | ||||||||||||||||||||||||||||
Repurchase restricted stock classified as liabilities | ||||||||||||||||||||||||||||
Repurchase restricted stock classified as liabilities, shares | ||||||||||||||||||||||||||||
Issuance of common stock in connection with public offering | ||||||||||||||||||||||||||||
Issuance of common stock in connection with public offering, shares | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (19,377 | ) | (19,377 | ) | |||||||||||||||||||
Balance at March 31, 2023 | 21,773,078 | $ | 217 | 41,283 | $ | - | $ | 289,532 | $ | (342,448 | ) | $ | (52,699 | ) |
Consolidated Statement of Stockholders’ Equity (Unaudited)
Nine
Three Months Ended September 30, 2017March 31, 2022
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 |
Common Stock | Common Stock to be Issued | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||
($ in thousands, except per share data) | ||||||||||||||||||||||||||||
Balance at January 1, 2022 | 12,635,591 | $ | 126 | 49,134 | $ | - | $ | 200,410 | $ | (252,213 | ) | $ | (51,677 | ) | ||||||||||||||
Beginning balance, value | 12,635,591 | $ | 126 | 49,134 | $ | - | $ | 200,410 | $ | (252,213 | ) | $ | (51,677 | ) | ||||||||||||||
Issuance of common stock upon conversion of Series H convertible 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 | 505,655 | 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 | (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 | 17,504,730 | $ | 175 | 49,134 | $ | - | $ | 246,052 | $ | (270,662 | ) | $ | (24,435 | ) | ||||||||||||||
Ending balance, value | 17,504,730 | $ | 175 | 49,134 | $ | - | $ | 246,052 | $ | (270,662 | ) | $ | (24,435 | ) |
See accompanying notes to condensed consolidated financial statements.statements.
7 |
theMaven, Inc. and SubsidiaryTHE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash FlowsCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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)
2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
($ in thousands) | ||||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (19,377 | ) | $ | (18,449 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation of property and equipment | 114 | 114 | ||||||
Amortization of platform development and intangible assets | 7,021 | 6,399 | ||||||
Amortization of debt discounts | 930 | 660 | ||||||
Loss on impairment of assets | 119 | 257 | ||||||
Change in fair value of contingent consideration | 499 | - | ||||||
Liquidated damages | 127 | 172 | ||||||
Stock-based compensation | 6,427 | 7,367 | ||||||
Deferred income taxes | 7 | 14 | ||||||
Bad debt expense | 36 | 183 | ||||||
Change in operating assets and liabilities net of effect of business combination: | ||||||||
Accounts receivable | 10,303 | 1,594 | ||||||
Subscription acquisition costs | (4,304 | ) | 6,150 | |||||
Royalty fees | - | 3,750 | ||||||
Prepayments and other current assets | (7,596 | ) | (224 | ) | ||||
Other long-term assets | 61 | 52 | ||||||
Accounts payable | 2,595 | (4,912 | ) | |||||
Accrued expenses and other | (2,144 | ) | (7,444 | ) | ||||
Unearned revenue | 3,464 | (8,358 | ) | |||||
Subscription refund liability | 95 | (553 | ) | |||||
Operating lease liabilities | (56 | ) | (54 | ) | ||||
Other long-term liabilities | 7 | (29 | ) | |||||
Net cash used in operating activities | (1,672 | ) | (13,311 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | - | (71 | ) | |||||
Capitalized platform development | (1,188 | ) | (1,582 | ) | ||||
Payments for acquisition | (500 | ) | - | |||||
Net cash used in investing activities | (1,688 | ) | (1,653 | ) | ||||
Cash flows from financing activities | ||||||||
Repayments under line of credit, net borrowing | (4,533 | ) | (2,697 | ) | ||||
Proceeds from common stock from registered direct offering | 11,500 | - | ||||||
Payments of offering cost from common stock from registered direct offering | (69 | ) | - | |||||
Proceeds from issuance of common stock from public offering, net of offering cost | - | 32,058 | ||||||
Payment of taxes from common stock withheld | (1,423 | ) | (556 | ) | ||||
Payment of deferred cash payments | (25 | ) | - | |||||
Payment of restricted stock liabilities | - | (710 | ) | |||||
Net cash provided by financing activities | 5,450 | 28,095 | ||||||
Net increase in cash, cash equivalents, and restricted cash | 2,090 | 13,131 | ||||||
Cash, cash equivalents, and restricted cash – beginning of period | 14,373 | 9,851 | ||||||
Cash, cash equivalents, and restricted cash – end of period | $ | 16,463 | $ | 22,982 | ||||
Cash, cash equivalents, and restricted cash | ||||||||
Cash and cash equivalents | $ | 15,961 | $ | 22,480 | ||||
Restricted cash | 502 | 502 | ||||||
Total cash, cash equivalents, and restricted cash | $ | 16,463 | $ | 22,982 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 3,252 | $ | 2,160 | ||||
Cash paid for income taxes | - | - | ||||||
Noncash investing and financing activities | ||||||||
Reclassification of stock-based compensation to platform development | $ | 307 | $ | 687 | ||||
Offering costs included in accrued expenses and other | 220 | 1,568 | ||||||
Issuance of common stock in connection with settlement of liquidated damages | 370 | 7,008 | ||||||
Issuance of common stock upon conversion of Series H convertible preferred stock | - | 511 | ||||||
Issuance of common stock issued in connection with an acquisition | 2,000 | - | ||||||
Deferred cash payments recorded in connection with acquisitions | 246 | - | ||||||
Reclassification to liability upon common stock modification | 68 | - |
See accompanying notes to condensed consolidated financial statements.
8 |
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 condensed consolidated financial statements
theMaven, include the accounts of The Arena Group Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2017
(Unaudited)
1. Nature of Operations
theMaven,(formerly known as TheMaven, Inc. (“Parent”) and theMaven Network, Inc.its wholly owned subsidiaries (“Subsidiary”) (collectively “theMaven”The Arena Group” 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, after eliminating all significant intercompany balances and transactions. The Company changed its legal name to The Arena Group Holdings, Inc. 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.TheMaven, Inc. on February 8, 2022.
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.
The transaction is referred to as the “Recapitalization.” The Recapitalization was consummated on November 4, 2016, as a result of which theMaven Network, Inc. became a wholly owned subsidiary of Integrated (the “Closing”). The note payable between Integrated and Subsidiary was an interdependent transaction with the Recapitalization and was cancelled upon closing of the Recapitalization. On December 2, 2016, Integrated amended its Certificate of Incorporation to change its name from “Integrated Surgical Systems, Inc.” to “theMaven, Inc.”
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 U.S. 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’scomplete audited 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. Operating2022, filed with the SEC on March 31, 2023.
The condensed consolidated financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, 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, 2022, 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 yearyear.
The Company is subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including as a result of inflation, increasing interest rates or any other future periods.foreign exchange rates, instability in the global banking system, geopolitical factors, including the ongoing Ukraine – Russia conflict, supply chain disruptions and the ongoing effects of the COVID-19 pandemic. Given that certain of the Company’s sports businesses rely on sporting events to generate content and comprise a material portion of the Company’s revenues, the Company’s cash flows and results of operations could be negatively impacted by a significant downturn in economic activity, or general spending on sporting events or a general limitation of societal activity, due to market conditions, economic uncertainty or recession.
Comparative Period from Inception on July 22, 2016 to September 30, 2016The Company operates in one reportable segment.
theMaven Network, Inc. was incorporated on July 22, 2016 and initially issuedReverse Stock Split
On February 8, 2022, the Company’s board of directors (the “Board”) approved a one-for-twenty-two (1-for-22) reverse stock split of its outstanding shares of its common stock that was effective February 8, 2022. The Company’s common stock began trading on August 1, 2016the NYSE American (the “NYSE American”) on February 9, 2022. At the effective time, every twenty-two shares of issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in exchange for cash at par value. Through September 30, 2016, the previously reported financial statementsnumber 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, 2016authorized shares. No fractional shares were previously issued. Asissued as a result of the accounting forreverse stock split. Any fractional shares that would otherwise have resulted from the Recapitalization as ofreverse stock split were rounded up to the November 4, 2016 effective date of the transaction, the financial statements of theMaven Network, Inc. became the financial statements of Integrated 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 the shares of common stock issued by theMaven Network, Inc. in August 2016 that were subject to vesting and redemption provisions (see Note 9). As 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.next whole number.
9 |
3. Going Concern
Going Concern
The Company’s condensed consolidated financial statements have been presented onprepared assuming that the basis that it isCompany will continue as a going concern, which contemplates the realization of assets and satisfactionthe liquidation 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 hascondensed consolidated financial statements do 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 Parentinclude any adjustments that was cancelled upon closing of the Recapitalization and (c) two private placements of common stock in April 2017 and in October 2017. The Company has incurred operating losses and negative operating cash flows, andmight be necessary if it expectsis unable to continue as a going concern.
For the three months ended March 31, 2023, the Company incurred a net loss of $19,377. For the three months ended March 31, 2023 and year ended December 31, 2022, the Company had cash on hand of $15,961 and $13,871 and a working capital deficit of $132,876 and $137,669, respectively. The Company’s net loss and working capital deficit have been evaluated by management to incur operating lossesdetermine if the significance of those conditions or events would limit its ability to meet its obligations when due. Furthermore, since the Company’s Bridge Notes of $36,000, Senior Secured Notes of $62,691 and negative operating cash flows for at leastDelayed Draw Term Notes of $4,000, totaling $102,691 (collectively “its current debt”) are due within twelve months from the next few years. date these (unaudited) condensed consolidated financial statements were issued, unless the Company is able to refinance or extend its current debt beyond its current maturity, it may not be able to meet its obligations when due.
As a result, management has concluded thatdetermined there is substantial doubt about the Company’s ability to continue as a going concern andfor a one-year period following the Company’s independent registered public accounting firm, infinancial statement issuance date, unless it is able to refinance or extend the maturities of its report oncurrent debt.
The Company plans to refinance or extend the Company’s 2016 consolidated financial statements, has raisedmaturities of its current debt to alleviate the conditions that raise substantial doubt about the Company’sits ability to continue as a going concern.
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.
Thereconcern, however, there can be no assurancesassurance that the Company will be able to secure any such additional financing on acceptable terms and conditions,refinance or at all. If cash resources become insufficient to satisfyextend the Company’s ongoing cash requirements, the Company will be required to scale back or discontinuematurities of its technology development programs, or obtain funds, if available (although there can be no certainty), or to discontinue its operations entirely.current debt.
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 thosethese 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, On an ongoing basis, 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 expenseevaluates its estimates, including those related to channel partner agreements are reported in “Service Costs” in the Statementallowance for credit losses, fair values of Operations. The cash payments related to channel partner agreements are classified within “Net cash used in operating activities” on the Statementfinancial instruments, capitalization 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 Assetplatform development, intangible assets and a related Content Obligation when allgoodwill, useful lives of the following conditions are met, (1) the cost of the content is known or reasonably determinable, (2) the content has been acceptedintangible assets 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.
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 includedincome taxes, fair value of assets acquired and liabilities assumed 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 consistbusiness acquisitions, determination of the costfair value of a purchased website domain name with an indefinite useful life.
Impairmentstock-based compensation and valuation of Long-Lived Assets
derivatives liabilities and contingent liabilities, among others. The long-lived assets, consistingCompany bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of fixedwhich form the basis for making judgments about the carrying values of 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.liabilities.
Website Development CostsRecently Adopted Accounting Standards
In accordance with authoritative guidance,March 2022, 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(the “FASB”) issued ASU 2022-02, “Fair Value MeasurementsFinancial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Disclosures”Vintage Disclosures, clarifiesaddressing areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard (ASU 2016-13) that fair value is an exit price, representingintroduced the amountcurrent expected credit losses (CECL) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors 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 basishave adopted the CECL model and enhances disclosure requirements 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 alsocertain loan refinancings and restructurings made with borrowers experiencing financial difficulty. This update requires an entity to maximizedisclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
In accordance with FASB ASC 820,vintage disclosures. As 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 hasalready adopted ASU 2016-09 in 2016 with early application and account for actual forfeitures2016-13, the new guidance was adopted on January 1, 2023. The adoption 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 doASU 2022-02 did 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 Channelmaterial impact on the Company’s platform, for determination of the period over which services are received and expense is recognized.condensed consolidated financial statements.
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.
10 |
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.
The Company excluded the outstanding securities summarized below (capitalized terms are described herein), which entitle the holders thereof to acquire shares of the Company’s common stock, from its calculation of net loss per common share, as their effect would have been anti-dilutive. 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 iscalculations when a net loss is incurred as they would be anti-dilutive.
2023 | 2022 | |||||||
As of March 31, | ||||||||
2023 | 2022 | |||||||
Series G convertible preferred stock | 8,582 | 8,582 | ||||||
Series H convertible preferred stock | 1,981,128 | 2,004,971 | ||||||
Financing warrants | 107,956 | 116,118 | ||||||
ABG Warrants | 999,540 | 999,540 | ||||||
AllHipHop warrants | 5,681 | 5,681 | ||||||
Publisher Partner Warrants | 11,002 | 26,893 | ||||||
Restricted stock awards | 97,403 | 194,806 | ||||||
Restricted stock units | 888,152 | 1,209,508 | ||||||
Common stock options | 6,183,262 | 5,541,818 | ||||||
Total | 10,282,706 | 10,107,917 |
2.Acquisitions
The Company uses the diluted loss per shareacquisition method of accounting, which is computedbased on ASC, Business Combinations (Topic 805), and uses the fair value concepts which requires, among other things, that most assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date.
Teneology, Inc. – On January 11, 2023, the Company entered into an asset purchase agreement with Teneology, Inc., (“Teneology”) pursuant to which it acquired certain assets (consisting of the RoadFood media business, including digital and television assets; the Moveable Feast media business, including digital and television assets; the Fexy-branded content studio business; and the MonkeySee YouTube Channel media business, collectively “Fexy Studios”), for a purchase price of $3,307. The purchase price consisted of the following: (1) $500 cash paid at closing (including an advance payment of $250 prior to closing); (2) $75 deferred cash payments due in three equal installments of $25 on March 1, 2023 (paid), April 1, 2023 and May 1, 2023, with the remaining payments subject to certain conditions; (3) $200 deferred cash payment due on the first anniversary of the closing date, subject to certain indemnity provisions; and (4) the issuance of shares of the Company’s common stock, subject to certain lock-up provisions, with a fair value of $2,000 on the transaction closing date (fair value was determined based on a preliminary independent appraisal); and which is subject to a put option under certain conditions (the “contingent consideration”) (as further described below in Note 9). The number of shares of the Company’s common stock issued was determined based on a $2,225 value using the basic share count. At September 30, 2017, potentially dilutive shares outstanding amounted to 14,737,558,common stock trading price on the day immediately preceding the January 11, 2023 closing date (on the closing date the common stock trading price was $ per share). The agreement also provided for a cash retention pool for certain employees of which 13,417,951 are not currently registered and/or$300, subject to future vesting over three years upon continued employment and other conditions. Included
11 |
The composition of the preliminary purchase price is as follows:
Schedule of Preliminary Purchase Price
Cash | $ | 500 | ||
Common stock | 2,000 | |||
Contingent consideration | 561 | |||
Deferred cash payments, as discounted | 246 | |||
Total purchase consideration | $ | 3,307 |
The Company accounted for the asset acquisition as a business combination in these totals are 6,663,244 common stock equivalents that must be exercisedaccordance with ASC 805 since the acquisition met the definition of a business under the applicable guidance.
The Company incurred $99 in transaction costs related to the acquisition, which would resultprimarily consisted of legal and accounting expenses. The acquisition-related expenses were recorded in aggregate proceedsgeneral and administrative expenses on the condensed consolidated statements of operations.
The preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the closing date of the acquisition based upon their respective fair values as summarized below:
Schedule of Preliminary Price Allocation
Advertiser relationships | $ | 663 | ||
Brand names | 659 | |||
Goodwill | 1,985 | |||
Net assets acquired | $ | 3,307 |
The Company utilized an independent appraisal firm to assist in the preliminary determination of the fair values of the assets acquired and liabilities assumed, which required certain significant management assumptions and estimates. The fair value of the advertiser relationships were valued using the excess earnings method of the income approach and the brand names were valued using the relief-from-royalty method of the income approach. The estimated useful life is fifteen years (15.0 years) for the advertiser relationships and twelve years (12.0 years) for the brand names.
The excess-of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill from the saleacquisition. Goodwill is recorded as a non-current asset that is not amortized but is subject to an annual review for impairment. A portion of stockthe goodwill will be deductible for tax purposes.
Supplemental Pro forma Information
The pro forma disclosures have been deemed impracticable for this acquisition since after making reasonable efforts the Company is unable to accept assumptions made by Teneology. The Company has determined, based on the information provided by Teneology and made available to the Company, that the earnings from the prior periods could not be verified since the acquisition only included certain activities of $6,735,000.Teneology and financial statements were not available. In this regard, the Company: (1) made reasonable effort to obtain certain financial results of the certain activities but Teneology was unable to apply the requirement; and (2) the presentation of the pro forma results and the assumptions made by management were unable to be independently substantiated.
12 |
Risks and Uncertainties
3.Balance Sheet Components
The components of certain balance sheet amounts are as follows:
Accounts Receivable – The Company has a limited operating historyreceives payments from advertising customers based upon contractual payment terms; accounts receivable is recorded when the right to consideration becomes unconditional and has not generated revenueare generally collected within 90 days. The Company generally receives payments from digital and print subscription customers at the time of sign up for each subscription; accounts receivable from merchant credit card processors are recorded when the right to date.consideration becomes unconditional and are generally collected weekly. Accounts receivable have been reduced by an allowance for doubtful accounts. The Company’s business and operations are sensitive to general business and economic conditions inCompany maintains the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets andallowance for estimated losses resulting from the general conditioninability of the U.S.Company’s customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and world economies. A hostsupportable forecasts when appropriate. The estimate is a result of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse developments in these general businessongoing evaluation of collectibility, customer creditworthiness, historical levels of credit losses, and economic conditions could have a material adverse effect onfuture expectations. Accounts receivable are written off when deemed uncollectible and collection of the Company’s financial conditionreceivable is no longer being actively pursued. Accounts receivable as of March 31, 2023 and December 31, 2022 of $23,561 and $33,950, respectively, are presented net of allowance for doubtful accounts. The following table summarizes the resultsallowance for doubtful accounts activity:
Schedule of its operations.Allowance For Doubtful Accounts
Three Months Ended March 31, 2023 (unaudited) | Year Ended December 31, 2022 | |||||||
Allowance for doubtful accounts beginning of period | $ | 2,236 | $ | 1,578 | ||||
Additions | 64 | 980 | ||||||
Deductions – write-offs | (28 | ) | (322 | ) | ||||
Allowance for doubtful accounts end of period | $ | 2,272 | $ | 2,236 |
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,Subscription Acquisition Costs – Subscription acquisition costs include 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 someincremental costs to obtain or fulfillof obtaining a contract with a customer. ASC 606 requirescustomer, paid to external parties, if the Company expects to recover those costs. The Company has determined that sales commissions paid on all third-party agent sales of subscriptions are direct and incremental and, therefore, meet the capitalization criteria. The Company has elected to apply the practical expedient to account for these costs at the portfolio level. The sales commissions paid to third-party agents are amortized as magazines are sent to the subscriber on an issue-by-issue basis. Subscription acquisition costs are included within selling and marketing expenses on the condensed consolidated statements of operations.
The current portion of the subscription acquisition costs as of March 31, 2023 and December 31, 2022 was $31,908 and $25,931, respectively. The noncurrent portion of the subscription acquisition costs as of March 31, 2023 and December 31, 2022 was $12,460 and $14,133, respectively. Subscription acquisition costs as of March 31, 2023 presented as current assets of $31,908 are expected to be amortized over a one-year period, or through March 31, 2024, and $12,460 presented as long-term assets are expected to be amortized after the one-year period ending March 31, 2024.
Amortization of subscription acquisition costs of $10,005 and $9,723 for the three months ended March 31, 2023 and 2022, respectively, are included in selling and marketing expenses on the condensed consolidated statements of operations. No impairment losses have been recognized for subscription acquisition costs for the three months ended March 31, 2023 and 2022.
13 |
Prepayments and other current assets – Prepayments and other current assets are summarized as follows:
Schedule of Prepayments and Other Current Assets
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
As of | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
Prepaid expenses | $ | 3,840 | $ | 2,321 | ||||
Prepaid supplies | 923 | 927 | ||||||
Refundable income and franchise taxes | 157 | 957 | ||||||
Unamortized debt costs | 216 | 216 | ||||||
Employee retention credits | 6,868 | - | ||||||
Other receivables | 33 | 20 | ||||||
Total prepayments and other current assets | $ | 12,037 | $ | 4,441 |
Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the subsequent extensions of the Cares Act, the Company is eligible for refundable employee retention credits subject to certain criteria. The Company determined that it qualifies for the tax credit under the CARES Act. In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credits when earned and to offset the credit against the related expenditure. For the three months ended March 31, 2023, the Company recorded the employee retention credits as a reduction to payroll and related expenses of $6,868 in operating expenses on the condensed consolidated statements of operations with a corresponding receivable included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
Property and Equipment – Property and equipment are summarized as follows:
Schedule of Property and Equipment
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
As of | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
Office equipment and computers | $ | 1,777 | $ | 1,744 | ||||
Furniture and fixtures | 133 | 240 | ||||||
Property and equipment, Gross | 1,910 | 1,984 | ||||||
Less accumulated depreciation and amortization | (1,345 | ) | (1,249 | ) | ||||
Net property and equipment | $ | 565 | $ | 735 |
Depreciation and amortization expense for the three months ended March 31, 2023 and 2022 was $114 and $114, respectively. For the three months ended March 31, 2023 and 2022, impairment charges of $55 and $0, respectively, have been recorded for property and equipment on the condensed consolidated statements of operations.
14 |
Platform Development – Platform development costs are summarized as follows:
Summary of Platform Development Costs
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
As of | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
Platform development | $ | 22,764 | $ | 21,493 | ||||
Less accumulated amortization | (12,575 | ) | (11,163 | ) | ||||
Net platform development | $ | 10,189 | $ | 10,330 |
A summary of platform development activity for the three months ended March 31, 2023 is as follows:
Summary of Platform Development Cost Activity
Platform development beginning of period | $ | 21,493 | ||
Payroll-based costs capitalized | 1,188 | |||
Less dispositions | (160 | ) | ||
Total capitalized costs | 22,521 | |||
Stock-based compensation | 307 | |||
Impairments | (64 | ) | ||
Platform development end of period | $ | 22,764 |
Amortization expense for the three months ended March 31, 2023 and 2022, was $1,573 and $1,344, 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, 2023 and 2022, impairment charges of $64 and $210, respectively, have been record for platform development on the condensed consolidated statements of operations.
Intangible Assets – Intangible assets subject to amortization consisted of the following:
Schedule of Intangible Assets Subjects to Amortization
As of March 31, 2023 (unaudited) | As of December 31, 2022 | |||||||||||||||||||||||
Carrying Amount | Accumulated Amortization | Net Carrying Amount | Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Developed technology | $ | 17,333 | $ | (15,679 | ) | $ | 1,654 | $ | 17,333 | $ | (14,883 | ) | $ | 2,450 | ||||||||||
Trade name | 5,380 | (1,287 | ) | 4,093 | 5,380 | (1,180 | ) | 4,200 | ||||||||||||||||
Brand name | 12,774 | (1,274 | ) | 11,500 | 12,115 | (908 | ) | 11,207 | ||||||||||||||||
Subscriber relationships | 73,459 | (50,769 | ) | 22,690 | 73,459 | (47,146 | ) | 26,313 | ||||||||||||||||
Advertiser relationships | 15,965 | (1,776 | ) | 14,189 | 15,302 | (1,368 | ) | 13,934 | ||||||||||||||||
Database | 2,397 | (1,856 | ) | 541 | 2,397 | (1,753 | ) | 644 | ||||||||||||||||
Digital content | 355 | (178 | ) | 177 | 355 | (133 | ) | 222 | ||||||||||||||||
Total intangible assets | $ | 127,663 | $ | (72,819 | ) | $ | 54,844 | $ | 126,341 | $ | (67,371 | ) | $ | 58,970 |
Intangible assets subject to amortization were recorded as part of the Company’s business acquisitions. Amortization expense for the three months ended March 31, 2023 and 2022 was $5,448 and $5,055, respectively, of which amortization expense for developed technology of $796 and $967, respectively, is included in cost of revenues on the condensed consolidated statements of operations. For the three months ended March 31, 2023 and 2022, impairment charges of $0 and $47, respectively, have been recorded for the intangible assets on the condensed consolidated statements of operations.
4. Leases
The Company’s real estate lease for the use of office space is subleased (as further described below). The Company’s current lease is a long-term operating lease with a remaining fixed payment term of 1.51 years.
15 |
The table below presents supplemental information related to operating leases:
Schedule of Supplemental Information Related to Operating Leases
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Operating lease costs during the period (1) | $ | 240 | $ | 179 | ||||
Cash payments included in the measurement of operating lease liabilities during the period | $ | 121 | $ | 117 | ||||
Weighted-average remaining lease term (in years) as of period-end | 1.51 | 2.51 | ||||||
Weighted-average discount rate during the period | 9.9 | % | 9.9 | % |
(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
2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Operating lease costs: | ||||||||
Cost of revenue | $ | - | $ | - | ||||
Selling and marketing | - | - | ||||||
General and administrative | 295 | 234 | ||||||
Total operating lease costs (1) | 295 | 234 | ||||||
Sublease income | (55 | ) | (55 | ) | ||||
Total | $ | 240 | $ | 179 |
(1) | Includes certain costs associated with a business membership agreement (see below) that permits access to certain office space for the three months ended March 31, 2023 and 2022 of $155 and $170, respectively, and month-to-month lease arrangements for the three months ended March 31, 2023 and 2022 of $76 and $0, respectively. |
Maturities of the operating lease liability as of March 31, 2023 are summarized as follows:
Summary of Maturity of Lease Liabilities
Years Ending December 31, | ||||
2023 (remaining nine months of the year) | $ | 366 | ||
2024 | 373 | |||
Minimum lease payments | 739 | |||
Less imputed interest | (55 | ) | ||
Present value of operating lease liability | $ | 684 | ||
Current portion of operating lease liability | $ | 442 | ||
Long-term portion of operating lease liability | 242 | |||
Total operating lease liability | $ | 684 |
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, 2023, the Company is entitled to receive sublease income of $414.
Business Membership – Effective October 1, 2021, the Company entered into a business membership agreement with York Factory LLC, doing business as SaksWorks, that permits access to certain office space with furnishings(the “membership”). This membership provides a certain number of accounts that equate to the use of the space granted, or membership accounts. Effective June 1, 2022, the SaksWorks membership agreement was amended and assigned to Convene SW MSA Holdings, LLC (“Convene”). The term of the membership agreement with Convene is for twenty-seven months from the initial effective date of October 1, 2021 with SaksWorks. The annual membership fee with Convene is $620 ($500 for a dedicated membership area and $120 for minimum membership accounts) payable in equal monthly installments. The membership agreement also provides for: (1) additional membership accounts at predetermined pricing; and (2) renewal of the membership agreement at the end of the term for a twelve-month period at the then-current market price and pricing structure on such renewal date. As of March 31, 2023, the Company had $568 of remaining payments under the membership agreement with Convene.
16 |
5.Goodwill
The changes in carrying value of goodwill are as follows:
Schedule of Changes in Carrying Value of Goodwill
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
As of | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
Carrying value at beginning of year | $ | 39,344 | $ | 19,619 | ||||
Goodwill acquired in acquisition of Parade | - | 2,587 | ||||||
Goodwill acquired in acquisition of Men’s Journal | - | 17,138 | ||||||
Goodwill acquired in acquisition of Fexy Studios | 1,985 | - | ||||||
Goodwill acquired in acquisition | 1,985 | - | ||||||
Carrying value at end of period | $ | 41,329 | $ | 39,344 |
6.Line of Credit
SLR Credit Facility – On December 15, 2022, the Company entered into an amendment to its financing and security agreement for its line of credit with SLR Digital Finance LLC (formerly FPP Finance LLC) (“SLR”), pursuant to which (i) the maximum amount of advances available was increased to $40,000 (subject to certain limits and eighty-five (85%) of eligible accounts receivable), (ii) the interest rate on the line of credit was amended to be the prime rate plus 4.0% per annum of the amount advanced (subject to minimum utilization of at least 10% of the maximum amount of advances available) (as of March 31, 2023 the rate was 12.0%), and (iii) the maturity of the line of credit was extended to December 31, 2024; provided that the maturity date will be December 31, 2023 if the Company has not refinanced, repaid or extended all of its Senior Secured Notes (as defined below) due December 31, 2023 by August 31, 2023, and provided further, that SLR will be entitled to accelerate the maturity date of the obligations if the Company has not refinanced, repaid or extended all of its Senior Secured Notes due December 31, 2023 by September 30, 2023. In the event that the line of credit is accelerated, the Company will be obligated to pay SLR a termination fee of $900. The amendment also permitted the Company to make significant judgmentsenter into the Bridge Notes (as defined below). The line of credit is for working capital purposes and estimates. ASC 606 also requires more extensive disclosures regardingis secured by a first lien on all the nature, amount, timingCompany’s cash and uncertaintyaccounts receivable and a second lien on all other assets. In connection with the line of revenuecredit, the Company incurred debt costs of $441 that are being amortized over the life of the line of credit with the unamortized balance, as of March 31, 2023, reflected in prepayment and other current assets of $216 and other long-term assets of $162. As of December 31, 2022, the unamortized balance was reflected in other current assets of $216 and other long-term assets of $216. As of March 31, 2023, the effective interest rate on the line of credit was 14.0%. As of March 31, 2023 and December 31, 2022, the balance outstanding under the line of credit was $9,559 and $14,092, respectively, as reflected on the condensed consolidated balance sheets.
Information for the three months ended March 31, 2023 and 2022 with respect to interest expense related to the line of credit is provided under the heading Interest Expense in Note 11.
7.Restricted Stock Liabilities
On December 15, 2020, 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 with HubPages. Pursuant to the amendment, the Company agreed to purchase the vested restricted stock awards, at a price of $ per share in 24 equal monthly installments on the second business day of each calendar month beginning on January 4, 2021, subject to certain conditions.
The Company recorded the repurchase of 710, exclusive of imputed interest of $78, as reflected on the condensed consolidated statements of cash flows arising from contracts with customers.flows. 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. shares of the Company’s restricted common stock during the three months ended March 31, 2022 on the condensed consolidated statements of stockholders’ deficiency, representing a payment of $
Further details are provided under the heading Repurchases of Restricted Stock in Note 17.
17 |
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 606.8.Liquidated Damages Payable
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 customersLiquidated 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 havemaintain its periodic filings with the SEC within the requisite time frame (the “Public Information Failure Damages”).
Obligations with respect to transition its accounting method from ASC 605, “Revenue Recognition”the liquidated damages payable are summarized as follows:
Summary of Liquidated Damages
As of March 31, 2023 (unaudited) | ||||||||||||||||
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 | 626 | 607 | 1,851 | ||||||||||||
Convertible debentures | - | 704 | 300 | 1,004 | ||||||||||||
Series J convertible preferred stock | 932 | 932 | 580 | 2,444 | ||||||||||||
Series K convertible preferred stock | 306 | 289 | 185 | 780 | ||||||||||||
Total | $ | 1,871 | $ | 2,551 | $ | 1,672 | $ | 6,094 |
As of December 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 | 626 | 570 | 1,814 | ||||||||||||
Convertible debentures | - | 704 | 280 | 984 | ||||||||||||
Series J convertible preferred stock | 932 | 932 | 525 | 2,389 | ||||||||||||
Series K convertible preferred stock | 437 | 478 | 220 | 1,135 | ||||||||||||
Total | $ | 2,002 | $ | 2,740 | $ | 1,595 | $ | 6,337 |
(1) | Consists of shares of common stock issuable to MDB Capital Group, LLC (“MDB”). |
In November 2015,As of March 31, 2023 and December 31, 2022, the FASB issued Accounting Standards Update No. 2015-17 (ASU 2015-17)short-term liquidated damages payable were $5,970 and $5,843, Income Taxes (Topic 740): Balance Sheet Classificationrespectively, and the long-term liquidated damages payable were, $124 and $494, respectively. During the three months ended March 31, 2023 a portion of Deferred Taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classifiedthe long-term portion was converted into shares of the Company’s common stock on February 10, 2023, 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.further described below. The adoption of ASU 2015-17 did not have any impactCompany will continue to accrue interest 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 liabilitiesliquidated damages balance at 1.0% per month based on the balance sheet. ASU 2016-02 will continue to classify leasesoutstanding as either financeof March 31, 2023, or operating, with classification affecting$5,970, until paid. There is no scheduled date when 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.unpaid liquidated damages become due. 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.
5. Fixed Assets
At September 30, 2017 and December 31, 2016, fixed assets, net consisted of the following:
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, the Company launched certain elements 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 ofSeries K convertible preferred stock isremains subject to Registration Rights Damages and Public Information Failure Damages, which will accrue in certain circumstances, limited to 6% of the Series G Convertible Preferred Stock (“Series G”).aggregate amount invested.
The Series GOn February 8, 2023, the Company entered into a stock has a stated valuepurchase agreement with an investor, where the Company was liable for liquidated damages, pursuant to which the Company agreed to the issue shares 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 each of the balance sheet dates presented, the expected dividend yield, the expected life of the redemption and the expected volatility of the Company’s common stock.
The Company’s assessment of the significance of a particular inputsixty (60) previous trading days), to the fair value measurement requires judgment and considering factors specific to the conversion feature liability. Since someinvestor in lieu of the assumptions used by the Company are unobservable, the conversion feature liability is classified within the level 3 hierarchyan aggregate of $494 owed in the fair value measurement.
The expected volatilityliquidated damages as of the conversion feature liability was based ondate. On February 10, 2023 and April 10, 2023, the historical volatilityCompany issued and shares of its common stock, respectively, in satisfaction of the Company’s common stock.liquidated damages. The expected life assumption was based onCompany prepared and filed a registration statement covering the expected remaining liferesale of the underlying preferred stock redemption. The risk-free interest rate for the expected term of the conversion feature liability was based on the average market rate on U.S. treasury securities 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 changesthese shares of the Company’s common stock price.issued in lieu of payment of these liquidated damages in cash. On February 10, 2023, the Company recorded $324 in connection with the issuance of shares of the Company’s common stock and a gain of $46 on the settlement of the liquidated damages, totaling $370, which was recorded in additional paid-in capital on the condensed consolidated statement of stockholders’ deficiency.
18 |
Further details subsequent to the date of these condensed consolidated financial statements were issued are provided under the heading Liquidated Damages in Note 19.
9.Fair Value
The table below shows the quantitative information about the significant unobservable inputs used in the fair value measurement of level 3 conversion feature liability at September 30, 2017:
The changes inCompany estimates the fair value of financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a 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.
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 common stock issued in connection with the Fexy Studios acquisition that is subject to a put option (which provides for a cash payment to the sellers on the first anniversary date of the closing (or January 11, 2024) in the event the common stock trading price on such date is less than the common stock trading price on the day immediately preceding the acquisition date, or $areliability, which requires the Company to carry such amounts on its condensed consolidated balance sheets as follows:a liability at fair value, as adjusted at each reporting period-end. per share), as a derivative
Beginning as of January 1, 2017 | $ | 137,177 | ||
Decrease in fair value | (6,939 | ) | ||
Ending balance as of September 30, 2017 | $ | 130,238 |
Liabilities measured at fair value on a recurring basis consisted of the following as of March 31, 2023:
Schedule of Fair Value of Financial Instruments
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Contingent consideration | $ | 1,060 | $ | - | $ | 1,060 | $ | - |
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.Contingent Consideration – 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 stock received 4.13607 shares of Parent common stock for each Subsidiary 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 tocontingent consideration is primarily dependent on the fair valuecommon stock trading price on the first anniversary 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 issued 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 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.
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, which 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).
Prior to the closing of the Recapitalization, the Subsidiary had received $735,099 in multiple borrowings from Integrated on a note payable beginning on AugustFexy Studios, or January 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 secured 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.
9. Stockholders’ Equity
The Company has authorized 100,000,000 shares of common stock, $0.01 par value, 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 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 total of 7,966,070 shares 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.2024. The estimated fair value of these shares was determined based oncalculated using the quoted closing stockBlack Scholes option pricing model using the following inputs: (i) $ exercise price on November 4, 2016. Because these shares require continued serviceequal 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 quotedclosing price of the Company’s common stock at the acquisition date; (ii) $ common stock price equal to the trading price of the Company’s common stock as of the reporting date; (iii) years for the expected term; (iv) % annualized risk free rate; and (v) % selected volatility. For the three months ended March 31, 2023, the change in valuation of the contingent consideration of $499 was recognized in other expenses on the datecondensed consolidated statement 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:operations.
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 |
19 |
10.Bridge Notes
On December 15, 2022, the Company issued $36,000 aggregate principal amount of senior secured notes (the “Bridge Notes”) pursuant to a third amended and restated note purchase agreement (as described below) with BRF Finance Co., LLC, (“BRF”) an affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for the purchasers and as purchaser. The Company received net proceeds of $34,728 from the issuance of the Bridge Notes. Interest on the Bridge Notes is payable in cash at a rate of 12% per annum quarterly in arrears on March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023; provided that, on March 1, 2023, May 1, 2023, and July 1, 2023, the interest rate on the Bridge Notes will increase by 1.5% per annum, with maturity on December 31, 2023. The Bridge Notes are subject to certain mandatory prepayment requirements, including, but not limited to, a requirement that the Company apply the net proceeds from certain debt incurrences or equity offerings to repay the Bridge Notes. The Company may elect to prepay the Bridge Notes, at any time, in whole or in part with no premium or penalty. The Bridge Notes are secured by liens on the same collateral that secures indebtedness under the Company’s outstanding Senior Secured Notes (as defined below) and are guaranteed by the Company’s subsidiaries that guarantee the Senior Secured Notes. The Bridge Notes provide for certain covenants and event of default provisions similar to those contained in the Senior Secured Notes. In connection with the Bridge Notes, the Company incurred debt costs of $1,272 that are being amortized over the expected life of the debt. As of September 30, 2017,March 31, 2023, the Company has granted 1,914,000 optionseffective interest rate was 19.0%. As of March 31, 2023 and December 31, 2022, the balance outstanding under the Plan,Bridge Notes was $35,433 ($36,000 principal balance less unamortized debt costs of which 159,967 are vested. In$567) and $34,805 ($36,000 principal balance less unamortized debt costs of $1,195), respectively.
Information for the three and nine months ended September 30, 2017, the Company recorded stock-based compensation of $259,508 and $508,635, respectivelyMarch 31, 2023 with respect to interest expense related to the options grantedBridge Notes is provided under the Plan. Of the total stock-based compensationheading Interest Expense 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.Note 11.
At September 30, 2017, total compensation cost related to stock options granted under11.Term Debt
Senior Secured Notes
As of March 31, 2023 and December 31, 2022, 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 stockCompany had an outstanding obligation with BRF, in its capacity as agent for the numberpurchasers and as purchaser, pursuant to a third amended and restated note purchase agreement (the “Senior Secured Notes”) entered into on December 15, 2022, where it amended the second amended and restated note purchase agreement issued on January 23, 2022.
The Senior Secured Notes, prior to and including the third amended and restated note purchase agreement, provide for:
● | a provision for the Company to enter into Delayed Draw Term Notes (as described below), in an aggregate principal amount of $9,928 as of December 31, 2021 (the Company repaid $5,928 on December 31, 2022); | |
● | a provision where the Company added $13,852 to the principal balance of the notes for interest payable on the notes on last day of a fiscal quarter from September 30, 2020 to December 31, 2021 as payable in-kind; | |
● | a provision where the paid in-kind interest can be paid in shares of the Company’s common stock based upon the conversion rate specified in the Certificate of Designation for the Series K convertible preferred stock, subject to certain adjustments; | |
● | an interest rate of 10.0% per annum, subject to adjustment in the event of default, with a provision that within one (1) business day after receipt of cash proceeds from any issuance of equity interests, unless waived, the Company will prepay certain obligations in an amount equal to such cash proceeds, net of underwriting discounts and commissions; | |
● | interest on the notes will be payable after February 15, 2022, 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 notes; | |
● | a maturity date of December 31, 2023, subject to certain acceleration conditions; | |
● | all borrowings under the notes to be collateralized by substantially all assets of the Company; and | |
● | the Company to enter into the Bridge Notes for $36,000 and to increase the line of credit with SLR in an aggregate principal amount not to exceed $40,000. |
20 |
Delayed Draw Term Notes
As of options that were in-the-money at September 30, 2017.
In addition,March 31, 2023 and December 31, 2022, the Company assumed 175,000 fully-vested optionshad an outstanding obligation with BRF, in connection with the Recapitalization with an exercise price of $0.17 per share which expire on May 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 optionsits capacity as agent for the nine months ended September 30, 2017:purchasers and as purchaser, pursuant to a third amended and restated note purchase agreement (the “Delayed Draw Term Notes”) entered into on December 15, 2022, where it amended the second amended and restated note purchase agreement issued on January 23, 2022.
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 Delayed Draw Term Notes, prior to and including the third amended and restated note purchase agreement, provide for:
● | an interest rate of 10.0% per annum, subject to adjustment in the event of default; | |
● | interest on the notes to be payable after February 15, 2022, 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 notes; | |
● | a maturity date on December 31, 2023, subject to certain acceleration terms; and | |
● | all borrowings under the notes to be collateralized by substantially all assets of the Company. |
The following table summarizes the common shares reserved for future issuance underterm debt:
Schedule of Long Term Debt
As of March 31, 2023 (unaudited) | As of December 31, 2022 | |||||||||||||||||||||||
Principal Balance | Unamortized Discount and Debt Issuance Costs | Carrying Value | Principal Balance | Unamortized Discount and Debt Issuance Costs | Carrying Value | |||||||||||||||||||
Senior Secured Notes, as amended, matures December 31, 2023 | $ | 62,691 | $ | (681 | ) | $ | 62,010 | $ | 62,691 | $ | (904 | ) | $ | 61,787 | ||||||||||
Delayed Draw Term Notes, as amended, matures December 31, 2023 | 4,000 | (78 | ) | 3,922 | 4,000 | (103 | ) | 3,897 | ||||||||||||||||
Total | $ | 66,691 | $ | (759 | ) | $ | 65,932 | $ | 66,691 | $ | (1,007 | ) | $ | 65,684 |
As of March 31, 2023 and December 31, 2022, the Plan:
Common Stock Warrants – Channel Partner Program
On December 19, 2016,term debt carrying value of $65,932 and $65,684, respectively, was reflected as a current liability on the Company’s Boardcondensed consolidated balance sheets. As of Directors approved a program to be administered by management that authorizedMarch 31, 2023, 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 interestseffective interest rate of the Channel Partners with thoseSenior Secured Notes and Delayed Draw Term Notes were 11.4% and 12.5%, respectively.
The Company’s principal maturities 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, the Company issued 3,074,500 common stock warrants to Channel Partners. The warrants have a performance condition and vest over three years 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 conditionsterm debt are generally based on the average number of unique visitors on the Channel operated by the Channel Partner generated during the period from July 1, 2017, todue 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, the Company has estimated that 1,556,000 of Channel Partner Warrants will be earned. The Company recorded in Service Costs a total of $35,000 and $115,000 of stock-based compensation related to Channel Partner warrants2023 in the three and nine months ended September 30, 2017, respectively.amount of $66,691.
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 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 to MDB Capital Group LLC, which acted as placement agent. The transaction costs of $446,000, including $201,000 of non-cash expenses, have been recorded as a reduction in paid-in capital.
Stock-based Compensation
The impact on our results of operations of recording stock-based compensation expenseInformation for the three months ended September 30, 2017March 31, 2023 and 2022 with respect to interest expense related to term debt is provided below.
Interest Expense
The following table represents interest expense:
Summary of Interest Expense
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Amortization of debt costs: | ||||||||
Line of credit | $ | 54 | $ | - | ||||
Bridge Notes | 628 | - | ||||||
Senior Secured Notes | 223 | 350 | ||||||
Delayed Draw Term Notes | 25 | 310 | ||||||
Total amortization of debt costs | 930 | 660 | ||||||
Cash paid interest: | ||||||||
Line of credit | 438 | 252 | ||||||
Bridge Notes | 1,127 | - | ||||||
Senior Secured Notes | 1,567 | 1,567 | ||||||
Delayed Draw Term Notes | 100 | 247 | ||||||
Other | 20 | 94 | ||||||
Total cash paid interest | 3,252 | 2,160 | ||||||
Total interest expense | $ | 4,182 | $ | 2,820 |
21 |
12.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, 2023 as follows:
● | authorized shares designated as “Series G Convertible Preferred Stock”, of which shares are outstanding. | |
● | authorized shares designated as “Series H Convertible Preferred Stock” (as further described below), of which shares are outstanding. |
13.Stockholders’ Equity
Common Stock
The Company has the authority to issue shares of common stock, $ par value per share.
On March 31, 2023, the Company entered into common stock purchase agreements with certain purchasers, pursuant to which the Company agreed to issue and sell in a registered direct offering an aggregate of shares of the Company’s common stock, $par value per share at a purchase price of $per share. The gross proceeds received were $11,500 and after deducting offering expenses of $289, the Company received net proceeds of $11,211, as reflected on the condensed consolidated statements of stockholder’s deficiency. No underwriter or placement agent participated in the registered direct offering. The Company intends to use the net proceeds for working capital and other general corporate purposes.
On February 15, 2022 and March 11, 2022, the Company raised gross proceeds of $34,498 pursuant to a firm commitment underwritten public offering of shares of the Company’s common stock (on February 15, 2022 the Company issued shares and on March 11, 2022 the Company issued shares pursuant to the underwriter’s overallotment that was exercised on March 10, 2022), at a public offering price of $ per share. The Company received net proceeds of $32,058, after deducting underwriting discounts and commissions and other offering costs payable by the Company. In addition, the Company directly incurred offering costs of $1,568 and recorded $30,490 upon the issuance of its common stock, as reflected on the condensed consolidated statements of stockholders’ deficiency.
The Company provides stock-based and equity-based compensation in the form of (a) restricted stock awards and restricted stock units to certain employees (the “Restricted Stock”), (b) stock option awards, unrestricted stock awards and stock appreciation rights to employees, directors and consultants under various plans (the “Common Stock Options”), and (c) common stock warrants, referred to as the ABG Warrants and Publisher Partner Warrants (collectively the “Warrants”) as referenced in the below table.
22 |
Summary of Stock-based Compensation
Three Months Ended March 31, 2023 | ||||||||||||||||
Restricted Stock | Common Stock Options | Warrants | Totals | |||||||||||||
Cost of revenue | $ | 794 | $ | 1,291 | $ | - | $ | 2,085 | ||||||||
Selling and marketing | 65 | 388 | - | 453 | ||||||||||||
General and administrative | 2,352 | 1,291 | 246 | 3,889 | ||||||||||||
Total costs charged to operations | 3,211 | 2,970 | 246 | 6,427 | ||||||||||||
Capitalized platform development | - | 307 | - | 307 | ||||||||||||
Total stock-based compensation | $ | 3,211 | $ | 3,277 | $ | 246 | $ | 6,734 |
Three Months Ended March 31, 2022 | ||||||||||||||||
Restricted Stock | Common Stock Options | Warrants | Totals | |||||||||||||
Cost of revenue | $ | 868 | $ | 1,289 | $ | - | $ | 2,157 | ||||||||
Selling and marketing | 73 | 527 | - | 600 | ||||||||||||
General and administrative | 1,858 | 2,237 | 515 | 4,610 | ||||||||||||
Total costs charged to operations | 2,799 | 4,053 | 515 | 7,367 | ||||||||||||
Capitalized platform development | - | 687 | - | 687 | ||||||||||||
Total stock-based compensation | $ | 2,799 | $ | 4,740 | $ | 515 | $ | 8,054 |
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, 2023 were as follows:
Schedule of Unrecognized Compensation Expense
As of March 31, 2023 | ||||||||||||||||
Restricted Stock | Common Stock Options | Warrants | Totals | |||||||||||||
Unrecognized compensation expense | $ | 10,757 | $ | 13,941 | $ | 794 | $ | 25,492 | ||||||||
Weighted average period expected to be recognized (in years) | 1.39 | 0.84 | 1.42 |
Modification of Awards – On February 28, 2023, the Company modified certain equity awards as a result of the resignation of a senior executive employee where 68 reflected in accrued expenses and other as of March 31, 2023 on the condensed consolidated balance sheets. restricted stock units with time-based vesting that were unvested were vested and options for shares of the Company’s common stock with time-based vesting that were unvested were vested, each subject to compliance with applicable securities laws and certain other provisions. In connection with the modification of these equity awards, the Company agreed to purchase a total of options of shares of the Company’s common stock (including previously vested options of shares of the Company’s common stock of ) as of the resignation date of the employee at a price of $ per share, reduced by the exercise price and required tax withholdings, subject to certain conditions. The modification of the equity awards resulted in the unamortized costs being recognized at the modification date. The cash price of $ per option less the strike price of $ per option resulted in incremental cost of $ being recognized at the modification date. The modification resulted in liability classification of the equity awards, with $
Publisher Partner Warrants – On March 13, 2023, the Company issued 10.56 and warrants were issued with an effective date of March 13, 2023 and an exercise price of $5.30) under the warrant incentive plan approved on November 2, 2022, referred to as the New Publisher Partner Warrants, with the following terms: (i) one-third of the warrants will become exercisable and vest on the one-year anniversary of the issuance; (ii) the remaining warrants will become exercisable and vest in a series of twenty-four (24) successive equal monthly installments following the first anniversary of the issuance; and (iii) a five-year term. The issuance of the New Publisher Partner Warrants is administered by management and approved by the Board. warrants for shares of the Company’s common stock ( warrants were issued with an effective date of November 3, 2022 and an exercise price of $
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 |
23 |
15.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
2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Revenue by category: | ||||||||
Digital revenue | ||||||||
Digital advertising | $ | 23,504 | $ | 21,646 | ||||
Digital subscriptions | 3,871 | 6,461 | ||||||
Licensing and syndication revenue | 4,622 | 3,101 | ||||||
Other digital revenue | 636 | 364 | ||||||
Total digital revenue | 32,633 | 31,572 | ||||||
Print revenue | ||||||||
Print advertising | 2,082 | 1,368 | ||||||
Print subscriptions | 16,665 | 15,303 | ||||||
Total print revenue | 18,747 | 16,671 | ||||||
Total | $ | 51,380 | $ | 48,243 | ||||
Revenue by geographical market: | ||||||||
United States | $ | 49,575 | $ | 47,321 | ||||
Other | 1,805 | 922 | ||||||
Total | $ | 51,380 | $ | 48,243 | ||||
Revenue by timing of recognition: | ||||||||
At point in time | $ | 47,509 | $ | 41,782 | ||||
Over time | 3,871 | 6,461 | ||||||
Total | $ | 51,380 | $ | 48,243 | ||||
Total revenue | $ | 51,380 | $ | 48,243 |
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, 2023 (unaudited) | December 31, 2022 | |||||||
As of | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
Unearned revenue (short-term contract liabilities): | ||||||||
Digital revenue | $ | 19,342 | $ | 18,571 | ||||
Print revenue | 41,242 | 40,132 | ||||||
Total short-term contract liabilities | $ | 60,584 | $ | 58,703 | ||||
Unearned revenue (long-term contract liabilities): | ||||||||
Digital revenue | $ | 825 | $ | 1,118 | ||||
Print revenue | 20,409 | 18,583 | ||||||
Total long-term contract liabilities | $ | 21,234 | $ | 19,701 |
Unearned Revenue – Unearned revenue, also referred to as contract liabilities, include payments received in advance of performance under certain contracts and are recognized as revenue over time. The Company records contract liabilities as unearned revenue on the condensed consolidated balance sheets.
24 |
In addition,
16.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 income tax provision effective tax rate for the three months ended September 30, 2017, stock-based compensation totaling $243,484 during the applicationMarch 31, 2023 and development stage2022 was capitalized for website development.
0.04% and 0.08%, respectively. The impact on our results of operations of recording stock-based compensation expensedeferred income taxes for the ninethree months ended September 30, 2017,March 31, 2023 and 2022 was as follows:
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, during the nine months ended September 30, 2017, stock-based compensation totaling $688,302 during the application and development stage was capitalized for website development.
10. Income Taxes
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, andprimarily due to deferred tax liabilities are recognized foron indefinite lived intangible assets.
The realization of deferred tax assets is dependent upon a variety of factors, including the generation of future taxable temporary differences. Temporary differences areincome, the differences between the reported amountsreversal of assetsdeferred tax liabilities, and liabilities intax planning strategies. Based upon the Company’s financial statementshistorical operating losses and their tax bases. Deferred tax assets are reduced bythe uncertainty of future taxable income, the Company has provided a valuation allowance when, in the opinion of management, it is more likely than not that all or some portionagainst most of the deferred tax assets will not be realized. Deferred tax assetsas of March 31, 2023 and liabilities are adjusted for the effects2022.
As of changes in tax lawsMarch 31, 2023 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 to 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,2022, the Company has not recorded those NOL carryforwardsno uncertain tax positions or interest and credit carryforwards in its deferred tax assets.penalties accrued.
The Parent17.Related Party Transactions
Principal Stockholder
For the three months ended March 31, 2023 and 2022, the Company paid in cash interest of $2,998 and accrued interest that was added to the principal of $1,815, respectively, on the Senior Secured Note and Delayed Draw Term Note due to BRF, which is no longer subjectan affiliate of B. Riley, a principal stockholder.
On March 31, 2023, the Company entered into common stock purchase agreements with certain purchasers, pursuant to U.S. federalwhich the Company agreed to issue and state income tax examinations by tax authoritiessell in a registered direct offering an aggregate of shares of the Company’s common stock. Certain affiliates of B. Riley participated in the registered direct offering and purchased an aggregate of shares of the Company’s common stock at a price per share of $ per share for years before 2012. The Company currently is not under examination by any tax authority.a total consideration of $790.
As of September 30, 2017,For the three months ended March 31, 2022, the Company had deferred tax assets primarily consisting of net operating losses, stock-based compensationcertain transactions with B. Riley, a principal stockholder, where it paid fees associated with the common stock public offering totaling $2,440.
Consulting and accrued liabilities not currently deductible. However, because ofService Contracts
For 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 assets which the Company does 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. If the Company’s assumptions and consequently its estimates change in the future, the valuation allowances it has established may be increased or decreased, resulting in a respective increase or decrease in income tax expense.
At September 30, 2017, the Company had net operating loss carryforwards 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 | % |
TheMarch 31, 2023 and 2022, the Company recognizes tax benefits frompaid an uncertain position only if it is “more likely than not” thatentity affiliated with James C. Heckman, its former Chief Executive Officer, Roundtable Media, L.L.C., net revenue share amounts of $66 and $107, respectively, in connection with a partner agreement. For 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 ninethree months ended September 30, 2017. TheMarch 31, 2022, the Company has evaluated and concluded that there are no uncertain tax positions requiring recognitionpaid consulting fees of $165 in connection with a consulting agreement, as amended from time to time.
Repurchases of Restricted Stock
On December 15, 2020, the Company’s financial statements for the nine months ended September 30, 2017.
11. Related Party Transactions
The ParentCompany entered into an Investment Banking Advisory Services agreement in November 2007 with MDB Capital Group LLC (“MDB”),amendment for certain restricted stock awards and the parties extended the agreement indefinitely in April 2009. The agreement terminated on completion of the Recapitalization. Under the agreement, MDB acted as an advisorunits that were previously issued to the Parentcertain employees in connection with the Recapitalization. AtHubPages merger, pursuant to which the closingCompany agreed to repurchase from certain key personnel of HubPages, Inc., including Paul Edmondson, one 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)Company’s officers, and issued to MDB and its designees, Mr. Christopher A. Marlett, Robert Levande, and Mr. Schuman, a 5-year warrants to purchasehis spouse, an aggregate of 1,169,607 shares of Common Stock, with an exercise price of $0.20 per share, representing 5% of the number of shares of the Parent on a fully diluted basis immediately after the Closing. The fair value of the warrants using Black Scholes Option Pricing model was determined to be $744,105. These amounts were recorded in the financial statements of the Parent prior to the Recapitalization.
Prior to 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.
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 itsCompany’s common stock selling 3,765,000 shares at $1.00a price of $ per share each month for total grossa period of 24 months, for aggregate proceeds to Mr. Edmondson and his spouse of $3,765,000. In connection with$67 per month. For the offering,three months ended March 31, 2022, the Company paid $188,250Mr. Edmonson and issued 162,000his spouse $269 for shares of the Company’s common stock, valued at $201,000, to MDB Capital Group LLC, which acted as placement agent.stock.
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.
25 |
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. 18.Commitments and Contingencies
Claims and Litigation – 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.
Royalty Fees – The Company guaranteed minimum annual royalties of $15,000 to ABG-SI, LLC. The initial term of the minimum guarantee will expire December 31, 2029.
19.Subsequent Events
The Company may have a liability for additional state franchise taxes payable inperformed an evaluation of subsequent events through the amountdate of approximately $44,000, plus interest at 18% per annum, forfiling of these condensed consolidated financial statements with the years 2008-2014. Because of state statutory provisions,SEC. Other than the underpaid amount will only be due once assessed and demanded bybelow described subsequent events, there were no material subsequent events which affected, or could affect, the state. The tax liability and associated interest has not been included as an accrued liability because management has determined thatamounts or disclosures on 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.condensed consolidated financial statements.
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.Liquidated Damages
On a select basis,April 10, 2023, the Company has provided revenue share guarantees to certain independent publishers that transition their publishing operations from another platform to theMaven.net. These arrangements generally guarantee the publisher a monthly amount of income for a period of 12 to 24 months from inception 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) in any month during the first 12 to 24 months (“the Guarantee Period”), then the Company may recoup the aggregate Over Advance that was expensed in the Guarantee Period during the 12 months following the Guarantee Period 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 contingent amount that the Company may recoup is $264,000. The following table shows the aggregate commitment by year:
Commitment | ||||
2017 | $ | 300,000 | ||
2018 | 775,000 | |||
2019 | 140,000 | |||
$ | 1,215,000 |
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 placementissued shares of its common stock selling 2,391,304 shares at $1.15 per share, for total gross proceeds of $2,750,000. Inin connection with a stock purchase agreement, where the offering,Company was liable for liquidated damages in lieu of an aggregate of $124 owed in liquidated damages.
Series H Convertible Preferred Stock
On April 17, 2023, the Company issued 119,565 shares of its common stock upon conversion of shares of its Series H convertible preferred stock.
Common Stock
On April 14, 2023 and 119,565 warrants to acquireMay 3, 2023, the Company issued in aggregate shares of its common stock at a priceupon the vesting 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.certain restricted stock units.
Compensation Plans
Related to
From April 1, 2023 through the private placement completed on October 19, 2017,date these condensed consolidated financial statements were issued, the Company filed a registration statement on Form S-1 to registergranted options for shares of the shares issued in theCompany’s common stock, offering. The Securitiesrestricted stock units and Exchange Commission declared the registration effective on November 6, 2017.restricted stock awards totaling , all of which remain outstanding.
26 |
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, 2023 and 2022 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, 2022 included in this report. Thisthe Annual Report on Form 10-K filed with the SEC on March 31, 2023. 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. 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 are a tech-powered media company that focuses on building deep content verticals powered by a best-in-class digital media platform (the “Platform”) empowering premium publishers who impact, inform, educate, and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports and finance), and where we can leverage the strength of our core brands to grow our audience and increase monetization both within our core brands as well as our media publisher partners (each, a “Publisher Partner”). Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize audience reach, improve engagement, and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our greater than 40 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated, own and operate TheStreet, Inc. College Spun Media Incorporated, Parade Media, and Men’s Journal and power more than 225 independent Publisher Partners, including the many sports team sites that comprise FanNation. Each Publisher Partner joins the Platform by invitation only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization, social media, ad monetization and subscription marketing, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While the Publisher Partners benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management.
Of the more than 225 Publisher Partners, a large majority of them publish content within one of our four verticals of sports, finance, lifestyle or men’s lifestyle, and oversee an online community for their respective sites, leveraging our Platform, monetization operation, distribution channels and data and analytics offerings and benefiting from our ability to engage the collective audiences within a single network. 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.
Our 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.
27 |
Impact of Macroeconomic Conditions
Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including as a result of increases in inflation, rising interest rates and instability in the global banking system and geopolitical factors, including those set forth elsewhere in this Report.
Overview
The Company was incorporated under the name of Integrated Surgical Systems, Inc. (“Integrated”) in Delaware in 1990. It was founded to design, manufacture, sellongoing conflict between Russia and service image-directed, computer-controlled robotic softwareUkraine and hardware products for use in orthopedic surgical procedures. On June 28, 2007, Integrated sold substantially all of its operating assets,the responses thereto, 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 until the closingremaining effects of the Recapitalization (as defined in Note 2 Basis of Presentation of Item 1. Financial Statements) on November 4, 2016, Integrated was a non-active “shell company” as defined by regulationsCOVID-19 pandemic. While we are closely monitoring the impact of the SEC.current macroeconomic conditions on all aspects of our business, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside of our control and could exist for an extended period of time. As a result, we are subject to continuing risks and uncertainties and continue to closely monitor the impact of the Recapitalization,current conditions on a going forward basis,our business. For additional information, see the Company continued to file its public reportssections titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 and in this Quarterly Report.
Key Operating Metrics
We monitor and review the key operating metrics described below as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods, including a 74% increase year-over-year from 2021 to 2022 and a 9% increase in the three months ended March 31, 2023, as compared to the same period in fiscal 2022. Management monitors and reviews these metrics because such metrics are readily measurable in real time and can provide valuable insight into the performance of and trends related to our digital advertising revenue and our overall business. We consider only those key operating metrics described here to be material to our financial condition, results of operations and future prospects.
Our key operating metrics are identified below:
● | Revenue per page view (“RPM”) – represents the advertising revenue earned per 1,000 pageviews. It is calculated as our advertising revenue during a period divided by our total page views during that period and multiplied by $1,000; and | |
● | Monthly average pageviews – represents the total number of pageviews in a given month or the average of each month’s pageviews in a fiscal quarter or year, which is calculated as the total number of page views recorded in a quarter or year divided by three months or 12 months, respectively. |
For pricing indicators, we focus on RPM as it is the pricing metric most closely aligned with monthly average pageviews. RPM is an indicator of yield and pricing driven by both advertising density and demand from our advertisers.
Monthly average pageviews are measured across all properties hosted on the Arena Platform and provide us with insight into volume, engagement and effective page management and are therefore our primary measure of traffic. We utilize a third-party source, Google Analytics, to confirm this traffic data.
As described above, these key operating company basis. On December 2, 2016,metrics are critical for management as they provide insights into our digital advertising revenue generation and overall business performance. This information also provides feedback on the corporate namecontent on our website and its ability to attract and engage users, which allows us to make strategic business decisions designed to drive more users to read or view more of our content and generate higher advertising revenue across all properties hosted on the Arena Platform.
For the months ended March 31, 2023 and 2022 our RPM was changed from “Integrated Surgical Systems, Inc.”$16.77 and $15.02, respectively. For the three months ended March 31, 2023 and 2022 our monthly average pageviews were 467,296,344 and 480,352,466, respectively.
All dollar figures presented below are in thousands unless otherwise stated.
28 |
Liquidity and Capital Resources
Cash and Working Capital Facility
As of March 31, 2023, our principal sources of liquidity consisted of cash of $15,961. In addition, as of March 31, 2023, we had $30,441 available for additional use, subject to “theMaven, Inc.”
In determiningeligible accounts receivable, under our working capital line of credit with SLR Digital Finance LLC (formerly FastPay) (“SLR”). As of March 31, 2023, the accounting treatment for the Share Exchange Agreement, the primary factor was determining which party, directly or indirectly, holds greater than 50 percentoutstanding balance of the voting shares has control and is considered to be the acquirer. Because the former shareholdersSLR working capital line of credit was $9,559. We also had accounts receivable, net of our advances from SLR of $14,002 as of March 31, 2023. Our cash balance as of the Subsidiary received 56.7 percent voting controlissuance date 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 $6,144.
Off-Balance Sheet Arrangements
As of March 31, 2023, pursuant to our line of credit with SLR, as disclosed above, in the event that our line of credit is accelerated, we will be obligated to pay SLR a termination fee of $900.
As of March 31, 2023, in connection with the Sports Illustrated media business, we guaranteed a minimum annual royalty of $15,000 through December 31, 2029, for a total of $86,250.
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 4, 8, 10 and the Company’s independent registered public accounting firm,11 in its report on the Company’s 2016our accompanying condensed consolidated financial statements has raised substantial doubt about the Company’s ability to continue as a going concern.
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 and completed a second private placement raising $2.75 million in October 2017, of which $1.75 million has been receivedfor amounts outstanding as of September 30, 2017.March 31, 2023, related to leases, liquidated damages, bridge notes and term debt. During 2022, we assumed the lease from Men’s Journal for office space in Carlsbad, California, that expires in March 2025, and we remain responsible for $3,074 over the lease term. The Company believes that it does not have sufficient fundslease provides for fixed payments ranging from $89 to support its operations$94 over the remainder of the lease term, with an estimate of common expenses per month of $25 through the end of the first quarterlease term. There have been no material changes from the disclosures in our Annual Report on Form 10-K.
Working Capital Deficit
We have financed our working capital requirements since inception through issuances of 2018. In orderequity securities and various debt financings. Our working capital deficit as of March 31, 2023 and December 31, 2022 was as follows:
As of | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
Current assets | $ | 83,969 | $ | 78,695 | ||||
Current liabilities | (216,845 | ) | (216,364 | ) | ||||
Working capital deficit | (132,876 | ) | (137,669 | ) |
As of March 31, 2023, we had a working capital deficit of $132,876, as compared to continue business operations past that point, the Company currently anticipates that it will need to raise additional debt and/or equity$137,669 as of December 31, 2022, consisting of $83,969 in total current assets and $216,845 in total current liabilities. As of December 31, 2022, our working capital deficit consisted of $78,695 in the first quarter of 2018.total current assets and $216,364 in total current liabilities.
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.
29 |
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 $374,944Our cash flows for the three months ended September 30, 2016 becauseMarch 31, 2023 and 2022 consisted of 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 infollowing:
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Net cash used in operating activities | $ | (1,672 | ) | $ | (13,311 | ) | ||
Net cash used in investing activities | (1,688 | ) | (1,653 | ) | ||||
Net cash provided by (used in) financing activities | 5,450 | 28,095 | ||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 2,090 | $ | 13,131 | ||||
Cash, cash equivalents, and restricted cash, end of period | $ | 16,463 | $ | 22,982 |
For 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, 2023, net cash used in operating activities was $2,654,964 which was$1,672, consisting primarily dueof $59,394 of cash paid to the net lossemployees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of $4,371,491 reducedroyalty fees and professional services; and $3,252 of cash paid for interest, offset by non-cash expenses for stock-based compensation$60,974 of approximately $1,358,000 and amortization and depreciation 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.
received from customers. For the three months ended September 30, 2016,March 31, 2022, net cash used in operating activities was $492,021 which$13,311, consisting primarily of $58,227 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services; and $2,160 of cash paid for interest, offset by $47,076 of cash received from customers.
For the three months ended March 31, 2023, net cash used in investing activities was $1,688, consisting primarily due toof $1,188 for capitalized costs for our Platform and $500 for the acquisition of a business. For the three months ended March 31, 2022, net losscash used in investing activities was $1,653 consisting primarily of $1,489,449 reduced$1,582 for capitalized costs for our Platform and $71 for property and equipment.
For the three months ended March 31, 2023, net cash provided by non-cash expenses for stock-based compensationfinancing activities was $5,450, consisting primarily of approximately $935,000 and increased by working capital changes$11,431 (excluding accrued offering costs of approximately $62,000. Operating activities were funded primarily by$69) in net proceeds from notes payable from Integrated prior to the completion of the Recapitalization on November 4, 2016.
We anticipate needing a substantial amount of additional capital to sustain our current operations and implement the current business plan of the Company as now budgeted. We do not believe that the proceeds of the private placementpublic offering of common stock completed on October 19, 2017, will be sufficient to allow us to implementless (i) $4,533 from repayments of our business planSLR line of credit; (ii) $25 in payment of deferred cash payments, and (iii) $1,423 for tax payments relating to the point wherewithholding of shares of common stock for certain employees. For the three months ended March 31, 2022, net cash provided by financing activities was $28,095 consisting primarily of $32,058 (excluding accrued offering costs of $1,568) in net proceeds from the public offering of common stock less (i) $2,697 from repayments of our revenues will coverSLR 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.
Results of Operations
Three Months Ended March 31, 2023 and 2022
Three months ended March 31, | 2023 versus 2022 | |||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Revenue | $ | 51,380 | $ | 48,243 | $ | 3,137 | 6.5 | % | ||||||||
Cost of revenue | 30,035 | 28,497 | 1,538 | 5.4 | % | |||||||||||
Gross profit | 21,345 | 19,746 | 1,599 | 8.1 | % | |||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 17,969 | 17,216 | 753 | 4.4 | % | |||||||||||
General and administrative | 13,053 | 13,514 | (461 | ) | -3.4 | % | ||||||||||
Depreciation and amortization | 4,766 | 4,202 | 564 | 13.4 | % | |||||||||||
Loss on disposition of assets | 119 | 257 | (138 | ) | -53.7 | % | ||||||||||
Total operating expenses | 35,907 | 35,189 | 718 | 2.0 | % | |||||||||||
Loss from operations | (14,562 | ) | (15,443 | ) | 881 | -5.7 | % | |||||||||
Total other expenses | (4,808 | ) | (2,992 | ) | (1,816 | ) | 60.7 | % | ||||||||
Loss before income taxes | (19,370 | ) | (18,435 | ) | (935 | ) | 5.1 | % | ||||||||
Income tax provision | (7 | ) | (14 | ) | 7 | -50.0 | % | |||||||||
Net loss | $ | (19,377 | ) | $ | (18,449 | ) | $ | (928 | ) | 5.0 | % | |||||
Basic and diluted net loss per common share | $ | (1.04 | ) | $ | (1.20 | ) | $ | 0.16 | -13.3 | % | ||||||
Weighted average number of shares outstanding – basic and diluted | 18,718,555 | 15,381,306 |
30 |
For the three months ended March 31, 2023, net loss was $19,377, as compared to $18,449 for the three months ended March 31, 2022, which represents an increase of $928. While the loss from operations improved $881 due to a $3,137 increase in revenue, which was partially offset by an increase in operating expenses of $718 during the three months ended March 31, 2023, the increase in net loss reflected an increase in other expenses, primarily as a result of an increase in interest expense of $1,362 included in other expenses.
Revenue
The following table sets forth revenue, cost of revenue, and gross profit:
Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Revenue | $ | 51,380 | $ | 48,243 | $ | 3,137 | 6.5 | % | ||||||||
Cost of revenue | 30,035 | 28,497 | 1,538 | 5.4 | % | |||||||||||
Gross profit | $ | 21,345 | $ | 19,746 | $ | 1,599 | 8.1 | % |
For the three months ended March 31, 2023 we had gross profit of $21,345, as compared to $19,746 for the three months ended March 31, 2022, an increase of $1,599. Gross profit percentage for the three months ended March 31, 2023 was 41.5%, as compared to 40.9% for the three months ended March 31, 2022.
The improvement in gross profit percentage was driven by more favorable revenue shares on premium digital advertising. As a result, Publisher Partner revenue share as a percentage of digital advertising revenue was 23.3% for the three months ended March 31, 2023, as compared to 55.0% for the three months ended March 31, 2022.
The following table sets forth revenue by category:
Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Digital revenue: | ||||||||||||||||
Digital advertising | $ | 23,504 | $ | 21,646 | $ | 1,858 | 8.6 | % | ||||||||
Digital subscriptions | 3,871 | 6,461 | (2,590 | ) | -40.1 | % | ||||||||||
Licensing and syndication revenue | 4,622 | 3,101 | 1,521 | 49.0 | % | |||||||||||
Other digital revenue | 636 | 364 | 272 | 74.7 | % | |||||||||||
Total digital revenue | 32,633 | 31,572 | 1,061 | 3.4 | % | |||||||||||
Print revenue: | ||||||||||||||||
Print advertising | 2,082 | 1,368 | 714 | 52.2 | % | |||||||||||
Print subscriptions | 16,665 | 15,303 | 1,362 | 8.9 | % | |||||||||||
Total print revenue | 18,747 | 16,671 | 2,076 | 12.5 | % | |||||||||||
Total revenue | $ | 51,380 | $ | 48,243 | $ | 3,137 | 6.5 | % |
For the three months ended March 31, 2023, total revenue increased $3,137 to $51,380 from $48,243 for the three months ended March 31, 2022. The primary sources of revenue for the three months ended March 31, 2023 were as follows: (i) digital advertising of $23,504, (ii) digital subscriptions of $3,871, (iii) licensing and syndication revenue and other digital revenue of $5,258, (iv) print advertising of $2,082 and (v) print subscriptions of $16,665.
The primary driver of the increase in our operating coststotal revenue is derived from our licensing and syndication, digital advertising revenue and other digital revenue which increased by $1,521, $1,858 and $272, respectively. This was offset by a $2,590 decrease in digital subscriptions, resulting in a $1,061 increase in total digital revenue in the three months ended March 31, 2023 as compared to the prior year period. In addition, total print revenue increased by $2,076 as print advertising increased by $714 and print subscriptions grew by $1,362, both reflecting improvements in the results of Sports Illustrated and the expansionaddition of our business offerings. Without additional funding,the Athlon Outdoor properties, which were acquired as part of the Parade Media acquisition in April of 2022.
31 |
Cost of Revenue
The following table sets forth cost of revenue by category:
Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Publisher Partner revenue share payments | $ | 4,247 | $ | 5,042 | $ | (795 | ) | -15.8 | % | |||||||
Technology, Platform and software licensing fees | 4,237 | 3,174 | 1,063 | 33.5 | % | |||||||||||
Royalty fees | 3,750 | 3,750 | - | 0.0 | % | |||||||||||
Content and editorial expenses | 9,403 | 9,192 | 211 | 2.3 | % | |||||||||||
Printing, distribution and fulfillment costs | 3,853 | 2,857 | 996 | 34.9 | % | |||||||||||
Amortization of developed technology and platform development | 2,369 | 2,311 | 58 | 2.5 | % | |||||||||||
Stock-based compensation | 2,085 | 2,157 | (72 | ) | -3.3 | % | ||||||||||
Other cost of revenue | 91 | 14 | 77 | 550.0 | % | |||||||||||
Total cost of revenue | $ | 30,035 | $ | 28,497 | $ | 1,538 | 5.4 | % |
For the three months ended March 31, 2023, we will haverecognized cost of revenue of $30,035, as compared to modify our longer-term business plan. The funds that we will need may be raised through equity financing, debt financing, or other sources,$28,497 for the three months ended March 31, 2022, which may result in further dilution in the equity ownershiprepresents an increase of our shares. We anticipate thereafter that we will need additional capital in$1,538. Cost of revenue for the first quarter of 20182023 was impacted by increases in (i) technology, Platform and software licensing fees of $1,063, (ii) printing, distribution and fulfillment costs of $996, partially offset by decreases in (iii) Publisher Partner revenue share payments of $795.
Operating Expenses
Selling and Marketing
The following table sets forth selling and marketing expenses from continuing operations by category:
Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Payroll and employee benefits of selling and marketing account management support teams | $ | 4,288 | $ | 3,281 | $ | 1,007 | 30.7 | % | ||||||||
Stock-based compensation | 453 | 600 | (147 | ) | -24.5 | % | ||||||||||
Professional marketing services | 679 | 617 | 62 | 10.0 | % | |||||||||||
Circulation costs | 1,048 | 783 | 265 | 33.8 | % | |||||||||||
Subscription acquisition costs | 10,005 | 9,723 | 282 | 2.9 | % | |||||||||||
Advertising costs | 985 | 1,310 | (325 | ) | -24.8 | % | ||||||||||
Other selling and marketing expenses | 511 | 902 | (391 | ) | -43.3 | % | ||||||||||
Total selling and marketing | $ | 17,969 | $ | 17,216 | $ | 753 | 4.4 | % |
For the three months ended March 31, 2023, we incurred selling and marketing costs of $17,969, as we expand our operations, and do not anticipate that our income will cover our full operating expensescompared to $17,216 for the foreseeable future.three months ended March 31, 2022. The increase in selling and marketing costs of $753 is primarily related to a $1,007 increase in payroll and employee benefits for our selling and marketing account management support teams, partially offset by a decrease in other selling and marketing expenses of $391. The increase in circulation costs reflects the addition of the Athlon Outdoor properties.
32 |
General and Administrative
The following table sets forth general and administrative expenses by category:
Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Payroll and related expenses for executive and administrative personnel | $ | 3,798 | $ | 3,974 | $ | (176 | ) | -4.4 | % | |||||||
Stock-based compensation | 3,889 | 4,610 | (721 | ) | -15.6 | % | ||||||||||
Professional services, including accounting, legal and insurance | 3,425 | 3,638 | (213 | ) | -5.9 | % | ||||||||||
Other general and administrative expenses | 1,941 | 1,292 | 649 | 50.2 | % | |||||||||||
Total general and administrative | $ | 13,053 | $ | 13,514 | $ | (461 | ) | -3.4 | % |
For the three months ended March 31, 2023, we incurred general and administrative costs of $13,053 as compared to $13,514 for the three months ended March 31, 2022. The $461 decrease in general and administrative expenses is primarily due to a decrease in stock-based compensation of $721, partially offset by an increase in other general corporate expenses of $649.
Other Expenses
The following table sets forth other expenses:
Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Change in fair value of contingent consideration | $ | (499 | ) | $ | - | $ | (499 | ) | 100.0 | % | ||||||
Interest expense, net | (4,182 | ) | (2,820 | ) | (1,362 | ) | 48.3 | % | ||||||||
Liquidated damages | (127 | ) | (172 | ) | 45 | -26.2 | % | |||||||||
Total other expenses | $ | (4,808 | ) | $ | (2,992 | ) | $ | (1,816 | ) | 60.7 | % |
Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $499 for the three months ended March 31, 2023 represents the change in the put option on our common stock in connection with the Fexy Studios acquisition.
Interest Expense. We have no contracts or arrangementsincurred interest expense of $4,182 and $2,820 for any additional funding at this time. There can be no assurance 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 onthree months ended March 31, 2023 and 2022, respectively, as 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. These estimates may change significantly depending on the natureresult of our business activities and our ability to raise capital from our shareholders or other sources.debt increase.
There are no assurances that we will be able to obtain further funds required for our continued operations.Liquidated Damages. 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,recorded $127 of accrued 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 Policiesliquidated damages payable for the three months ended March 31, 2023 primarily from the issuance of our convertible debentures, Series H convertible preferred stock, Series I convertible preferred stock, Series J convertible preferred stock and Estimates
The Company’s discussion and analysisSeries K convertible preferred stock. We recorded $172 of accrued interest on our liquidated damages payable for the three months ended March 31, 2022 primarily from issuance of the same securities as outlined above.
33 |
Use of Non-GAAP Financial Measures
We report our financial condition and results of operations is based upon the Company’s audited financial statements included elsewhere in this Report, which have been prepared 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 fair value of contingent consideration; (vi) liquidated damages, (vii) loss on impairment of assets, (viii) employee retention credit, 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 are that Adjusted EBITDA:
● | 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; | |
● | 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 stock-based compensation and, therefore, does not include all of our compensation costs; | |
● | does not reflect the change in fair value of contingent consideration, which is a noncash expense; | |
● | 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 employee retention credits recorded by us for payroll related tax credits under the Cares Act; and | |
● | does not reflect payments related to employee restructuring changes for our former Chief Executive Officer. |
The following table presents a reconciliation of Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, for the periods indicated:
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Net loss | $ | (19,377 | ) | $ | (18,449 | ) | ||
Add (deduct): | ||||||||
Interest expense, net (1) | 4,182 | 2,820 | ||||||
Income tax benefit | 7 | 14 | ||||||
Depreciation and amortization (2) | 7,135 | 6,513 | ||||||
Stock-based compensation (3) | 6,427 | 7,367 | ||||||
Change in fair value of contingent consideration (4) | 499 | - | ||||||
Liquidated damages (5) | 127 | 172 | ||||||
Loss on impairment of assets (6) | 119 | 257 | ||||||
Employee retention credit (7) | (6,868 | ) | - | |||||
Employee restructuring payments (8) | 3,288 | 174 | ||||||
Adjusted EBITDA | $ | (4,461 | ) | $ | (1,132 | ) |
(1) | Interest expense is related to our capital structure and varies over time due to a variety of financing transactions. Interest expense includes $930 and $660 for amortization of debt discounts for the three months ended March 31, 2023 and 2022, respectively, as presented in our condensed consolidated statements of cash flows, which is a noncash item. Investors should note that interest expense will recur in future periods. |
34 |
Principles of Consolidation
(2) | Depreciation and amortization is related to our developed technology and Platform included within cost of revenues of $2,369 and $2,311, for the three months ended March 31, 2023 and 2022, respectively, and depreciation and amortization included within operating expenses of $4,766 and $4,202 for the three months ended March 31, 2023 and 2022, 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) | Stock-based compensation represents noncash costs arise 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. | |
(4) | Change in fair value of contingent consideration represents the change in the put option on our common stock in connection with the Fexy Studios acquisition. | |
(5) | Liquidated damages (or interest expense related to accrued liquidated damages) represents amounts 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 registration rights agreements, including the filing of resale registration statements and becoming current in our reporting obligations, which we were not able to timely meet. | |
(6) | Loss on impairment of assets represents certain assets that are no longer useful. | |
(7) | Employee retention credit represents payroll related tax credits under the Cares Act. | |
(8) | Employee restructuring payments represents severance payments to employees under employer restructuring arrangements and payments to our former Chief Executive Officer for the three months ended March 31, 2023 and 2022, respectively. |
The accompanyingCritical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based upon our condensed 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 balanceswhich have been eliminatedprepared in consolidation.
Use of Estimates
The preparation ofaccordance with GAAP. In preparing the condensed consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America requires management towe make estimates and assumptionsjudgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenue, expenses, and liabilitiesrelated disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the disclosurecircumstances. Because of contingent assetsthe uncertainty inherent in these matters, actual results may differ from these estimates and liabilities atcould differ based upon other assumptions or conditions.
Except as described in Note 1, Summary of Significant Accounting Policies, of the Notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 that was filed with the SEC on March 31, 2023.
Recent Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies, of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted as of 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.report.
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 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 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 Rule13a-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.
35 |
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 evaluationend of the period covered by this Quarterly Report. In light of the material weaknesses described in Part II, Item 9A to our disclosure controlsAnnual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 that continue and procedureshave not been remediated as of the Evaluation Date, thedate of filing of this Quarterly Report, we have performed additional analyses, reconciliations, and other post-closing procedures to determine whether our condensed consolidated financial statements are prepared in accordance with GAAP. 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 March 31, 2023 in providing reasonable assurance that the identification of material weaknessesinformation 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 control procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act of 2002, 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) that occurred during the three months ended September 30, 2017,March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
36 |
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 inare numerous factors that affect our business and operating results, many of which are beyond our control. The following risk factor supplements and, to the extent inconsistent, supersedes, 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, 2016.2022 filed with the SEC on March 31, 2023 (the “2022 Form 10-K”). The risk factor included herein as well as the risk factors described in the 2022 Form 10-K 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.
Item2. Unregistered SalesUnfavorable economic and market conditions could adversely affect our business, reputation and results of Equity Securities and Use of Proceedsoperations.
On October 19, 2017, weOur services, products and properties are may be adversely impacted by uncertain economic conditions, including the impact of the ongoing COVID-19 pandemic; the Ukraine – Russia conflict; adverse changes in interest rates, foreign currency exchange rates, tax laws or tax rates; inflation; a recession; contraction in the availability of credit in the marketplace due to legislation or other economic conditions, which may potentially impair our ability to access the capital markets on terms acceptable to us or at all; and the effects of government initiatives to manage economic conditions. Moreover, there has been recent turmoil in the global banking system. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection & Innovation and the Federal Deposit Insurance Corporation (the “FDIC”) was named Receiver. While at the time of closing on securities purchase agreements with 13 purchasers (the “Investors”), which provided forMarch 10, 2023, [we had minimal cash, cash equivalents, restricted cash and investments] at SVB or under SVB management and the sale by usFDIC has taken steps to make whole all depositors 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 offeringSVB, there is no assurance that similar guarantees will be usedmade in the event of further bank closures and continued instability in the global banking system. Our ongoing cash management strategy is to maintain diversity in our deposit accounts across financial institutions, but deposits in these institutions may exceed the amount of insurance provided on such deposits and there can be no assurance that this strategy will be successful. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, then our ability to access our cash, cash equivalents, restricted cash and investments may be threatened, which could have a material adverse effect on our business and financial condition. Moreover, events such as the closure of SVB, in addition to other global macroeconomic conditions, may cause further turbulence and uncertainty in the capital markets. Furthermore, we cannot predict how future economic conditions will affect our users and Publisher Partners and any negative impact on our users or Publisher Partners may also have an adverse impact on our results of operations or financial condition. A severe or prolonged economic downturn, as result of a global pandemic such as the COVID-19 pandemic or otherwise, could result in a variety of risks to our business, including weakened demand for general workingour products and services and our ability to raise additional capital purposes to support the business operationswhen needed on favorable terms, if at all. Any of the Company. The Securitiesforegoing could harm our business 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, 119,565 shares of common stock and 119,565 warrants to purchase common stock at $1.15 per share. The shares of common stock issued in the offering and to the placement agent were offered and sold exclusively to accredited investors in a transaction exempt from registration under the Securities Act of 1933, as amended, as a transaction not involving a public offering, pursuant to Section 4(a)(2)we cannot anticipate all of the Securities Actways in which the current economic climate and Rule 506 of Regulation D promulgated thereunder.financial market conditions could adversely impact our business.
On December 19, 2016, the Registrant’s Board of Directors approved the ability of management to issue warrants to Channel Partners that would allow the warrant holders to purchase up to a maximum of 5,000,000 warrants in the aggregate. 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 issued on the basis of being a private placement under Section 4(a)(2) of the Securities Exchange Act of 1933, as amended.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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.
37 |
The following documents are filed as part of this Quarterly Report:
Exhibit Number | Description of Document | |
31.1* | ||
Officer’s Certification Pursuant to Section | ||
31.2* | Chief Financial Officer’s Certification Pursuant to Section | |
Chief Executive Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2# | Chief Financial Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
Cover Page Interactive Data File (embedded within the Inline XBRL | ||
Pursuant to the requirements# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the Registrantliability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
38 |
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 10, 2023 | By: | /s/ |
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: May 10, 2023 | By: | |
Douglas B. Smith | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
Dated: November 14, 2017
39 |