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,March 31, 20212022
☐ | 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, New York, New York | 10281 | |
(Address of principal executive offices) | (Zip Code) |
(212)(212) 321-5002
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(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 No ☒
As of November 1, 2021,May 2, 2022, the Registrant had shares of common stock outstanding.
TABLE OF CONTENTS
2 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Quarterly Report”) of theMaven,The Arena Group Holdings, Inc. (the “Company,” “we,” “our,” and “us”) contains certain 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 our business strategy, future revenues, market growth, capital requirements, product introductions, and expansion plans and the adequacy of our funding. Other statements contained in this Quarterly Report that are not historical facts are also forward-looking statements. We have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and other comparable terminology.
We caution investors that any forward-looking statements presented in this Quarterly Report, or that we may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information currently available to, us. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our 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. Other risks are detailed by us in our public filings with the Securities and Exchange Commission (the “SEC”), including in Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2020.2021, filed with the SEC on April 1, 2022 (the “Form 10-K”). The discussion in this Quarterly Report should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2020.Report.
This Quarterly Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.
3 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
THEMAVEN,THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements
4 |
THEMAVEN,THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2021 (unaudited) | December 31, 2020 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,227,840 | $ | 9,033,872 | ||||
Restricted cash | 500,809 | 500,809 | ||||||
Accounts receivable, net | 19,519,147 | 16,497,626 | ||||||
Subscription acquisition costs, current portion | 31,257,268 | 28,146,895 | ||||||
Royalty fees, current portion | 15,000,000 | 15,000,000 | ||||||
Prepayments and other current assets | 4,875,177 | 4,667,263 | ||||||
Total current assets | 79,380,241 | 73,846,465 | ||||||
Property and equipment, net | 668,663 | 1,129,438 | ||||||
Operating lease right-of-use assets | 2,048,900 | 18,292,196 | ||||||
Platform development, net | 8,011,707 | 7,355,608 | ||||||
Royalty fees, net of current portion | - | 11,250,000 | ||||||
Subscription acquisition costs, net of current portion | 18,682,545 | 13,358,585 | ||||||
Acquired and other intangible assets, net | 57,817,905 | 71,501,835 | ||||||
Other long-term assets | 692,021 | 1,330,812 | ||||||
Goodwill | 22,861,872 | 16,139,377 | ||||||
Total assets | $ | 190,163,854 | $ | 214,204,316 | ||||
Liabilities, mezzanine equity and stockholders’ deficiency | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 9,443,576 | $ | 8,228,977 | ||||
Accrued expenses and other | 21,287,989 | 14,718,193 | ||||||
Line of credit | 6,705,391 | 7,178,791 | ||||||
Unearned revenue | 71,305,655 | 61,625,676 | ||||||
Subscription refund liability | 4,379,364 | 4,035,531 | ||||||
Operating lease liabilities | 282,011 | 1,059,671 | ||||||
Liquidated damages payable | 11,765,706 | 9,568,091 | ||||||
Current portion of long-term debt | 4,565,982 | - | ||||||
Warrant derivative liabilities | 651,083 | 1,147,895 | ||||||
Total current liabilities | 130,386,757 | 107,562,825 | ||||||
Unearned revenue, net of current portion | 19,207,736 | 23,498,597 | ||||||
Restricted stock liabilities, net of current portion | 521,621 | 1,995,810 | ||||||
Operating lease liabilities, net of current portion | 1,972,165 | 19,886,083 | ||||||
Other long-term liabilities | 8,072,442 | 753,365 | ||||||
Deferred tax liabilities | 577,960 | 210,832 | ||||||
Long-term debt, net of current portion | 58,718,289 | 62,194,272 | ||||||
Total liabilities | 219,456,970 | 216,101,784 | ||||||
Commitments and contingencies (Note 14) | - | - | ||||||
Mezzanine equity: | ||||||||
Series G redeemable and convertible preferred stock, $168,496; Series G shares issued and outstanding: ; common shares issuable upon conversion: at September 30, 2021 and December 31, 2020 | par value, $ per share liquidation value and shares designated; aggregate liquidation value: $168,496 | 168,496 | ||||||
Series H convertible preferred stock, $19,546,000 and $19,596,000; Series H shares designated: ; Series H shares issued and outstanding: and ; common shares issuable upon conversion: and shares at September 30, 2021 and December 31, 2020, respectively | par value, $ per share liquidation value; aggregate liquidation value $18,197,496 | 18,247,496 | ||||||
Total mezzanine equity | 18,365,992 | 18,415,992 | ||||||
Stockholders’ deficiency: | ||||||||
Common stock, $ | par value, authorized shares; issued and outstanding: and shares at September 30, 2021 and December 31, 2020, respectively2,642,467 | 2,290,851 | ||||||
Common stock to be issued | 10,809 | 10,809 | ||||||
Additional paid-in capital | 182,787,419 | 139,658,166 | ||||||
Accumulated deficit | (233,099,803 | ) | (162,273,286 | ) | ||||
Total stockholders’ deficiency | (47,659,108 | ) | (20,313,460 | ) | ||||
Total liabilities, mezzanine equity and stockholders’ deficiency | $ | 190,163,854 | $ | 214,204,316 |
See accompanying notes to condensed consolidated financial statements
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue | $ | 59,573,508 | $ | 32,089,993 | $ | 127,935,501 | $ | 85,593,786 | ||||||||
Cost of revenue (includes amortization of developed technology and platform development for three months ended 2021 and 2020 of $2,241,243 and $2,089,286, respectively, and for nine months ended 2021 and 2020 of $6,565,600 and $6,348,619, respectively) | 32,173,859 | 24,708,941 | 83,978,050 | 76,321,953 | ||||||||||||
Gross profit | 27,399,649 | 7,381,052 | 43,957,451 | 9,271,833 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 22,712,193 | 9,928,901 | 55,122,357 | 27,698,182 | ||||||||||||
General and administrative | 23,023,883 | 7,172,175 | 44,230,360 | 24,852,891 | ||||||||||||
Depreciation and amortization | 4,055,432 | 4,053,184 | 11,981,998 | 12,276,990 | ||||||||||||
Total operating expenses | 49,791,508 | 21,154,260 | 111,334,715 | 64,828,063 | ||||||||||||
Loss from operations | (22,391,859 | ) | (13,773,208 | ) | (67,377,264 | ) | (55,556,230 | ) | ||||||||
Other (expense) income | ||||||||||||||||
Change in valuation of warrant derivative liabilities | 801,755 | (517,405 | ) | 496,812 | (134,910 | ) | ||||||||||
Change in valuation of embedded derivative liabilities | - | (2,370,000 | ) | - | 2,173,000 | |||||||||||
Interest expense | (2,512,637 | ) | (4,253,180 | ) | (7,695,317 | ) | (12,169,315 | ) | ||||||||
Interest income | - | 1,116 | 471 | 4,499 | ||||||||||||
Liquidated damages | (833,612 | ) | (319,903 | ) | (2,197,615 | ) | (1,487,577 | ) | ||||||||
Other expenses | - | (31,851 | ) | - | (31,851 | ) | ||||||||||
Gain upon debt extinguishment | - | - | 5,716,697 | - | ||||||||||||
Total other expense | (2,544,494 | ) | (7,491,223 | ) | (3,678,952 | ) | (11,646,154 | ) | ||||||||
Loss before income taxes | (24,936,353 | ) | (21,264,431 | ) | (71,056,216 | ) | (67,202,384 | ) | ||||||||
Income taxes | 229,699 | - | 229,699 | - | ||||||||||||
Net loss | (24,706,654 | ) | (21,264,431 | ) | (70,826,517 | ) | (67,202,384 | ) | ||||||||
Deemed dividend on Series H convertible preferred stock | - | (132,663 | ) | - | (132,663 | ) | ||||||||||
Net loss attributable to common stockholders | $ | (24,706,654 | ) | $ | (21,397,094 | ) | $ | (70,826,517 | ) | $ | (67,335,047 | ) | ||||
Basic and diluted net loss per common stock | $ | (0.10 | ) | $ | (0.55 | ) | $ | (0.29 | ) | $ | (1.72 | ) | ||||
Weighted average number of common stock outstanding – basic and diluted | 252,811,058 | 39,186,432 | 244,209,151 | 39,177,864 |
March 31, 2022 (unaudited) | December 31, 2021 | |||||||
($ in thousands, except share data) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 22,480 | $ | 9,349 | ||||
Restricted cash | 502 | 502 | ||||||
Accounts receivable, net | 19,998 | 21,660 | ||||||
Subscription acquisition costs, current portion | 24,940 | 30,162 | ||||||
Royalty fees | 7,500 | 11,250 | ||||||
Prepayments and other current assets | 4,972 | 4,748 | ||||||
Total current assets | 80,392 | 77,671 | ||||||
Property and equipment, net | 593 | 636 | ||||||
Operating lease right-of-use assets | 493 | 528 | ||||||
Platform development, net | 10,013 | 9,299 | ||||||
Subscription acquisition costs, net of current portion | 7,307 | 8,235 | ||||||
Acquired and other intangible assets, net | 52,255 | 57,356 | ||||||
Other long-term assets | 587 | 639 | ||||||
Goodwill | 19,619 | 19,619 | ||||||
Total assets | $ | 171,259 | $ | 173,983 | ||||
Liabilities, mezzanine equity and stockholders’ deficiency | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 7,070 | $ | 11,982 | ||||
Accrued expenses and other | 17,425 | 24,011 | ||||||
Line of credit | 9,291 | 11,988 | ||||||
Unearned revenue | 48,519 | 54,030 | ||||||
Subscription refund liability | 2,534 | 3,087 | ||||||
Operating lease liability | 387 | 374 | ||||||
Liquidated damages payable | 5,369 | 5,197 | ||||||
Current portion of long-term debt | 5,847 | 5,744 | ||||||
Total current liabilities | 96,442 | 116,413 | ||||||
Unearned revenue, net of current portion | 12,362 | 15,277 | ||||||
Operating lease liability, net of current portion | 683 | 785 | ||||||
Liquidating damages payable, net of current portion | - | 7,008 | ||||||
Other long-term liabilities | 7,527 | 7,556 | ||||||
Deferred tax liabilities | 376 | 362 | ||||||
Long-term debt | 64,929 | 64,373 | ||||||
Total liabilities | 182,319 | 211,774 | ||||||
Commitments and contingencies (Note 15) | - | - | ||||||
Mezzanine equity: | ||||||||
Series G redeemable and convertible preferred stock, $168; Series G shares issued and outstanding: ; common shares issuable upon conversion: at March 31, 2022 and December 31, 2021 | par value, $ per share liquidation value and shares designated; aggregate liquidation value: $168 | 168 | ||||||
Series H convertible preferred stock, $14,556 and $15,066; Series H shares issued and outstanding: and ; common shares issuable upon conversion: and at March 31, 2022 and December 31, 2021, respectively | par value, $ per share liquidation value and shares designated; aggregate liquidation value: $13,207 | 13,718 | ||||||
Total mezzanine equity | 13,375 | 13,886 | ||||||
Stockholders’ deficiency: | ||||||||
Common stock, $ | par value, authorized shares; issued and outstanding: and shares at March 31, 2022 and December 31, 2021, respectively175 | 126 | ||||||
Common stock to be issued | - | - | ||||||
Additional paid-in capital | 246,052 | 200,410 | ||||||
Accumulated deficit | (270,662 | ) | (252,213 | ) | ||||
Total stockholders’ deficiency | (24,435 | ) | (51,677 | ) | ||||
Total liabilities, mezzanine equity and stockholders’ deficiency | $ | 171,259 | $ | 173,983 |
See accompanying notes to condensed consolidated financial statements.
5 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
2022 | 2021 | |||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
($ in thousands, except per share data) | ||||||||
Revenue | $ | 48,243 | $ | 33,615 | ||||
Cost of revenue (includes amortization of developed technology and platform development for 2022 and 2021 of $2,311 and $2,167, respectively) | 28,497 | 28,208 | ||||||
Gross profit | 19,746 | 5,407 | ||||||
Operating expenses | ||||||||
Selling and marketing | 17,216 | 17,529 | ||||||
General and administrative | 13,514 | 5,638 | ||||||
Depreciation and amortization | 4,202 | 3,963 | ||||||
Loss on impairment of assets | 257 | - | ||||||
Total operating expenses | 35,189 | 27,130 | ||||||
Loss from operations | (15,443 | ) | (21,723 | ) | ||||
Other expenses | ||||||||
Change in valuation of warrant derivative liabilities | - | (665 | ) | |||||
Interest expense | (2,820 | ) | (2,820 | ) | ||||
Liquidated damages | (172 | ) | (255 | ) | ||||
Total other expenses | (2,992 | ) | (3,740 | ) | ||||
Loss before income taxes | (18,435 | ) | (25,463 | ) | ||||
Income taxes | (14 | ) | - | |||||
Net loss | $ | (18,449 | ) | $ | (25,463 | ) | ||
Basic and diluted net loss per common share | $ | (1.20 | ) | $ | (2.44 | ) | ||
Weighted average number of common shares outstanding – basic and diluted | 15,381,306 | 10,456,052 |
See accompanying notes to condensed consolidated financial statements.
6 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Nine Months Ended September 30, 2021
Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||||
Balance at January 1, 2021 | 229,085,167 | $ | 2,290,851 | 1,080,930 | $ | 10,809 | $ | 139,658,166 | $ | (162,273,286 | ) | $ | (20,313,460 | ) | ||||||||||||||||
Issuance of restricted stock awards to the board of directors | 805,165 | 8,052 | - | - | (8,052 | ) | - | - | ||||||||||||||||||||||
Repurchase restricted stock classified as liabilities | (133,068 | ) | (1,331 | ) | - | - | 1,331 | - | - | |||||||||||||||||||||
Issuance of restricted stock in connection with the acquisition of The Spun | - | |||||||||||||||||||||||||||||
Issuance of restricted stock in connection with the acquisition of The Spun, shares | ||||||||||||||||||||||||||||||
Cashless exercise of common stock options | ||||||||||||||||||||||||||||||
Cashless exercise of common stock options, shares | ||||||||||||||||||||||||||||||
Common stock withheld for taxes | ||||||||||||||||||||||||||||||
Common stock withheld for taxes, shares | ||||||||||||||||||||||||||||||
Proceeds from common stock private placement | ||||||||||||||||||||||||||||||
Proceeds from common stock private placement, shares | ||||||||||||||||||||||||||||||
Issuance of common stock for restricted stock units in connection with the acquisition of LiftIgniter | 256,661 | 2,567 | - | - | (2,567 | ) | - | - | ||||||||||||||||||||||
Issuance of common stock in connection with professional services | 312,500 | 3,125 | - | - | 121,875 | - | 125,000 | |||||||||||||||||||||||
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 in connection with vesting of restricted stock units | ||||||||||||||||||||||||||||||
Issuance of common stock in connection with vesting of restricted stock units, shares | ||||||||||||||||||||||||||||||
Forfeiture of unvested restricted stock awards | ||||||||||||||||||||||||||||||
Forfeiture of unvested restricted stock awards, shares | ||||||||||||||||||||||||||||||
Issuance of common stock in connection with the acquisition of Say Media | ||||||||||||||||||||||||||||||
Issuance of common stock in connection with the acquisition of Say Media, shares | ||||||||||||||||||||||||||||||
Beneficial conversion feature on Series H convertible preferred stock | ||||||||||||||||||||||||||||||
Deemed dividend on Series H convertible preferred stock | ||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 5,408,207 | - | 5,408,207 | |||||||||||||||||||||||
Net loss | - | - | - | - | - | (25,463,305 | ) | (25,463,305 | ) | |||||||||||||||||||||
Balance at March 31, 2021 | 230,326,425 | 2,303,264 | 1,080,930 | 10,809 | 145,178,960 | (187,736,591 | ) | (40,243,558 | ) | |||||||||||||||||||||
Issuance of restricted stock in connection with the acquisition of The Spun | 4,285,714 | 42,857 | - | - | (42,857 | ) | - | - | ||||||||||||||||||||||
Issuance of restricted stock awards to the board of directors | 82,158 | 822 | - | - | (822 | ) | - | - | ||||||||||||||||||||||
Cashless exercise of common stock options | 84,891 | 849 | - | - | (849 | ) | - | - | ||||||||||||||||||||||
Common stock withheld for taxes | (49,952 | ) | (490 | ) | - | - | (40,630 | ) | - | (41,120 | ) | |||||||||||||||||||
Repurchase of restricted stock classified as liabilities | (133,068 | ) | (1,331 | ) | - | - | 1,331 | - | - | |||||||||||||||||||||
Proceeds from common stock private placement | 28,578,575 | 285,786 | - | - | 19,551,971 | - | 19,837,757 | |||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 8,665,939 | - | 8,665,939 | |||||||||||||||||||||||
Net loss | - | - | - | - | - | (20,656,558 | ) | (20,656,558 | ) | |||||||||||||||||||||
Balance at June 30, 2021 | 263,175,743 | 2,631,757 | 1,080,930 | 10,809 | 173,313,043 | (208,393,149 | ) | (32,437,540 | ) | |||||||||||||||||||||
Issuance of common stock upon conversion of Series H convertible preferred stock | 151,515 | 1,515 | - | - | 48,485 | - | 50,000 | |||||||||||||||||||||||
Issuance of restricted stock in connection with the acquisition of Fulltime Fantasy | 750,000 | 7,500 | - | - | 495,000 | - | 502,500 | |||||||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units | 500,000 | 5,000 | - | - | (5,000 | ) | - | - | ||||||||||||||||||||||
Forfeiture of unvested restricted stock awards | (150,557 | ) | (1,505 | ) | - | - | 1,505 | - | - | |||||||||||||||||||||
Repurchase of restricted stock classified as liabilities | (133,068 | ) | (1,331 | ) | - | - | 1,331 | - | - | |||||||||||||||||||||
Common stock withheld for taxes | (46,856 | ) | (469 | ) | - | - | (28,649 | ) | - | (29,118 | ) | |||||||||||||||||||
Stock-based compensation | - | - | - | - | 8,961,704 | - | 8,961,704 | |||||||||||||||||||||||
Net loss | - | - | - | - | - | (24,706,654 | ) | (24,706,654 | ) | |||||||||||||||||||||
Balance at September 30, 2021 | 264,246,777 | $ | 2,642,467 | 1,080,930 | $ | 10,809 | $ | 182,787,419 | $ | (233,099,803 | ) | $ | (47,659,108 | ) |
THEMAVEN,THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
NineThree Months Ended September 30, 2020March 31, 2022
Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
($ in thousands, except number of shares) | ||||||||||||||||||||||||||||
Balance at January 1, 2022 | 12,632,947 | $ | 126 | 49,134 | $ | - | $ | 200,410 | $ | (252,213 | ) | $ | (51,677 | ) | ||||||||||||||
Issuance of restricted stock awards to the board of directors | - | - | - | - | - | - | - | |||||||||||||||||||||
Issuance of restricted stock awards to the board of directors, shares | - | - | - | - | - | - | - | |||||||||||||||||||||
Issuance of common stock upon conversion of series H preferred stock | 70,380 | 1 | - | - | 510 | - | 511 | |||||||||||||||||||||
Issuance of common stock for restricted stock units in connection with an acquisition | 16,760 | - | - | - | - | - | - | |||||||||||||||||||||
Issuance of common stock in connection with professional services | 14,617 | - | - | - | 184 | - | 184 | |||||||||||||||||||||
Issuance of common stock in connection with settlement of liquidated damages | 505,671 | 5 | - | - | 6,680 | - | 6,685 | |||||||||||||||||||||
Gain upon issuance of common stock in connection with settlement of liquidated damages | - | - | - | - | 323 | - | 323 | |||||||||||||||||||||
Issuance of common stock for restricted stock units | 155,211 | 2 | - | - | (2 | ) | - | - | ||||||||||||||||||||
Common stock withheld for taxes upon issuance of underlying shares for restricted stock units | (67,023 | ) | (1 | ) | - | - | (555 | ) | - | (556 | ) | |||||||||||||||||
Repurchase restricted stock classified as liabilities | (8,064 | ) | - | - | - | - | - | - | ||||||||||||||||||||
Issuance of common stock in connection with public offering | 4,181,603 | 42 | - | - | 30,448 | - | 30,490 | |||||||||||||||||||||
Stock-based compensation | - | - | - | - | 8,054 | - | 8,054 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (18,449 | ) | (18,449 | ) | |||||||||||||||||||
Balance at March 31, 2022 | 17,502,102 | $ | 175 | 49,134 | $ | - | $ | 246,052 | $ | (270,662 | ) | $ | (24,435 | ) |
7 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
Balance at January 1, 2020 | 37,119,117 | $ | 371,190 | 3,938,287 | $ | 39,383 | $ | 35,562,766 | $ | (73,041,323 | ) | $ | (37,067,984 | ) | ||||||||||||||
Issuance of restricted stock units in connection with the acquisition of LiftIgniter | - | - | - | - | 500,000 | - | 500,000 | |||||||||||||||||||||
Issuance of restricted stock awards to the board of directors | 562,500 | 5,625 | - | - | (5,625 | ) | - | - | ||||||||||||||||||||
Common stock withheld for taxes | (206,881 | ) | (2,069 | ) | - | - | (167,412 | ) | - | (169,481 | ) | |||||||||||||||||
Stock-based compensation | - | - | - | - | 3,930,172 | - | 3,930,172 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (22,776,624 | ) | (22,776,624 | ) | |||||||||||||||||||
Balance at March 31, 2020 | 37,474,736 | 374,746 | 3,938,287 | 39,383 | 39,819,901 | (95,817,947 | ) | (55,583,917 | ) | |||||||||||||||||||
Issuance of common stock in connection with the acquisition of Say Media | 1,350,394 | 13,504 | (1,350,394 | ) | (13,504 | ) | - | - | - | |||||||||||||||||||
Common stock withheld for taxes | (234,767 | ) | (2,348 | ) | - | - | (109,992 | ) | - | (112,340 | ) | |||||||||||||||||
Stock-based compensation | - | - | - | - | 4,283,066 | - | 4,283,066 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (23,161,329 | ) | (23,161,329 | ) | |||||||||||||||||||
Balance at June 30, 2020 | 38,590,363 | 385,902 | 2,587,893 | 25,879 | 43,992,975 | (118,979,276 | ) | (74,574,520 | ) | |||||||||||||||||||
Beginning balance, value | 38,590,363 | $ | 385,902 | 2,587,893 | 25,879 | $ | 43,992,975 | $ | (118,979,276 | ) | $ | (74,574,520 | ) | |||||||||||||||
Issuance of common stock in connection with the acquisition of Say Media | 1,107,378 | 11,074 | (1,107,378 | ) | (11,074 | ) | - | - | - | |||||||||||||||||||
Issuance of common stock upon conversion of Series H convertible preferred stock | 909,090 | 9,091 | - | - | 290,909 | - | 300,000 | |||||||||||||||||||||
Common stock withheld for taxes | (58,628 | ) | (586 | ) | - | - | (40,371 | ) | - | (40,957 | ) | |||||||||||||||||
Beneficial conversion feature on Series H convertible preferred stock | - | - | - | - | 132,663 | - | 132,663 | |||||||||||||||||||||
Deemed dividend on Series H convertible preferred stock | - | - | - | - | (132,663 | ) | - | (132,663 | ) | |||||||||||||||||||
Stock-based compensation | - | - | - | - | 4,231,878 | - | 4,231,878 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (21,264,431 | ) | (21,264,431) | ||||||||||||||||||||
Balance September 30, 2020 | 40,548,203 | $ | 405,481 | 1,480,515 | $ | 14,805 | $ | 48,475,391 | $ | (140,243,707 | ) | $ | (91,348,030 | ) |
(unaudited)
Three Months Ended March 31, 2021
Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
($ in thousands, except number of shares) | ||||||||||||||||||||||||||||
Balance at January 1, 2021 | 10,412,963 | $ | 104 | 49,134 | $ | - | $ | 141,856 | $ | (162,273 | ) | $ | (20,313 | ) | ||||||||||||||
Balance | 10,412,963 | $ | 104 | 49,134 | $ | - | $ | 141,856 | $ | (162,273 | ) | $ | (20,313 | ) | ||||||||||||||
Issuance of restricted stock awards to the board of directors | 36,599 | - | - | - | - | - | - | |||||||||||||||||||||
Repurchase restricted stock classified as liabilities | (6,049 | ) | - | - | - | - | - | - | ||||||||||||||||||||
Issuance of common stock for restricted stock units in connection with an acquisition | 11,667 | - | - | - | - | - | - | |||||||||||||||||||||
Issuance of common stock in connection with professional services | 14,205 | - | - | 125 | - | 125 | ||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 5,408 | - | 5,408 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (25,463 | ) | (25,463 | ) | |||||||||||||||||||
Balance at March 31, 2021 | 10,469,385 | $ | 104 | 49,134 | $ | - | $ | 147,389 | $ | (187,736 | ) | $ | (40,243 | ) | ||||||||||||||
Balance | 10,469,385 | $ | 104 | 49,134 | $ | - | $ | 147,389 | $ | (187,736 | ) | $ | (40,243 | ) |
See accompanying notes to condensed consolidated financial statements.
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
2022 | 2021 | |||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
($ in thousands) | ||||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (18,449 | ) | $ | (25,463 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation of property and equipment | 114 | 110 | ||||||
Amortization of platform development and intangible assets | 6,399 | 6,020 | ||||||
Amortization of debt discounts | 660 | 694 | ||||||
Loss on impairment of assets | 257 | - | ||||||
Change in valuation of warrant derivative liabilities | - | 665 | ||||||
Accrued interest | - | 1,866 | ||||||
Liquidated damages | 172 | 255 | ||||||
Stock-based compensation | 7,367 | 5,099 | ||||||
Deferred income taxes | 14 | - | ||||||
Other | 183 | (509 | ) | |||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | 1,594 | 2,917 | ||||||
Subscription acquisition costs | 6,150 | (8,349 | ) | |||||
Royalty fees | 3,750 | 3,750 | ||||||
Prepayments and other current assets | (224 | ) | (1,630 | ) | ||||
Other long-term assets | 52 | (238 | ) | |||||
Accounts payable | (4,912 | ) | 1,920 | |||||
Accrued expenses and other | (7,444 | ) | 1,821 | |||||
Unearned revenue | (8,358 | ) | 9,039 | |||||
Subscription refund liability | (553 | ) | 737 | |||||
Operating lease liabilities | (54 | ) | (215 | ) | ||||
Other long-term liabilities | (29 | ) | - | |||||
Net cash used in operating activities | (13,311 | ) | (1,511 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (71 | ) | (98 | ) | ||||
Capitalized platform development | (1,582 | ) | (868 | ) | ||||
Net cash used in investing activities | (1,653 | ) | (966 | ) | ||||
Cash flows from financing activities | ||||||||
Repayments under line of credit, net of borrowings | (2,697 | ) | (1,752 | ) | ||||
Proceeds from public offering of common stock, net of offering costs | 32,058 | - | ||||||
Payment of tax withholdings of common stock withheld | (556 | ) | - | |||||
Payment of restricted stock liabilities | (710 | ) | (280 | ) | ||||
Net cash provided by (used for) financing activities | 28,095 | (2,032 | ) | |||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | 13,131 | (4,509 | ) | |||||
Cash, cash equivalents, and restricted cash – beginning of period | 9,851 | 9,535 | ||||||
Cash, cash equivalents, and restricted cash – end of period | $ | 22,982 | $ | 5,026 | ||||
Cash, cash equivalents, and restricted cash | ||||||||
Cash and cash equivalents | $ | 22,480 | $ | 4,525 | ||||
Restricted cash | 502 | 501 | ||||||
Total cash, cash equivalents, and restricted cash | $ | 22,982 | $ | 5,026 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 2,160 | $ | 260 | ||||
Cash paid for income taxes | - | - | ||||||
Noncash investing and financing activities | ||||||||
Reclassification of stock-based compensation to platform development | $ | 687 | $ | 309 | ||||
Offering costs included in accrued expenses and other | 1,568 | - | ||||||
Issuance of common stock in connection with settlement of liquidated damages | 7,008 | - | ||||||
Issuance of common stock upon conversion of series H preferred stock | 511 | - |
See accompanying notes to condensed consolidated financial statements.
THEMAVEN,THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
2021 | 2020 | |||||||
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (70,826,517 | ) | $ | (67,202,384 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation of property and equipment | 333,891 | 536,729 | ||||||
Amortization of platform development and intangible assets | 18,213,707 | 18,088,880 | ||||||
Loss on disposition of assets | 862,442 | 105,123 | ||||||
Loss upon lease termination | 7,344,655 | - | ||||||
Gain upon debt extinguishment | (5,716,697 | ) | - | |||||
Amortization of debt discounts | 1,533,537 | 4,899,625 | ||||||
Change in valuation of warrant derivative liabilities | (496,812 | ) | 134,910 | |||||
Change in valuation of embedded derivative liabilities | - | (2,173,000 | ) | |||||
Accrued interest | 5,273,159 | 6,832,376 | ||||||
Liquidated damages | 2,197,615 | 1,487,577 | ||||||
Stock-based compensation | 21,688,226 | 11,185,953 | ||||||
Deferred income taxes | (229,699 | ) | - | |||||
Other | (1,014,932 | ) | (296,019 | ) | ||||
Change in operating assets and liabilities net of effect of acquisitions: | ||||||||
Accounts receivable | (173,266 | ) | 4,893,512 | |||||
Subscription acquisition costs | (8,434,333 | ) | (11,053,054 | ) | ||||
Royalty fees | 11,250,000 | 11,250,000 | ||||||
Prepayments and other current assets | (78,347 | ) | 327,088 | |||||
Other long-term assets | 638,791 | (376,142 | ) | |||||
Accounts payable | 1,214,599 | (968,581 | ) | |||||
Accrued expenses and other | 5,566,243 | (2,484,525 | ) | |||||
Unearned revenue | 5,389,118 | 2,871,080 | ||||||
Subscription refund liability | 343,833 | (169,693 | ) | |||||
Operating lease liabilities | (2,448,282 | ) | 1,837,138 | |||||
Other long-term liabilities | (692,255 | ) | - | |||||
Net cash used in operating activities | (8,261,324 | ) | (20,273,407 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (299,999 | ) | (1,085,392 | ) | ||||
Capitalized platform development | (3,016,924 | ) | (2,885,788 | ) | ||||
Payments for acquisition of businesses, net of cash acquired | (7,356,949 | ) | (315,289 | ) | ||||
Net cash used in investing activities | (10,673,872 | ) | (4,286,469 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from long-term debt | - | 11,702,725 | ||||||
Borrowings (repayments) under line of credit | (473,400 | ) | 3,328,431 | |||||
Proceeds from common stock private placement | 20,005,000 | - | ||||||
Proceeds from issuance of Series H convertible preferred stock | - | 113,000 | ||||||
Proceeds from issuance of Series J convertible preferred stock | - | 6,000,000 | ||||||
Proceeds from issuance of convertible preferred stock | - | - | ||||||
Payments of issuance costs from common stock private placement | (167,243 | ) | - | |||||
Payment for taxes related to repurchase of restricted common stock | (70,238 | ) | (322,778 | ) | ||||
Payment of restricted stock liabilities | (1,164,955 | ) | - | |||||
Net cash provided by financing activities | 18,129,164 | 20,821,378 | ||||||
Net decrease in cash, cash equivalents, and restricted cash | (806,032 | ) | (3,738,498 | ) | ||||
Cash, cash equivalents, and restricted cash – beginning of period | 9,534,681 | 9,473,090 | ||||||
Cash, cash equivalents, and restricted cash – end of period | $ | 8,728,649 | $ | 5,734,592 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 896,580 | $ | 437,314 | ||||
Cash paid for income taxes | - | - | ||||||
Noncash investing and financing activities | ||||||||
Reclassification of stock-based compensation to platform development | $ | 1,347,624 | $ | 1,259,163 | ||||
Issuance of common stock in connection with professional services | 125,000 | - | ||||||
Deferred cash payments in connection with acquisition of The Spun | 905,109 | - | ||||||
Assumption of liabilities in connection with acquisition of The Spun | 1,500 | - | ||||||
Debt discount on delayed draw term note | - | 913,865 | ||||||
Restricted stock units issued in connection with acquisition of LiftIgniter | - | 500,000 | ||||||
Assumption of liabilities in connection with acquisition of LiftIgniter | - | 140,381 | ||||||
Restricted stock issued in connection with acquisition of Fulltime Fantasy | 502,500 | - | ||||||
Deferred cash payments in connection with acquisition of Fulltime Fantasy | 419,367 | |||||||
Deemed dividend on Series H convertible preferred stock | - | 132,663 | ||||||
Deemed dividend on convertible preferred stock | - | - |
See accompanying notes to condensed consolidated financial statements.
THEMAVEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies($ in thousands, unless otherwise stated)
1. | Summary of Significant Accounting Policies |
Basis of Presentation
The condensed consolidated financial statements include the accounts of The Arena Group Holdings, Inc. (formerly known as TheMaven, Inc.) and its wholly owned subsidiaries (“Maven”The Arena Group” or the “Company”), after eliminating all significant intercompany balances and transactions. The Company does not have any off-balance sheet arrangements. The Company changed its corporate name to The Arena Group Holdings, Inc. from TheMaven, Inc. on February 8, 2022.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC.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 (“U.S. GAAP”) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in Maven’sThe Arena Group’s Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2020,2021, filed with the SEC on August 16, 2021.April 1, 2022.
The condensed consolidated financial statements as of September 30, 2021,March 31, 2022, and for the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, 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, 2020,2021, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. The Company’s impact during the first three quartersquarter of 2021 of2022 by the novel coronavirus (“COVID-19”) pandemic has been to a lesser extent than in 2021. With the initial onset of COVID-19, the Company faced significant change in its advertisers’ buying behavior. Since May 2020, there has been a steady recovery in the advertising market in both pricing and volume, which coupled with the return of professional and college sports yielded steady growth in revenues. Given that the Sports Illustrated media business relies on sporting events to generate content and comprises a material portion of the Company’s revenues, the cash flows and results of operations are susceptible to a widespread cancellation of sporting events or a general limitation of societal activity akin to what is widely known to have occurred in the Unites States and elsewhere during the 2020 calendar year and, to a lesser extent, during the 2021 calendar year. Future widespread shutdowns of in-person economic activity could have a material impact on the Company’s business. As a result of the Company’s advertising revenue declining in early 2021 caused by the widespread cancellations of sporting events, the Company has been less thanis vulnerable to a risk of loss in the near term and it is at least reasonably possible that events or circumstances may occur that could cause an impact in the comparable periodnear term, that depend on the actions taken to prevent the further spread of the prior year. In 2021, restrictions on non-essential work activity have been largely lifted and sporting and other events are being held, with attendance closer to pre-pandemic levels, which has resulted in an increase in traffic and advertising revenue. COVID-19.
The Company expects a continued modest growthoperates in advertising revenue back toward pre-pandemic levels, however, such growth depends on future developments, including the duration and spread of the COVID-19 pandemic, whether related group gatherings and sports event advisories and restrictions will be put in place again, and the extent and effectiveness of containment and other actions taken, including the percentage of the population that receives COVID-19 vaccinations.one reportable segment.
ReclassificationsReverse Stock Split
Certain prior year amounts have been reclassifiedThe accompanying condensed consolidated financial statements and notes to conformthe condensed consolidated financial statements give effect to current period presentation.the reverse stock split for all periods presented that was effective on February 9, 2022. The shares of common stock retained a par value of $ per share. Accordingly, stockholders’ deficiency reflects the reverse stock split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the reverse stock split. Any fractional shares that would otherwise be issued as a result of the reverse stock split were rounded up to the nearest whole share.
10 |
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the allowance for credit losses, fair values of financial instruments, capitalization of platform development, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, fair value of assets acquired and liabilities assumed in the business acquisitions, determination of the fair value of stock-based compensation and valuation of derivatives liabilities and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Contract Modifications
The Company occasionally enters into amendments to previously executed contracts that constitute contract modifications. The Company assesses each of these contract modifications to determine:
A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either a prospective basis as a termination of the existing contract and the creation of a new contract, or a cumulative catch-up basis (see Note 3 and Note 12).
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. On January 1, 2021, the Company adopted ASU 2019-12 with no material impact to its condensed consolidated financial position, results of operations or cash flows.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which updates various codification topics to simplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and amends the diluted EPS computation for these instruments. On January 1, 2021,2022, the Company adopted ASU 2020-06 with no material impact to its condensed consolidated financial statements.position, results of operations or cash flows.
In October 2020,May 2021, the FASB issued ASU 2020-08,2021-04, Codification Improvements Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force (EITF), to Subtopic 310-20 – Receivables – Nonrefundable Fees and Other Costs, which clarifiesprovide explicit guidance on accounting by issuers for modifications or exchanges of freestanding equity-classified written call options that a reporting entity should assess whether a callable debt security purchased at a premium is withinremain equity classified after the scope of ASC 310-20-35-33 each reporting period, which impacts the amortization period for nonrefundable fees and other costs.modification or exchange. On January 1, 2021,2022, the Company adopted ASU 2020-082021-04 with no material impact to its condensed consolidated financial statements.position, results of operations, cash flows or disclosures.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. On January 1, 2021, the Company adopted ASU 2020-10 with no material impact to its condensed consolidated financial statements.
Recently Issued Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to account for revenue contracts acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. The acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired contracts. This update should lead to recognition and measurement consistent with what’s reported in the acquiree’s financial statements, provided that the acquiree prepared financial statements in accordance with U.S. GAAP. The new standard marks a change from current U.S. GAAP, under which assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts, are generally recognized at fair value at the acquisition date. On January 1, 2022, the Company adopted ASU 2021-08 is effective for the Company in the fiscal year beginning after December 15, 2022, including interim periods within the fiscal year, and shouldwith no material impact to its condensed financial position, results of operations or cash flows. This new accounting standard will be applied prospectively to business combinations on or after the effective date of the amendment. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that adopting this new accounting standard would have on its condensed consolidated financial statements.combinations.
11 |
Basic 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. All restricted stock awards are considered outstanding but 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. 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 loss 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. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.
Schedule of Net Income (Loss) Per Common Share
2022 | 2021 | |||||||||||||||
As of September 30, | As of March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Series G convertible preferred stock | 188,791 | 188,791 | 8,582 | 8,582 | ||||||||||||
Series H Preferred Stock | 59,243,926 | 58,206,061 | 2,004,971 | 2,699,312 | ||||||||||||
Series I Preferred Stock | - | 46,200,000 | ||||||||||||||
Series J Preferred Stock | - | 43,584,500 | ||||||||||||||
Indemnity shares of common stock | - | 412,500 | ||||||||||||||
Restricted Stock Awards | 4,147,936 | 3,674,996 | 194,806 | 14,394 | ||||||||||||
Financing Warrants | 2,882,055 | 2,882,055 | 116,118 | 131,003 | ||||||||||||
ABG Warrants | 21,989,844 | 21,989,844 | 999,540 | 999,540 | ||||||||||||
AllHipHop warrants | 125,000 | - | 5,681 | 5,681 | ||||||||||||
Publisher Partner Warrants | 789,541 | 789,541 | 26,893 | 35,889 | ||||||||||||
Common Stock Awards | 6,861,973 | 8,033,936 | ||||||||||||||
Common Equity Awards | 161,367,349 | 82,400,952 | ||||||||||||||
2016 Plan | 286,151 | 321,761 | ||||||||||||||
2019 Plan | 6,326,538 | 7,179,349 | ||||||||||||||
Outside Options | 3,050,000 | 2,982,111 | 138,637 | 138,637 | ||||||||||||
Total | 260,646,415 | 271,345,287 | 10,107,917 | 11,534,148 |
2. Acquisitions
Fulltime Fantasy Sports, LLC – On July 15, 2021, the Company entered into an asset purchase agreement with Fulltime Fantasy Sports, LLC, a Delaware limited liability company (“Fulltime Fantasy”), where it purchased certain intellectual property (including databases, documents and certain rights related to the intellectual property) and subscriber and customer records (collectively the “Purchased Assets”) and assumed certain liabilities related to the Purchased Assets. The purchase price consisted of: (1) a cash payment of $335,000 (paid in advance) including transaction related costs of $35,000, (2) the issuance of shares the Company’s common stock (subject to certain vesting earn-out provisions and certain buy-back rights), with shares of the Company’s common stock that vested at closing; and the remaining consideration subject to certain terms and conditions for material breach of certain agreements and acceleration provisions under certain conditions consisting of: (3) a cash earn-out payment of $225,000 and the vesting of shares of the Company’s common stock on December 31, 2021, and (4) a cash earn-out payment of $225,000 and the vesting of shares of the Company’s common stock on June 30, 2022.
The composition of the purchase price is as follows:
Schedule of Preliminary Purchase Price
Total purchase consideration | $ | 1,256,887 | ||
Cash (including $35,000 of transaction related costs) | $ | 335,000 | ||
Restricted stock | 167,500 | |||
Deferred cash payments | 419,387 | |||
Deferred restricted stock | 335,000 | |||
Total purchase consideration | $ | 1,256,887 | ||
The purchase price resulted in $1,256,887 (including $35,000 of transaction related costs) being assigned to a database acquired at the closing date of the acquisition. The useful life for the database is three years (3.0 years).
Balance Sheet Components |
College Spun Media Incorporated – On June 4, 2021, the Company acquired all of the issued and outstanding shares of capital stock of College Spun Media Incorporated, a New Jersey corporation (“The Spun”), for an aggregate of $11,829,893 in cash and the issuance of an aggregate of restricted shares of the Company’s common stock, with one-half of the shares vesting on the first anniversary of the closing date and the remaining one-half of the shares vesting on the second anniversary of the closing date, subject to a customary working capital adjustment based on cash and accounts receivable as of the closing date. The cash payment consists of: (i) $10,829,893 paid at closing (of the cash paid at closing, $829,893 represents adjusted cash pursuant to the working capital adjustments), and (ii) $ to be paid on the first anniversary of the closing and $ to be paid on the second anniversary date of the closing. The vesting of shares of the Company’s common stock is subject to the continued employment of certain selling employees. The Spun operates in the United States.
The composition of the preliminary purchase price is as follows:
Schedule of Preliminary Purchase Price
Cash | $ | 10,829,893 | ||
Deferred cash payments | 905,109 | |||
Total purchase consideration | $ | 11,735,002 |
The Company incurred $128,076 in transaction costs related to the acquisition, which primarily consisted of legal and accounting. The acquisition related expenses were recorded in general and administrative expense 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:
Summary of Price Allocation for Acquisition
Cash | $ | 3,772,944 | ||
Accounts receivable | 1,833,323 | |||
Other current assets | 4,567 | |||
Goodwill | 6,722,495 | |||
Accrued expenses | (1,500 | ) | ||
Deferred tax liabilities | (596,827 | ) | ||
Net assets acquired | $ | 11,735,002 |
The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill from the acquisition. Goodwill is recorded as a non-current asset that is not amortized but is subject to an annual review for impairment. No portion of the goodwill will be deductible for tax purposes.
Petametrics Inc. – On March 9, 2020, the Company entered into an asset purchase agreement with Petametrics Inc., doing business as LiftIgniter, a Delaware corporation (“LiftIgniter”), where it purchased substantially all the assets, including the intellectual property and excluding certain accounts receivable, and assumed certain liabilities. The purchase price consisted of: (1) a cash payment of $184,087 on February 19, 2020, in connection with the repayment of all outstanding indebtedness, (2) at closing, a cash payment of $131,202, (3) collections of certain accounts receivable, (4) on the first anniversary date of the closing, the issuance of restricted stock for an aggregate of up to shares of the Company’s common stock (of which shares of the Company’s common stock were issued during the three months ended June 30, 2021 with shares to be issued), and (5) on the second anniversary date of the closing, the issuance of restricted stock for an aggregate of up to shares (subject to certain indemnifications) of the Company’s common stock.
The composition of the purchase price is as follows:
Schedule of Preliminary Purchase Price
Cash | $ | 315,289 | ||
Indemnity restricted stock units for shares of common stock | 500,000 | |||
Total purchase consideration | $ | 815,289 |
The 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:
Summary of Price Allocation for Acquisition
Accounts receivable | $ | 37,908 | ||
Developed technology | 917,762 | |||
Accounts payable | (53,494 | ) | ||
Unearned revenue | (86,887 | ) | ||
Net assets acquired | $ | 815,289 |
The useful life for the developed technology is three years (3.0 years).
3. Balance Sheet Components
The components of certain balance sheet amounts are as follows:
Accounts Receivable – Accounts receivable are presented net of allowance for doubtful accounts. The allowance for doubtful accounts as of September 30, 2021March 31, 2022 and December 31, 20202021 was $675,8061,578 and $892,352, respectively..
Subscription Acquisition Costs – SubscriptionAs of March 31, 2022 and December 31, 2021, subscription acquisition costs include the incremental costswere $32,247 (short-term of obtaining a contract with a customer, paid to external parties, if it expects to recover those costs. The current portion$24,940 and long-term of the subscription$7,307) and $38,397 (short-term of $30,162 and long-term of $8,235), respectively. Subscription acquisition costs as of September 30, 2021 and DecemberMarch 31, 2020 was2022 presented as current assets of $31,257,26824,940 are expected to be amortized over a one year period, or through March 31, 2023and $28,146,8957,307, respectively, on presented as long-term assets are expected to be amortized after the condensed consolidated balance sheets. The noncurrent portion of the subscription acquisition costs as of September 30, 2021 and Decemberone year period ending March 31, 2020 was $18,682,545 2023and $13,358,585, respectively, on the condensed consolidated balance sheets.
Certain contract amendments resulted in a modification to the subscription acquisition costs that will be recognized on a prospective basis in the same proportion as the revenue that has not yet been recognized (further details are provided under the heading Contract Balances in Note 12).
Property and Equipment – Property and equipment are summarized as follows:
Schedule of Property and Equipment
March 31, 2022 | December 31, 2021 | |||||||||||||||
As of | As of | |||||||||||||||
September 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Office equipment and computers | $ | 1,267,898 | $ | 1,341,292 | $ | 1,407 | $ | 1,341 | ||||||||
Furniture and fixtures | 1,005 | 19,997 | 1 | 1 | ||||||||||||
Leasehold improvements | - | 345,516 | ||||||||||||||
1,268,903 | 1,706,805 | |||||||||||||||
Gross property and equipment | 1,408 | 1,342 | ||||||||||||||
Less accumulated depreciation and amortization | (600,240 | ) | (577,367 | ) | (815 | ) | (706 | ) | ||||||||
Net property and equipment | $ | 668,663 | $ | 1,129,438 | $ | 593 | $ | 636 |
Depreciation and amortization expense for the three months ended September 30,March 31, 2022 and 2021 and 2020 was $114,165114 and $102,067110, respectively. Depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 was $333,891 and $536,729, respectively. Depreciation and amortization expense is included in selling and marketing expenses and general and administrative expenses, as appropriate, on the condensed consolidated statements of operations.
Platform Development – Platform development costs are summarized as follows:
Summary of Platform Development Costs
September 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
As of | As of | |||||||||||||||
September 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Platform development | $ | 19,497,520 | $ | 16,027,428 | $ | 16,699 | $ | 21,997 | ||||||||
Less accumulated amortization | (11,485,813 | ) | (8,671,820 | ) | (6,686 | ) | (12,698 | ) | ||||||||
Net platform development | $ | 8,011,707 | $ | 7,355,608 | $ | 10,013 | $ | 9,299 |
A summary of platform development activity for the ninethree months ended September 30, 2021 and year ended DecemberMarch 31, 20202022 is as follows:
Summary of Platform Development Cost Activity
September 30, 2021 | December 31, 2020 | |||||||||||
As of | ||||||||||||
September 30, 2021 | December 31, 2020 | |||||||||||
Platform development beginning of period | $ | 16,027,428 | $ | 10,678,692 | $ | 21,997 | ||||||
Payroll-based costs capitalized during the period | 3,016,924 | 3,750,541 | ||||||||||
Payroll-based costs capitalized | 1,582 | |||||||||||
Less dispositions | (7,356 | ) | ||||||||||
Total capitalized costs | 19,044,352 | 14,429,233 | 16,223 | |||||||||
Stock-based compensation | 1,347,624 | 1,608,995 | 687 | |||||||||
Dispositions | (894,456 | ) | (10,800 | ) | ||||||||
Impairments | (211 | ) | ||||||||||
Platform development end of period | $ | 19,497,520 | $ | 16,027,428 | $ | 16,699 |
Amortization expense for the three months ended September 30,March 31, 2022 and 2021, and 2020, was $1,143,6731,344 and $909,6311,069, respectively. Amortization expense for platform development is included in cost of revenues on the ninecondensed consolidated statements of operations. For the three months ended September 30,March 31, 2022 and 2021, and 2020, wasimpairment charges of $3,272,890211 and $2,868,2890, respectively.respectively, have been record for platform development.
Intangible Assets – Intangible assets subject to amortization consisted of the following:
Schedule of Intangible Assets Subjects to Amortization
As of September 30, 2021 | As of December 31, 2020 | As of March 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||
Carrying Amount | Accumulated Amortization | Net Carrying Amount |
Carrying Amount | Accumulated Amortization | Net Carrying Amount | Carrying Amount | Accumulated Amortization | Net Carrying Amount | Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||||
Developed technology | $ | 19,070,857 | $ | (11,576,450 | ) | $ | 7,494,407 | $ | 19,070,857 | $ | (8,283,740 | ) | $ | 10,787,117 | $ | 17,333 | $ | (12,214 | ) | $ | 5,119 | $ | 17,579 | $ | (11,465 | ) | $ | 6,114 | ||||||||||||||||||||
Noncompete agreement | 480,000 | (480,000 | ) | - | 480,000 | (480,000 | ) | - | ||||||||||||||||||||||||||||||||||||||||
Trade name | 3,328,000 | (712,292 | ) | 2,615,708 | 3,328,000 | (503,342 | ) | 2,824,658 | 3,328 | (851 | ) | 2,477 | 3,328 | (782 | ) | 2,546 | ||||||||||||||||||||||||||||||||
Brand name | 5,175 | (427 | ) | 4,748 | 5,175 | (298 | ) | 4,877 | ||||||||||||||||||||||||||||||||||||||||
Subscriber relationships | 73,458,799 | (28,992,944 | ) | 44,465,855 | 73,458,799 | (18,105,041 | ) | 55,353,758 | 73,459 | (36,252 | ) | 37,207 | 73,459 | (32,623 | ) | 40,836 | ||||||||||||||||||||||||||||||||
Advertiser relationships | 2,240,000 | (510,922 | ) | 1,729,078 | 2,240,000 | (332,515 | ) | 1,907,485 | 2,240 | (629 | ) | 1,611 | 2,240 | (570 | ) | 1,670 | ||||||||||||||||||||||||||||||||
Database | 2,396,887 | (904,030 | ) | 1,492,857 | 1,140,000 | (531,183 | ) | 608,817 | 2,397 | (1,304 | ) | 1,093 | 2,397 | (1,104 | ) | 1,293 | ||||||||||||||||||||||||||||||||
Subtotal amortizable intangible assets | 100,974,543 | (43,176,638 | ) | 57,797,905 | 99,717,656 | (28,235,821 | ) | 71,481,835 | 103,932 | (51,677 | ) | 52,255 | 104,178 | (46,842 | ) | 57,336 | ||||||||||||||||||||||||||||||||
Website domain name | 20,000 | - | 20,000 | 20,000 | - | 20,000 | - | - | - | 20 | - | 20 | ||||||||||||||||||||||||||||||||||||
Total intangible assets | $ | 100,994,543 | $ | (43,176,638 | ) | $ | 57,817,905 | $ | 99,737,656 | $ | (28,235,821 | ) | $ | 71,501,835 | $ | 103,932 | $ | (51,677 | ) | $ | 52,255 | $ | 104,198 | $ | (46,842 | ) | $ | 57,356 |
Amortization expense for the three months ended September 30,March 31, 2022 and 2021 and 2020 was $5,038,8375,055 and $5,093,0764,951, respectively. Amortizationrespectively, of which amortization expense for the nine months ended September 30, 2021 and 2020 wasdeveloped technology of $14,940,817967 and $15,220,5911,098, respectively. NaNrespectively, is included in cost of revenues on the condensed consolidated statements of operations. For the three months ended March 31, 2022 and 2021, impairment charges of $46 and $0, respectively, have been recorded duringfor the nine months September 30, 2021 and 2020.intangible assets.
Other Long-term Liabilities – Other long-term liabilities consisted of the following:
Schedule of Other Long-term Liabilities
September 30, 2021 | December 31, 2020 | |||||||
As of | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
Lease termination payments | $ | 7,269,469 | $ | 541,381 | ||||
Deferred cash payments | 666,677 | - | ||||||
Other | 136,296 | 211,984 | ||||||
Other long-term liabilities | $ | 8,072,442 | $ | 753,365 |
Leases |
4. Leases
The Company’s leases are primarily comprised of real estate leaseslease for the use of office space with certainwas subleased during the year ended December 31, 2021 (as further described below). The Company’s current lease arrangements that contain equipment. The Company determines whether an arrangement that provides control over the use of an asset is a lease at inception. Lease assets and liabilities are recognized upon commencement of the lease based on the present value of the future minimum lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. Substantially, all of the leases are long-term operating leases for facilitieslease with a remaining fixed payment terms betweenterm of 1.5 2.51and 7.9 years.
13 |
The table below presents supplemental information related to operating leases:
Schedule of Supplemental Information Related to Operating Leases
Nine Months Ended September 30, 2021 | ||||
Operating cash flows for operating leases | $ | 2,901,529 | ||
Noncash lease liabilities arising from obtaining operating leased assets during the period | $ | - | ||
Weighted-average remaining lease term | 6.00 | |||
Weighted-average discount rate | 9.90 | % |
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Operating lease costs during the period (1) | $ | 179 | $ | 2,718 | ||||
Cash payments included in the measurement of operating lease liabilities during the period | $ | 117 | $ | 2,787 | ||||
Weighted-average remaining lease term (in years) as of period-end | 2.51 | 11.02 | ||||||
Weighted-average discount rate during the period | 9.9 | % | 13.6 | % |
(1) | Operating lease costs is presented net of sublease income that is not material. |
The Company generally utilizes its incremental borrowing rate based on information available at the commencement of the lease in determining the present value of future payments since the implicit rate for most of 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.
OperatingThe components of operating lease costs recognized for the three months ended September 30, 2021 and 2020 were $as follows:
642,926 and $982,414, respectively.Schedule of Operating lease costs recognized for the nine months ended September 30, 2021 and 2020 were $2,458,229Lease Costs and $3,082,499, respectively.
2022 | 2021 | |||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Operating lease costs: | ||||||||
Cost of revenue | $ | - | $ | 1,797 | ||||
Selling and marketing | - | 516 | ||||||
General and administrative | 234 | 423 | ||||||
Total operating lease costs (1) | 234 | 2,736 | ||||||
Sublease income | (55 | ) | (18 | ) | ||||
Operating cost | $ | 179 | $ | 2,718 |
(1) | Includes certain costs associated with a business membership agreement that permits access to certain office space of $170, see below. |
Maturities of the operating lease liabilitiesliability as of September 30, 2021March 31, 2022 are summarized as follows:
Summary of Maturity of Lease Liabilities
Years Ending December 31, | ||||
2021 (remaining three months of the year) | $ | 140,134 | ||
2022 | 472,084 | |||
2023 | 486,247 | |||
2024 | 500,834 | |||
2025 | 512,019 | |||
Thereafter | 896,034 | |||
Minimum lease payments | 3,007,352 | |||
Less imputed interest | (753,176 | ) | ||
Present value of operating lease liabilities | $ | 2,254,176 | ||
Current portion of operating lease liabilities | $ | 282,011 | ||
Long-term portion of operating lease liabilities | 1,972,165 | |||
Total operating lease liabilities | $ | 2,254,176 |
Years Ending December 31, | ||||
2022 (remaining nine months of the year) | $ | 355 | ||
2023 | 486 | |||
2024 | 373 | |||
Minimum lease payments | 1,214 | |||
Less imputed interest | (144 | ) | ||
Present value of operating lease liability | $ | 1,070 | ||
Current portion of operating lease liability | $ | 387 | ||
Long-term portion of operating lease liability | 683 | |||
Total operating lease liability | $ | 1,070 |
Effective September 30,Sublease Agreement – In November 2021, the Company terminatedentered into an agreement to sublease its leased office space for the duration of its operating lease through September 2024. As of March 31, 2022, the Company is entitled to receive sublease income of $582.
Business Membership – Effective October 1, 2021, the Company entered into a business membership agreement with York Factory LLC, doing business as SaksWorks, that permits access to certain office space with furnishings, referred to as SaksWorks Memberships (each membership provides a certain lease arrangement for office space and as a result, relinquishednumber of accounts that equate to the use of the space and derecognized a right-of-use asset of $15,673,474, a lease liability of $17,934,940 and recorded a penalty upon termination of $9,606,121 (as discounted since the amountgranted). The term of the liability and timing of the Cash Payments, as defined below, are fixed), resulting in a net loss upon termination ofagreement was for 27 months, with 21 months remaining at $7,344,65557 , which has been reflected in general and administrative expenses on the condensed consolidated statements of operations. In connection with the termination, the Company agreed to pay the landlord cash of $10,000,000 (the “Cash Payments”) and $1,475,000 in market rate advertising. The Cash Payments are due as follows: $1,000,000 on December 1, 2021; $1,000,000 on October 1, 2022; $4,000,000 on October 1, 2023; and $4,000,000 on October 1, 2024.per month for 110 accounts.
4. | Line of Credit |
5. Line of Credit
FastPay Credit Facility – On February 27, 2020,December 6, 2021, the Company entered into aan amendment to its financing and security agreement for its line of credit with FPP Finance LLC (“FastPay”), that was originally entered into on February 27, 2020, pursuant to which FastPay(i) the maximum amount of advances available was increased to $25,000 from $15,000, (ii) the interest rate on the facility applicable margin was decreased to 6.0% per annum from 8.5% per annum (the facility bears interest at the LIBOR rate plus the applicable margin), and (iii) the maturity date was extended a $to 15,000,000February 28, 2024. The line of credit is for working capital purposes and is secured by a first lien on all of the Company’s cash and accounts receivable and a second lien on all other assets. Borrowings under the facility bear interest at the LIBOR Rate plus 8.50% and have a final maturityAs of February 6,March 31, 2022. The balance outstanding as of September 30, 2021 and December 31, 20202021, the balance outstanding under the FastPay line of credit was $6,705,3919,291 and $7,178,79111,988, respectively. As of the date these condensed consolidated financial statements were issued or were available to be issued the balance outstanding was approximately $9,400,000.
6. Restricted Stock Liabilities
5. | 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.merger (the “HubPages merger”). Pursuant to the amendment, the Company committed to repurchase vested restricted stock awards as of December 31, 2020 at a price of $ per share in 24 equal monthly installments on the second business day of each calendar month beginning January 4, 2021, subject to certain conditions.
The following table presents the components of the restricted stock liabilities:
Schedule of Components of Restricted Stock Liabilities
As of | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
Restricted stock liabilities recorded upon modification of the restricted stock awards and units ( | restricted stock to be purchased at $ per share)$ | 4,258,196 | $ | 4,258,196 | ||||
Less imputed interest | (457,462 | ) | (457,462 | ) | ||||
Present value of restricted stock liabilities | 3,800,734 | 3,800,734 | ||||||
Less payments (excluding imputed interest) | (1,342,379 | ) | (177,425 | ) | ||||
Restricted stock liabilities | $ | 2,458,355 | $ | 3,623,309 | ||||
Current portion of restricted stock liabilities (included in accrued expenses and other) | $ | 1,936,734 | $ | 1,627,499 | ||||
Long-term portion of restricted stock liabilities | 521,621 | 1,995,810 | ||||||
Total restricted stock liabilities | $ | 2,458,355 | $ | 3,623,309 |
March 31, 2022 | December 31, 2021 | |||||||
As of | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Restricted stock liabilities (before imputed interest) | $ | 2,307 | $ | 3,801 | ||||
Less imputed interest | (78 | ) | (177 | ) | ||||
Present value of restricted stock liabilities | 2,229 | 3,624 | ||||||
Less payments during the period | (710 | ) | (1,472 | ) | ||||
Restricted stock liabilities at end of period (reflected in accrued expenses and other) | $ | 1,519 | $ | 2,152 |
7.The Company recorded the repurchase of and shares of the Company’s restricted common stock during the three months ended March 31, 2022 and 2021, respectively, on the condensed consolidated statements of stockholders’ deficiency. On April 4, 2022, the Company paid $1,597 for the remaining shares of the Company’s restricted common stock that were outstanding as of March 31, 2022 that were subject to repurchase.
6. | Liquidated Damages Payable |
Liquidated damages were recorded as a result of the following: (i) certain registration rights agreements provide for damages if the Company does not register 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 does not maintain its periodic filings with the SEC within the requisite time frame (the “Public Information Failure Damages”).
15 |
Obligations with respect to the liquidated damages payable are summarized as follows:
Summary of Liquidated Damages
As of March 31, 2022 | ||||||||||||||||
Registration Rights Damages | Public Information Failure Damages | Accrued Interest | Balance | |||||||||||||
MDB common stock to be issued (1) | $ | 15 | $ | - | $ | - | $ | 15 | ||||||||
Series H convertible preferred stock | 618 | 625 | 457 | 1,700 | ||||||||||||
Convertible debentures | - | 704 | 216 | 920 | ||||||||||||
Series J convertible preferred stock | 932 | 932 | 356 | 2,220 | ||||||||||||
Series K convertible preferred stock | 95 | 379 | 40 | 514 | ||||||||||||
Total | $ | 1,660 | $ | 2,640 | $ | 1,069 | $ | 5,369 |
As of December 31, 2021 | ||||||||||||||||
Registration Rights Damages | Public Information Failure Damages | Accrued Interest | Balance | |||||||||||||
MDB common stock to be issued (1) | $ | 15 | $ | - | $ | - | $ | 15 | ||||||||
Series H convertible preferred stock | 1,164 | 1,172 | 792 | 3,128 | ||||||||||||
Convertible debentures | - | 873 | 242 | 1,115 | ||||||||||||
Series I convertible preferred stock | 1,386 | 1,386 | 613 | 3,385 | ||||||||||||
Series J convertible preferred stock | 1,560 | 1,560 | 490 | 3,610 | ||||||||||||
Series K convertible preferred stock | 180 | 722 | 50 | 952 | ||||||||||||
Total | $ | 4,305 | $ | 5,713 | $ | 2,187 | $ | 12,205 |
(1) | Consists of shares of common stock issuable to MDB Capital Group, LLC (“MDB”). |
The Company will continue to accrue interest on the liquidated damages balance at 1.0% per month based on the balance outstanding as of March 31, 2022, or $5,369, until paid. There is no scheduled date when the unpaid liquidated damages become due.
As of December 31, 2021, the short-term and long-term liquidated damages payable were $5,197 and $7,008, respectively. The long-term portion was converted into shares of the Company’s common stock on January 24, 2022, as further described below.
On January 24, 2022, the Company entered into several stock purchase agreements with several investors the Company was liable to for liquidated damages, pursuant to which the Company issued an aggregate of shares of its common stock at a price equal to $per share (determined based on the volume-weighted average price of the Company’s common stock at the close of trading on the sixty (60) previous trading days), to the investors in lieu of an aggregate of $7,008 owed in liquidated damages. The Company agreed that it would prepare and file as soon as reasonably practicable, a registration statement covering the resale of these shares of the Company’s common stock issued in lieu of payment of these liquidated damages in cash. The Company recorded $6,685 in connection with the issuance of shares of the Company’s common stock and recognized a gain of $323 on the settlement of the liquidated damages, which was recorded within additional paid-in capital on the condensed consolidated statement of stockholders’ deficiency.
7. | Fair Value Measurements |
The Company estimates the fair value 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.
16 |
The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
● | Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
● | Level | |
● | Level |
The Company accountsaccounted for certain warrants (as described under the heading Common Stock Warrants in Note 10) as derivative liabilities, which requires the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. The Company accounted for the embedded conversion features of the 12% senior convertible debentures (the “12% Convertible Debentures”) as derivative liabilities, which required the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. As of December 31, 2020, there was no longer any principal or accrued but unpaid interest outstanding under2021, the 12% Convertible Debentures since certain holders converted the debt into shares of the Company’s common stockStrome Warrants and certain holdersB. Riley Warrants (as described in Note 10) were paid in cash.classified within equity.
These warrants are and the embedded conversion features were classified as Level 3 within the fair-value hierarchy. Inputs to the valuation model include the Company’s publicly quoted stock price, the stock volatility, the risk-free interest rate, the remaining life of the warrants and debentures, the exercise price or conversion price, and the dividend rate. The Company uses the closing stock price of its common stock over an appropriate period of time to compute stock volatility.
Warrant Derivative Liabilities
The following table presents the assumptions used for the warrant derivative liabilities under the Black-Scholes option-pricing model:
Schedule of Warrant Derivative Liabilities
As of September 30, 2021 | As of December 31, 2020 | |||||||||||||||
Strome Warrants | B. Riley Warrants | Strome Warrants | B. Riley Warrants | |||||||||||||
Expected life | 1.70 | 4.50 | 2.45 | 4.79 | ||||||||||||
Risk-free interest rate | 0.28 | % | 0.76 | % | 0.13 | % | 0.36 | % | ||||||||
Volatility factor | 153.59 | % | 142.59 | % | 150.55 | % | 140.95 | % | ||||||||
Dividend rate | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Transaction date closing market price | $ | 0.38 | $ | 0.38 | $ | 0.60 | $ | 0.60 | ||||||||
Exercise price | $ | 0.50 | $ | 0.33 | $ | 0.50 | $ | 0.33 |
The following table represents the carrying amounts and change in valuation for the Company’s warrants accounted for as a derivative liability and classified within Level 3 of the fair-value hierarchy:
Schedule of Valuation Activity for Warrants Accounted for Derivative Liability
As of and for the Nine Months Ended September 30, 2021 | As of and for the Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
Carry Amount at Beginning of Period | Change in Valuation | Carrying Amount at End of Period | Carry Amount at Beginning of Period | Change in Valuation | Carrying Amount at End of Period | |||||||||||||||||||
Strome Warrants | $ | 704,707 | $ | (339,924 | ) | $ | 364,783 | $ | 1,036,687 | $ | 63,160 | $ | 1,099,847 | |||||||||||
B. Riley Warrants | 443,188 | (156,888 | ) | 286,300 | 607,513 | 71,750 | 679,263 | |||||||||||||||||
Total | $ | 1,147,895 | $ | (496,812 | ) | $ | 651,083 | $ | 1,644,200 | $ | 134,910 | $ | 1,779,110 |
For the three months ended September 30,March 31, 2021, and 2020, the change in valuation of warrant derivative liabilities of $665 was recognized as other (expense) incomeexpense on the condensed consolidated statement of operations, was operations.
$801,755 and ($517,405), respectively. For the nine months ended September 30, 2021 and 2020, the change in valuation of warrant derivative liabilities recognized as other (expense) income on the condensed consolidated statement of operations, as described in the above table, was $496,812 and ($134,910), respectively.
8. | Long-term Debt |
Embedded Derivative Liabilities
For the three months ended September 30, 2020, the change in valuation of embedded derivative liabilities recognized as other (expense) on the condensed consolidated statements of operations was ($2,370,000). For the nine months ended September 30, 2020, the change in valuation of embedded derivative liabilities recognized as other income on the condensed consolidated statements of operations was $2,173,000.
8. Long-term Debt
12% Second Amended Senior Secured NotesNote
Below is a summaryAs of March 31, 2022 and December 31, 2021, the various amended and restated notes, as well as various amendments thereto, to the 12%Company’s outstanding obligation under its senior secured note that was originally issued on June 10, 2019,with BRF Finance Co., LLC, an affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for gross proceeds of $20,000,000. The transactions leading up to the 12% second amendedpurchasers and restated note thatas purchaser, is outstandingsummarized as of September 30, 2021 consisted of:follows:
● |
● |
17 |
● | ||
● | On December 6, 2021, the Company entered into a third amendment to the second amended and restated note issued March 24, 2020 (“Amendment 3”), where the Company was permitted to increase the FastPay line of credit in an aggregate principal amount not to exceed $25,000; and | |
● | On January 23, 2022, the Company entered into a fourth amendment to the second amended and restated note issued March 24, 2020 (“Amendment 4”), where the maturity date on the note was extended to (i) December 31, 2023 from December 31, 2022 upon the consummation of the equity financing on February 15, 2022 (further details are provided below), or (ii) the date accelerated pursuant to certain terms of Amendment 4. |
Collectively, the amended and restated notes and amendments thereto and the second amended and restated notesnote and Amendment 1, Amendment 2, Amendment 3 and Amendment 24 thereto are referred to as the “12% Second Amended Senior“Senior Secured Notes,Note,” with all borrowings collateralized by substantially all assets of the Company.
After the date of Amendment 4, interest on the note will be payable, at the agent’s sole discretion, either (a) in cash quarterly in arrears on the last day of each fiscal quarter or (b) by continuing to add such interest due on such payment dates to the principal amount of the note. Interest on the Senior Secured Note will accrue for each calendar quarter on the outstanding principal amount of the note at an aggregate rate of 10.0% per annum, subject to adjustment in the event of default. Further, interest that was payable during fiscal years 2020 and 2021 and added to the principal amount under the note remains subject to the conversion election under Amendment 1.
Delayed Draw Term Note
OnAs of March 24, 2020,31, 2022 and December 31, 2021, the Company entered into a 15%Company’s outstanding obligation under its delayed draw term note (the “Delayed Draw Term Note”) pursuant to the second amended and restated note purchase agreement, in the aggregate principal amount of $12,000,000.with B. Riley is summarized as follows:
● | On March 24, 2020, the Company entered into a delayed draw term note (the “Delayed Draw Term Note”) with an interest rate of 15.0% per annum, pursuant to the second amended and restated note purchase agreement, in the aggregate principal amount of $12,000. The terms of the note provided that up to $8,000 in principal amount was due on March 31, 2021; | |
● | On March 24, 2020, the Company drew down $6,914 under the Delayed Draw Term Note, with interest payable in-kind in arrears on the last day of each fiscal quarter; | |
● | On October 23, 2020, pursuant to the terms of Amendment 1, the maturity date of the Delayed Draw Term Note was changed to March 31, 2022 (as further amended) from March 31, 2021. Amendment 1 also provided that the holder, could originally elect, in lieu of receipt of cash for payment of all or any portion of the interest due or cash payments up to a certain conversion portion of the Delayed Draw Term Note, to receive shares of Series K Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, the holder may elect, in lieu of receipt of cash for such amounts, shares of the Company’s common stock at the price the Company last sold shares of the Company’s common stock; | |
● | On October 23, 2020, $3,367, including principal and accrued interest of the Delayed Draw Term Note, converted into shares of the Company’s Series K Preferred Stock, which shares were further converted into shares of the Company’s common stock; |
● | On May 19, 2021, pursuant to Amendment 2, the interest rate on the Delayed Draw Term Note decreased to a rate of 10.0% per annum from a rate of 15.0% per annum; | |
● | On December 28, 2021, the Company drew down $5,086 under the Delayed Draw Term Note, and after payment of commitment and funding fees paid of $509, the Company received net proceeds of $4,578; and | |
● | On February 15, 2023, pursuant to Amendment 4, the maturity date on the Delayed Draw Term Note was extended to (i) December 31, 2022 from March 31, 2022 for $5,925 of principal due and (ii) December 31, 2023 from March 31, 2022 for $4,000 of principal due, subject to certain acceleration terms. |
On March 24, 2020, the Company drew down $6,913,865 under the Delayed Draw Term Note, and after payment of commitment and funding fees paid of $793,109, and other of its legal fees and expensesAmendment 4 also provided that were incurred, the Company received net proceeds of $6,000,000. The net proceeds were used for working capital and general corporate purposes. Additional borrowings under the Delayed Draw Term Note requested by the Company mayinterest will be madepayable, at the option of the purchasers, subject to certain conditions. Up to $8,000,000agent’s sole discretion, either (a) in principal amount under the note was originally due on March 31, 2021. Interest on amounts outstanding under the note was payable in-kindcash quarterly in arrears on the last day of each fiscal quarter.
On October 23, 2020, pursuant to the terms of Amendment 1, the maturity date of the Delayed Draw Term Note was changed from March 31, 2021 to March 31, 2022. Amendment 1 also provided that the holder, could originally elect,quarter or (b) in lieu of receipt of cash for payment of all or any portion of the interest due or cash payments up to a certain conversion portion of the Delayed Draw Term Note, to receive shares of Series K Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, the holder may elect,kind quarterly in lieu of receipt of cash for such amounts, shares of the Company’s common stock at the price the Company last sold shares of the Company’s common stock.
On May 19, 2021, pursuant to Amendment 2, the interest ratearrears on the Delayed Draw Term Note decreased from alast day of each fiscal quarter, and will accrue for each fiscal quarter on the principal amount outstanding under the note at an aggregate rate of 15%10.0% per annum, subject to a rateadjustment in the event of 10% per annum.default.
Paycheck Protection Program Loan
On April 6, 2020, the Company entered into a note agreement with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”) under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (“SBA”) (the “Paycheck Protection Program Loan”). The Company received total proceeds of $5,702,725 under the Paycheck Protection Program Loan. In accordance with the requirements of the CARES Act, the Company used proceeds from the Paycheck Protection Program Loan primarily for payroll costs. The Paycheck Protection Program Loan was scheduled to mature on April 6, 2022, with a 0.98% interest rate and was subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act.
On June 22, 2021, the SBA authorized full forgiveness of $5,702,725 under the Paycheck Protection Program Loan; thus, the Company will not need to make any payments on the Paycheck Protection Program Loan that JPMorgan Chase facilitates as an SBA lender. JPMorgan Chase will apply the forgiveness amount the SBA authorized, plus all accrued interest, to the Company’s Paycheck Protection Program Loan. The requirements under this program are established by the SBA. All requests for Paycheck Protection Program Loan forgiveness are subject to SBA eligibility. The Company recorded a gain upon debt extinguishment for the nine months ended September 30, 2021 of $5,716,697 (including accrued interest) pursuant to the forgiveness in other (expense) income on the condensed consolidated statements of operations.
Further details as of the date these condensed consolidated financial statements were issued or were available to be issued are provided under the heading Long-term Debt in Note 15.
The following table summarizes the long-term debt:
Schedule of Long Term Debt
As of September 30, 2021 | As of December 31, 2020 | |||||||||||||||||||||||
Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | |||||||||||||||||||
12% Second Amended Senior Secured Note, as amended, due on December 31, 2022 | $ | 61,131,882 | $ | (2,413,593 | ) | $ | 58,718,289 | $ | 56,296,091 | $ | (3,739,690 | ) | $ | 52,556,401 | ||||||||||
Delayed Draw Term Note, as amended, due on March 31, 2022 | 4,717,714 | (151,732 | ) | 4,565,982 | 4,294,318 | (359,172 | ) | 3,935,146 | ||||||||||||||||
Paycheck Protection Program Loan, scheduled to mature April 6, 2022, however, fully forgiven on June 22, 2021 | - | - | - | 5,702,725 | - | 5,702,725 | ||||||||||||||||||
Total | $ | 65,849,596 | $ | (2,565,325 | ) | $ | 63,284,271 | $ | 66,293,134 | $ | (4,098,862 | ) | $ | 62,194,272 |
As of March 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||
Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | |||||||||||||||||||
Senior Secured Note, as amended, matures December 31, 2023 | $ | 62,691 | $ | (1,584 | ) | $ | 61,107 | $ | 62,691 | $ | (1,935 | ) | $ | 60,756 | ||||||||||
Delayed Draw Term Note, as amended, matures December 31, 2023 | 9,928 | (259 | ) | 9,669 | 9,928 | (567 | ) | 9,361 | ||||||||||||||||
Total | $ | 72,619 | $ | (1,843 | ) | $ | 70,776 | $ | 72,619 | $ | (2,502 | ) | $ | 70,117 | ||||||||||
Current portion | $ | 5,847 | $ | 5,744 | ||||||||||||||||||||
Long-term portion | 64,929 | 64,373 | ||||||||||||||||||||||
Total | $ | 70,776 | $ | 70,117 |
As of March 31, 2022 and December 31, 2021, the Company’s Delayed Draw Term Note, as amended, carrying value of $9,669 and $9,361, respectively, was as follows: (1) $5,847 and $5,744 for the first draw (including accrued interest and less unamortized discount and debt issuance costs of $78 and $180), respectively; and (2) $3,822 and $3,617 for the second draw (including accrued interest and less unamortized discount and debt issuance costs of $181 and $387), respectively. As of March 31, 2022, the effective interest rate of the Senior Secured Note, Delayed Draw Term Note first draw and second draw were 11.4%, 11.7% and 12.5%, respectively.
The current portionfollowing table summarizes principal maturities of long-term debtdebt:
Schedule of Principal Maturities of Long-term Debt
Years Ending December 31, | ||||
2022 | $ | 5,924 | ||
2023 | 66,695 | |||
Total | $ | 72,619 |
19 |
9. | Preferred Stock |
The Company has the authority to issue September 30, 2021 and DecemberMarch 31, 2020 was $4,565,982 and none, respectively, on the condensed consolidated balance sheets. The noncurrent portion of long-term debt2022 as of September 30, 2021 and December 31, 2020 was $58,718,289 and $62,194,272, respectively, on the condensed consolidated balance sheets.follows: shares of preferred stock, $ par value per share, consisting of authorized and/or outstanding shares as of
● | 168 shares are outstanding. authorized shares designated as “Series G Convertible Preferred Stock”, of which | |
● | authorized shares designated as “Series H Convertible Preferred Stock” (as further described below), of which shares are outstanding. |
9. Preferred Stock
Series H Preferred Stock
On August 17, 2021, 50The Company recorded the issuance of shares of Seriesthe Company’s common stock upon conversion of shares of the Company’s series H convertible preferred stock (the “Series H Preferred Stock”) were converted into sharesduring the three months ended March 31, 2022, as reflected on the condensed consolidated statements of the Company’s common stock.stockholders’ deficiency.
Series L Preferred Stock
On May 4, 2021, a special committee of the Board declared a dividend of one preferred stock purchase right to be paid to the stockholders of record at the close of business on May 14, 2021 for (i) each outstanding share of the Company’s common stock and (ii) each share of the Company’s common stock issuable upon conversion of each share of the Company’s Series H Preferred Stock. Each preferred stock purchase right entitles the registered holder to purchase, subject to a rights agreement, from the Company one one-thousandth of a share of the Company’s newly created Series L Junior Participating Preferred Stock, par value $per share (the “Series L Preferred Stock”), at a price of $,$4.00, subject to certain adjustments. The Series L Preferred Stock will be entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share or (ii) 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all noncashnon-cash dividends or other distributions paid to the holders of the Company’s common stock. The Series L Preferred Stock will be entitled to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. In the event of any merger, consolidation or other transaction in which shares of the Company’s common stock are converted or exchanged, the Series L Preferred Stock will be entitled to receive 1,000 times the amount received per one share of the Company’s common stock.stock.
10. Stockholders’ EquityThe rights agreement pursuant to the Series L Preferred Stock was set to expire on May 3, 2022; however, the board of directors elected to extend the expiration date, which extension is evidenced by an amended and restated rights agreement, dated May 2, 2022, by and between the Company and the rights agent, and which extension is subject to ratification by the Company’s stockholders.
10. | Stockholders’ Equity |
Common Stock
The Company has the authority to issue shares of common stock, $ par value per share.
Common Stock Private Placement
On May 20, 2021February 15, 2022 and May 25, 2021,March 11, 2022, the Company entered into securities purchase agreements with several accredited investors, pursuant to which the Company sold an aggregate of shares of its common stock, at a per share price of $for aggregateraised gross proceeds of $15,005,00034,498 in a private placement. On June 2, 2021, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company sold an aggregatea firm commitment underwritten public offering of 7,142,857 4,181,603shares of itsthe 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 per sharepublic offering price of $for gross proceeds of $5,000,000 in a private placement that was in addition to the closings that occurred on May 20, 2021 and May 25, 2021. After payment of legal fees and expenses the investors of $167,244, of which $100,000 was paid in cash to B. Riley, theper share. The Company received net proceeds of $19,837,75732,058, after deducting underwriting discounts and commissions and other offering costs payable by the Company. In additions, the Company directly incurred offering costs of $1,568 and recorded $. The proceeds will be used for general corporate purposes.30,490 upon the issuance of its common stock, as reflected on the condensed consolidated statement of stockholders’ deficiency.
Pursuant to the registration rights agreements entered into in connection with the securities purchase agreements, the Company agreed to register the shares of the Company’s common stock issued in the private placements. The Company committed to file the registration statement on the earlier of: (i) in the event the Company does not obtain a waiver from the holders of the shares of the Company’s common stock that were issued upon the conversion of the Series K Preferred Stock (the “Waiver”), within ten (10) calendar days following the date the Company’s registration statement(s) on Form S-1, registering for resale shares of the Company’s common stock that were issued in connection with offerings prior to the date of the registration rights agreement (the “Prior Registration Statements”), is declared effective by the SEC; and (ii) in the event the Company does obtain the Waiver, the earliest practicable date on which the Company is permitted by the SEC guidance to file the initial registration statement following the filing of the Prior Registration Statements (the “Filing Date”). The Company also committed to cause the registration statement to become effective by no later than 90 days after the Filing Date (or, in the event of a full review by the staff of the SEC, 120 days following the Filing Date). The registration rights agreement provides for Registration Rights Damages upon the occurrence of certain events up to a maximum amount of 6% of the aggregate amount invested pursuant to the securities purchase agreements.
The securities purchase agreements included a provision that requires the Company to maintain its periodic filings with the SEC in order to satisfy the public information requirements under Rule 144(c) of the Securities Act. At any time during the period commencing from the twelve (12) month anniversary of the date the Company becomes current in its filing obligations and ending at such time that all of the common stock may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) fails for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144(i)(1)(i) or becomes an issuer in the future, and the Company fails to satisfy any condition set forth in Rule 144(i)(2) (a “Public Information Failure”) then, in addition to such purchaser’s other available remedies, the Company must pay to a purchaser, in cash, as partial liquidated damages and not as a penalty (“Public Information Failure Damages”), an amount in cash equal to one percent (1.0%) of the aggregate subscription amount of the purchaser’s shares then held by the purchaser on the day of a Public Information Failure and on every thirtieth (30th) day (pro-rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured up to a maximum of five (5) 30-day periods and (b) such time that such public information is no longer required for the purchasers to transfer the shares pursuant to Rule 144. Public Information Failure Damages will be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Damages are incurred and (ii) the third (3rd) business day after the event or failure giving rise to the Public Information Failure Damages is cured. In the event the Company fails to make Public Information Failure Damages in a timely manner, such Public Information Failure Damages will bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full.
Common Stock Warrants
The Company issued warrants to purchase shares of the Company’s common stock to MDB Capital Group, LLC (the “MDB Warrants”), Strome Mezzanine Fund LP (the “Strome Warrants”), and B. Riley Financial, Inc. (the “B. Riley Warrants”) in connection with various financing transactions (collectively, the “Financing Warrants”).
The Financing Warrants outstanding and exercisable as of September 30, 2021March 31, 2022 are summarized as follows:
SummarySchedule of Warrant ActivityCommon Stock Financing Warrants Outstanding and Exercisable
Outstanding | Exercise Price | Expiration Date | Total Outstanding and Exercisable (Shares | |||||||||||||||||||||||||
Exercise Price | Expiration Date | Classified as Derivative Liabilities (Shares) | Classified within Stockholders’ Equity (Shares) | Total Exercisable (Shares) | ||||||||||||||||||||||||
MDB Warrants | $ | 0.20 | November 4,2021 | - | 327,490 | 327,490 | ||||||||||||||||||||||
Strome Warrants | 0.50 | June 15, 2023 | 1,500,000 | - | 1,500,000 | $ | 11.00 | June 15, 2023 | 68,182 | |||||||||||||||||||
B. Riley Warrants | 0.33 | October 18, 2025 | 875,000 | - | 875,000 | 7.26 | October 18, 2025 | 39,773 | ||||||||||||||||||||
MDB Warrants | 1.15 | October 19, 2022 | - | 119,565 | 119,565 | 25.30 | October 19, 2022 | 5,435 | ||||||||||||||||||||
MDB Warrants | 2.50 | October 19, 2022 | - | 60,000 | 60,000 | 55.00 | October 19, 2022 | 2,728 | ||||||||||||||||||||
Total outstanding and exercisable | 2,375,000 | 507,055 | 2,882,055 | |||||||||||||||||||||||||
Total | 116,118 |
The intrinsic value of exercisable but unexercised in-the-money stock warrants as of September 30, 2021March 31, 2022 was $ , based on a fair market value of the Company’s common stock of $ per share on September 30, 2021.March 31, 2022.
11. | Compensation Plans |
The Company provides stock-based compensation in the form of (a) restricted stock awards to certain employees and directors, comprised of restricted stock awards and restricted stock units (collectively referred(referred to as the “Restricted Stock Awards”), (b) stock option grants to employees, directors and consultants (referred to asunder the “Common Stock Awards”)2016 Plan (as described below), (c) stock option awards, restricted stock awards, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants (collectivelyunder the “Common Equity Awards”)2019 Plan (as described below), (d) stock option awards outside of the 2016 Stock Incentive Plan and 2019 Equity Incentive Plan to certain officers, directors and employees (referred to as the “Outside Options”), (e) common stock warrants to the Company’s publisher partners (referred to as the “Publisher Partner Warrants”), and (f) common stock warrants to ABG-SI, LLC (referred to as the “ABG Warrants”).
Summary of Stock-based Compensation
Restricted | Common | Common | Publisher | |||||||||||||||||||||||||
Stock | Stock | Equity | Outside | Partner | ABG | |||||||||||||||||||||||
Awards | Awards | Awards | Options | Warrants | Warrants | Totals | ||||||||||||||||||||||
During the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
Cost of revenue | $ | 11,808 | $ | 23,217 | $ | 1,696,147 | $ | 967 | $ | - | $ | - | $ | 1,732,139 | ||||||||||||||
Selling and marketing | - | 3,970 | 1,341,948 | 75,193 | - | - | 1,421,111 | |||||||||||||||||||||
General and administrative | 414,163 | 78,017 | 4,081,766 | - | - | 745,636 | 5,319,582 | |||||||||||||||||||||
Total costs charged to operations | 425,971 | 105,204 | 7,119,861 | 76,160 | - | 745,636 | 8,472,832 | |||||||||||||||||||||
Capitalized platform development | 2,328 | - | 483,854 | 2,690 | - | - | 488,872 | |||||||||||||||||||||
Total stock-based compensation | $ | 428,299 | $ | 105,204 | $ | 7,603,715 | $ | 78,850 | $ | - | $ | 745,636 | $ | 8,961,704 | ||||||||||||||
During the Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
Cost of revenue | $ | 35,610 | $ | 53,149 | $ | 1,178,276 | $ | 2,471 | $ | 992 | $ | - | $ | 1,270,498 | ||||||||||||||
Selling and marketing | 323,164 | 42,695 | 734,391 | 43,900 | - | - | 1,144,150 | |||||||||||||||||||||
General and administrative | 80,306 | 127,786 | 855,390 | - | - | 364,248 | 1,427,730 | |||||||||||||||||||||
Total costs charged to operations | 439,080 | 223,630 | 2,768,057 | 46,371 | 992 | 364,248 | 3,842,378 | |||||||||||||||||||||
Capitalized platform development | 88,619 | 32,680 | 267,013 | 1,188 | - | - | 389,500 | |||||||||||||||||||||
Total stock-based compensation | $ | 527,699 | 256,310 | $ | 3,035,070 | $ | 47,559 | $ | 992 | $ | 364,248 | $ | 4,231,878 |
Stock-based compensation and equity-based expense charged to operations or capitalized during the nine months ended September 30, 2021 and 2020 are summarized as follows:
Restricted | Common | Common | Publisher | Restricted Stock Awards | 2016 Plan | 2019 Plan | Outside Options | ABG Warrants | Totals | |||||||||||||||||||||||||||||||||||||||||||
Stock | Stock | Equity | Outside | Partner | ABG | |||||||||||||||||||||||||||||||||||||||||||||||
Awards | Awards | Awards | Options | Warrants | Warrants | Totals | ||||||||||||||||||||||||||||||||||||||||||||||
During the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
During the Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue | $ | 60,838 | $ | 169,482 | $ | 4,694,925 | $ | 4,463 | $ | - | $ | - | $ | 4,929,708 | $ | 430 | $ | 14 | $ | 1,714 | $ | - | $ | - | $ | 2,158 | ||||||||||||||||||||||||||
Selling and marketing | - | 13,899 | 3,820,996 | 224,371 | - | - | 4,059,266 | - | 9 | 591 | - | - | 600 | |||||||||||||||||||||||||||||||||||||||
General and administrative | 559,505 | 297,283 | 10,344,247 | - | - | 1,498,217 | 12,699,252 | - | 48 | 3,941 | 105 | 515 | 4,609 | |||||||||||||||||||||||||||||||||||||||
Total costs charged to operations | 620,343 | 480,664 | 18,860,168 | 228,834 | - | 1,498,217 | 21,688,226 | 430 | 71 | 6,246 | 105 | 515 | 7,367 | |||||||||||||||||||||||||||||||||||||||
Capitalized platform development | 11,276 | 5,071 | 1,324,805 | 6,472 | - | - | 1,347,624 | - | 5 | 682 | - | - | 687 | |||||||||||||||||||||||||||||||||||||||
Total stock-based compensation | $ | 631,619 | $ | 485,735 | $ | 20,184,973 | $ | 235,306 | $ | - | $ | 1,498,217 | $ | 23,035,850 | $ | 430 | $ | 76 | $ | 6,928 | $ | 105 | $ | 515 | $ | 8,054 | ||||||||||||||||||||||||||
During the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
During the Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue | $ | 108,936 | $ | 150,915 | $ | 3,261,542 | $ | 5,644 | $ | 36,654 | $ | - | $ | 3,563,691 | $ | 24 | $ | 127 | $ | 1,290 | $ | 2 | $ | - | $ | 1,443 | ||||||||||||||||||||||||||
Selling and marketing | 920,566 | 102,206 | 2,114,595 | 142,767 | - | - | 3,280,134 | - | 5 | 972 | 75 | - | 1,052 | |||||||||||||||||||||||||||||||||||||||
General and administrative | 238,558 | 437,614 | 2,430,553 | 150,577 | - | 1,084,826 | 4,342,128 | 3 | 117 | 2,128 | - | 356 | 2,604 | |||||||||||||||||||||||||||||||||||||||
Total costs charged to operations | 1,268,060 | 690,735 | 7,806,690 | 298,988 | 36,654 | 1,084,826 | 11,185,953 | 27 | 249 | 4,390 | 77 | 356 | 5,099 | |||||||||||||||||||||||||||||||||||||||
Capitalized platform development | 234,611 | 154,445 | 864,656 | 5,451 | - | - | 1,259,163 | 5 | 3 | 299 | 2 | - | 309 | |||||||||||||||||||||||||||||||||||||||
Total stock-based compensation | $ | 1,502,671 | 845,180 | $ | 8,671,346 | $ | 304,439 | $ | 36,654 | $ | 1,084,826 | $ | 12,445,116 | $ | 32 | $ | 252 | $ | 4,689 | $ | 79 | $ | 356 | $ | 5,408 |
Unrecognized compensation expense and expected weighted-average period to be recognized related to the stock-based compensation awards and equity-based awards as of September 30, 2021March 31, 2022 was as follows:
Schedule of Unrecognized Compensation Expense
Restricted | Common | Common | Publisher | Restricted | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock | Stock | Equity | Outside | Partner | ABG | Stock | 2016 | 2019 | Outside | ABG | ||||||||||||||||||||||||||||||||||||||||||
Awards | Awards | Awards | Options | Warrants | Warrants | Totals | Awards | Plan | Plan | Options | Warrants | Totals | ||||||||||||||||||||||||||||||||||||||||
Unrecognized compensation expense | $ | 2,750,000 | $ | - | $ | 54,255,910 | $ | 135,741 | $ | - | $ | 3,788,429 | $ | 60,930,080 | ||||||||||||||||||||||||||||||||||||||
Unrecognized compensation cost | $ | 1,925 | $ | - | $ | 44,563 | $ | - | $ | 1,988 | $ | 48,476 | ||||||||||||||||||||||||||||||||||||||||
Expected weighted-average period expected to be recognized (in years) | - | - | - | - |
Stock Option Repricing
Pursuant
On March 18, 2022, the Company approved a repricing of certain outstanding stock options (the “Stock Option Repricing”) granted under the Company’s 2016 Stock Incentive Plan (the “2016 Plan”) and the 2019 Equity Incentive Plan (the “2019 Plan”) that had an exercise price above $an amendment with ABG-SI, LLC on June 4, 2021,stockholder approval. As a result of the Stock Option Repricing, the exercise price relatedprices were set to $ per share, which was the ABG Warrants exercisable for up to 10,994,922 sharesclosing sale price of the Company’s common stock was changed to $ per share, including certain outstanding stock options held by senior management of the Company. The Stock Option Repricing also included certain outstanding stock options granted outside of the 2016 Plan and 2019 Plan, which repricing is still subject to per share from $per share inas listed on the NYSE American exchange on March 18, 2022. Except for additional benefitsthe repricing of the stock options under the Sports Illustrated licensing agreement.
Further details as2019 Plan, all terms and conditions of each stock option remains in full force and effect. For the repricing of the date these condensed consolidated financial statements were issued or were available to be issued are providedstock options under the heading Compensation Plans 2019 Plan, the Company (i) modified the exercise price; (ii) will allow cashless exercise as a method of paying the exercise price, and (iii) will waive a lock-up provision in Note 15.the stock option agreements. All other term and conditions of each of the stock options under the 2019 Plan remains in full force and effect.
The Stock Option Repricing of approximately stock option grants (for 340 employees) that were issued to employees of the Company, including senior management, resulted in incremental cost of $, of which $was recognized at the time of the Stock Option Repricing for the fully vested awards and included in our condensed consolidated statement of operations, and $5,918 will recognized over the remaining vesting term of the original award at the repricing date.
12. Revenue Recognition
12. | Revenue Recognition |
Disaggregation of Revenue
The following table provides information about disaggregated revenue by product line,category, geographical market and timing of revenue recognition:
Schedule of Disaggregation of Revenue
Three Months Ended September 30, | Nine Months Ended September 30, | 2022 | 2021 | |||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | Three Months Ended March 31, | ||||||||||||||||||||
Revenue by product line: | ||||||||||||||||||||||||
Advertising | $ | 21,678,480 | $ | 9,409,031 | $ | 46,300,974 | $ | 28,788,631 | ||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Revenue by category: | ||||||||||||||||||||||||
Digital revenue | ||||||||||||||||||||||||
Digital advertising | $ | 21,646 | $ | 9,540 | ||||||||||||||||||||
Digital subscriptions | 7,698,359 | 8,469,943 | 22,472,951 | 20,096,640 | 6,461 | 7,085 | ||||||||||||||||||
Magazine circulation | 25,973,853 | 12,874,574 | 53,325,894 | 34,041,272 | ||||||||||||||||||||
Other | 4,222,816 | 1,336,445 | 5,835,682 | 2,667,243 | ||||||||||||||||||||
Other revenue | 3,465 | 746 | ||||||||||||||||||||||
Total digital revenue | 31,572 | 17,371 | ||||||||||||||||||||||
Print revenue | ||||||||||||||||||||||||
Print advertising | 1,368 | 1,533 | ||||||||||||||||||||||
Print subscriptions | 15,303 | 14,711 | ||||||||||||||||||||||
Total print revenue | 16,671 | 16,244 | ||||||||||||||||||||||
Total | $ | 59,573,508 | $ | 32,089,993 | $ | 127,935,501 | $ | 85,593,786 | $ | 48,243 | $ | 33,615 | ||||||||||||
Revenue by geographical market: | ||||||||||||||||||||||||
United States | $ | 57,762,726 | $ | 29,964,150 | $ | 123,697,063 | $ | 81,295,916 | $ | 47,321 | $ | 32,528 | ||||||||||||
Other | 1,810,782 | 2,125,843 | 4,238,438 | 4,297,870 | 922 | 1,087 | ||||||||||||||||||
Total | $ | 59,573,508 | $ | 32,089,993 | $ | 127,935,501 | $ | 85,593,786 | $ | 48,243 | $ | 33,615 | ||||||||||||
Revenue by timing of recognition: | ||||||||||||||||||||||||
At point in time | $ | 51,875,149 | $ | 23,620,050 | $ | 105,462,550 | $ | 65,497,146 | $ | 41,782 | $ | 26,530 | ||||||||||||
Over time | 7,698,359 | 8,469,943 | 22,472,951 | 20,096,640 | 6,461 | 7,085 | ||||||||||||||||||
Total | $ | 59,573,508 | $ | 32,089,993 | $ | 127,935,501 | $ | 85,593,786 | $ | 48,243 | $ | 33,615 |
Contract Balances
The timing of the Company’s performance under its various contracts often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. A contract asset is recognized when a good or service is transferred to a customer and the Company does not have the contractual right to bill for the related performance obligations. A contract liability is recognized when consideration is received from the customer prior to the transfer of goods or services.
The following table provides information about contract balances:
Schedule of Contract with Customer, Asset and Liability
As of | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
Unearned revenue (short-term contract liabilities): | ||||||||
Digital subscriptions | $ | 15,708,139 | $ | 14,870,712 | ||||
Magazine circulation | 49,244,783 | 46,586,345 | ||||||
Advertising and other | 6,352,733 | 168,619 | ||||||
$ | 71,305,655 | $ | 61,625,676 | |||||
Unearned revenue (long-term contract liabilities): | ||||||||
Digital subscriptions | $ | 1,593,724 | $ | 593,136 | ||||
Magazine circulation | 17,444,012 | 22,712,961 | ||||||
Other | 170,000 | 192,500 | ||||||
$ | 19,207,736 | $ | 23,498,597 |
March 31, 2022 | December 31, 2021 | |||||||
As of | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Unearned revenue (short-term contract liabilities): | ||||||||
Digital revenue | $ | 12,815 | $ | 14,693 | ||||
Print revenue | 35,704 | 39,337 | ||||||
Total unearned revenue (short-term contract liabilities) | $ | 48,519 | $ | 54,030 | ||||
Unearned revenue (long-term contract liabilities): | ||||||||
Digital revenue | $ | 1,321 | $ | 1,446 | ||||
Print revenue | 11,041 | 13,831 | ||||||
Total unearned revenue (long-term contract liabilities) | $ | 12,362 | $ | 15,277 |
Unearned Revenue – Unearned revenue, also referred to as contract liabilities, include payments received in advance of performance under the contracts and are recognized as revenue over time. The Company records contract liabilities as unearned revenue on the condensed consolidated balance sheets. Digital subscription and magazine circulation revenue of $42,893,297 was recognized during the nine months ended September 30, 2021 from unearned revenue at the beginning of the year.
During January and February 2020, the Company modified certain digital and magazine subscription contracts that prospectively changed the frequency of the related issues required to be delivered on a yearly basis. The Company determined that the remaining digital content and magazines to be delivered are distinct from the digital content or magazines already provided under the original contract. As a result, the Company in effect established a new contract that included only the remaining digital content or magazines. Accordingly, the Company allocated the remaining performance obligations in the contracts as consideration from the original contract that has not yet been recognized as revenue.
13. Income Taxes
13. | Income Taxes |
The provision for income taxes in interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly provision for income taxes, and estimate of the Company’s annual effective tax rate, are subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company conducts business, and tax law developments.
The provision effective tax rate benefit for the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 was 0.29%0.1% and 0.00%0.0%, respectively. The tax benefitdeferred income taxes for the ninethree months ended September 30, 2021March 31, 2022 was primarily due to discrete items.
The realization of deferred tax assets is dependent upon a variety of factors, including the generation of future taxable income, the reversal of deferred tax liabilities, and tax planning strategies. Based upon the Company’s historical operating losses and the uncertainty of future taxable income, the Company has provided a valuation allowance against most of the deferred tax assets as of September 30,March 31, 2022 and 2021.
14. | Related Party |
For the three months ended March 31, 2022, the Company had certain transactions with B. Riley, a principal stockholder, where it paid fees associated with the common stock public offering totaling $2,440.
For the three months ended March 31, 2022 and 2021, the Company paid in cash or accrued interest that was added to the principal on the Senior Secured Note and December 31, 2020.Delayed Draw Term Note due to B. Riley, a principal stockholder, of $1,815 (paid in cash) and $1,852 (accrued interest that was added to the principal), respectively.
14. CommitmentsService and ContingenciesConsulting Contracts
For the three months ended March 31, 2022 and 2021, the Company paid James C. Heckman, its former Chief Executive Officer, consulting fees of $165 and $52, respectively, in connection with a consulting agreement, as amended from time to time. For the three months ended March 31, 2022, the Company paid an entity affiliated with Mr. Heckman, Roundtable Media, L.L.C., a net revenue share amount of $82 in connection with a partner agreement.
Revenue GuaranteesRepurchases of Restricted Stock
On a select basis,December 15, 2020, the Company has provided revenue share guaranteesentered into an amendment for certain restricted stock awards and units that were previously issued to certain independent publishers that transition their publishing operationsemployees in connection with the HubPages merger, pursuant to which the Company agreed to repurchase from another platform to theMaven.net or maven.io.certain key personnel of HubPages, Inc., including Paul Edmondson, one of the Company’s officers, and his spouse, an aggregate of shares of the publisherCompany’s common stock at a monthly amountprice of income$per share each month for a period of 12 to 24 months, from inception of the publisher contract that is the greater of (a) a fixed monthly minimum, or (b) the calculated earned revenue share.For the three months ended September 30, 2021for aggregate proceeds to Mr. Edmondson and 2020, the Company recognized publisher partner guaranteeshis spouse of $214,28667 and $2,539,055, respectively. For the nine months ended September 30, 2021 and 2020, the Company recognized publisher partner guarantees of $3,781,240 and $7,541,619, respectively.per month (see Note 5).
23 |
15. | Commitments and Contingencies |
Contingent Liability
In connection with the Company’s underwritten public offering in February 2022, the Company may have a contingent liability arising out of possible violations of the Securities Act of 1933, as amended (the “Securities Act”) in connection with an investor presentation, which the Company publicly filed. Specifically, the furnishing of the investor presentation publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the investor presentation may be deemed to be a prospectus that did not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon the investor presentation. If a claim were brought by any such investor and a court were to conclude that the public disclosure of such investor presentation constituted a violation of the Securities Act, the Company could be required to repurchase the shares sold to the investors at the original purchase price, plus statutory interest. The Company could also incur considerable expense in contesting any such claims. As of the issuance date of these consolidated financial statements, no legal proceedings or claims have been made or threatened by any investors. The likelihood and magnitude of this contingent liability, if any, is not determinable at this time.
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, results of operations or cash flows.
Subsequent Events |
15. Subsequent Events
The Company performed an evaluation of subsequent events through the date of filing of these condensed consolidated financial statements with the SEC. Other than the below described subsequent events, there were no material subsequent events which affected, or could affect, the amounts or disclosures on the condensed consolidated financial statements.
Compensation Plans
From OctoberApril 1, 20212022 through the date these condensed consolidated financial statements were issued, or were available to be issued, the Company granted approximately common stock options, restricted stock units and restricted stock awards to employees andtotaling common stock options exercisable for shares, all of its common stock to employees.which remain outstanding.
Long-term DebtAcquisition of Athlon Holdings, Inc.
12% Second Amended Senior Secured Notes – The balanceOn April 1, 2022, the Company acquired 100% of the issued and outstanding undercapital stock of Athlon Holdings, Inc. (“Athlon”) for a purchase price of $18,100, comprised of (i) a cash portion of $15,100, with $11,800 paid at closing (including cash acquired of $1,800) and $3,200 to be paid post-closing (as further described below) and (ii) the 12% Second Amended Senior Secured Notesissuance of shares of the Company’s common stock with a fair market value of $3,000 (the fair market value of the common stock issuance was determined based on the average closing price of the Company’s common stock for the 10 trading days preceding the April 1, 2022 closing date), subject to a customary working capital adjustment based on current assets less current liabilities as of the date these condensed consolidated financial statements were issuedclosing date. Certain of Athlon’s key employees entered into either advisory agreements or were available to be issued was approximately $61.7 million, which included outstanding principal of approximately $48.8 million, payment of in-kind interest of approximately $12.3 million thatemployment agreements with the Company was permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately $0.5 million.Company.
Delayed Draw Term Note– The balance outstanding underamount to be paid post-closing of $3,200 will be paid as follows: (i) $3,000 will be paid on the Delayed Draw Term Notenine-month anniversary of the closing date, or January 1, 2023, and (ii) $245 will be paid within two business days from the date the Company receives proceeds from the sale of all or a portion of the equity interest in Just Like Falling Off a Bike, LLC that was held by Athlon as of the closing date these condensed consolidated financial statements were issued or were available to be issued(this amount was approximately $4.7 million, which included outstanding principal of approximately $3.6 million, and payment of in-kind interest of approximately $1.1 million that the Company was permitted to add to the aggregate outstanding principal balance.
Business Membership Agreement
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, referred to as SaksWorks Memberships (each membership provides a certain number of accounts that equate to the use of the space granted). The term of the agreement is for twenty-seven months, with an initial period of three months at $25,000 per month for 30 accounts and secondary period for the remaining twenty-four months at $56,617 per month for 110 accounts. The agreement also provides for: (1) additional accounts at predetermined pricing; (2) early termination date of June 30, 2023 providing the Company gives notice by December 31, 2022; and (3) renewal of agreement at the endpaid on the term for a twelve-month period at the then-current market price and pricing structure on such renewal dateApril 4, 2022).
ITEM 2. MANAGEMENT’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 and nine months ended September 30,March 31, 2022 and 2021 and 2020should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 20202021 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 16, 2021.April 1, 2022. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those set forth above. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Forward-Looking Statements.”
Overview
We operate a best-in-class digital mediatechnology platform (the “Platform”) empowering premium publishers who impact, inform, educate and entertain. Our focus is on leveraging the Platform and iconic brands in targeted verticals to maximize the audience, improve engagement and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our owned and operated properties as well as properties we run on behalf of independent publisher partners. We operate the media businessesprint and digital business at SI.com for Sports Illustrated (“Sports Illustrated”), own and operate TheStreet, Inc. (“TheStreet”) and The Spun (collectively, Sports Illustrated, TheStreet and The Spun are hereinafter referred to as our “Owned and Operated Businesses”(the “TheStreet”), own and operate more than 40 brands with our HubPages, Inc. (“HubPages”) business; own and operate Athlon Holdings, Inc. (“Parade”), which includes titles such as Parade, Spry, and Relish, and the brands Athlon Sports and Athlon Outdoors with more than 25 special interest titles including Harris’ Farmer’s Almanac and Mopar Action, and we power more than 200 independent brands. Our proprietary technology platform (the “Platform”) provides digital publishing, distribution, data, marketing and monetization capabilities for the Sports Illustrated and TheStreet businesses as well as a subset of independent, professionally managed, online media publishers (each a “Publisher Partner”). Our strategy is to focus on key verticals where audiences are passionate about
Of the more than 200 Publisher Partners, a topic category (e.g., sports, finance) and where we can leverage the strengthlarge majority of them publish content within one of our core brands to grow audiencethree verticals of sports, finance or lifestyle, and oversee an online community for their respective sites, leveraging our Platform, monetization bothoperation, distribution channels and data and analytics offerings and engages the collective audiences within our core brands as well as our Publisher Partners. Each Publisher Partner joins the Platform by invitation-only and is drawn from premium media brands and independent publishing businessesa single network. Our lifestyle vertical will also see significant benefits with the objectiveacquisition of augmentingParade and as we apply our position in key verticalsexisting technology to this new acquisition. Generally, Publisher Partners are independently owned, strategic partners who receive a share of revenue from the interaction with their content. Audiences expand and optimizingadvertising revenue may improve due to the performance of the Partner. Because of the state-of-the-art technologyscale we have achieved by combining all Publisher Partners onto a single platform and a large scale of the Platform and experienced sales organization. They may also benefit from our expertise in search engine optimization (SEO), social media, subscriptionmembership marketing and ad monetization, Publisher Partners benefit from improved traffic and increased monetization.management systems, which we believe will enhance their revenue. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While they benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management.
Our growth strategy is to continue to expand the coalition by adding new Publisher Partners in key verticals that management believes will expand the scale of unique users interacting on the Platform. In each vertical, we seek to build around a leading brand, suchpremium publishers with high quality brands and content either as Sports Illustrated (for sports) and TheStreet (for finance), surround it with subcategory specialists, and further enhance coverage with individual expert contributors. The primary means of expansion is adding independent Publisher Partners and/or by acquiring publishers that have premium branded contentas owned and can broaden the reach and impact of the Platform.
On September 20, 2021, we re-branded to “The Arena Group.”operated entities.
Liquidity and Capital Resources
Cash and Working Capital Facility
As of September 30, 2021,March 31, 2022, our principal sources of liquidity consisted of cash of approximately $8.2 million.$22,480. In addition, as of March 31, 2022, we had the use of additional proceeds from our working capital facility with FastPayFPP Finance LLC (“FastPay”) in the amount of approximately $8.3 million. During$15,709, subject to eligible accounts receivable. As of March 31, 2022, the three months ended September 30, 2021, we generated positive cash flows from operations inoutstanding balance of the amount of approximately $1.7 million.FastPay working capital facility was $9,291. We experience seasonality with respect to our revenues, with the fourth quarter typically generating a significant portionalso had accounts receivable, net of our revenues; thus, we expect the fourth quarter to continue to build upon our generationadvances from FastPay of positive cash flows from operations. The FastPay line$10,707 as of credit expires in the first quarter of 2022 and there is approximately a $4.6 million principal payment due on the Term Note on March 31, 2022. We are in negotiations with FastPay to increase, extend and improve the termsOur cash balance as of the facility, of which there can be no assurances that these negotiations will result in any increase, extension, or improvement in the terms of the facility. Historically, we have relied on equity and debt offerings, to the extent available and, to a lesser extent, cash from operations to satisfy our liquidity needs. If we are unable to continue to generate positive cash flows, or otherwise extend the maturityissuance date of our line of credit and the Term Note, we may need to seek additional capital. Should capital not be available to us at reasonable terms, other actions may become necessary in addition to cost control measures and continued efforts to increase revenue.accompanying condensed consolidated financial statements is $13,179.
In addition, we continue to be focused on growing our existing operations and seeking accretive and complementary strategic acquisitions as part of our growth strategy. We believe, that with additional sources of liquidity and the ability to raise additional capital or incur additional indebtedness to supplement our internal projections, we will be able to execute our growth plan and finance our working capital requirements.
Material Contractual Obligations
We have material contractual obligations that arise in the normal course of business 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 due in the next 12 months. See Notes 3, 6 and 8 in our accompanying condensed consolidated financial statements for amounts outstanding as of March 31, 2022, related to leases, liquidated damages and long-term debt. There have been no material changes from the disclosures in our Form 10-K.
Contingent Liability
Finally, we may have a contingent liability arising out of possible violations of the Securities Act in connection with an investor presentation, which we furnished as Exhibit 99.2 to our Current Report on Form 8-K and Current Report on Form 8-K/A filed on January 31, 2022 and February 1, 2022, respectively. Specifically, the furnishing of the investor presentation publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the investor presentation may be deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon such investor presentation that may have constituted a potential violation of Section 5 of the Securities Act. If a claim were brought by any such ‘recipients’ of such investor presentation and a court were to conclude that the public disclosure of such investor presentation constituted a violation of Section 5 of the Securities Act, we could be required to repurchase the shares sold to the investors who reviewed such investor presentation at the original purchase price, plus statutory interest. We could also incur considerable expense in contesting any such claims. As of the date of the filing of this Quarterly Report, no legal proceedings or claims have been made or threatened by any investors in our offering. Such payments and expenses, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, or force us to raise additional funding, which funding may not be available on favorable terms, if at all.
Working Capital Deficit
We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of September 30, 2021March 31, 2022 and December 31, 20202021 was as follows:
As of | As of | |||||||||||||||
September 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Current assets | $ | 79,380,241 | $ | 73,846,465 | $ | 80,392 | $ | 77,671 | ||||||||
Current liabilities | (130,386,757 | ) | (107,562,825 | ) | (96,442 | ) | (116,413 | ) | ||||||||
Working capital deficit | (51,006,516 | ) | (33,716,360 | ) | (16,050 | ) | (38,742 | ) |
As of September 30, 2021,March 31, 2022, we had a working capital deficit of approximately $51.0 million,$16,050, as compared to approximately $33.7 million$38,742 as of December 31, 2020,2021, consisting of approximately $79.4 million$80,392 total current assets and $96,442 total current liabilities. As of December 31, 2021, our working capital deficit consisted of $77,671 in total current assets and approximately $130.4 million$116,413 in total current liabilities. Included in current assets as of September 30, 2021 was approximately $0.5 million of restricted cash. Also included in our working capital deficit are noncash current liabilities, consisting of approximately $0.7 million of warrant derivative liabilities, leaving a working capital deficit that requires cash payments of approximately $50.9 million.
Our cash flows during the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 consisted of the following:
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Net cash used in operating activities | $ | (8,261,324 | ) | $ | (20,273,407 | ) | $ | (13,311 | ) | $ | (1,511 | ) | ||||
Net cash used in investing activities | (10,673,872 | ) | (4,286,469 | ) | (1,653 | ) | (966 | ) | ||||||||
Net cash provided by financing activities | 18,129,164 | 20,821,378 | ||||||||||||||
Net decrease in cash, cash equivalents, and restricted cash | $ | (806,032 | ) | $ | (3,738,498 | ) | ||||||||||
Net cash provided by (used in) financing activities | 28,095 | (2,032 | ) | |||||||||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 13,131 | $ | (4,509 | ) | |||||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 8,728,649 | $ | 5,734,592 | $ | 22,982 | $ | 5,026 |
26 |
For the ninethree months ended September 30, 2021,March 31, 2022, net cash used in operating activities was approximately $8.3 million,$13,311, consisting primarily of: approximately $125.1 millionof $58,227 of cash paid (i) to employees, Publisher Partners, expert contributors, suppliers, and vendors, and (ii) for revenue share arrangements, advance of royalty fees and professional services; and (iii) $2,160 of cash paid for interest, offset by $47,076 of cash received from customers (including payments received in advance of performance obligations); less (i) approximately $132.5 million of cash paid (a) to employees, Publisher Partners, expert contributors, suppliers, and vendors, and (b) for revenue share arrangements and professional services; and (ii) approximately $0.9 million of cash paid for interest; as compared to. For the ninethree months ended September 30, 2020, whereMarch 31, 2021, net cash used in operating activities was approximately $20.3 million,$1,511, consisting primarily of: approximately $82.1 millionof $39,210 cash paid (i) to employees, Publisher Partners, suppliers, and vendors, (ii) for revenue share arrangements, advance of royalty fees and professional services; and (iii) $260 of cash paid for interest offset by $37,959 of cash received from customers (including payments received in advance of performance obligations); less (y) approximately $102.0 million of cash paid (a) to employees, Publisher Partners, suppliers, and vendors, and (b) for revenue share arrangements, advance of royalty fees and professional services; and (z) approximately $0.4 million of cash paid for interest..
For the ninethree months ended September 30,March 31, 2022, net cash used in investing activities was $1,653, consisting primarily of $1,582 for capitalized costs for our Platform and $71 for property and equipment. For the three months ended March 31, 2021, net cash used in investing activities was approximately $10.7 million,$966 consisting primarily of: (i) approximately $7.4 million used to acquire a business; (ii) approximately $0.3 million for property and equipment; and (iii) approximately $3.0 millionof $868 for capitalized costs for our Platform; as compared to the nine months ended September 30, 2020, where net cash used in investing activities was approximately $4.3 million consisting primarily of: (x) approximately $0.3 million used for the acquisition of a business; (y) approximately $1.1 millionPlatform and $98 for property and equipment; and (z) approximately $2.9 million for capitalized costs for our Platform.equipment.
For the nine months ended September 30, 2021, net cash used by financing activities was approximately $18.1 million, consisting primarily of: (i) approximately $19.8 million in net proceeds from the private placement issuance of common stock; less (ii) approximately $0.5 million from repayment under our line of credit; and (iii) approximately $1.2 million in payments of restricted stock liabilities; as compared to the three months ended September 30, 2020, whereMarch 31, 2022, net cash provided by financing activities was approximately $20.8 million,$28,095, consisting primarily of: (i) approximately $6.1 millionof $32,058 (excludes accrued offering costs of $1,568) in net proceeds from the issuancepublic offering of Series H Preferred Stock and Series J convertible preferredcommon stock (the “Series J Preferred Stock”); (ii) approximately $11.7 million in net proceedsless (i) $2,697 from the Delayed Draw Term Note and the Payroll Protection Program Loan; and (iii) approximately $3.3 million in borrowingsrepayments of our FastPay line of credit; less (iv) approximately $0.3 million(ii) $710 related to payments of restricted stock liabilities; and (iii) $556 for tax payments relating to the withholding of shares of common stock for certain employees. For the three months ended March 31, 2021, net cash used in financing activities was $2,032 consisting primarily of $1,752 from repayments of our FastPay line of credit and $280 in payments for taxes relating to repurchase of restricted shares.stock liabilities.
Results of Operations
Three Months Ended September 30,March 31, 2022 and 2021 and 2020
Three Months Ended September 30, | 2021 versus 2020 | |||||||||||||||
2021 | 2020 | $ Change | % Change | |||||||||||||
Revenue | $ | 59,573,508 | $ | 32,089,993 | $ | 27,483,515 | 85.6 | % | ||||||||
Cost of revenue | 32,173,859 | 24,708,941 | 7,464,918 | 30.2 | % | |||||||||||
Gross profit | 27,399,649 | 7,381,052 | 20,018,597 | 271.2 | % | |||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 22,712,193 | 9,928,901 | 12,783,292 | 128.7 | % | |||||||||||
General and administrative | 23,023,883 | 7,172,175 | 15,851,708 | 221.0 | % | |||||||||||
Depreciation and amortization | 4,055,432 | 4,053,184 | 2,248 | 0.1 | % | |||||||||||
Total operating expenses | 49,791,508 | 21,154,260 | 28,637,248 | 135.4 | % | |||||||||||
Loss from operations | (22,391,859 | ) | (13,773,208 | ) | (8,618,651 | ) | 62.6 | % | ||||||||
Total other (expense) | (2,544,494 | ) | (7,491,223 | ) | 4,946,729 | -66.0 | % | |||||||||
Loss before income taxes | (24,936,353 | ) | (21,264,431 | ) | (3,617,922 | ) | 17.3 | % | ||||||||
Income taxes | 229,699 | - | 229,699 | 100.0 | % | |||||||||||
Net loss | (24,706,654 | ) | (21,397,094 | ) | (3,442,223 | ) | 16.2 | % | ||||||||
Deemed dividend on Series H convertible preferred stock | - | (132,663 | ) | 132,663 | -100.0 | % | ||||||||||
Net loss attributable to common stockholders | $ | (24,706,654 | ) | $ | (21,397,094 | ) | $ | (3,309,560 | ) | 15.5 | % | |||||
Basic and diluted net loss per common stock | $ | (0.10 | ) | $ | (0.55 | ) | $ | 0.45 | -81.8 | % | ||||||
Weighted average number of common stock outstanding – basic and diluted | 252,811,058 | 39,186,432 | 213,624,626 | 545.1 | % |
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Revenue | $ | 48,243 | $ | 33,615 | $ | 14,628 | 43.5 | % | ||||||||
Cost of revenue | 28,497 | 28,208 | 289 | 1.0 | % | |||||||||||
Gross profit | 19,746 | 5,407 | 14,339 | 265.2 | % | |||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 17,216 | 17,529 | (313 | ) | -1.8 | % | ||||||||||
General and administrative | 13,514 | 5,638 | 7,876 | 139.7 | % | |||||||||||
Depreciation and amortization | 4,202 | 3,963 | 239 | 6.0 | % | |||||||||||
Loss of impairment of assets | 257 | - | 257 | 100.0 | % | |||||||||||
Total operating expenses | 35,189 | 27,130 | 8,059 | 29.7 | % | |||||||||||
Loss from operations | (15,443 | ) | (21,723 | ) | 6,280 | -28.9 | % | |||||||||
Total other expenses | (2,992 | ) | (3,740 | ) | 748 | -20.0 | % | |||||||||
Loss before income taxes | (18,435 | ) | (25,463 | ) | 7,028 | -27.6 | % | |||||||||
Income taxes | (14 | ) | - | (14 | ) | 100.0 | % | |||||||||
Net loss | $ | (18,449 | ) | $ | (25,463 | ) | $ | 7,014 | -27.5 | % | ||||||
Basic and diluted net loss per common share | $ | (1.20 | ) | $ | (2.44 | ) | $ | 1.24 | -50.8 | % | ||||||
Weighted average number of common shares outstanding – basic and diluted | 15,381,306 | 10,456,052 | 4,925,254 | 47.1 | % |
For the three months ended September 30, 2021,March 31, 2022, the total net loss was approximately $24.7 million. The total net loss increased by approximately $3.3 million$18,449, as compared to $25,463 for the three months ended September 30, 2020,March 31, 2021, which had a net lossrepresents an improvement of approximately $21.4 million.$7,014. The primary reasonsdriver for the increaseimprovement in the total net loss is a lease termination charge of approximately $7.3 million anddue to an $14,628 increase in revenue, which was partially offset by an increase in stock-based compensationoperating expenses of approximately $4.6 million$8,059 during the three months ended March 31, 2022. The increase in revenues was attributable to management’s decision to make a strategic shift to focus on premium content providers and reduced reliance on Partner Publisher guarantees in September 30, 2021. The basic and diluted net loss per common share for2020 as well as the three months ended September 30, 2021 of $0.10 decreased from $0.55 for the three months ended September 30, 2020, primarily because of our net loss per common share decreased along with the increaseaddition of the daily weighted average shares outstanding to 252,811,058 shares from 39,186,432 shares.results of The Spun, which was acquired in June 2021.
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Revenue
The following table sets forth revenue, cost of revenue, and gross profit:
Three Months Ended September 30, | 2021 versus 2020 | |||||||||||||||||||||||||||||||||||||||
2021 | 2020 | Change | % Change | Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||||||||||||||||||||||
(percentages reflect cost of revenue as a percentage of total revenue) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||
Revenue | $ | 59,573,508 | 100.0 | % | $ | 32,089,993 | 100.0 | % | $ | 27,483,515 | 85.6 | % | $ | 48,243 | $ | 33,615 | $ | 14,628 | 43.5 | % | ||||||||||||||||||||
Cost of revenue | 32,173,859 | 54.0 | % | 24,708,941 | 77.0 | % | 7,464,918 | 30.2 | % | 28,497 | 28,208 | 289 | 1.0 | % | ||||||||||||||||||||||||||
Gross profit | $ | 27,399,649 | 46.0 | % | $ | 7,381,052 | 23.0 | % | $ | 20,018,597 | 271.2 | % | $ | 19,746 | $ | 5,407 | $ | 14,339 | 265.2 | % |
For the three months ended September 30, 2021,March 31, 2022 we had revenuegross profit of approximately $59.6 million,$19,746, as compared to revenue of approximately $32.1 million$5,407 for the three months ended September 30, 2020.March 31, 2021, an improvement of $14,339. Gross profit percentage for the three months ended March 31, 2022 was 40.9%, as compared to 16.1% for the three months ended March 31, 2021.
The improvement in gross profit percentage was driven by our strategic shift to eliminate most Publisher Partner guarantees near the end of fiscal 2020. As a result, Publisher Partner revenue share as a percentage of digital advertising revenue was 23.3% for the three months ended March 31, 2022, as compared to 55.0% for the three months ended March 31, 2021. In addition, we continue to experience high contributions from our digital advertising.
The following table sets forth revenue by product line and the corresponding percent of total revenue:category:
Three Months Ended September 30, | 2021 versus 2020 | |||||||||||||||||||||||
2021 | 2020 | Change | % Change | |||||||||||||||||||||
(percentages reflect product line as a percentage of total revenue) | ||||||||||||||||||||||||
Advertising | $ | 21,678,480 | 36.4 | % | $ | 9,409,031 | 29.3 | % | $ | 12,269,449 | 38.2 | % | ||||||||||||
Digital subscriptions | 7,698,359 | 12.9 | % | 8,469,943 | 26.4 | % | (771,584 | ) | -2.4 | % | ||||||||||||||
Magazine circulation | 25,973,853 | 43.6 | % | 12,874,574 | 40.1 | % | 13,099,279 | 40.8 | % | |||||||||||||||
Other | 4,222,816 | 7.1 | % | 1,336,445 | 4.2 | % | 2,886,371 | 9.0 | % | |||||||||||||||
Total revenue | $ | 59,573,508 | 100.0 | % | $ | 32,089,993 | 100.0 | % | $ | 27,483,515 | 85.6 | % |
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Digital revenue | ||||||||||||||||
Digital advertising | $ | 21,646 | $ | 9,540 | $ | 12,106 | 126.9 | % | ||||||||
Digital subscriptions | 6,461 | 7,085 | (624 | ) | -8.8 | % | ||||||||||
Other revenue | 3,465 | 746 | 2,719 | 364.5 | % | |||||||||||
Total digital revenue | 31,572 | 17,371 | 14,201 | 81.8 | % | |||||||||||
Print revenue | ||||||||||||||||
Print advertising | 1,368 | 1,533 | (165 | ) | -10.8 | % | ||||||||||
Print subscriptions | 15,303 | 14,711 | 592 | 4.0 | % | |||||||||||
Total print revenue | 16,671 | 16,244 | 427 | 2.6 | % | |||||||||||
Total revenue | $ | 48,243 | $ | 33,615 | $ | 14,628 | 43.5 | % |
For the three months ended September 30, 2021,March 31, 2022, total revenue increased $14,628 to $48,243 from $33,615 for the three months ended March 31, 2021. The primary sources of revenue for the three months ended March 31, 2022 were as follows: (i) digital advertising of approximately $21.7 million;$21,646, (ii) digital subscriptions of approximately $7.7 million;$6,461, (iii) magazine circulationother digital revenue of approximately $26.0 million;$3,465, (iv) print advertising of $1,368 and (iv) approximately $4.2 millionprint subscriptions of $15,303.
The primary driver of the increase in our total revenue is derived from other revenue. Ourour digital advertising revenue which increased by approximately $12.3 million, due to additional revenue of approximately $6.8 million generated as a result of a doubling of advertising sponsorships$12,106. The main drivers of the Sports Illustrated Swim (“SI Swim”) business and other growthincrease in the Sports Illustrated media business, and approximately $5.5 milliondigital advertising revenue include an additional $6,018 of revenue generated as a result of The Spun business, which was acquired during the second quarter of 2021. Our digital subscriptions decreased by approximately $0.8 million. Our magazine circulation increased by approximately $13.1 million reflecting a drive to increase subscribers in the fourth quarter of 2020 and the diminishing effect of acquisition accounting adjustments on the subscribers that existed when we began operating the2021, $4,073 from Sports Illustrated mediadue to an increase in advertising sponsorships, $759 generated from TheStreet; and $1,256 generated from other business. Our other digital revenue, primarily consisting of licensing and e-commerce revenue, increased by approximately $2.9 million$2,719 due to additional revenue primarily for certain licensing agreements related to, SI Swim and other Sports Illustrated media businesses.
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Cost of Revenue
The following table sets forth cost of revenue by category:
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Publisher Partner revenue share payments | $ | 5,042 | $ | 5,250 | $ | (208 | ) | -4.0 | % | |||||||
Hosting, bandwidth, and software licensing fees | 481 | 601 | (120 | ) | -20.0 | % | ||||||||||
Fees paid for data analytics and to other outside services providers | 1,380 | 667 | 713 | 106.9 | % | |||||||||||
Royalty fees | 3,750 | 3,750 | - | 0.0 | % | |||||||||||
Content and editorial expenses | 9,744 | 9,636 | 108 | 1.1 | % | |||||||||||
Printing, distribution and fulfillment costs | 2,747 | 3,498 | (751 | ) | -21.5 | % | ||||||||||
Amortization of developed technology and platform development | 2,311 | 2,167 | 144 | 6.6 | % | |||||||||||
Stock-based compensation | 2,157 | 1,444 | 713 | 49.4 | % | |||||||||||
Other cost of revenue | 885 | 1,195 | (310 | ) | -25.9 | % | ||||||||||
Total cost of revenue | $ | 28,497 | $ | 28,208 | $ | 289 | 1.0 | % |
For the three months ended September 30, 2021,March 31, 2022, we recognized cost of revenue of approximately $32.2 million, which represented a 46% gross profit percentage,$28,497, as compared to approximately $24.7 million in$28,208 for the three months ended September 30, 2020, representing a 23% gross profit percentage. TheMarch 31, 2021, which represents an increase in the costof $289. Cost of revenue for the first quarter of approximately $7.5 million during the three months ended September 30, 2021 is primarily from2022, was impacted by increases in:in (i) stock-based compensation of $713, and (ii) fees paid for data analytics and outside service providers of $713, partially offset by decreases in (iii) printing, distribution, and fulfillment costs of approximately $3.4 million; (ii) payroll, stock-based compensation,$751, and related expenses for customer support, technology maintenance, and occupancy costs of related personnel of approximately $2.6 million; (iii)(iv) other costs of revenue related to SI Swim of approximately $1.3 million; and (iv) amortization of our platform of approximately $0.2 million. The improvement in gross profit percentage was due to a decrease in partner revenue shares from 61% of digital advertising revenue in the third quarter of 2020 to 27% in the third quarter of 2021 as a result of the elimination of most partner guarantees near the end of last year.$310.
For the three months ended September 30, 2021, we capitalized costs related to our Platform of approximately $1.5 million, as compared to approximately $1.2 million for the three months ended September 30, 2020. For the three months ended September 30, 2021, the capitalization of our Platform consisted of: (i) approximately $1.0 million in payroll and related expenses, including taxes and benefits; and (ii) approximately $0.5 million in stock-based compensation for related personnel.
Operating Expenses
The following table sets forth operating expenses and the corresponding percentage of total revenue:expenses:
Three Months Ended September 30, | 2021 versus 2020 | |||||||||||||||||||||||
2021 | 2020 | Change | % Change | |||||||||||||||||||||
(percentages reflect expense as a percentage of total revenue) | ||||||||||||||||||||||||
Selling and marketing | $ | 22,712,193 | 38.1 | % | $ | 9,928,901 | 30.9 | % | $ | 12,783,292 | 60.4 | % | ||||||||||||
General and administrative | 23,023,883 | 38.6 | % | 7,172,175 | 22.4 | % | 15,851,708 | 74.9 | % | |||||||||||||||
Depreciation and amortization | 4,055,432 | 6.8 | % | 4,053,184 | 12.6 | % | 2,248 | 0.0 | % | |||||||||||||||
Total operating expenses | $ | 49,791,508 | $ | 21,154,260 | $ | 28,637,248 | 135.4 | % |
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Selling and marketing | $ | 17,216 | $ | 17,529 | $ | (313 | ) | -1.8 | % | |||||||
General and administrative | 13,514 | 5,638 | 7,876 | 139.7 | % | |||||||||||
Depreciation and amortization | 4,202 | 3,963 | 239 | 6.0 | % | |||||||||||
Loss on impairment of assets | 257 | - | 257 | 100.0 | % | |||||||||||
Total operating expenses | $ | 35,189 | $ | 27,130 | $ | 8,059 | 29.7 | % |
Operating expenses for the three months ended March 31, 2022 increased by $8,059 to $35,189 from $27,130 for the three months ended March 31, 2021.
Selling and Marketing. For the three months ended September 30, 2021,March 31, 2022, we incurred selling and marketing costs of approximately $22.7 million,$17,216, as compared to approximately $9.9 million$17,529 for the three months ended September 30, 2020.March 31, 2021. The increasedecrease in selling and marketing costs of approximately $12.8 million$313 is primarily from increasesrelated to a $2,205 decrease in circulation costs of approximately $9.4 million; advertising costs of approximately $1.4 million; professional and marketing service costs of approximately $0.7 million; payroll of selling and marketing account management support teams along with the related benefitsdue to a reclass to general and stock-based compensation of approximately $1.3 million; office and occupancyadministrative expense offset by an increase in circulation costs of approximately $0.1 million; less a decrease$1,893. The increase in other sellingcirculation costs reflects the effects of acquisition accounting where agency fees were excluded from subscribers that existed upon acquisition, and marketing related costsbenefited the first quarter of approximately $0.1 million.fiscal 2021 as compared to the first quarter of fiscal 2022.
General and Administrative. For the three months ended September 30, 2021,March 31, 2022, we incurred general and administrative costs of approximately $23.0 million from payroll and related expenses, professional services, occupancy costs, stock-based compensation of related personnel, depreciation and amortization, and other corporate expense,$13,514 as compared to approximately $7.2 million$5,638 for the three months ended September 30, 2020.March 31, 2021. The $7,876 increase in general and administrative expenses of approximately $15.9 million is primarily fromdue to an increase in our payroll, along with the related benefits and stock-compensationstock-based compensation, of approximately $5.5 million; an increase in professional services, including accounting, legal$7,382 and insurance of approximately $2.2 million; an increase in facilities costs related to the lease termination of approximately $7.3 million and an increase in other general corporate expenses of approximately $0.9 million.$390.
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Other (Expenses) IncomeExpenses
The following table sets forth other (expense) income:expenses:
Three Months Ended September 30, | 2021 versus 2020 | |||||||||||||||||||||||
2021 | 2020 | Change | % Change | |||||||||||||||||||||
(percentages reflect other (expense) income as a percentage of the total) | ||||||||||||||||||||||||
Change in valuation of warrant derivative liabilities | $ | 801,755 | -31.5 | % | $ | (517,405 | ) | 6.9 | % | $ | 1,319,160 | -17.6 | % | |||||||||||
Change in valuation of embedded derivative liabilities | - | 0.0 | % | (2,370,000 | ) | 31.6 | % | 2,370,000 | -31.6 | % | ||||||||||||||
Interest expense | (2,512,637 | ) | 98.7 | % | (4,253,180 | ) | 56.8 | % | 1,746,556 | -23.3 | % | |||||||||||||
Interest income | - | 0.0 | % | 1,116 | 0.0 | % | (7,129 | ) | 0.0 | % | ||||||||||||||
Liquidated damages | (833,612 | ) | 32.8 | % | (319,903 | ) | 4.3 | % | (513,709 | ) | 6.9 | % | ||||||||||||
Other income | - | 0.0 | % | (31,851 | ) | 0.4 | % | 31,851 | -0.4 | % | ||||||||||||||
Total other (expense) | $ | (2,544,494 | ) | 100.0 | % | $ | (7,491,223 | ) | 100.0 | % | $ | 4,946,729 | -66.0 | % |
Three Months Ended March 31, | 2022 versus 2021 | |||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Change in valuation of warrant derivative liabilities | $ | - | $ | (665 | ) | $ | 665 | -100.0 | % | |||||||
Interest expense | (2,820 | ) | (2,820 | ) | - | 0.0 | % | |||||||||
Liquidated damages | (172 | ) | (255 | ) | 83 | -32.5 | % | |||||||||
Total other expenses | $ | (2,992 | ) | $ | (3,740 | ) | $ | 748 | -20.0 | % |
Change in Valuation of Warrant Derivative Liabilities. There was approximately $1.3 million increase in noncash income related theThe change in the valuation of the warrant derivative liabilities for the three months ended September 30, 2021,March 31, 2022 was the result of the decrease in the fair value of the warrant derivative liabilities as of March 31, 2022, as compared to the prior year period.
Change in Valuation of Embedded Derivative Liabilities. There was approximately $2.4 million increase in noncash income related the change in the valuation of the embedded derivative liabilities for the three months ended September 30, 2021, as comparedMarch 31, 2021. The change in the valuation is not impacted by our actual business operations but is instead strongly tied to the prior year period.change in the market value of our common stock.
Interest Expense. We incurred interest expense of approximately $2.5 million$2,820 for the three months ended September 30, 2021, as compared to approximately $4.3 million for the three months ended September 30, 2020. The decrease in interest expense of approximately $1.8 million is primarily from an increase of approximately $0.2 million of other interest; less a decrease of accrued interest of approximately $0.8 millionMarch 31, 2022 and a decrease from the amortization of debt discount on notes payable of approximately $1.2 million.2021.
Liquidated Damages. We recorded $172 accrued interest as liquidated damages, of approximately $0.8 million forduring the three months ended September 30, 2021, an increase of approximately $0.5 million as compared to the three months ended September 30, 2020,March 31, 2022 primarily from the issuance of our 12% Convertible Debentures,convertible debentures, Series H Preferredconvertible preferred Stock, Series I convertible preferred stock, (the “Series I Preferred Stock”), Series J Preferred Stock,convertible preferred stock and Series K Preferred Stock. The liquidated damages were recognized becauseconvertible preferred stock since we determined that: (i) the registration statements coveringregistering for resale the shares of our common stock issuable upon conversion under the aforementioned instrumentsof such securities would not be declared effective within the requisite time frame; and (ii) that we would not be able to filebecome current in our periodic reports in the requisite time framefiling obligations with the SEC in order to satisfy the public information requirements under the applicable securities purchase agreements. We recorded liquidated damages, including the accrued interest thereon, of $255 in for the three months ended March 31, 2021 primarily from issuance of the same securities as outlined above based upon the reasons set forth above.
Nine Months Ended September 30, 2021 and 2020Use of Non-GAAP Financial Measures
Nine Months Ended September 30, | 2021 versus 2020 | |||||||||||||||
2021 | 2020 | $ Change | % Change | |||||||||||||
Revenue | $ | 127,935,501 | $ | 85,593,786 | $ | 42,341,715 | 49.5 | % | ||||||||
Cost of revenue | 83,978,050 | 76,321,953 | 7,656,097 | 10.0 | % | |||||||||||
Gross profit | 43,957,451 | 9,271,833 | 34,685,618 | 374.1 | % | |||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 55,122,357 | 27,698,182 | 27,424,175 | 99.0 | % | |||||||||||
General and administrative | 44,230,360 | 24,852,891 | 19,377,469 | 78.0 | % | |||||||||||
Depreciation and amortization | 11,981,998 | 12,276,990 | (294,992 | ) | -2.4 | % | ||||||||||
Total operating expenses | 111,334,715 | 64,828,063 | 46,506,652 | 71.7 | % | |||||||||||
Loss from operations | (67,377,264 | ) | (55,556,230 | ) | (11,821,034 | ) | 21.3 | % | ||||||||
Total other (expense) | (3,678,952 | ) | (11,646,154 | ) | 7,967,202 | -68.4 | % | |||||||||
Loss before income taxes | (71,056,216 | ) | (67,202,384 | ) | (3,853,832 | ) | 5.7 | % | ||||||||
Income taxes | 229,699 | - | 229,699 | 100.0 | % | |||||||||||
Net loss | $ | (70,826,517 | ) | $ | (67,202,384 | ) | $ | (3,624,133 | ) | 5.4 | % | |||||
Deemed dividend on Series H convertible preferred stock | - | (132,663 | ) | 132,663 | -100.0 | % | ||||||||||
Net loss attributable to common stockholders | (70,826,517 | ) | (67,335,047 | ) | (3,491,470 | ) | 5.2 | % | ||||||||
Basic and diluted net loss per common share | $ | (0.29 | ) | $ | (1.72 | ) | $ | 1.43 | -83.1 | % | ||||||
Weighted average number of shares outstanding – basic and diluted | 244,209,151 | 39,177,864 | 205,031,287 | 523.3 | % |
ForWe report our financial results in accordance with generally accepted accounting principles in the nine months ended September 30, 2021,United States of America (“GAAP”); 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 totalunderlying continuing operating performance by excluding the impact of certain items that are noncash in nature or not related to our core business operations. We calculate Adjusted EBITDA as net loss, was approximately $70.8 million. The total netadjusted for (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in derivative valuations, (vi) liquidated damages, (vii) loss increasedon impairment of assets, (viii) professional and vendor fees, and (ix) employee restructuring payments.
Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by approximately $3.5 millionother companies, has limitations as comparedan 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, the nine months ended September 30, 2020, which hador a net loss of approximately $67.3 million. The primary reasonssubstitute for, the increaseequivalent measures calculated and presented in the total net loss is a lease termination charge of approximately $7.3 million and an increase in stock-based compensation of approximately $10.5 million during the nine months ended September 30, 2021. The basic and diluted net loss per common share for the nine months ended September 30, 2021 of $0.29 decreased from $1.72 for the nine months ended September 30, 2020, primarily because our net loss per common share decreased alongaccordance with the increaseGAAP. Some of the daily weighted average shares outstanding to 244,209,151 shares from 39,177,864 shares.limitations is that Adjusted EBITDA:
● | does not reflect stock-based compensation and, therefore, does not include all of our compensation costs; | |
● | does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements; | |
● | does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us; | |
● | does not reflect deferred income taxes, which is a noncash expense; |
Revenue
The following table sets forth revenue, cost of revenue, and gross profit:
Nine Months Ended September 30, | 2021 versus 2020 | |||||||||||||||||||||||
2021 | 2020 | Change | % Change | |||||||||||||||||||||
(percentages reflect cost of revenue as a percentage of total revenue) | ||||||||||||||||||||||||
Revenue | $ | 127,935,501 | 100.0 | % | $ | 85,593,786 | 100.0 | % | $ | 42,341,715 | 49.5 | % | ||||||||||||
Cost of revenue | 83,978,050 | 65.6 | % | 76,321,953 | 89.2 | % | 7,656,097 | 10.0 | % | |||||||||||||||
Gross profit | $ | 43,957,451 | 34.4 | % | $ | 9,271,833 | 10.8 | % | $ | 34,685,618 | 374.1 | % |
For the nine months ended September 30, 2021, we had revenue of approximately $127.9 million, as compared to revenue of approximately $85.6 million for the nine months ended September 30, 2020.
● | does not reflect the change in derivative valuations and, although this is a noncash expense, the change in the valuations each reporting period are not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock; | |
● | does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to); | |
● | does not reflect any losses from the impairment of assets, which is a noncash operating expense; | |
● | does not reflect the professional and vendor fees incurred by us for services provided by consultants, accountants, lawyers, and other vendors, which services were related to certain types of events that are not reflective of our business operations; and | |
● | does not reflect payments related to employee restructuring changes for our former Chief Executive Officer. |
The following table sets forth revenue by product line andpresents a reconciliation of Adjusted EBITDA to net loss, which is the corresponding percent of total revenue:most directly comparable GAAP measure, for the periods indicated:
Nine Months Ended September 30, | 2021 versus 2020 | |||||||||||||||||||||||
2021 | 2020 | Change | % Change | |||||||||||||||||||||
(percentages reflect product line as a percentage of total revenue) | ||||||||||||||||||||||||
Advertising | $ | 46,300,974 | 36.2 | % | $ | 28,788,631 | 33.6 | % | $ | 17,512,343 | 20.5 | % | ||||||||||||
Digital subscriptions | 22,472,951 | 17.6 | % | 20,096,640 | 23.5 | % | 2,376,311 | 2.8 | % | |||||||||||||||
Magazine circulation | 53,325,894 | 41.7 | % | 34,041,272 | 39.8 | % | 19,284,622 | 22.5 | % | |||||||||||||||
Other | 5,835,682 | 4.6 | % | 2,667,243 | 3.1 | % | 3,168,439 | 3.7 | % | |||||||||||||||
Total revenue | $ | 127,935,501 | 100.0 | % | $ | 85,593,786 | 100.0 | % | $ | 42,341,715 | 49.5 | % |
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net loss | $ | (18,449 | ) | $ | (25,463 | ) | ||
Add: | ||||||||
Interest expense (1) | 2,820 | 2,820 | ||||||
Deferred income taxes | 14 | - | ||||||
Depreciation and amortization (2) | 6,513 | 6,130 | ||||||
Stock-based compensation (3) | 7,367 | 5,099 | ||||||
Change in derivative valuations | - | 665 | ||||||
Liquidated damages (4) | 172 | 255 | ||||||
Loss on impairment of assets (5) | 257 | - | ||||||
Professional and vendor fees (6) | - | 1,719 | ||||||
Employee restructuring payments (7) | 174 | 61 | ||||||
Adjusted EBITDA | $ | (1,132 | ) | $ | (8,714 | ) |
For the nine months ended September 30, 2021, the primary sources of revenue were as follows: (i) advertising of approximately $46.3 million; (ii) digital subscriptions of approximately $22.5 million; (iii) magazine circulation of approximately $53.3 million; and (iv) approximately $5.8 million from other revenue. Our advertising revenue increased by approximately $17.5 million due to additional revenue of approximately $10.0 million generated as a result of the Sports Illustrated media business, approximately $6.5 million generated as a result of The Spun, which was acquired during the second quarter 2021, and approximately $1.0 million in revenue generated from our other business. Our digital subscriptions increased by approximately $2.4 million due to additional revenue generated by TheStreet. Our magazine circulation increased by approximately $19.3 million as a result of the Sports Illustrated media business. Our other revenue, primarily consisting of licensing and e-commerce revenue, increased by approximately $3.2 million, due to additional revenue of approximately $3.6 generated as a result of the Sports Illustrated media business, offset by an approximately $0.4 million decrease in revenue from our other business.
Cost of Revenue
For the nine months ended September 30, 2021, we recognized cost of revenue of approximately $84.0 million, a 34% gross profit percentage, compared to approximately $76.3 million in the nine months ended September 30, 2020, representing a 11% gross profit percentage. The increase of approximately $7.7 million in cost of revenue during the nine months ended September 30, 2021 is primarily from increases in: (i) our Publisher Partner guarantees and revenue share payments of approximately $1.7 million; (ii) payroll, stock-based compensation, and related expenses for customer support, technology maintenance, and occupancy costs of related personnel of approximately $4.2 million; (iii) printing, distribution, and fulfillment costs of approximately $0.4 million; (iv) other costs of revenue of approximately $1.1 million; and (v) amortization of our Platform of approximately $0.2 million.
For the nine months ended September 30, 2021, we capitalized costs related to our Platform of approximately $4.4 million, as compared to approximately $4.1 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, the capitalization of our Platform consisted of: (i) approximately $3.0 million in payroll and related expenses, including taxes and benefits; and (ii) approximately $1.3 million in stock-based compensation for related personnel.
(1) | Represents interest expense of $2,820 and $2,820, for the three months ended March 31, 2022 and 2021, respectively. Interest expense is related to our capital structure. Interest expense varies over time due to a variety of financing transactions. Interest expense includes $660 and $694 for amortization of debt discounts for the three months ended March 31, 2022 and 2021, respectively, which are a noncash item and presented in our condensed consolidated statements of cash flows. Investors should note that interest expense will recur in future periods. | |
(2) | Represents depreciation and amortization related to our developed technology and Platform included within cost of revenues of $2,311 and $2,167 and depreciation and amortization included within operating expenses of $4,202 and $3,963 for the three months ended March 31, 2022 and 2021, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods. | |
(3) | Represents noncash costs arising from the grant of stock-based awards to employees, consultants and directors. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future. |
Operating Expenses
The following table sets forth operating expenses and the corresponding percentage of total revenue:
Nine Months Ended September 30, | 2021 versus 2020 | |||||||||||||||||||||||
2021 | 2020 | Change | % Change | |||||||||||||||||||||
(percentages reflect expense as a percentage of total revenue) | ||||||||||||||||||||||||
Selling and marketing | $ | 55,122,357 | 43.1 | % | $ | 27,698,182 | 32.4 | % | $ | 27,424,175 | 42.3 | % | ||||||||||||
General and administrative | 44,230,360 | 34.6 | % | 24,852,891 | 29.0 | % | 19,377,469 | 29.9 | % | |||||||||||||||
Depreciation and amortization | 11,981,998 | 9.4 | % | 12,276,990 | 14.3 | % | (294,992 | ) | -0.5 | % | ||||||||||||||
Total operating expenses | $ | 111,334,715 | $ | 64,828,063 | $ | 46,506,652 | 71.7 | % |
Selling and Marketing. For the nine months ended September 30, 2021, we incurred selling and marketing costs of approximately $55.1 million, as compared to approximately $27.7 million for the nine months ended September 30, 2020. The increase in selling and marketing costs of approximately $27.4 million is primarily from an increase in circulation costs of approximately $22.4 million; payroll of selling and marketing account management support teams, along with the related benefits and stock-based compensation of approximately $3.3 million; an increase in advertising costs of approximately $1.8 million; an increase in professional and marketing service costs of approximately $1.2 million; an increase in office, travel, conferences and occupancy costs of approximately $0.3 million; less a decrease in other selling and marketing related costs of approximately $1.0 million.
General and Administrative. For the nine months ended September 30, 2021, we incurred general and administrative costs of approximately $44.2 million from payroll and related expenses, professional services, occupancy costs, stock-based compensation of related personnel, depreciation and amortization, and other corporate expense, as compared to approximately $24.9 million for the nine months ended September 30, 2020. The increase in general and administrative expenses of approximately $19.4 million is primarily from an increase in our payroll, along with the related benefits and stock-compensation of approximately $8.4 million; an increase in professional services, including accounting, legal and insurance of approximately $3.1 million; an increase in facilities costs related to the lease termination of approximately $7.1 million; and an increase in other general corporate expenses of approximately $0.8 million.
Other (Expenses) Income
The following table sets forth other (expense) income:
Nine Months Ended September 30, | 2021 versus 2020 | |||||||||||||||||||||||
2021 | 2020 | Change | % Change | |||||||||||||||||||||
(percentages reflect other (expense) income as a percentage of the total) | ||||||||||||||||||||||||
Change in valuation of warrant derivative liabilities | $ | 496,812 | -13.5 | % | $ | (134,910 | ) | 1.2 | % | $ | 631,722 | -5.4 | % | |||||||||||
Change in valuation of embedded derivative liabilities | - | 0.0 | % | 2,173,000 | -18.7 | % | (2,173,000 | ) | 18.7 | % | ||||||||||||||
Interest expense | (7,695,317 | ) | 209.2 | % | (12,169,315 | ) | 104.4 | % | 4,480,011 | -38.4 | % | |||||||||||||
Interest income | 471 | 0.0 | % | 4,499 | 0.0 | % | (10,041 | ) | 0.0 | % | ||||||||||||||
Liquidated damages | (2,197,615 | ) | 59.7 | % | (1,487,577 | ) | 12.8 | % | (710,038 | ) | 6.1 | % | ||||||||||||
Other expense | - | 0.0 | % | (31,851 | ) | 0.3 | % | 31,851 | -0.3 | % | ||||||||||||||
Gain upon debt extinguishment | 5,716,697 | -155.4 | % | - | 0.0 | % | 5,716,697 | -49.1 | % | |||||||||||||||
Total other (expense) | $ | (3,678,952 | ) | 100.0 | % | $ | (11,646,154 | ) | 100.0 | % | $ | 7,967,202 | -68.4 | % |
Change in Valuation of Warrant Derivative Liabilities. There was approximately $0.6 million increase in noncash income related the change in the valuation of the warrant derivative liabilities for the nine months ended September 30, 2021, as compared to the prior year period.
(4) | Represents damages (or interest expense related to accrued liquidated damages) we owe to certain of our investors in private placements offerings conducted in fiscal years 2018 through 2020, pursuant to which we agreed to certain covenants in the respective securities purchase agreements and 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. | |
(5) | Represents our impairment of certain assets that no longer are useful. | |
(6) | Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers, and other vendors related to the preparation of periodic reports in order for us to become current in our reporting obligations (“Delinquent Reporting Obligations Services”). With respect to the Delinquent Reporting Obligations Services, we incurred professional and vendor fees in the first quarter of 2021 related to the preparation of our annual reports for fiscal years 2018 and 2019 (which contained the financial information for the quarterly periods during fiscal 2019), and our quarterly reports fiscal 2020. The amount of fees incurred in connection with the Delinquent Reporting Obligations Services is adjusted based on our best estimate of the amount we expect we would ordinarily incur to meet our reporting obligations pursuant to the Exchange Act. | |
(7) | Represents severance payments to our former Chief Executive Officer for the three months ended March 31, 2022 and 2021. |
Change in Valuation of Embedded Derivative Liabilities. There was approximately $2.2 million decrease in noncash income related the change in the valuation of the embedded derivative liabilities for the nine months ended September 30, 2021, as compared to the prior year period.
Interest Expense. We incurred interest expense of approximately $7.7 million for the nine months ended September 30, 2021, as compared to approximately $12.2 million for the nine months ended September 30, 2020. The decrease in interest expense of approximately $4.5 million is primarily from an increase of approximately $0.5 million of other interest; less a decrease of approximately $1.6 million of accrued interest and a decrease of the amortization of debt discount on notes payable of approximately $3.4 million.
Liquidated Damages. We recorded liquidated damages of approximately $2.2 million for the nine months ended September 30, 2021, primarily from issuance of our 12% Convertible Debentures, Series H Preferred Stock, Series I Preferred Stock, and Series J Preferred Stock issued during 2020. The liquidated damages were recognized because we determined that: (i) registration statements covering the shares of common stock issuable upon conversion under the aforementioned instruments would not be declared effective within the requisite time frame; and (ii) that we would not be able to file our periodic reports in the requisite time frame with the SEC in order to satisfy the public information requirements under the securities purchase agreements.
Gain Upon Debt Extinguishment. We recorded a gain upon debt extinguishment of $5,716,697 (including accrued interest) pursuant to the forgiveness of the Paycheck Protection Program Loan for the nine months ended September 30, 2021.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods 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 that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer(s) and principal financial officer(s), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of such date in providing reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, continues to implement procedures intended to remediate the material weaknesses identified as of September 30, 2021. During fiscal 2020, we engaged external certified public accountants to assist our accounting department and Chief Financial Officer in preparing the necessary periodic reports. In TheStreet merger, we also acquired some additional employees with accounting experience that has assisted us with preparing our periodic reports. Finally, we recently hired a Chief Accounting Officer to assist with the preparation of our periodic reports. We believe our accounting department is now capable of ensuring that we remain current with our periodic filing obligations. In addition, our Audit Committee is now assisting our Board in fulfilling its responsibility to oversee (i) the integrity of our financial statements, our accounting and financial reporting processes, and financial statement audits, (ii) our compliance with legal and regulatory requirements, (iii) our systems of internal control over financial reporting and disclosure controls and procedures, (iv) the engagement of our independent registered public accounting firm, and its qualifications, performance, compensation, and independence, (v) review and approval of related party transactions, and (vi) the communication among our independent registered public accounting firm, our financial and senior management, and our Board.
In addition, we intend to undertake the following additional remediation measures to address the material weaknesses described in this Quarterly Report:
We will continue to evaluate and implement procedures as deemed appropriate to remediate these material weaknesses; however, we expect that the remediation of those matters that were deemed material weaknesses will be fully complete no later than December 31, 2021.
Changes in Internal Control over Financial Reporting
In connection with our continued monitoring and maintenance of our controls procedures as part of the implementation of Section 404 of the Sarbanes, we continue to review, test, and improve the effectiveness of our internal controls. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2021March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to claims and litigation arising in the ordinary course of business. We are not currently subject to any pending or threatened legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.
ITEM 1A. RISK FACTORS
There are numerous factors that affect our business and operating results, many of which are beyond our control. The risk factors described in Part I, “Item IA. Risk Factors” in our Annual Report on Form 10-K, for the year ended December 31, 2020,2021, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with SEC in connection with evaluating us, our business and the forward-looking statements contained in this Quarterly Report on Form 10-Q. Additional risks and uncertainties not known to us at present, or that we currently deem immaterial, may affect us. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.The following sets forth certain unregistered sales of our equity securities during the three months ended March 31, 2021 through the date of filing this Quarterly Report that have not been previously disclosed:
On March 7, 2022, we issued 88,188 shares of common stock to Mr. Ross Levinsohn in connection with the vesting of outstanding restricted stock units. The per share fair value on the issuance date was $8.36. In connection with the issuance, we withheld an additional 67,023 shares of common stock for taxes due which were withhold at a per share fair value of $8.28. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering.
On March 22, 2022, we issued 34,500 shares of our common stock upon the conversion of 250 shares of Series H Convertible Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.
On March 23, 2022, we issued 16,760 shares of our common stock pursuant to the asset purchase agreement, dated March 9, 2020, by and between us and Petametrics Inc., doing business as LiftIgniter. The per share fair value on the issuance date was $9.51. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering.
On March 22, 2022, we issued 34,500 shares of our common stock upon the conversion of 250 shares of Series H Convertible Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.
On March 25, 2022, we issued 1,380 shares of our common stock upon the conversion of 10 shares of Series H Convertible Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.
On April 1, 2022, we issued 314,103 shares of our common stock pursuant to the stock purchase agreement, dated April 1, 2022, by and between us and Athlon Holdings, Inc. The number of shares issued was based on the average closing price of our common stock on the 10 trading days preceding April 1, 2022, the closing date. The per share fair value on the issuance date was $10.00. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
33 |
ITEM 6. EXHIBITS
The following documents are filed as part of this Quarterly Report:
* Filed herewith.
** In accordance with Regulation S-T, the XBRL related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith but not “filed”.
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: | By: | /s/ ROSS LEVINSOHN |
Ross Levinsohn | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: | By: | /s/ SPIROS CHRISTOFORATOS |
Spiros Christoforatos | ||
Chief Accounting Officer | ||
(Principal Accounting Officer) |