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MVEN theMaven

Filed: 15 Nov 21, 3:19pm

 

 

 

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, 2021

 

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, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 68-0232575

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

200 Vesey Street, 24th Floor

New York, New York

 10281
(Address of principal executive offices) (Zip Code)

 

(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
N/A N/A N/A

 

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, the Registrant had 264,202,421 shares of common stock outstanding.

 

 

 

 
 

 

 

Page

Number

  
PART I - FINANCIAL INFORMATION4
  
Item 1. Condensed Consolidated Financial Statements4
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations29
  
Item 3. Quantitative and Qualitative Disclosures About Market Risk37
  
Item 4. Controls and Procedures37
  
PART II - OTHER INFORMATION38
  
Item 1. Legal Proceedings38
  
Item 1A. Risk Factors38
  
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds38
  
Item 3. Defaults Upon Senior Securities38
  
Item 4. Mine Safety Disclosures38
  
Item 5. Other Information38
  
Item 6. Exhibits38
  
SIGNATURES40

 

2
 

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) of theMaven, 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. 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.

 

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, INC. AND SUBSIDIARIES

 

Index to Condensed Consolidated Financial Statements

 

 PAGE
Condensed Consolidated Balance Sheets - September 30, 2021 (Unaudited) and December 31, 20205
Condensed Consolidated Statements of Operations (Unaudited) - Three Months and Nine Months Ended September 30, 2021 and 20206
Condensed Consolidated Statements of Stockholders’ Deficiency (Unaudited) – Nine Months Ended September 30, 2021 and 20207
Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2021 and 20209
Notes to Condensed Consolidated Financial Statements (Unaudited)10

 

4
 

 

THEMAVEN, 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, $0.01 par value, $1,000 per share liquidation value and 1,800 shares designated; aggregate liquidation value: $168,496; Series G shares issued and outstanding: 168,496; common shares issuable upon conversion: 188,791 at September 30, 2021 and December 31, 2020  168,496   168,496 
Series H convertible preferred stock, $0.01 par value, $1,000 per share liquidation value; aggregate liquidation value $19,546,000 and $19,596,000; Series H shares designated: 23,000; Series H shares issued and outstanding: 19,546 and 19,596; common shares issuable upon conversion: 59,243,926 and 59,395,476 shares at September 30, 2021 and December 31, 2020, respectively  18,197,496   18,247,496 
Total mezzanine equity  18,365,992   18,415,992 
Stockholders’ deficiency:        
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 264,246,777 and 229,085,167 shares at September 30, 2021 and December 31, 2020, respectively  2,642,467   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

 

5
 

 

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 

 

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)

 

7
 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Nine Months Ended September 30, 2020

 

  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)

Ending balance, value  40,548,203  $405,481   1,480,515   14,805  $48,475,391  $(140,243,707) $(91,348,030)

 

See accompanying notes to condensed consolidated financial statements.

 

8
 

 

THEMAVEN, 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.

 

9
 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements include the accounts of TheMaven, Inc. and its wholly owned subsidiaries (“Maven” or the “Company”), after eliminating all significant intercompany balances and transactions. The Company does not have any off-balance sheet arrangements.

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of 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’s Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2020, filed with the SEC on August 16, 2021.

 

The condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 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, 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 impact during the first three quarters of 2021 of the novel coronavirus (“COVID-19”) on the Company has been less than the impact in the comparable period 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. The Company expects a continued modest growth 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.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to current period presentation.

 

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.

 

10
 

 

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:

 

 if the additional services and goods are distinct from the services and goods in the original arrangement; and

 

 if the amount of consideration expected for the added services or goods reflects the stand-alone selling price of those services and goods.

 

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, the Company adopted ASU 2020-06 with no material impact to its condensed consolidated financial statements.

 

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20 – Receivables – Nonrefundable Fees and Other Costs, which clarifies that a reporting entity should assess whether a callable debt security purchased at a premium is within the scope of ASC 310-20-35-33 each reporting period, which impacts the amortization period for nonrefundable fees and other costs. On January 1, 2021, the Company adopted ASU 2020-08 with no material impact to its condensed consolidated financial statements.

 

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. 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 should 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.

 

Loss per Common Share

 

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.

 

11
 

 

The Company excluded the outstanding securities summarized below (capitalized terms are defined herein), which entitle the holders thereof to acquire shares of the Company’s common stock, from its calculation of net income loss per common share, as their effect would have been anti-dilutive.

 

Schedule of Net Income (Loss) Per Common Share

  As of September 30, 
  2021  2020 
Series G convertible preferred stock  188,791   188,791 
Series H Preferred Stock  59,243,926   58,206,061 
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 
Financing Warrants  2,882,055   2,882,055 
ABG Warrants  21,989,844   21,989,844 
AllHipHop warrants  125,000   - 
Publisher Partner Warrants  789,541   789,541 
Common Stock Awards  6,861,973   8,033,936 
Common Equity Awards  161,367,349   82,400,952 
Outside Options  3,050,000   2,982,111 
Total  260,646,415   271,345,287 

 

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 750,000 shares the Company’s common stock (subject to certain vesting earn-out provisions and certain buy-back rights), with 250,000 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 250,000 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 250,000 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).

 

12
 

 

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 4,285,714 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) $500,000 to be paid on the first anniversary of the closing and $500,000 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 312,500 shares of the Company’s common stock (of which 256,661 shares of the Company’s common stock were issued during the three months ended June 30, 2021 with 55,839 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 312,500 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 

 

13
 

 

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, 2021 and December 31, 2020 was $675,806 and $892,352, respectively.

 

Subscription Acquisition Costs – Subscription acquisition costs include the incremental costs of obtaining a contract with a customer, paid to external parties, if it expects to recover those costs. The current portion of the subscription acquisition costs as of September 30, 2021 and December 31, 2020 was $31,257,268 and $28,146,895, respectively, on the condensed consolidated balance sheets. The noncurrent portion of the subscription acquisition costs as of September 30, 2021 and December 31, 2020 was $18,682,545 and $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

  As of 
  September 30, 2021  December 31, 2020 
Office equipment and computers $1,267,898  $1,341,292 
Furniture and fixtures  1,005   19,997 
Leasehold improvements  -   345,516 
   1,268,903   1,706,805 
Less accumulated depreciation and amortization  (600,240)  (577,367)
Net property and equipment $668,663  $1,129,438 

 

Depreciation and amortization expense for the three months ended September 30, 2021 and 2020 was $114,165 and $102,067, 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.

 

14
 

 

Platform Development – Platform development costs are summarized as follows:

 Summary of Platform Development Costs

  September 30, 2021  December 31, 2020 
  As of 
  September 30, 2021  December 31, 2020 
Platform development $19,497,520  $16,027,428 
Less accumulated amortization  (11,485,813)  (8,671,820)
Net platform development $8,011,707  $7,355,608 

 

A summary of platform development activity for the nine months ended September 30, 2021 and year ended December 31, 2020 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 
Payroll-based costs capitalized during the period  3,016,924   3,750,541 
Total capitalized costs  19,044,352   14,429,233 
Stock-based compensation  1,347,624   1,608,995 
Dispositions  (894,456)  (10,800)
Platform development end of period $19,497,520  $16,027,428 

 

Amortization expense for the three months ended September 30, 2021 and 2020, was $1,143,673 and $909,631, respectively. Amortization expense for the nine months ended September 30, 2021 and 2020, was $3,272,890 and $2,868,289, respectively.

 

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 
  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 
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 
Subscriber relationships  73,458,799   (28,992,944)  44,465,855   73,458,799   (18,105,041)  55,353,758 
Advertiser relationships  2,240,000   (510,922)  1,729,078   2,240,000   (332,515)  1,907,485 
Database  2,396,887   (904,030)  1,492,857   1,140,000   (531,183)  608,817 
Subtotal amortizable intangible assets  100,974,543   (43,176,638)  57,797,905   99,717,656   (28,235,821)  71,481,835 
Website domain name  20,000   -   20,000   20,000   -   20,000 
Total intangible assets $100,994,543  $(43,176,638) $57,817,905  $99,737,656  $(28,235,821) $71,501,835 

 

Amortization expense for the three months ended September 30, 2021 and 2020 was $5,038,837 and $5,093,076, respectively. Amortization expense for the nine months ended September 30, 2021 and 2020 was $14,940,817 and $15,220,591, respectively. NaN impairment charges have been recorded during the nine months September 30, 2021 and 2020.

 

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 

 

15
 

 

4. Leases

 

The Company’s leases are primarily comprised of real estate leases for the use of office space, with certain 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 facilities with fixed payment terms between 1.5 and 7.9 years.

 

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%

 

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.

 

Operating lease costs recognized for the three months ended September 30, 2021 and 2020 were $642,926 and $982,414, respectively. Operating lease costs recognized for the nine months ended September 30, 2021 and 2020 were $2,458,229 and $3,082,499, respectively.

 

Maturities of operating lease liabilities as of September 30, 2021 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 

 

Effective September 30, 2021, the Company terminated a certain lease arrangement for office space and as a result, relinquished 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 amount of the liability and timing of the Cash Payments, as defined below, are fixed), resulting in a net loss upon termination of $7,344,655, 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.

 

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5. Line of Credit

 

FastPay Credit Facility – On February 27, 2020, the Company entered into a financing and security agreement with FPP Finance LLC (“FastPay”), pursuant to which FastPay extended a $15,000,000 line of credit for working capital purposes 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 maturity of February 6, 2022. The balance outstanding as of September 30, 2021 and December 31, 2020 was $6,705,391 and $7,178,791, 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

 

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. Pursuant to the amendment, the Company committed to repurchase 1,064,549 vested restricted stock awards as of December 31, 2020 at a price of $4.00 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 (1,064,549 restricted stock to be purchased at $4.00 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 

 

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.

 

The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:

 

 Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;
 Level 2 Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
 Level 3 Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.

 

17
 

 

The Company accounts 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 under the 12% Convertible Debentures since certain holders converted the debt into shares of the Company’s common stock and certain holders were paid in cash.

 

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, 2021 and 2020, the change in valuation of warrant derivative liabilities recognized as other (expense) income on the condensed consolidated statement of operations, was $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.

 

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.

 

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8. Long-term Debt

 

12% Second Amended Senior Secured Notes

 

Below is a summary of the various amended and restated notes, as well as various amendments thereto, to the 12% senior secured note that was originally issued on June 10, 2019, for gross proceeds of $20,000,000. The transactions leading up to the 12% second amended and restated note that is outstanding as of September 30, 2021 consisted of:

 

Amended and restated note issued on June 14, 2019, where the Company received gross proceeds of $48,000,000, together with the $20,000,000 gross proceeds received on June 10, 2019 for total gross proceeds of $68,000,000, due June 14, 2022;

 

First amendment to the amended and restated note issued on August 27, 2019, where the Company received gross proceeds of $3,000,000;

 

Second amendment to the amended and restated note issued on February 27, 2020, where the Company issued a $3,000,000 letter of credit to the Company’s landlord for leased premises; and

 

Second amended and restated note issued on March 24, 2020, where the Company was permitted to enter into a 15.0% delayed draw term note, in the aggregate principal amount of $12,000,000.

 

First amendment to second amended and restated note issued on March 24, 2020 was entered into on October 23, 2020 (“Amendment 1”), where the maturity date was changed to December 31, 2022, subject to certain acceleration conditions and interest payable on the notes on September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 will be payable in-kind in arrears on the last day of such fiscal quarter. Alternatively, at the option of the holder, such interest amounts originally could have been paid in shares of Series K convertible preferred stock (the “Series K Preferred Stock”); however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, such interest amounts can be converted into shares of the Company’s common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock, subject to certain adjustments. During the three months ended September 30, 2021, the Company filed a Certificate of Elimination, which eliminated designation of the Series K Preferred Stock.

 

Second amendment to the second amended and restated note issued March 24, 2020 was entered into on May 19, 2021 (“Amendment 2”), with BRF Finance Co., LLC, an affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for the purchasers and as purchaser, pursuant to which: (i) the interest rate on the 12% Second Amended Senior Secured Notes, as defined below, decreased from a rate of 12% per annum to a rate of 10% per annum; and (ii) the Company agreed that within one (1) business day after receipt of cash proceeds from any issuance of equity interests, it will prepay the certain obligations in an amount equal to such cash proceeds, net of underwriting discounts and commissions; provided, that, this mandatory prepayment obligation does not apply to any proceeds that the Company received from shares of the Company’s common stock issued pursuant to the securities purchase agreement (as further described below under the heading Common Stock Private Placement in Note 10) during the 90-day period commencing on May 20, 2021.

 

Collectively, the amended and restated notes and amendments thereto and the second amended and restated notes and Amendment 1 and Amendment 2 thereto are referred to as the “12% Second Amended Senior Secured Notes,” with all borrowings collateralized by substantially all assets of the Company.

 

Delayed Draw Term Note

 

On March 24, 2020, the Company entered into a 15% 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.

 

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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 expenses 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 may be made at the option of the purchasers, subject to certain conditions. Up to $8,000,000 in principal amount under the note was originally due on March 31, 2021. Interest on amounts outstanding under the note was 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 from March 31, 2021 to March 31, 2022. 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 May 19, 2021, pursuant to Amendment 2, the interest rate on the Delayed Draw Term Note decreased from a rate of 15% per annum to a rate of 10% per annum.

 

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.

 

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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 

 

The current portion of long-term debt as of September 30, 2021 and December 31, 2020 was $4,565,982 and none, respectively, on the condensed consolidated balance sheets. The noncurrent portion of long-term debt as of September 30, 2021 and December 31, 2020 was $58,718,289 and $62,194,272, respectively, on the condensed consolidated balance sheets.

 

9. Preferred Stock

 

Series H Preferred Stock

 

On August 17, 2021, 50 shares of Series H convertible preferred stock (the “Series H Preferred Stock”) were converted into 151,515 shares of the Company’s common stock.

 

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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 $0.01 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 noncash 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.

 

10. Stockholders’ Equity

 

Common Stock

 

The Company has the authority to issue 1,000,000,000 shares of common stock, $0.01 par value per share.

 

Common Stock Private Placement

 

On May 20, 2021 and May 25, 2021, the Company entered into securities purchase agreements with several accredited investors, pursuant to which the Company sold an aggregate of 21,435,718 shares of its common stock, at a per share price of $0.70 for aggregate gross proceeds of $15,005,000 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 aggregate of 7,142,857 shares of its common stock, at a per share price of $0.70 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, the Company received net proceeds of $19,837,757. The proceeds will be used for general corporate purposes.

 

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.

 

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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, 2021 are summarized as follows:

 Summary of Warrant Activity

       Outstanding    
  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 
B. Riley Warrants  0.33  October 18, 2025  875,000   -   875,000 
MDB Warrants  1.15  October 19, 2022  -   119,565   119,565 
MDB Warrants  2.50  October 19, 2022  -   60,000   60,000 
Total outstanding and exercisable        2,375,000   507,055   2,882,055 

 

The intrinsic value of exercisable but unexercised in-the-money stock warrants as of September 30, 2021 was $102,698, based on a fair market value of the Company’s common stock of $0.38 per share on September 30, 2021.

 

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11. Compensation Plans

 

The Company provides stock-based compensation in the form of (a) stock awards to employees and directors, comprised of restricted stock awards and restricted stock units (collectively referred to as the “Restricted Stock Awards”), (b) stock option grants to employees, directors and consultants (referred to as the “Common Stock Awards”) (c) stock option awards, restricted stock awards, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants (collectively the “Common Equity Awards”), (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”).

 

Stock-based compensation and equity-based expense charged to operations or capitalized during the three months ended September 30, 2021 and 2020 are summarized as follows:

 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 

 

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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       
  Stock  Stock  Equity  Outside  Partner  ABG    
  Awards  Awards  Awards  Options  Warrants  Warrants  Totals 
During the Nine Months Ended September 30, 2021                            
Cost of revenue $60,838  $169,482  $4,694,925  $4,463  $-  $-  $4,929,708 
Selling and marketing  -   13,899   3,820,996   224,371   -   -   4,059,266 
General and administrative  559,505   297,283   10,344,247   -   -   1,498,217   12,699,252 
Total costs charged to operations  620,343   480,664   18,860,168   228,834   -   1,498,217   21,688,226 
Capitalized platform development  11,276   5,071   1,324,805   6,472   -   -   1,347,624 
Total stock-based compensation $631,619  $485,735  $20,184,973  $235,306  $-  $1,498,217  $23,035,850 
                             
During the Nine Months Ended September 30, 2020                            
Cost of revenue $108,936  $150,915  $3,261,542  $5,644  $36,654  $-  $3,563,691 
Selling and marketing  920,566   102,206   2,114,595   142,767   -   -   3,280,134 
General and administrative  238,558   437,614   2,430,553   150,577   -   1,084,826   4,342,128 
Total costs charged to operations  1,268,060   690,735   7,806,690   298,988   36,654   1,084,826   11,185,953 
Capitalized platform development  234,611   154,445   864,656   5,451   -   -   1,259,163 
Total stock-based compensation $1,502,671   845,180  $8,671,346  $304,439  $36,654  $1,084,826  $12,445,116 

 

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, 2021 was as follows:

 Schedule of Unrecognized Compensation Expense

  Restricted  Common  Common     Publisher       
  Stock  Stock  Equity  Outside  Partner  ABG    
  Awards  Awards  Awards  Options  Warrants  Warrants  Totals 
Unrecognized compensation expense $2,750,000  $-  $54,255,910  $135,741  $-  $3,788,429  $60,930,080 
Expected weighted-average period expected to be recognized (in years)  1.68   -   2.14   0.44   -   1.63   2.08 

 

Pursuant to an amendment with ABG-SI, LLC on June 4, 2021, the exercise price related to the ABG Warrants exercisable for up to 10,994,922 shares of the Company’s common stock was changed to $0.42 per share from $0.84 per share in exchange for additional benefits under the Sports Illustrated licensing agreement.

 

Further details as of the date these condensed consolidated financial statements were issued or were available to be issued are provided under the heading Compensation Plans in Note 15.

 

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12. Revenue Recognition

 

Disaggregation of Revenue

 

The following table provides information about disaggregated revenue by product line, geographical market and timing of revenue recognition:

 Schedule of Disaggregation of Revenue

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  2021  2020  2021  2020 
Revenue by product line:                
Advertising $21,678,480  $9,409,031  $46,300,974  $28,788,631 
Digital subscriptions  7,698,359   8,469,943   22,472,951   20,096,640 
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 
Total $59,573,508  $32,089,993  $127,935,501  $85,593,786 
Revenue by geographical market:                
United States $57,762,726  $29,964,150  $123,697,063  $81,295,916 
Other  1,810,782   2,125,843   4,238,438   4,297,870 
Total $59,573,508  $32,089,993  $127,935,501  $85,593,786 
Revenue by timing of recognition:                
At point in time $51,875,149  $23,620,050  $105,462,550  $65,497,146 
Over time  7,698,359   8,469,943   22,472,951   20,096,640 
Total $59,573,508  $32,089,993  $127,935,501  $85,593,786 

 

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 

 

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.

 

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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 effective tax rate benefit for the nine months ended September 30, 2021 and 2020 was 0.29% and 0.00%, respectively. The tax benefit for the nine months ended September 30, 2021 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, 2021 and December 31, 2020.

 

14. Commitments and Contingencies

 

Revenue Guarantees

 

On a select basis, the Company has provided revenue share guarantees to certain independent publishers that transition their publishing operations from another platform to theMaven.net or maven.io. These arrangements generally guarantee the publisher a monthly amount of income for a period of 12 to 24 months from inception of the publisher contract that is the greater of (a) a fixed monthly minimum, or (b) the calculated earned revenue share. For the three months ended September 30, 2021 and 2020, the Company recognized publisher partner guarantees of $214,286 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.

 

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.

 

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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 October 1, 2021 through the date these condensed consolidated financial statements were issued or were available to be issued, the Company granted approximately 90,000 restricted stock awards to employees and 910,000 common stock options exercisable for shares of its common stock to employees.

 

Long-term Debt

 

12% Second Amended Senior Secured Notes – The balance outstanding under the 12% Second Amended Senior Secured Notes as of the date these condensed consolidated financial statements were issued 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 that the Company was permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately $0.5 million.

 

Delayed Draw Term Note The balance outstanding under the Delayed Draw Term Note as of the date these condensed consolidated financial statements were issued or were available to be issued 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 end on the term for a twelve-month period at the then-current market price and pricing structure on such renewal date.

 

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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, 2021 and 2020 should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 16, 2021. 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 media 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 businesses for 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”), and power more than 200 independent media publishers (each a “Publisher Partner”). Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports, finance) and where we can leverage the strength of our core brands to grow audience and monetization both 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 businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Partner. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization (SEO), social media, subscription marketing and ad monetization, Publisher Partners benefit from improved traffic and increased monetization. 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, such 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 acquiring publishers that have premium branded content and can broaden the reach and impact of the Platform.

 

On September 20, 2021, we re-branded to “The Arena Group.”

 

Liquidity and Capital Resources

 

As of September 30, 2021, our principal sources of liquidity consisted of cash of approximately $8.2 million. In addition, we had the use of additional proceeds from our working capital facility with FastPay in the amount of approximately $8.3 million.  During the three months ended September 30, 2021, we generated positive cash flows from operations in the amount of approximately $1.7 million.  We experience seasonality with respect to our revenues, with the fourth quarter typically generating a significant portion of our revenues; thus, we expect the fourth quarter to continue to build upon our generation of positive cash flows from operations. The FastPay line 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 terms 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 maturity 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.

 

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.

 

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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, 2021 and December 31, 2020 was as follows:

 

  As of 
  September 30, 2021  December 31, 2020 
Current assets $79,380,241  $73,846,465 
Current liabilities  (130,386,757)  (107,562,825)
Working capital deficit  (51,006,516)  (33,716,360)

 

As of September 30, 2021, we had a working capital deficit of approximately $51.0 million, as compared to approximately $33.7 million as of December 31, 2020, consisting of approximately $79.4 million in total current assets and approximately $130.4 million 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 nine months ended September 30, 2021 and 2020 consisted of the following:

 

  Nine Months Ended September 30, 
  2021  2020 
Net cash used in operating activities $(8,261,324) $(20,273,407)
Net cash used in investing activities  (10,673,872)  (4,286,469)
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, end of period $8,728,649  $5,734,592 

 

For the nine months ended September 30, 2021, net cash used in operating activities was approximately $8.3 million, consisting primarily of: approximately $125.1 million 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 the nine months ended September 30, 2020, where net cash used in operating activities was approximately $20.3 million, consisting primarily of: approximately $82.1 million 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 nine months ended September 30, 2021, net cash used in investing activities was approximately $10.7 million, 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 million 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 million for property and equipment; and (z) approximately $2.9 million for capitalized costs for our Platform.

 

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, where net cash provided by financing activities was approximately $20.8 million, consisting primarily of: (i) approximately $6.1 million in net proceeds from the issuance of Series H Preferred Stock and Series J convertible preferred stock (the “Series J Preferred Stock”); (ii) approximately $11.7 million in net proceeds from the Delayed Draw Term Note and the Payroll Protection Program Loan; and (iii) approximately $3.3 million in borrowings of our line of credit; less (iv) approximately $0.3 million in payments for taxes relating to repurchase of restricted shares.

 

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Results of Operations

 

Three Months Ended September 30, 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%

 

For the three months ended September 30, 2021, the total net loss was approximately $24.7 million. The total net loss increased by approximately $3.3 million as compared to the three months ended September 30, 2020, which had a net loss of approximately $21.4 million. The primary reasons for the increase in the total net loss is a lease termination charge of approximately $7.3 million and an increase in stock-based compensation of approximately $4.6 million during the three months ended September 30, 2021. The basic and diluted net loss per common share for 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 increase of the daily weighted average shares outstanding to 252,811,058 shares from 39,186,432 shares.

  

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 
  (percentages reflect cost of revenue as a percentage of total revenue)       
Revenue $59,573,508   100.0% $32,089,993   100.0% $27,483,515   85.6%
Cost of revenue  32,173,859   54.0%  24,708,941   77.0%  7,464,918   30.2%
Gross profit $27,399,649   46.0% $7,381,052   23.0% $20,018,597   271.2%

 

For the three months ended September 30, 2021, we had revenue of approximately $59.6 million, as compared to revenue of approximately $32.1 million for the three months ended September 30, 2020.

 

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The following table sets forth revenue by product line and the corresponding percent of total revenue:

 

  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%

 

For the three months ended September 30, 2021, the primary sources of revenue were as follows: (i) advertising of approximately $21.7 million; (ii) digital subscriptions of approximately $7.7 million; (iii) magazine circulation of approximately $26.0 million; and (iv) approximately $4.2 million from other revenue. Our advertising revenue 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 of the Sports Illustrated Swim (“SI Swim”) business and other growth in the Sports Illustrated media business, and approximately $5.5 million generated as a result of The Spun, 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 the Sports Illustrated media business. Our other revenue, primarily consisting of licensing and e-commerce revenue, increased by approximately $2.9 million due to additional revenue primarily for certain licensing agreements related to SI Swim and other Sports Illustrated media businesses.

 

Cost of Revenue

 

For the three months ended September 30, 2021, we recognized cost of revenue of approximately $32.2 million, which represented a 46% gross profit percentage, compared to approximately $24.7 million in the three months ended September 30, 2020, representing a 23% gross profit percentage. The increase in the cost of revenue of approximately $7.5 million during the three months ended September 30, 2021 is primarily from increases in: (i) printing, distribution, and fulfillment costs of approximately $3.4 million; (ii) payroll, stock-based compensation, and related expenses for customer support, technology maintenance, and occupancy costs of related personnel of approximately $2.6 million; (iii) 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.

 

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:

 

  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%

 

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Selling and Marketing. For the three months ended September 30, 2021, we incurred selling and marketing costs of approximately $22.7 million, as compared to approximately $9.9 million for the three months ended September 30, 2020. The increase in selling and marketing costs of approximately $12.8 million is primarily from increases 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 benefits and stock-based compensation of approximately $1.3 million; office and occupancy costs of approximately $0.1 million; less a decrease in other selling and marketing related costs of approximately $0.1 million.

 

General and Administrative. For the three months ended September 30, 2021, 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, as compared to approximately $7.2 million for the three months ended September 30, 2020. The increase in general and administrative expenses of approximately $15.9 million is primarily from an increase in our payroll, along with the related benefits and stock-compensation of approximately $5.5 million; an increase in professional services, including accounting, legal 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.

 

Other (Expenses) Income

 

The following table sets forth other (expense) income:

 

  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%

 

Change in Valuation of Warrant Derivative Liabilities. There was approximately $1.3 million increase in noncash income related the change in the valuation of the warrant derivative liabilities for the three months ended September 30, 2021, 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 compared to the prior year period.

 

Interest Expense. We incurred interest expense of approximately $2.5 million 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 million and a decrease from the amortization of debt discount on notes payable of approximately $1.2 million.

 

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Liquidated Damages. We recorded liquidated damages of approximately $0.8 million for the three months ended September 30, 2021, an increase of approximately $0.5 million as compared to the three months ended September 30, 2020, primarily from issuance of our 12% Convertible Debentures, Series H Preferred Stock, Series I convertible preferred stock (the “Series I Preferred Stock”), Series J Preferred Stock, and Series K Preferred Stock. 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.

 

Nine Months Ended September 30, 2021 and 2020

 

  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%

 

For the nine months ended September 30, 2021, the total net loss was approximately $70.8 million. The total net loss increased by approximately $3.5 million as compared to the nine months ended September 30, 2020, which had a net loss of approximately $67.3 million. The primary reasons for the increase 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 along with the increase of the daily weighted average shares outstanding to 244,209,151 shares from 39,177,864 shares.

 

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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.

 

The following table sets forth revenue by product line and the corresponding percent of total revenue:

 

  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%

 

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.

 

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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.

 

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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:

 

(i)we intend to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes; and
   
(ii)we intend to implement procedures pursuant to which we can ensure segregation of duties and hire additional resources to ensure appropriate review and oversight.

 

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.

 

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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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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, 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.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The following documents are filed as part of this Quarterly Report:

 

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Exhibit

Number

 Description of Document
   
3.1 Certificate of Elimination of the Certificate of Designation of Series F Convertible Preferred Stock, which was filed as Exhibit 3.1 to our Current Report on Form 8-K filed on September 13, 2021.
   
3.2 Certificate of Elimination of the Certificate of Designation of Series I Convertible Preferred Stock, which was filed as Exhibit 3.2 to our Current Report on Form 8-K filed on September 13, 2021.
   
3.3 Certificate of Elimination of the Certificate of Designation of Series J Convertible Preferred Stock, which was filed as Exhibit 3.3 to our Current Report on Form 8-K filed on September 13, 2021.
   
3.4 Certificate of Elimination of the Certificate of Designation of Series K Convertible Preferred Stock, which was filed as Exhibit 3.4 to our Current Report on Form 8-K filed on September 13, 2021.
   
10.1 Amended Consulting Agreement, dated June 3, 2021, by and between the Company, Maven Coalition, Inc., and James C. Heckman Jr., which was filed as Exhibit 10.103 to our Registration Statement on Form S-1 filed on October 29, 2021.
   
10.2 General Release and Continuing Obligations Agreement, dated June 3, 2021, by and between the Company, Maven Coalition, Inc., and James C. Heckman Jr., which was filed as Exhibit 10.104 to our Registration Statement on Form S-1 filed on October 29, 2021.
   
10.3 Amendment to 2016 Stock Incentive Plan Option Agreement, dated June 3, 2021, by and between the Company and James C. Heckman Jr., which was filed as Exhibit 10.105 to our Registration Statement on Form S-1 filed on October 29, 2021.
   
10.4 Amendment to 2019 Stock Incentive Plan Option Agreement, dated June 3, 2021, by and between the Company and James C. Heckman Jr., which was filed as Exhibit 10.105 to our Registration Statement on Form S-1 filed on October 29, 2021.
   
10.5* Asset Purchase Agreement between the Company and Fulltime Fantasy Sports, LLC, dated July 15, 2021.
   
31.1* Chief Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2* Chief Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1* Chief Executive Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2* Chief Financial Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS** XBRL Instance Document
   
101.SCH** XBRL Taxonomy Extension Schema Document
   
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
   
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
   
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
   
104 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* 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”.

 

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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.

 

 TheMaven, Inc.
  
Date: November 15, 2021By:/s/ ROSS LEVINSOHN
  Ross Levinsohn
  Chief Executive Officer
  (Principal Executive Officer)
   
Date: November 15, 2021By:/s/ SPIROS CHRISTOFORATOS
  Spiros Christoforatos
  Chief Accounting Officer
  (Principal Accounting Officer)

 

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