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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 June 30, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number 1-12471

 

THE ARENA GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   68-0232575

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

200 Vesey Street, 24th Floor

New York, New York

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

 

(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
Common Stock, $0.01 par value   AREN   NYSE American

 

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. YesNo

 

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). YesNo

 

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 August 9, 2022, the Registrant had 17,844,379 shares of common stock outstanding.

 

 

 

 

 

 

 

Page

Number

   
PART I - FINANCIAL INFORMATION 4
   
Item 1. Condensed Consolidated Financial Statements 4
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
   
Item 4. Controls and Procedures 41
   
PART II - OTHER INFORMATION 42
   
Item 1. Legal Proceedings 42
   
Item 1A. Risk Factors 42
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42
   
Item 3. Defaults Upon Senior Securities 42
   
Item 4. Mine Safety Disclosures 42
   
Item 5. Other Information 42
   
Item 6. Exhibits 43
   
SIGNATURES 44

 

2

 

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) of The Arena Group Holdings, Inc. (the “Company,” “we,” “our,” and “us”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning our business strategy, future revenues, market growth, capital requirements, product introductions, and expansion plans and the adequacy of our funding. Other statements contained in this Quarterly Report that are not historical facts are also forward-looking statements. We have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and other stylistic variants denoting forward-looking statements.

 

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 information currently available, as well as our beliefs and assumptions. The actual outcome related to forward-looking statements 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. We detail other risks 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, 2021. 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, 2021.

 

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 except as may be required by law.

 

3

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL INFORMATION

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

Index to Condensed Consolidated Financial Statements

 

  PAGE
Condensed Consolidated Balance Sheets - June 30, 2022 (Unaudited) and December 31, 2021 5
Condensed Consolidated Statements of Operations (Unaudited) - Three Months and Six Months Ended June 30, 2022 and 2021 6
Condensed Consolidated Statements of Stockholders’ Deficiency (Unaudited) - Six Months Ended June 30, 2022 and 2021 7
Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2022 and 2021 9
Notes to Condensed Consolidated Financial Statements (Unaudited) 10

 

4

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

           
  

June 30, 2022

(unaudited)

   December 31,
2021
 
   ($ in thousands, except share data) 
Assets          
Current assets:          
Cash and cash equivalents  $14,839   $9,349 
Restricted cash   502    502 
Accounts receivable, net   34,450    21,660 
Subscription acquisition costs, current portion   28,603    30,162 
Royalty fees   3,750    11,250 
Prepayments and other current assets   4,863    4,748 
Total current assets   87,007    77,671 
Property and equipment, net   832    636 
Operating lease right-of-use assets   455    528 
Platform development, net   10,240    9,299 
Subscription acquisition costs, net of current portion   7,651    8,235 
Acquired and other intangible assets, net   56,221    57,356 
Other long-term assets   626    639 
Goodwill   23,416    19,619 
Total assets  $186,448   $173,983 
Liabilities, mezzanine equity and stockholders’ deficiency          
Current liabilities:          
Accounts payable  $19,733   $11,982 
Accrued expenses and other   18,579    24,011 
Line of credit   7,808    11,988 
Unearned revenue   60,907    54,030 
Subscription refund liability   2,394    3,087 
Operating lease liabilities   400    374 
Liquidated damages payable   5,497    5,197 
Current portion of long-term debt   5,873    5,744 
Total current liabilities   121,191    116,413 
Unearned revenue, net of current portion   12,591    15,277 
Operating lease liabilities, net of current portion   579    785 
Liquidating damages payable, net of current portion   -    7,008 
Other long-term liabilities   7,108    7,556 
Deferred tax liabilities   389    362 
Long-term debt   65,179    64,373 
Total liabilities   207,037    211,774 
Commitments and contingencies (Note 16)   -      
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; Series G shares issued and outstanding: 168; common shares issuable upon conversion: 8,582 at June 30, 2022 and December 31, 2021   168    168 
Series H convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 23,000 shares designated; aggregate liquidation value: $14,556 and $15,066; Series H shares issued and outstanding: 14,556 and 15,066; common shares issuable upon conversion: 2,008,728 and 2,075,200 at June 30, 2022 and December 31, 2021, respectively   13,207    13,718 
Total mezzanine equity   13,375    13,886 
Stockholders’ deficiency:          
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 17,827,526 and 12,632,947 shares at June 30, 2022 and December 31, 2021, respectively   178    126 
Common stock to be issued   -    - 
Additional paid-in capital   258,727    200,410 
Accumulated deficit   (292,869)   (252,213)
Total stockholders’ deficiency   (33,964)   (51,677)
Total liabilities, mezzanine equity and stockholders’ deficiency  $186,448   $173,983 

 

See accompanying notes to condensed consolidated financial statements

 

5

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

                     
  

Three Months Ended
June 30,

  

Six Months Ended
June 30,

 
   2022   2021   2022   2021 
   ($ in thousands, except share data) 
Revenue  $65,075   $34,746   $113,318   $68,361 
Cost of revenue (includes amortization of developed technology and platform development for three months ended 2022 and 2021 of $2,375 and $2,157, respectively and for the six months ended 2022 and 2021 of $4,686 and $4,324, respectively)   46,729    25,307    75,226    51,049 
Gross profit   18,346    9,439    38,092    17,312 
Operating expenses                    
Selling and marketing   19,307    16,202    36,523    31,340 
General and administrative   15,964    12,535    29,478    23,030 
Depreciation and amortization   4,444    3,964    8,646    7,927 
Loss on impairment of assets   -    -    257    - 
Total operating expenses   39,715    32,701    74,904    62,297 
Loss from operations   (21,369)   (23,262)   (36,812)   (44,985)
Other (expense) income                    
Change in valuation of warrant derivative liabilities   -    360    -    (305)
Interest expense, net   (2,506)   (2,363)   (5,326)   (5,183)
Liquidated damages   (128)   (1,109)   (300)   (1,364)
Gain upon debt extinguishment   -    5,717    -    5,717 
Total other (expense) income   (2,634)   2,605    (5,626)   (1,135)
Loss before income taxes   (24,003)   (20,657)   (42,438)   (46,120)
Income taxes   1,796    -    1,782    - 
Net loss  $(22,207)  $(20,657)  $(40,656)  $(46,120)
Basic and diluted net loss per common share  $(1.22)  $(1.88)  $(2.41)  $(4.30)
Weighted average number of common shares outstanding – basic and diluted   18,258,890    11,012,866    16,847,920    10,737,555 

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 


CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)

 

Six Months Ended June 30, 2022

 

                             
   Common Stock   Common Stock to be Issued   Additional Paid-in   Accumulated   Total Stockholders’ 
   Shares   Par Value   Shares   Par Value   Capital   Deficit   Deficiency 
   ($ in thousands, except share data) 
Balance at January 1, 2022   12,632,947   $             126    49,134   $                   -   $200,410   $(252,213)  $(51,677)
Issuance of common stock upon conversion of series H preferred stock   70,380    1    -    -    510    -    511 
Issuance of common stock for restricted stock units in connection with an acquisition   16,760    -    -    -    -    -    - 
Issuance of common stock in connection with professional services   14,617    -    -    -    184    -    184 
Issuance of common stock in connection with settlement of liquidated damages   505,671    5    -    -    6,680    -    6,685 
Gain upon issuance of common stock in connection with settlement of liquidated damages   -    -    -    -    323    -    323 
Issuance of common stock for restricted stock units   155,211    2    -    -    (2)   -    - 
Common stock withheld for taxes upon issuance of underlying shares for restricted stock units   (67,023)   (1)   -    -    (555)   -    (556)
Repurchase restricted stock classified as liabilities   (8,064)   -    -    -    -    -    - 
Issuance of common stock in connection with public offering   4,181,603    42    -    -    30,448    -    30,490 
Stock-based compensation   -    -    -    -    8,054    -    8,054 
Net loss   -    -    -    -    -    (18,449)   (18,449)
Balance at March 31, 2022   17,502,102    175    49,134    -    246,052    (270,662)   (24,435)
Issuance of common stock in connection with the acquisition of Athlon   314,103    3    -    -    3,138    -    3,141 
Issuance of common stock for restricted stock units   21,600    -    -    -    -    -    - 
Repurchase of restricted stock classified as liabilities   (18,150)   -    -    -    -    -    - 
Issuance of common stock in connection with Say Media merger   7,851    -    (7,851)   -    -    -    - 
Issuance of common stock upon cashless exercise of stock option   20    -    -    -    -    -    - 
Stock-based compensation   -    -    -    -    9,537    -    9,537 
Net loss   -    -    -    -    -    (22,207)   (22,207)
Balance at June 30, 2022   17,827,526   $178    41,283   $-   $258,727   $(292,869)  $(33,964)

 

7

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Six Months Ended June 30, 2021

 

   Common Stock   Common Stock to be Issued   Additional Paid-in   Accumulated   Total
Stockholders’
 
   Shares   Par Value   Shares   Par Value   Capital   Deficit   Deficiency 
   ($ in thousands, except share data) 
Balance at January 1, 2021   10,412,963   $             104    49,134   $                   -   $141,856   $(162,273)  $              (20,313)
Issuance of restricted stock awards to the board of directors   36,599    -    -    -    -    -    - 
Repurchase restricted stock classified as liabilities   (6,049)   -    -    -    -    -    - 
Issuance of common stock for restricted stock units in connection with an acquisition   11,667    -    -    -    -    -    - 
Issuance of common stock in connection with professional services   14,205    -    -    -    125    -    125 
Stock-based compensation   -    -    -    -    5,408    -    5,408 
Net loss   -    -    -    -    -    (25,463)   (25,463)
Balance at March 31, 2021   10,469,385   $104    49,134    -   $147,389   $(187,736)  $(40,243)
Issuance of restricted stock in connection with the acquisition of The Spun   194,806    2    -    -    (2)   -    - 
Issuance of restricted stock awards to the board of directors   3,735    -    -    -    -    -    - 
Cashless exercise of common stock   3,859    -    -    -    -    -    - 
Common stock withheld for taxes   (2,226)   -    -    -    (41)   -    (41)
Repurchase of restricted stock classified as liabilities   (6,049)   -    -    -    -    -    - 
Issuance of common stock in connection with private placement   1,299,027    13    -    -    19,825    -    19,838 
Stock-based compensation   -    -    -    -    8,666    -    8,666 
Net loss   -    -    -    -    -    (20,657)   (20,657)
Balance June 30, 2021   11,962,537   $119    49,134   $-   $175,837   $(208,393)  $(32,437)

 

See accompanying notes to condensed consolidated financial statements.

 

8

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

           
   Six Months Ended
June 30,
 
   2022   2021 
   ($ in thousands) 
Cash flows from operating activities          
Net loss  $(40,656)  $(46,120)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property and equipment   245    220 
Amortization of platform development and intangible assets   13,087    12,031 
Gain upon debt extinguishment   -    (5,717)
Amortization of debt discounts   934    1,001 
Loss on impairments of assets   257    - 
Change in valuation of warrant derivative liabilities   -    305 
Noncash and accrued interest   69    3,632 
Liquidated damages   300    1,364 
Stock-based compensation   16,466    13,215 
Deferred income taxes   (1,782)   - 
Other   469    (759)
Change in operating assets and liabilities net of effect of business combination:          
Accounts receivable   5    4,375 
Subscription acquisition costs   2,143    (13,784)
Royalty fees   7,500    7,500 
Prepayments and other current assets   264    (4,060)
Other long-term assets   13    (121)
Accounts payable   335    4 
Accrued expenses and other   (7,131)   1,714 
Unearned revenue   945    14,934 
Subscription refund liability   (693)   737 
Operating lease liabilities   (107)   (404)
Other long-term liabilities   (128)   - 
Net cash used in operating activities   (7,465)   (9,933)
Cash flows from investing activities          
Purchases of property and equipment   (379)   (182)
Capitalized platform development   (2,784)   (1,971)
Proceeds from sale of equity investment   2,450    - 
Payments for acquisition of business, net of cash acquired   (9,481)   (7,057)
Net cash used in investing activities   (10,194)   (9,210)
Cash flows from financing activities          
Borrowings (repayments) under line of credit   (4,180)   (2,249)
Proceeds from common stock public offering, net of offering costs   32,058    - 
Payments of issuance costs from common stock public offering   (1,568)   - 
Payment of The Spun deferred cash payment   (453)   - 
Proceeds from common stock private placement   -    20,005 
Payments of issuance costs from common stock private placement   -    (167)
Payment for taxes related to repurchase of restricted common stock   (556)   (41)
Payment of restricted stock liabilities   (2,152)   (716)
Net cash provided by financing activities   23,149    16,832 
Net increase (decrease) in cash, cash equivalents, and restricted cash   5,490    (2,311)
Cash, cash equivalents, and restricted cash – beginning of period   9,851    9,535 
Cash, cash equivalents, and restricted cash – end of period  $15,341   $7,224 
Cash, cash equivalents, and restricted cash          
Cash and cash equivalents  $14,839   $6,723 
Restricted cash   502    501 
Total cash, cash equivalents, and restricted cash  $15,341   $7,224 
Supplemental disclosure of cash flow information          
Cash paid for interest  $4,323   $289 
Cash paid for income taxes   -    - 
Noncash investing and financing activities          
Reclassification of stock-based compensation to platform development  $1,125   $859 
Issuance of common stock in connection with settlement of liquidated damages   7,008    - 
Issuance of common stock in connection with professional services   -    125 
Common stock issued in connection with acquisition of Athlon   3,141    - 
Deferred cash payments in connection with acquisition of Athlon   1,889    - 
Assumption of liabilities in connection with acquisition of Athlon   12,642    - 
Deferred cash payments in connection with acquisition of The Spun   -    1,639 
Assumption of liabilities in connection with acquisition of The Spun   -    2 
Conversion of Series H convertible preferred stock into common stock   511    - 

 

See accompanying notes to condensed consolidated financial statements.

 

9

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

($ in thousands, unless otherwise stated)

 

1. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements include the accounts of The Arena Group Holdings, Inc. (formerly known as TheMaven, Inc.) and its wholly owned subsidiaries (“The Arena Group” or the “Company”), after eliminating all significant intercompany balances and transactions. The Company does not have any off-balance sheet arrangements. The Company changed its corporate name to The Arena Group Holdings, Inc. from TheMaven, Inc. on February 8, 2022.

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete audited financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in The Arena Group’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC as of April 1, 2022.

 

The condensed consolidated financial statements as of June 30, 2022, and for the three and six months ended June 30, 2022 and 2021, are unaudited but, in management’s opinion, include all adjustments necessary for a fair presentation of the results of interim periods. All such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet as of December 31, 2021, was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year.

 

The novel coronavirus (“COVID-19”) pandemic impacted the Company less during the second quarter of 2022 than it did in 2021. During the initial onset of COVID-19, the Company faced significant change in its advertisers’ buying behavior. Since May 2020, however, there has been a steady recovery in the advertising market in both pricing and volume. This coupled with the return of professional and college sports yielded steady growth in revenues. Given that the Sports Illustrated media business relies on sporting events to generate content and comprises a material portion of the Company’s revenues, the cash flows and results of operations are susceptible to a widespread cancellation of sporting events or a general limitation of societal activity akin to what is widely known to have occurred in the Unites States and elsewhere during the 2020 calendar year and, to a lesser extent, during the 2021 calendar year. Future widespread shutdowns of in-person economic activity could have a material impact on the Company’s business. As a result of the Company’s advertising revenue declining in early 2021 caused by the widespread cancellations of sporting events, the Company is vulnerable to a risk of loss in the near term and it is at least reasonably possible that events or circumstances may occur that could cause an impact in the near term, depending on the actions taken to prevent the further spread of COVID-19.

 

The Company operates in one reportable segment.

 

Reverse Stock Split

 

The Company effected a 1-for-22 reverse stock split as of February 9, 2022. The condensed consolidated financial statements and the notes thereto give effect to such reverse stock split for all periods presented. The shares of common stock retained a par value of $0.01 per share. Accordingly, stockholders’ deficiency reflects the reverse stock split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the reverse stock split. Any fractional shares that would otherwise be issued as a result of the reverse stock split were rounded up to the nearest whole share.

 

10

 

 

Use of Estimates

 

Preparation of condensed consolidated financial statements in conformity with 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.

 

Recently Adopted Accounting Standards

 

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which updates various codification topics to 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 earnings per share computation for these instruments. On January 1, 2022, the Company adopted ASU 2020-06 with no material impact to its condensed consolidated financial position, results of operations or cash flows.

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force (EITF), to provide explicit guidance on accounting by issuers for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. On January 1, 2022, the Company adopted ASU 2021-04 with no material impact to its condensed consolidated financial position, results of operations, cash flows or disclosures.

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to account for revenue contracts acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. The acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired contracts. This update should lead to recognition and measurement consistent with what’s reported in the acquiree’s financial statements, provided that the acquiree prepared financial statements in accordance with GAAP. The new standard marks a change from current GAAP, under which assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts, are generally recognized at fair value at the acquisition date. On January 1, 2022, the Company adopted ASU 2021-08 with no material impact to its condensed financial position, results of operations or cash flows. This new accounting standard will be applied prospectively to business combinations.

 

11

 

 

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 restrictions expire, the shares are no longer forfeitable, and are thus vested. Restricted stock units are included in the computation of basic loss per common share only when the 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.

 

The Company excluded the outstanding securities summarized below (capitalized terms are described herein), which entitle the holders thereof to acquire shares of the Company’s common stock, from its calculation of net loss per common share, as their effect would have been anti-dilutive. Common stock equivalent shares are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.

 

           
   As of June 30, 
   2022   2021 
Series G convertible preferred stock   8,582    8,582 
Series H Preferred Stock   2,008,728    2,699,312 
Restricted Stock Awards   97,402    202,003 
Financing Warrants   116,118    131,003 
ABG Warrants   999,540    999,540 
AllHipHop warrants   5,682    5,682 
Publisher Partner Warrants   16,174    35,889 
Equity Plans   7,890,027    7,601,168 
Outside Options   138,644    138,644 
Total   11,280,897    11,821,823 

 

Reclassifications

 

Certain prior quarter amounts have been reclassified to conform to current period presentation. These reclassifications were immaterial, both individually and in the aggregate. These changes did not impact previously reported loss from operations or net loss.

 

2. Acquisitions

 

2022 Acquisitions

 

Athlon Holdings, Inc. – On April 1, 2022, the Company acquired 100% of the issued and outstanding capital stock of Athlon Holdings, Inc., a Tennessee corporation (“Athlon”), for a preliminary purchase price of $17,115, as adjusted for the estimated working capital adjustment as of the closing date of the transaction. The purchase price is pending finalization of a working capital adjustment and deferred taxes and could be subject to further revision if additional information related to the fair value of the identifiable net assets become available. As a part of the closing consideration, the Company also acquired cash of $1,840, that was further adjusted post-closing for the working capital adjustment. The preliminary purchase price of $17,115, as discounted, is comprised of (i) a cash portion of $14,181, with $11,840 paid at closing and $2,341 estimated to be paid post-closing (as further described below) and (ii) the issuance of 314,103 shares of the Company’s common stock with a fair market value of $3,141. The number of shares of the Company’s common stock issued was determined based on a $3,000 value using the common stock trading price for the 10 trading days preceding the April 1, 2022 closing date. Certain of Athlon’s key employees entered into either advisory agreements or employment agreements with the Company. Athlon operates in the United States.

 

The amount estimated to be paid post-closing of $2,341 will be paid as follows: (i) $2,096 will be paid on the nine-month anniversary of the closing date, or January 1, 2023 (consisting of $3,000 for the deferred cash payments, as discounted, less a $904 cash adjustment); and (ii) $245 will be paid within two business days from the date the Company receives proceeds from the sale of all or a portion of the equity interest in Just Like Falling Off a Bike, LLC that was held by Athlon as of the closing date (this was paid on April 7, 2022).

 

12

 

 

The composition of the preliminary purchase price is as follows:

 

      
Cash  $12,085 
Common stock   3,141 
Deferred cash payments, as discounted   1,889 
Total purchase consideration  $17,115 

 

The Company incurred $200 in transaction costs related to the acquisition, which primarily consisted of legal and accounting expenses. The acquisition related expenses were recorded within general and administrative expense on the 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:

 

      
Cash  $2,604 
Accounts receivable   13,033 
Other current assets   379 
Equity investment   2,450 
Fixed assets   62 
Advertiser relationships   6,630 
Trade names   2,611 
Goodwill   3,797 
Accounts payable   (7,416)
Accrued expenses and other   (1,483)
Unearned revenue   (3,200)
Other long-term liabilities   (543)
Deferred tax liabilities   (1,809)
Net assets acquired  $17,115 

 

The Company utilized an independent appraisal firm to assist in the determination of the fair values of the assets acquired and liabilities assumed, which required certain significant management assumptions and estimates. The fair values of the advertiser relationships were determined by projecting the acquired entity’s cash flows, deducting notional contributory asset charges on supporting assets (working capital, tangible assets, trade names, and the assembled workforce) to compute the excess cash flows associated with the advertiser relationships. The fair values of the trade names were determined by projecting revenue associated with each trade name and applying a royalty rate to compute the amount of the royalty payments the company is relieved from paying due to its ownership of the trade names. The estimated weighted average useful lives of the advertiser relationships are eight point seventy-five years (8.75 years) and trade names are fourteen point six years (14.60 years).

 

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.

 

2021 Acquisitions

 

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 $11,830 in cash and the issuance of an aggregate of 194,806 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) $10,830 paid at closing (of the cash paid at closing, $830 represents adjusted cash pursuant to the working capital adjustments), and (ii) $500 to be paid on the first anniversary of the closing and $500 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.

 

13

 

 

The composition of the purchase price is as follows:

 

      
Cash  $10,830 
Deferred cash payments, as discounted   905 
Total purchase consideration  $11,735 

 

The Company incurred $128 in transaction costs related to the acquisition, which primarily consisted of legal and accounting expenses. The acquisition related expenses were recorded in general and administrative expense in the condensed consolidated statements of operations.

 

After the June 30, 2021 condensed consolidated financial statements were issued, the Company received a final valuation report from a third-party valuation firm. After considering the results of that valuation report, the Company estimated the fair values for the brand name of $5,175, along with a decrease for working capital accounts of $1,932 (consisting of adjusted amounts for cash, accounts receivable, accrued expenses and deferred tax liabilities) resulting in a corresponding decrease to goodwill of $3,977.

 

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:

 

      
Cash  $3,214 
Accounts receivable   1,772 
Other current assets   5 
Brand name   5,175 
Goodwill   3,479 
Accrued expenses and other   (85)
Deferred tax liabilities   (1,825)
Net assets acquired  $11,735 

 

The Company utilized an independent appraisal firm to assist in the determination of the fair values of the assets acquired and liabilities assumed, which required certain significant management assumptions and estimates. The fair value of the brand name was determined by projecting the acquired entity’s cash flows, deducting notional contributory asset charges on supporting assets (working capital and the assembled workforce) to compute the excess cash flows associated with the brand with a useful life of ten years (10.0 years).

 

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.

 

14

 

 

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 June 30, 2022 and December 31, 2021 was $1,862 and $1,578, 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 June 30, 2022 and December 31, 2021 was $28,603 and $30,162, respectively. The noncurrent portion of the subscription acquisition costs as of June 30, 2022 and December 31, 2021 was $7,651 and $8,235, respectively. Subscription acquisition costs as of June 30, 2022 presented as current assets of $28,603 are expected to be amortized over a one year period, or through June 30, 2023 and $7,651 presented as long-term assets are expected to be amortized after the one year period ending June 30, 2023.

 

Property and Equipment – Property and equipment are summarized as follows:

 

           
   As of 
   June 30, 2022   December 31, 2021 
Office equipment and computers  $1,724   $1,345 
Furniture and fixtures   63    1 
 Property and equipment, gross   1,787    1,346 
Less accumulated depreciation and amortization   (955)   (710)
Net property and equipment  $832   $636 

 

Depreciation and amortization expense for the three months ended June 30, 2022 and 2021 was $131 and $110, respectively. Depreciation and amortization expense for the six months ended June 30, 2022 and 2021 was $245 and $220, respectively. Depreciation and amortization expense is included in selling and marketing expenses and general and administrative expenses, as appropriate, on the condensed consolidated statements of operations.

 

Platform Development – Platform development costs are summarized as follows:

 

         
   As of 
   June 30, 2022   December 31, 2021 
Platform development  $18,339   $21,997 
Less accumulated amortization   (8,099)   (12,698)
Net platform development  $10,240   $9,299 

 

Amortization expense for the three months ended June 30, 2022 and 2021, was $1,413 and $1,060, respectively. Amortization expense for the six months ended June 30, 2022 and 2021, was $2,757 and $2,129, respectively.

 

A summary of platform development activity for the six months ended June 30, 2022 is as follows:

 

      
Platform development beginning of year  $21,997 
Payroll-based costs capitalized during the period   2,784 
Less dispositions   (7,356)
Total capitalized costs   17,425 
Stock-based compensation   1,125 
Impairments   (211)
Platform development end of period  $18,339 

 

For the three and six months ended June 30, 2022, impairment charges of $0 and $211, respectively, have been record for platform development. No impairment charges have been recorded for the three and six months ended June 30, 2021.

 

15

 

 

Intangible Assets – Intangible assets subject to amortization consisted of the following:

 

   As of June 30, 2022   As of December 31, 2021 
   Carrying Amount   Accumulated Amortization   Net Carrying
Amount
   Carrying Amount   Accumulated Amortization   Net Carrying
Amount
 
Developed technology  $17,333   $(13,167)  $4,166   $17,579   $(11,465)  $6,114 
Trade name   5,939    (966)   4,973    3,328    (782)   2,546 
Brand name   5,175    (556)   4,619    5,175    (298)   4,877 
Subscriber relationships   73,459    (39,881)   33,578    73,459    (32,623)   40,836 
Advertiser relationships   8,870    (879)   7,991    2,240    (570)   1,670 
Database   2,397    (1,503)   894    2,397    (1,104)   1,293 
Subtotal amortizable intangible assets   113,173    (56,952)   56,221    104,178    (46,842)   57,336 
Website domain name   -    -    -    20    -    20 
Total intangible assets  $113,173   $(56,952)  $56,221   $104,198   $(46,842)  $57,356 

 

Amortization expense for the three months ended June 30, 2022 and 2021 was $5,275 and $4,951, respectively. Amortization expense for the six months ended June 30, 2022 and 2021 was $10,330 and $9,902, respectively. For the three and six months ended June 30, 2022, impairment charges of $0 and $46, respectively, have been recorded for the intangible assets. No impairment charges have been recorded for the three and six months ended June 30, 2021.

 

4. Leases

 

The Company’s real estate lease for the use of office space was subleased during the year ended December 31, 2021 (as further described below). The Company’s current lease is a long-term operating lease with a remaining fixed payment term of 2.26 years.

 

The table below presents supplemental information related to operating leases:

 

   Six Months Ended   Year Ended 
   June 30, 2022   December 31, 2021 
Operating lease costs during the period (1)  $453   $2,718 
Cash payments included in the measurement of operating lease liabilities during the period  $234   $2,787 
Weighted-average remaining lease term (in years) as of period-end   2.26    2.75 
Weighted-average discount rate during the period   9.90%   9.90%

 

(1) Operating lease costs is presented net of sublease income that is not material.

 

The Company generally utilizes its incremental borrowing rate based on information available at the commencement of the lease in determining the present value of future payments since the implicit rate for the Company’s leases is not readily determinable.

 

Variable lease expense includes rental increases that are not fixed, such as those based on amounts paid to the lessor based on cost or consumption, including maintenance and utilities.

 

16

 

 

The components of operating lease costs were as follows:

 

                 
  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2022   2021   2022   2021 
Operating lease costs:                    
Cost of revenue  $-   $630   $-   $1,261 
Selling and marketing   -    181    -    362 
General and administrative   328    148    562    297 
Total operating lease costs (1)   328    959    562    1,920 
Sublease income   (54)   -    (109)   - 
Total  $274   $959   $453   $1,920 

 

(1)Includes certain costs associated with a business membership agreement (see below) that permits access to certain office space for the three and six months ended June 30, 2022 of $170 and $340, respectively, and month-to-month lease arrangements for the three and six months ended June 30, 2022 of $96 and $96, respectively.

 

Maturities of the operating lease liability as of June 30, 2022 are summarized as follows:

 

Years Ending December 31,    
2022 (remaining six months of the year)  $238 
2023   486 
2024   373 
Minimum lease payments   1,097 
Less imputed interest   (118)
Present value of operating lease liability  $979 
Current portion of operating lease liability  $400 
Long-term portion of operating lease liability   579 
Total operating lease liability  $979 

 

Sublease Agreement – In November 2021, the Company entered into an agreement to sublease its leased office space for the duration of its operating lease through September 2024. As of June 30, 2022, the Company is entitled to receive total sublease income of $567.

 

Business Membership – Effective October 1, 2021, the Company entered into a business membership agreement with York Factory LLC, doing business as SaksWorks, that permits access to certain office space with furnishings, referred to as SaksWorks Memberships (each membership provides a certain number of accounts that equate to the use of the space granted). The term of the agreement was for 27 months, with 18 months remaining at $57 per month for 110 accounts.

 

5. Line of Credit

 

On December 6, 2021, the Company entered into an amendment to its financing and security agreement for its line of credit with FPP Finance LLC (“FastPay”) that was originally entered into on February 27, 2020, pursuant to which (i) the maximum amount of advances available was increased to $25,000 from $15,000 (subject to eighty-five (85%) of eligible accounts receivable), (ii) the interest rate on the facility applicable margin was decreased to 6.0% per annum from 8.5% per annum (the facility bears interest at the LIBOR rate plus the applicable margin), and (iii) the maturity date was extended to February 28, 2024 from February 6, 2022. The line of credit is for working capital purposes and is secured by a first lien on all the Company’s cash and accounts receivable and a second lien on all other assets. As of June 30, 2022 and December 31, 2021, the balance outstanding under the FastPay line of credit was $7,808 and $11,988, respectively.

 

17

 

 

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 (the “HubPages merger”). Pursuant to the amendment, the Company committed to repurchase 48,389 vested restricted stock awards as of December 31, 2020 at a price of $88.00 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:

 

         
   As of 
   June 30, 2022   December 31, 2021 
Restricted stock liabilities (before imputed interest)  $2,307   $3,801 
Less imputed interest   (155)   (177)
Present value of restricted stock liabilities   2,152    3,624 
Less principal payments during the period   (2,152)   (1,472)
Restricted stock liabilities at end of period (reflected in accrued expenses and other)  $-   $2,152 

 

The Company recorded the repurchase of 26,214 (8,064 during the three months ended June 30, 2022 and 18,150 during the six months ended June 30, 2022) and 6,049 shares of the Company’s restricted common stock during the six months ended June 30, 2022 and 2021, respectively, on the condensed consolidated statements of stockholders’ deficiency. Effective April 4, 2022, there are no longer any shares of the Company’s common stock subject to repurchase. During the six months ended June 30, 2022, the Company paid $2,307 in cash for the repurchase, including interest of $155.

 

7. Liquidated Damages Payable

 

Liquidated damages were recorded as a result of the following: (i) certain registration rights agreements provide for damages if the Company does not register certain shares of the Company’s common stock within the requisite time frame (the “Registration Rights Damages”); and (ii) certain securities purchase agreements provide for damages if the Company does not maintain its periodic filings with the SEC within the requisite time frame (the “Public Information Failure Damages”).

 

Obligations with respect to the liquidated damages payable are summarized as follows:

 

   As of June 30, 2022 
  

Registration

Rights

Damages

  

Public

Information

Failure

Damages

  

Accrued

Interest

   Balance 
MDB common stock to be issued (1)  $15   $-   $-   $15 
Series H convertible preferred stock   618    625    494    1,737 
Convertible debentures   -    704    237    941 
Series J convertible preferred stock   932    932    412    2,276 
Series K convertible preferred stock   95    379    54    528 
Total  $1,660   $2,640   $1,197   $5,497 

 

18

 

 

   As of December 31, 2021 
  

Registration

Rights

Damages

  

Public

Information

Failure

Damages

  

Accrued

Interest

   Balance 
MDB common stock to be issued (1)  $15   $-   $-   $15 
Series H convertible preferred stock   1,164    1,172    792    3,128 
Convertible debentures   -    873    242    1,115 
Series I convertible preferred stock   1,386    1,386    613    3,385 
Series J convertible preferred stock   1,560    1,560    490    3,610 
Series K convertible preferred stock   180    722    50    952 
Total  $4,305   $5,713   $2,187   $12,205 

 

(1) Consists of shares of common stock issuable to MDB Capital Group, LLC (“MDB”).

 

As of June 30, 2022, the short-term and long-term liquidated damages payable were $5,497 and $0, respectively. The Company will continue to accrue interest on the liquidated damages balance at 1.0% per month based on the balance outstanding as of June 30, 2022 until paid. There is no scheduled date when the unpaid liquidated damages become due.

 

As of December 31, 2021, the short-term and long-term liquidated damages payable were $5,197 and $7,008, respectively. The long-term portion was converted into shares of the Company’s common stock on January 24, 2022, as further described below.

 

On January 24, 2022, the Company entered into several stock purchase agreements with several investors, where the Company was liable to for liquidated damages, pursuant to which the Company issued an aggregate of 505,671 shares of its common stock at a price equal to $13.86 per share (determined based on the volume-weighted average price of the Company’s common stock at the close of trading on the sixty (60) previous trading days), to the investors in lieu of an aggregate of $7,008 owed in liquidated damages. In connection with the stock purchase agreements, the Company filed a registration statement covering the resale of the 505,671 shares of the Company’s common stock. The Company recorded $6,685 in connection with the issuance of shares of the Company’s common stock and recognized a gain of $323 on the settlement of the liquidated damages, which was recorded within additional paid-in capital on the condensed consolidated statement of stockholders’ deficiency.

 

8. 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.

 

The Company accounted for certain warrants (as described under the heading Common Stock Warrants in Note 10) as derivative liabilities, which required the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. As of December 31, 2021, the Strome Warrants and B. Riley Warrants (as described in Note 11) were classified within equity.

 

19

 

 

For the three months ended June 30, 2021, the change in valuation of warrant derivative liabilities of $360 was recognized as other income on the condensed consolidated statement of operations. For the six months ended June 30, 2021, the change in valuation of warrant derivative liabilities of $305 was recognized as other expense on the condensed consolidated statement of operations.

 

9. Long-term Debt

 

Senior Secured Note

 

As of June 30, 2022 and December 31, 2021, the Company’s outstanding obligation under its senior secured note with BRF Finance Co., LLC, an affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for the purchasers and as purchaser, is summarized as follows:

 

  On March 24, 2020, the Company entered into a second amended and restated note when the principal balance outstanding under its note issued on June 19, 2019 was $51,336 (including accrued interest), due on June 14, 2022 (as further amended). The terms of the note also permitted the Company to enter into a Delayed Draw Term Note (as described below), in the aggregate principal amount of $12,000;
     
  On October 23, 2020, the Company entered into a first amendment to second amended and restated note issued on March 24, 2020 (“Amendment 1”), where the maturity date was changed to December 31, 2022 (as further amended) from June 14, 2022, subject to certain acceleration conditions and interest payable on the note on September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 will be payable in-kind in arrears on the last day of such fiscal quarter. Alternatively, at the option of the holder, such interest amounts originally could have been paid in shares of previously designated Series K convertible preferred stock (the “Series K Preferred Stock”); however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, such interest amounts can be converted into shares of the Company’s common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock, subject to certain adjustments;
     
  On May 19, 2021, the Company entered into a second amendment to the second amended and restated note issued March 24, 2020 (“Amendment 2”), pursuant to which: (i) the interest rate on the Senior Secured Note, as defined below, decreased from a rate of 12.0% per annum to a rate of 10.0% per annum; and (ii) the Company agreed that within one (1) business day after receipt of cash proceeds from any issuance of equity interests, it will prepay the certain obligations in an amount equal to such cash proceeds, net of underwriting discounts and commissions; provided, that, this mandatory prepayment obligation does not apply to any proceeds that the Company received from shares of the Company’s common stock issued pursuant to a certain securities purchase agreement during the 90-day period commencing on May 20, 2021;
     
  On December 6, 2021, the Company entered into a third amendment to the second amended and restated note issued March 24, 2020 (“Amendment 3”), where the Company was permitted to increase the FastPay line of credit in an aggregate principal amount not to exceed $25,000; and
     
  On January 23, 2022, the Company entered into a fourth amendment to the second amended and restated note issued March 24, 2020 (“Amendment 4”), where the maturity date on the note was extended to (i) December 31, 2023 from December 31, 2022 upon the consummation of the equity financing on February 15, 2022 (further details are provided below), or (ii) the date accelerated pursuant to certain terms of Amendment 4.

 

Collectively, the second amended and restated note and Amendment 1, Amendment 2, Amendment 3 and Amendment 4 thereto are referred to as the “Senior Secured Note,” with all borrowings collateralized by substantially all assets of the Company.

 

20

 

 

After the date of Amendment 4, interest on the note will be payable, at the agent’s sole discretion, either (a) in cash quarterly in arrears on the last day of each fiscal quarter or (b) by continuing to add such interest due on such payment dates to the principal amount of the note. Interest on the Senior Secured Note will accrue for each calendar quarter on the outstanding principal amount of the note at an aggregate rate of 10.0% per annum, subject to adjustment in the event of default. Further, interest that was payable during fiscal years 2020 and 2021 and added to the principal amount under the note remains subject to the conversion election under Amendment 1.

 

Delayed Draw Term Note

 

As of June 30, 2022 and December 31, 2021, the Company’s outstanding obligation under its delayed draw term note with B. Riley is summarized as follows:

 

  On March 24, 2020, the Company entered into a delayed draw term note (the “Delayed Draw Term Note”) with an interest rate of 15.0% per annum, pursuant to the second amended and restated note purchase agreement, in the aggregate principal amount of $12,000. The terms of the note provided that up to $8,000 in principal amount was due on March 31, 2021;
     
  On March 24, 2020, the Company drew down $6,914 under the Delayed Draw Term Note, with interest payable in-kind in arrears on the last day of each fiscal quarter;
     
  On October 23, 2020, pursuant to the terms of Amendment 1, the maturity date of the Delayed Draw Term Note was changed to March 31, 2022 (as further amended) from March 31, 2021. Amendment 1 also provided that the holder, could originally elect, in lieu of receipt of cash for payment of all or any portion of the interest due or cash payments up to a certain conversion portion of the Delayed Draw Term Note, to receive shares of Series K Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, the holder may elect, in lieu of receipt of cash for such amounts, shares of the Company’s common stock at the price the Company last sold shares of the Company’s common stock;
     
  On October 23, 2020, $3,367, including principal and accrued interest of the Delayed Draw Term Note, converted into shares of the Company’s Series K Preferred Stock, which shares were further converted into shares of the Company’s common stock;
     
  On May 19, 2021, pursuant to Amendment 2, the interest rate on the Delayed Draw Term Note decreased to a rate of 10.0% per annum from a rate of 15.0% per annum;
     
  On December 28, 2021, the Company drew down $5,086 under the Delayed Draw Term Note, and after payment of commitment and funding fees paid of $509, the Company received net proceeds of $4,578; and
     
  On February 15, 2023, pursuant to Amendment 4, the maturity date on the Delayed Draw Term Note was extended to (i) December 31, 2022 from March 31, 2022 for $5,925 of principal due and (ii) December 31, 2023 from March 31, 2022 for $4,000 of principal due, subject to certain acceleration terms.

 

Amendment 4 also provided that interest will be payable, at the agent’s sole discretion, either (a) in cash quarterly in arrears on the last day of each fiscal quarter or (b) in kind quarterly in arrears on the last day of each fiscal quarter, and will accrue for each fiscal quarter on the principal amount outstanding under the note at an aggregate rate of 10.0% per annum, subject to adjustment in the event of default.

 

21

 

 

The following table summarizes the long-term debt:

 

   As of June 30, 2022   As of December 31, 2021 
   Principal
Balance
(including
accrued
interest)
   Unamortized
Discount and
Debt Issuance
Costs
   Carrying
Value
   Principal
Balance
(including
accrued
interest)
   Unamortized
Discount and
Debt Issuance
Costs
   Carrying
Value
 
Senior Secured Note, as amended, matures December 31, 2023  $62,691   $(1,360)  $61,331   $62,691   $(1,935)  $60,756 
Delayed Draw Term Note, as amended, matures December 31, 2023   9,928    (207)   9,721    9,928    (567)   9,361 
Total  $72,619   $(1,567)  $71,052   $72,619   $(2,502)  $70,117 
Carrying value                              
Current portion            $5,873             $5,744 
Long-term portion             65,179              64,373 
Total            $71,052             $70,117 

 

As of June 30, 2022 and December 31, 2021, the Company’s Delayed Draw Term Note, as amended, carrying value of $9,721 and $9,361, respectively, was as follows: (1) $5,873 and $5,744 for the first draw (including accrued interest and less unamortized discount and debt issuance costs of $52 and $180), respectively; and (2) $3,848 and $3,617 for the second draw (including accrued interest and less unamortized discount and debt issuance costs of $155 and $387), respectively. As of June 30, 2022, the effective interest of the Senior Secured Note, Delayed Draw Term Note first draw and second draw was 11.4%, 11.7% and 12.5%, respectively.

 

The following table summarizes principal maturities of long-term debt:

 

      
Years Ending December 31,    
2022  $5,924 
2023   66,695 
Total  $72,619 

 

10. Preferred Stock

 

The Company has the authority to issue 1,000,000 shares of preferred stock, $0.01 par value per share, which as of June 30, 2022 has been designated and issued as follows:

 

  1,800 authorized shares designated as “Series G Convertible Preferred Stock”, of which 168 shares are outstanding.
     
  23,000 authorized shares designated as “Series H Convertible Preferred Stock” (as further described below), of which 14,556 shares are outstanding.

 

Series H Preferred Stock

 

The Company recorded the issuance of 70,380 shares of the Company’s common stock upon conversion of 510 shares of the Company’s series H convertible preferred stock (the “Series H Preferred Stock”) during the six months ended June 30, 2022, as reflected on the condensed consolidated statements of stockholders’ deficiency.

 

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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 (the “Rights Agreement”), from the Company one one-thousandth of a share of the Company’s then-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 was 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 non-cash dividends or other distributions paid to the holders of the Company’s common stock. The Series L Preferred Stock was 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 was entitled to receive 1,000 times the amount received per one share of the Company’s common stock.

 

The Rights Agreement was set to expire on May 3, 2022; however, on May 2, 2022, the Board elected to extend the expiration date by an amended and restated rights agreement (the “Extended Rights Agreement”), which was ratified by the Company’s stockholders on June 2, 2022.

 

Further details subsequent to the date of these condensed consolidated financial statements are provided under the heading Series L Preferred Stock in Note 17.

 

11. 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.

 

On February 15, 2022 and March 11, 2022, the Company raised gross proceeds of $34,498 pursuant to a firm commitment underwritten public offering of 4,181,603 shares of the Company’s common stock (on February 15, 2022 the Company issued 3,636,364 shares and on March 11, 2022 the Company issued 545,239 shares pursuant to the underwriter’s overallotment that was exercised on March 10, 2022), at a public offering price of $8.25 per share. The Company received net proceeds of $32,058, after deducting underwriting discounts and commissions and other offering costs payable by the Company. In addition, the Company directly incurred offering costs of $1,568 and recorded $30,490 upon the issuance of its common stock, as reflected on the condensed consolidated statements of stockholders’ deficiency.

 

On April 27, 2022, the Company issued 7,851 shares of the Company’s common stock in connection with a previous merger with Say Media, Inc. (the “Say Media merger”). These shares were previously classified as common stock to be issued on the condensed consolidated statements of stockholders’ deficiency.

 

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 974,351 shares of the Company’s common stock, at a per share price of $15.40 for aggregate gross proceeds of $15,005 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 324,676 shares of the Company’s common stock, at a per share price of $15.40 for gross proceeds of $5,000 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, of which $100,000 was paid in cash to B. Riley, the Company received net proceeds of $19,838. The Company used the proceeds for general corporate purposes.

 

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Common Stock Warrants

 

The Company issued warrants to purchase shares of the Company’s common stock to MDB Capital Group, LLC (the “MDB Warrants”), L2 Capital, LLC (the “L2 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 June 30, 2022 are summarized as follows:

  

   Exercise
Price
   Expiration Date  Total
Outstanding and
Exercisable
Shares
 
Strome Warrants  $11.00   June 15, 2023   68,182 
B. Riley Warrants   7.26   October 18, 2025   39,773 
MDB Warrants   25.30   October 19, 2022   5,435 
MDB Warrants   55.00   October 19, 2022   2,728 
Total           116,118 

 

The intrinsic value of exercisable but unexercised in-the-money stock warrants as of June 30, 2022 was $69, based on a fair market value of the Company’s common stock of $9.00 per share on June 30, 2022.

 

12. Compensation Plans

 

The Company provides stock-based compensation in the form of (a) restricted stock awards to certain employees (referred to as the “Restricted Stock Awards”), (b) stock option grants to employees, directors and consultants under the 2016 Stock Incentive Plan (the “2016 Plan”), (c) stock option awards, restricted stock awards and units, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants under the 2019 Equity Incentive Plan (the “2019 Plan”), (d) stock option awards, restricted stock awards and units, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants under the Equity Incentive Plan (the “2022 Plan”) (collectively, the 2016 Plan, 2019 Plan and 2022 Plan are referred to as the “Equity Plans”), (e) stock option awards outside of the 2016 Plan, 2019 Plan and 2022 Plan to certain officers, directors and employees (referred to as the “Outside Options”), (f) common stock warrants to the Company’s publisher partners (referred to as the “Publisher Partner Warrants”), and (g) common stock warrants to ABG-SI, LLC (referred to as the “ABG Warrants”). Effective with the adoption of the 2022 Plan, the Company will not issue new awards under the 2016 Plan and 2019 Plan.

 

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Stock-based compensation and equity-based expense charged to operations or capitalized during the three and six months ended June 30, 2022 and 2021 are summarized as follows:

  

   Restricted                 
   Stock   Equity   Outside   ABG     
   Awards   Plans   Options   Warrants   Totals 
During the Three Months Ended June 30, 2022                         
Cost of revenue  $404   $2,269   $-   $-   $2,673 
Selling and marketing   -    739    -    -    739 
General and administrative   -    5,207    -    480    5,687 
Total costs charged to operations   404    8,215    -    480    9,099 
Capitalized platform development   -    438    -    -    438 
Total stock-based compensation  $404   $8,653   $-   $480   $9,537 
                          
During the Three Months Ended June 30, 2021                         
Cost of revenue  $25   $1,728   $1   $-   $1,754 
Selling and marketing   -    1,513    74    -    1,587 
General and administrative   142    4,237    -    396    4,775 
Total costs charged to operations   167    7,478    75    396    8,116 
Capitalized platform development   4    544    2    -    550 
Total stock-based compensation  $171   $8,022   $77   $396   $8,666 

 

   Restricted                 
   Stock   Equity   Outside   ABG     
   Awards   Plans   Options   Warrants   Totals 
During the Six Months Ended June 30, 2022                         
Cost of revenue  $834   $3,996   $-   $-   $4,830 
Selling and marketing   -    1,339    -    -    1,339 
General and administrative   -    9,196    105    996    10,297 
Total costs charged to operations   834    14,531    105    996    16,466 
Capitalized platform development   -    1,125    -    -    1,125 
Total stock-based compensation  $834   $15,656   $105   $996   $17,591 
                          
During the Six Months Ended June 30, 2021                         
Cost of revenue  $49   $3,146   $3   $-   $3,198 
Selling and marketing   -    2,489    149    -    2,638 
General and administrative   145    6,481    -    753    7,379 
Total costs charged to operations   194    12,116    152    753    13,215 
Capitalized platform development   9    846    4    -    859 
Total stock-based compensation  $203   $12,962   $156   $753   $14,074 

 

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Unrecognized compensation expense and expected weighted-average period to be recognized related to the stock-based compensation awards and equity-based awards as of June 30, 2022 was as follows:

  

   Restricted                 
   Stock   Equity   Outside   ABG     
   Awards   Plans   Options   Warrants   Totals 
Unrecognized compensation cost  $1,521   $43,337   $-   $1,508   $46,366 
Expected weighted-average period expected to be recognized (in years)   0.93    1.89    -    1.50    1.85 

 

Further details as of the date these condensed consolidated financial statements were issued are provided under the heading Compensation Plans in Note 17.

 

Stock Option Repricing

 

On March 18, 2022, the Company approved a repricing of certain outstanding stock options (the “Stock Option Repricing”) granted under the Company’s 2016 Plan and the 2019 Plan that had an exercise price above $8.82 per share, including certain outstanding stock options held by senior management of the Company. The Stock Option Repricing also included certain outstanding stock options granted outside of the 2016 Plan and 2019 Plan. The Stock Options Repricing was approved by the Board and stockholders. As a result of the Stock Option Repricing, the exercise prices were set to $8.82 per share, which was the closing sale price of the Company’s common stock as listed on the NYSE American exchange on March 18, 2022. Except for the repricing of the stock options under the 2019 Plan, all terms and conditions of each stock option remains in full force and effect. For the repricing of the stock options under the 2019 Plan, the Company (i) modified the exercise price; (ii) will allow cashless exercise as a method of paying the exercise price, and (iii) will waive a lock-up provision in the stock option agreements. All other term and conditions of each of the stock options under the 2019 Plan remains in full force and effect.

 

The Stock Option Repricing of 4,343,017 stock option grants (for 340 employees) that were issued to employees of the Company, including senior management, resulted in incremental cost of $6,061, of which $143 was recognized at the time of the Stock Option Repricing for the fully vested awards and included in the condensed consolidated statement of operations, and $5,918 will be recognized over the remaining vesting term of the original award at the repricing date.

 

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