UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| 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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
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| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
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).
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 ☐ | |
| 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
As of November 7, 2022, the Registrant had shares of common stock outstanding.
TABLE OF CONTENTS
| 2 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Quarterly Report”) of 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
| 4 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2022 (unaudited) | December 31, 2021 | |||||||
| ($ in thousands, except share data) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Subscription acquisition costs, current portion | ||||||||
| Royalty fees | ||||||||
| Prepayments and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Platform development, net | ||||||||
| Subscription acquisition costs, net of current portion | ||||||||
| Acquired and other intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, mezzanine equity and stockholders’ deficiency | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other | ||||||||
| Line of credit | ||||||||
| Unearned revenue | ||||||||
| Subscription refund liability | ||||||||
| Operating lease liabilities | ||||||||
| Liquidated damages payable | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Unearned revenue, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Liquidating damages payable, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Long-term debt | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 16) | ||||||||
| Mezzanine equity: | ||||||||
| Series G redeemable and convertible preferred stock, $ par value, $ per share liquidation value and shares designated; aggregate liquidation value: $ | ||||||||
| Series H convertible preferred stock, $ par value, $ per share liquidation value and shares designated; aggregate liquidation value: $ | ||||||||
| Total mezzanine equity | ||||||||
| Stockholders’ deficiency: | ||||||||
| Common stock, $ par value, authorized shares; issued and outstanding: and shares at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficiency | ( | ) | ( | ) | ||||
| Total liabilities, mezzanine equity and stockholders’ deficiency | $ | $ | ||||||
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue (includes amortization of developed technology and platform development for three months ended 2022 and 2021 of $ | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Loss on lease termination | ||||||||||||||||
| Loss on impairment of assets | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income | ||||||||||||||||
| Change in valuation of warrant derivative liabilities | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Liquidated damages | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain upon debt extinguishment | ||||||||||||||||
| Total other (expense) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding – basic and diluted | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Three and Nine Months Ended September 30, 2022
| Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock for restricted stock units | - | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock upon exercise (including cashless exercise) of stock options | - | |||||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock upon conversion of Series H convertible preferred stock | - | |||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units in connection with an acquisition | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with professional services | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with settlement of liquidated damages | - | |||||||||||||||||||||||||||
| Gain upon issuance of common stock in connection with settlement of liquidated damages | - | - | ||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | - | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of stock options | - | |||||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Repurchase restricted stock awards in connection with HubPages merger | ( | ) | - | |||||||||||||||||||||||||
| Issuance of common stock in connection with public offering | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with the acquisition of Athlon | - | |||||||||||||||||||||||||||
| Issuance of common stock upon exercise (including cashless exercise) of stock options | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with Say Media merger | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 7 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Three and 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 | ||||||||||||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock upon conversion of Series H convertible preferred stock | - | |||||||||||||||||||||||||||
| Issuance of restricted stock in connection with the acquisition of Fulltime Fantasy | - | |||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | - | |||||||||||||||||||||||||||
| Forfeiture of unvested restricted stock awards | ( | ) | - | |||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 8 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Three and 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 | ||||||||||||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of restricted stock awards to the board of directors | - | |||||||||||||||||||||||||||
| Repurchase restricted stock classified as liabilities | ( | ) | - | |||||||||||||||||||||||||
| Issuance of common stock for restricted stock units in connection with an acquisition | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with professional services | - | |||||||||||||||||||||||||||
| Issuance of restricted stock in connection with the acquisition of The Spun | - | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of stock options | - | |||||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||
| Issuance of common stock in connection with private placement | - | |||||||||||||||||||||||||||
| Issuance of common stock upon conversion of series H preferred stock | - | |||||||||||||||||||||||||||
| Issuance of restricted stock in connection with the acquisition of Fulltime Fantasy | - | |||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | - | |||||||||||||||||||||||||||
| Forfeiture on unvested restricted stock awards | ( | ) | - | |||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2021 | $ | 49,134 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 9 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| ($ in thousands) | ||||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of platform development and intangible assets | ||||||||
| Gain upon debt extinguishment | ( | ) | ||||||
| Loss on termination of lease | ||||||||
| Amortization of debt discounts | ||||||||
| Loss on impairments of assets | ||||||||
| Change in valuation of warrant derivative liabilities | ( | ) | ||||||
| Noncash and accrued interest | ||||||||
| Liquidated damages | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Other | ( | ) | ||||||
| Change in operating assets and liabilities net of effect of business combination: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Subscription acquisition costs | ( | ) | ||||||
| Royalty fees | ||||||||
| Prepayments and other current assets | ( | ) | ||||||
| Other long-term assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other | ( | ) | ||||||
| Unearned revenue | ( | ) | ||||||
| Subscription refund liability | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other long-term liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Capitalized platform development | ( | ) | ( | ) | ||||
| Proceeds from sale of equity investment | ||||||||
| Payments for acquisition of business, net of cash acquired | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Borrowings (repayments) under line of credit | ( | ) | ||||||
| Proceeds from common stock public offering, net of offering costs | ||||||||
| Payments of issuance costs from common stock public offering | ( | ) | ||||||
| Net exercise of common stock options | ||||||||
| Payment of The Spun deferred cash payment | ( | ) | ||||||
| Proceeds from common stock private placement | ||||||||
| Payments of issuance costs from common stock private placement | ( | ) | ||||||
| Payment for taxes related to repurchase of restricted common stock | ( | ) | ( | ) | ||||
| Payment of restricted stock liabilities | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ) | ||||||
| Cash, cash equivalents, and restricted cash – beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash – end of period | $ | $ | ||||||
| Cash, cash equivalents, and restricted cash | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| Noncash investing and financing activities | ||||||||
| Reclassification of stock-based compensation to platform development | $ | $ | ||||||
| Restricted stock issued in connection with acquisition of Fulltime Fantasy | ||||||||
| Deferred cash payments in connection with acquisition of Fulltime Fantasy | ||||||||
| Issuance of common stock in connection with settlement of liquidated damages | ||||||||
| Issuance of common stock in connection with professional services | ||||||||
| Common stock issued in connection with acquisition of Athlon | ||||||||
| Deferred cash payments in connection with acquisition of Athlon | ||||||||
| Assumption of liabilities in connection with acquisition of Athlon | ||||||||
| Deferred cash payments in connection with acquisition of The Spun | ||||||||
| Assumption of liabilities in connection with acquisition of The Spun | ||||||||
| Conversion of Series H convertible preferred stock into common stock | ||||||||
See accompanying notes to condensed consolidated financial statements.
| 10 |
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 material 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 September 30, 2022, and for the three and nine months ended September 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 third 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, has yielded steady growth in revenues in 2020 as compared to 2021. Given that certain of our sports businesses rely on sporting events to generate content and comprises a material portion of the Company’s revenues, the cash flows and results of operations could be negatively impacted by a widespread cancellation of sporting events or a general limitation of societal activity akin to what occurred in the Unites States and elsewhere during 2020 and, to a lesser extent, during 2021.
The Company operates in one reportable segment.
Reverse Stock Split
| 11 |
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.
| 12 |
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.
| As of September 30, | ||||||||
| 2022 | 2021 | |||||||
| Series G convertible preferred stock | ||||||||
| Series H Preferred Stock | ||||||||
| Restricted Stock Awards | ||||||||
| Financing Warrants | ||||||||
| ABG Warrants | ||||||||
| AllHipHop warrants | ||||||||
| Publisher Partner Warrants | ||||||||
| Equity Plans | ||||||||
| Outside Options | ||||||||
| Total | ||||||||
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
| 13 |
The composition of the preliminary purchase price is as follows:
| Cash | $ | |||
| Common stock | ||||
| Deferred cash payments, as discounted | ||||
| Total purchase consideration | $ |
The
Company incurred $
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 | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Equity investment | ||||
| Fixed assets | ||||
| Digital content | ||||
| Advertiser relationships | ||||
| Trade names | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses and other | ( | ) | ||
| Unearned revenue | ( | ) | ||
| Other long-term liabilities | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Net assets acquired | $ |
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 digital content was determined
using a cost approach. 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 life is two 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 |
Supplemental Pro forma Information
The following table summarizes the results of operations of the Athlon acquisition from the acquisition date included in the condensed consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisition been January 1, 2021:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Athlon from acquisition date of April 1, 2022 (unaudited): | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Net income | ||||||||||||||||
| Combined entity supplemental pro forma information had the acquisition date been January 1, 2021 (unaudited): | ||||||||||||||||
| Revenue: | ||||||||||||||||
| Athlon | $ | $ | $ | $ | ||||||||||||
| Arena | ||||||||||||||||
| Total supplemental pro forma revenue | $ | $ | $ | $ | ||||||||||||
| Net income (loss): | ||||||||||||||||
| Athlon | $ | $ | $ | $ | ||||||||||||
| Arena | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Adjustments | ( | ) | ( | ) | ||||||||||||
| Total supplemental pro forma net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred as of the beginning of the Company’s reporting period.
The
adjustments for the three months ended September 2022 and 2021 of $
Further details are provided under the heading Athlon Acquisition in Note 17.
Buffalo
Groupe, LLC – On September 27, 2022, the Company entered into an asset purchase agreement with Buffalo Groupe, LLC, doing business
as Morning Read, a Virginia limited liability company, where it purchased certain intellectual properties (including all media properties,
trademarks, service marks, domain names, trade names corporate names and other identifiers of goodwill), certain assumed contracts, and
other certain rights related to the intellectual properties (collectively, the “Morning Read Purchased Assets”) and assumed
certain liabilities related to the Morning Read Purchased Assets. The purchase consideration consisted of a cash payment of $
The Company accounted for the asset acquisition in accordance with ASC 805-50, as substantially all of the fair value of the gross assets acquired by the Company is concentrated in a group of similar identifiable assets.
The
purchase consideration totaled $ which was assigned to the brand name acquired on the closing date of the acquisition. The useful
life for the brand name is ten years (
| 15 |
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 $
The composition of the purchase price is as follows:
| Cash | $ | |||
| Deferred cash payments, as discounted | ||||
| Total purchase consideration | $ |
The
Company incurred $
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 $
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 | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Brand name | ||||
| Goodwill | ||||
| Accrued expenses and other | ( |
|||
| Deferred tax liabilities | ( |
|||
| Net assets acquired | $ |
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 (
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.
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 properties (including
databases, documents and certain rights related to the intellectual properties), subscriber and customer records, and other certain rights
related to the intellectual properties (collectively the “Fulltime Fantasy Purchased Assets”) and assumed certain liabilities
related to the Fulltime Fantasy Purchased Assets. The purchase price consisted of: (1) a cash payment of $
| 16 |
The
Company accounted for the asset acquisition in accordance with ASC 805-50, as substantially all of the fair value of the gross assets
acquired by the Company is concentrated in a group of similar identifiable assets. Transaction-related costs of $
The composition of the purchase price is as follows:
| Cash (including $ | $ | |||
| Restricted stock | ||||
| Deferred cash payments | ||||
| Deferred restricted stock | ||||
| Total purchase consideration | $ |
The
purchase consideration totaled $
| 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, 2022 and December 31, 2021 was $
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 Company has determined that sales commissions paid on all third-party agent sales of subscriptions are direct and incremental and, therefore, meet the capitalization criteria. The Company has elected to apply the practical expedient to account for these costs at the portfolio level. The sales commissions paid to third-party agents are amortized as the magazines are sent to the subscriber on an issue-by-issue basis. Subscription acquisition costs are included within selling and marketing expenses in the condensed consolidated statements of operations.
The
current portion of the subscription acquisition costs as of September 30, 2022 and December 31, 2021 was $
Royalty
Fees – Royalty fees represent royalties due to ABG-SI, LLC (“ABG”) in connection with the Sports Illustrated media
business. The Company’s guaranteed minimum annual royalties are $
| 17 |
Property and Equipment – Property and equipment are summarized as follows:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Office equipment and computers | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
Depreciation
and amortization expense for the three months ended September 30, 2022 and 2021 was $
Platform Development – Platform development costs are summarized as follows:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Platform development | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net platform development | $ | $ | ||||||
Amortization
expense for the three months ended September 30, 2022 and 2021, was $
A summary of platform development activity for the nine months ended September 30, 2022 is as follows:
| Platform development beginning of year | $ | |||
| Payroll-based costs capitalized during the period | ||||
| Less dispositions | ( | ) | ||
| Total capitalized costs | ||||
| Stock-based compensation | ||||
| Impairments | ( | ) | ||
| Platform development end of period | $ |
For
the nine months ended September 30, 2022, impairment charges of $
| 18 |
Intangible Assets – Intangible assets subject to amortization consisted of the following:
| As of September 30, 2022 | As of December 31, 2021 | |||||||||||||||||||||||
Carrying Amount | Accumulated Amortization | Net Carrying Amount | Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
| Developed technology | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Trade names | ( | ) | ( | ) | ||||||||||||||||||||
| Brand names | ( | ) | ( | ) | ||||||||||||||||||||
| Subscriber relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Advertiser relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Digital content | ( | ) | ||||||||||||||||||||||
| Database | ( | ) | ( | ) | ||||||||||||||||||||
| Subtotal amortizable intangible assets | ( | ) | ( | ) | ||||||||||||||||||||
| Website domain name | ||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Amortization
expense for the three months ended September 30, 2022 and 2021 was $
Goodwill – The changes in carrying value of goodwill are as follows:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Carrying value at beginning of year | $ | $ | ||||||
| Goodwill acquired in acquisition of The Spun | ||||||||
| Goodwill acquired in acquisition of Athlon | ||||||||
| Carrying value at end of period | $ | $ | ||||||
The Company performs its annual impairment test at the reporting unit level, which is the operating segment or one level below the operating segment. Management determined that the Company would be aggregated into a single reporting unit for purposes of performing the impairment test for goodwill.
| 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
The table below presents supplemental information related to operating leases:
| Nine Months Ended | Year Ended | |||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Operating lease costs during the period (1) | $ | $ | ||||||
| Cash payments included in the measurement of operating lease liabilities during the period | $ | $ | ||||||
| Weighted-average remaining lease term (in years) as of period-end | ||||||||
| Weighted-average discount rate during the period | % | % | ||||||
| (1) |
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.
| 19 |
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.
The components of operating lease costs were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease costs: | ||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating lease costs (1) | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| (1) |
Maturities of the operating lease liability as of September 30, 2022 are summarized as follows:
| Years Ending December 31, | ||||
| 2022 (remaining three months of the year) | $ | |||
| 2023 | ||||
| 2024 | ||||
| Minimum lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of operating lease liability | $ | |||
| Current portion of operating lease liability | $ | |||
| Long-term portion of operating lease liability | ||||
| Total operating lease liability | $ |
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 September 30, 2022, the Company is entitled to receive total sublease income of $
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
15 months remaining at $
| 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 $
| 20 |
| 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 vested restricted stock awards as of December 31, 2020 at a price of $ per share in 24 equal monthly installments on the second business day of each calendar month beginning January 4, 2021, subject to certain conditions.
The following table presents the components of the restricted stock liabilities:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Restricted stock liabilities (before imputed interest) | $ | $ | ||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Present value of restricted stock liabilities | ||||||||
| Less principal payments during the period | ( | ) | ( | ) | ||||
| Restricted stock liabilities at end of period (reflected in accrued expenses and other) | $ | $ | ||||||
The
Company recorded the repurchase of and during the nine months ended September 30, 2022 and 2021, respectively, of the Company’s
restricted common stock 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 nine months ended September 30, 2022 and 2021,
the Company paid $
| 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 September 30, 2022 | ||||||||||||||||
Registration Rights Damages | Public Information Failure Damages | Accrued Interest | Balance | |||||||||||||
| MDB common stock to be issued (1) | $ | $ | $ | $ | ||||||||||||
| Series H convertible preferred stock | ||||||||||||||||
| Convertible debentures | ||||||||||||||||
| Series J convertible preferred stock | ||||||||||||||||
| Series K convertible preferred stock | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 21 |
| As of December 31, 2021 | ||||||||||||||||
Registration Rights Damages | Public Information Failure Damages | Accrued Interest | Balance | |||||||||||||
| MDB common stock to be issued (1) | $ | $ | $ | $ | ||||||||||||
| Series H convertible preferred stock | ||||||||||||||||
| Convertible debentures | ||||||||||||||||
| Series I convertible preferred stock | ||||||||||||||||
| Series J convertible preferred stock | ||||||||||||||||
| Series K convertible preferred stock | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (1) |
During
the three and nine months ended September 30, 2022, the Company recorded liquidated damages of $
As
of September 30, 2022, the short-term and long-term liquidated damages payable were $
As
of December 31, 2021, the short-term and long-term liquidated damages payable were $
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 shares of its common stock at a price equal to $
per share (determined based on the volume-weighted average price of the Company’s common stock at the close of trading on the ninety
(60) previous trading days), to the investors in lieu of an aggregate of $
| 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.
| 22 |
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.
For
the three months ended September 30, 2021, the change in valuation of warrant derivative liabilities of $
| 9. | Long-term Debt |
Senior Secured Note
As of September 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 September 19, 2019 was $ | |
| ● | 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 September 14, 2022, subject to certain acceleration conditions and interest payable on the note on September 30, 2020, December 31, 2020, March 31, 2021, September 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 Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock was 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 | |
| ● | 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
$ | |
| ● | 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.
| 23 |
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
Delayed Draw Term Note
As of September 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 | |
| ● | On
March 24, 2020, the Company drew down $ | |
| ● | 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, $ | |
| ● | On
May 19, 2021, pursuant to Amendment 2, the interest rate on the Delayed Draw Term Note decreased to a rate of | |
| ● | On
December 28, 2021, the Company drew down $ | |
| ● | On
February 15, 2022, 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 $ |
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
| 24 |
The following table summarizes the long-term debt:
| As of September 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 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Delayed Draw Term Note, as amended, matures | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Carrying value | ||||||||||||||||||||||||
| Current portion | $ | $ | ||||||||||||||||||||||
| Long-term portion | ||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||
As
of September 30, 2022 and December 31, 2021, the Company’s Delayed Draw Term Note, as amended, carrying value of $
The following table summarizes principal maturities of long-term debt:
| Years Ending December 31, | ||||
| 2022 | $ | |||
| 2023 | ||||
| $ |
10. Preferred Stock
The Company has the authority to issue shares of preferred stock, $ par value per share, which as of September 30, 2022 has been designated and issued as follows:
| ● | authorized shares designated as “Series G Convertible Preferred Stock”, of which shares are outstanding. | |
| ● | authorized shares designated as “Series H Convertible Preferred Stock” (as further described below), of which shares are outstanding. |
Series H Preferred Stock
The Company recorded the issuance of shares of the Company’s common stock upon conversion of shares of the Company’s series H convertible preferred stock (the “Series H Preferred Stock”) during the nine months ended September 30, 2022, as reflected on the condensed consolidated statements of stockholders’ deficiency. The Company recorded the issuance of shares of the Company’s common stock upon conversion of shares of the Company’s Series H Preferred Stock during the three and nine months ended September 30, 2021, as reflected on the condensed consolidated statements of stockholders’ deficiency.
| 25 |
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 $ per share (the “Series L Preferred Stock”), at a price of $
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.
The Company eliminated the Series L Preferred Stock. Even though the stockholders ratified the Extended Rights Agreement, the Board determined that the Rights Agreement was no longer necessary or in the best interest of the Company and its stockholders. The Board thus determined to terminate the Rights Agreement by amending its expiration date from May 3, 2024 to July 15, 2022 pursuant to an amendment to the Extended Rights Agreement. The amendment effectively terminated all preferred share purchase rights under the Rights Agreement such that they are no longer issued or outstanding.
| 11. | Stockholders’ Equity |
Common Stock
The Company has the authority to issue shares of common stock, $ par value per share.
On
February 15, 2022 and March 11, 2022, the Company raised gross proceeds of $
On April 27, 2022, the Company issued 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 shares of the Company’s common stock, at a per share price of $ for aggregate
gross proceeds of $
| 26 |
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 September 30, 2022 are summarized as follows:
| Exercise Price | Expiration Date | Total Outstanding and Exercisable Shares | ||||||||
| Strome Warrants | $ | |||||||||
| B. Riley Warrants | ||||||||||
| MDB Warrants | ||||||||||
| MDB Warrants | ||||||||||
| Total | ||||||||||
The intrinsic value of exercisable but unexercised in-the-money stock warrants as of September 30, 2022 was $, based on a fair market value of the Company’s common stock of $ per share on September 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 (referred to as the “ABG Warrants”). Effective with the adoption of the 2022 Plan, the Company ceased issuing new awards under the 2016 Plan and 2019 Plan.
| 27 |
| Restricted | ||||||||||||||||||||
| Stock | Equity | Outside | ABG | |||||||||||||||||
| Awards | Plans | Options | Warrants | Totals | ||||||||||||||||
| During the Three Months Ended September 30, 2022 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Selling and marketing | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total costs charged to operations | ||||||||||||||||||||
| Capitalized platform development | ||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | $ | |||||||||||||||
| During the Three Months Ended September 30, 2021 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Selling and marketing | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total costs charged to operations | ||||||||||||||||||||
| Capitalized platform development | ||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | $ | |||||||||||||||
| Restricted | ||||||||||||||||||||
| Stock | Equity | Outside | ABG | |||||||||||||||||
| Awards | Plans | Options | Warrants | Totals | ||||||||||||||||
| During the Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Selling and marketing | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total costs charged to operations | ||||||||||||||||||||
| Capitalized platform development | ||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | $ | |||||||||||||||
| During the Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Selling and marketing | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Total costs charged to operations | ||||||||||||||||||||
| Capitalized platform development | ||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | $ | |||||||||||||||
| 28 |
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, 2022 was as follows:
| Restricted | ||||||||||||||||||||
| Stock | Equity | Outside | ABG | |||||||||||||||||
| Awards | Plans | Options | Warrants | Totals | ||||||||||||||||
| Unrecognized compensation cost | $ | $ | $ | $ | $ | |||||||||||||||
| Expected weighted-average period expected to be recognized (in years) | ||||||||||||||||||||
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 $ 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 $ 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 remain 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 remain in full force and effect.
The
Stock Option Repricing of approximately stock option grants (for 340 employees) that were issued to employees of the Company,
including senior management, resulted in incremental cost of $, of which $ was recognized at the time of the Stock Option Repricing
for the fully vested awards and included in the condensed consolidated statement of operations, and $
| 29 |
| 13. | Revenue Recognition |
Disaggregation of Revenue
The following table provides information about disaggregated revenue by product line, geographical market and timing of revenue recognition:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue by category: | ||||||||||||||||
| Digital revenue | ||||||||||||||||
| Digital advertising | $ | $ | $ | $ | ||||||||||||
| Digital subscriptions | ||||||||||||||||
| Other revenue | ||||||||||||||||
| Total digital revenue | ||||||||||||||||
| Print revenue | ||||||||||||||||
| Print advertising | ||||||||||||||||
| Print subscriptions | ||||||||||||||||
| Total print revenue | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Revenue by geographical market: | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Other | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Revenue by timing of recognition: | ||||||||||||||||
| At point in time | $ | $ | $ | $ | ||||||||||||
| Over time | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Unearned revenue (short-term contract liabilities): | ||||||||
| Digital subscriptions | $ | $ | ||||||
| Print revenue | ||||||||
| $ | $ | |||||||
| Unearned revenue (long-term contract liabilities): | ||||||||
| Digital subscriptions | $ | $ | ||||||
| Print revenue | ||||||||
| $ | $ | |||||||
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.
| 30 |
| 14. | 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, 2022 and 2021 was
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, 2022 and 2021.
| 15. | Related Party |
For
the nine months ended September 30, 2022 and 2021, the Company had several transactions with B. Riley, a principal stockholder, where
the Company paid fees associated with the common stock public offering totaling approximately $
For
the three months ended September 30, 2022 and 2021, the Company paid in cash or accrued interest that was added to the principal on the
Senior Secured Note and Delayed Draw Term Note due to B. Riley, a principal stockholder, of $
Consulting and Service Contracts
For
the three months ended September 30, 2022 and 2021, the Company paid James C. Heckman, its former Chief Executive Officer, consulting
fees of $
| 31 |
Repurchases of Restricted Stock
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 the HubPages merger (as further described in Note 6), pursuant to which the Company agreed to repurchase
shares of the Company’s common stock from certain key personnel of HubPages, including from Paul Edmondson, one of the Company’s
officers, and his spouse, an aggregate of shares of the Company’s common stock at a price of $ per share each month
for a period of 24 months, for aggregate proceeds to Mr. Edmondson and his spouse of $
| 16. | Commitments and Contingencies |
Contingent Liability
In connection with the Company’s underwritten public offering in February 2022, the Company may have a contingent liability arising out of possible violations of the Securities Act of 1933, as amended (the “Securities Act”) in connection with an investor presentation, which the Company publicly filed. Specifically, the furnishing of the investor presentation publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the investor presentation may be deemed to be a prospectus that did not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon the investor presentation. If a claim were brought by any such investor and a court were to conclude that the public disclosure of such investor presentation constituted a violation of the Securities Act, the Company could be required to repurchase the shares sold to the investors at the original purchase price, plus statutory interest. The Company could also incur considerable expense in contesting any such claims. As of the issuance date of these consolidated financial statements, no legal proceedings or claims have been made or threatened by any investors. The likelihood and magnitude of this contingent liability, if any, is not determinable at this time.
Claims and Litigation
From time to time, the Company may be subject to claims and litigation arising in the ordinary course of business. The Company is not currently a party to any pending or threatened legal proceedings that it believes would reasonably be expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
| 17. | 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.
Liquidated Damages
From
October 1, 2022 through the date these condensed consolidated financial statements were issued, the Company accrued additional liquidated
damages of $
Athlon Acquisition
On September 16, 2022, management announced its plan to dispose of certain operations of Athlon, referred to as the Parade print business, after the last edition is distributed in November 2022, as well as the Relish and Spry Living print products after October 2022 (collectively, “Parade Print”). The Company expects to incur certain charges and settlement a potential liability (as further described below) in connection with these activities in the quarter ending December 31, 2022.
The
Company estimates severance and related commissions for the employees, where the Company identified a number of Parade employees who
are primarily focused on the print business and who will be departing in a one-time restructuring event of $
As a result of the planned disposal, certain pro forma adjustments reflected in the supplemental pro forma information are subject to change.
| 32 |
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, 2022 and 2021 should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Form 10-K filed with the SEC on April 1, 2022. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those set forth above. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see the section above under the heading “Forward-Looking Statements.”
All dollar figures are presented in thousands unless otherwise stated.
Overview
We are a tech-powered media company that focuses on building deep content verticals powered by a best-in-class digital media platform (the “Platform”) empowering premium publishers who impact, inform, educate, and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports and finance), and where we can leverage the strength of our core brands to grow our audience and increase monetization both within our core brands as well as our media publishers (each, a “Publisher Partner”). Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize audience reach, improve engagement, and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our 40 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated (the “Sports Illustrated media business”), own and operate TheStreet, Inc. (“TheStreet”), College Spun Media Incorporated (“The Spun”), and Athlon Holdings, Inc. (“Athlon”), and power more than 200 independent Publisher Partners, including Biography, History, and the many sports team sites that comprise FanNation, among others. Each Publisher Partner joins the Platform by invitation-only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization, social media, subscription marketing and ad monetization, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While 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 by adding new premium publishers with high quality brands and content either as independent Publisher Partners or by acquiring publishers as owned and operated entities.
| 33 |
Key Operating Metrics
We monitor and review the key operating metrics described below as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods, including an 81% increase year-over-year from 2020 to 2021 and a 90% increase in the nine months ended September 30, 2022 as compared to the same period in fiscal 2021. Management monitors and reviews these metrics because such metrics are readily measurable in real time and can provide valuable insight into the performance of and trends related to our digital advertising revenue and our overall business. We consider only those key operating metrics described here to be material to our financial condition, results of operations and future prospects.
Our key operating metrics are identified below:
| ● | Revenue per page view (“RPM”) – represents the advertising revenue earned per 1,000 pageviews. It is calculated as our advertising revenue during a period divided by our total page views during that period and multiplied by $1,000; and | |
| ● | Monthly average pageviews – represents the total number of pageviews in a given month or the average of each month’s pageviews in a fiscal quarter or year, which is calculated as the total number of page views recorded in a quarter or year divided by three months or 12 months, respectively. |
For pricing indicators, we focus on RPM as it is the pricing metric most closely aligned with monthly average pageviews. RPM is an indicator of yield and pricing driven by both advertising density and demand from our advertisers.
Monthly average pageviews are measured across all properties hosted on the Arena Platform and provide us with insight into volume, engagement and effective page management and are therefore our primary measure of traffic. We utilize a third-party source, Google Analytics, to confirm this traffic data.
As described above, these key operating metrics are critical for management as they provide insights into our digital advertising revenue generation and overall business performance. This information also provides feedback on the content on our website and its ability to attract and engage users, which allows us to make strategic business decisions designed to drive more users to read or view more of our content and generate higher advertising revenue across all properties hosted on the Arena Platform.
For the three and nine months ended September 30, 2022 our RPM was $18.08 and $15.77, respectively. For the three and nine months ended September 30, 2022 our monthly average pageviews were 498,031,050 and 515,104,614, respectively. For the three and nine months ended September 30, 2021 our RPM was $16.46 and $13.59, respectively. For the three and nine months ended September 30, 2021 our monthly average pageviews were 378,714,372 and 325,391,284, respectively.
Liquidity and Capital Resources
Cash and Working Capital Facility
As of September 30, 2022, our principal sources of liquidity consisted of cash of $13,303. In addition, as of September 30, 2022, we had $6,526 available for additional use, subject to eligible accounts receivable, under our working capital facility with FPP Finance LLC (“FastPay”). As of September 30, 2022, the outstanding balance of the FastPay working capital facility was $18,474. We also had accounts receivable, net of our advances from FastPay of $15,188 as of September 30, 2022. Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements is $10,934.
| 34 |
Material Contractual Obligations
We have material contractual obligations that arise in the normal course of business primarily consisting of employment contracts, consulting agreements, leases, liquidated damages, debt and related interest payments. Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months. See Notes 4, 7 and 9 in our accompanying condensed consolidated financial statements for amounts outstanding as of September 30, 2022, related to leases, liquidated damages and long-term debt, respectively. There have been no material changes during the nine months ended September 30, 2022 to our contractual obligations as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Contingent Liability
We may have a contingent liability arising out of possible violations of the Securities Act in connection with an investor presentation, which we furnished as Exhibit 99.2 to our Current Report on Form 8-K and Current Report on Form 8-K/A filed on January 31, 2022 and February 1, 2022, respectively. Specifically, the furnishing of the investor presentation publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the investor presentation may be deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon such investor presentation that may have constituted a potential violation of Section 5 of the Securities Act. If a claim were brought by any such ‘recipients’ of such investor presentation and a court were to conclude that the public disclosure of such investor presentation constituted a violation of Section 5 of the Securities Act, we could be required to repurchase the shares sold to the investors who reviewed such investor presentation at the original purchase price, plus statutory interest. We could also incur considerable expense in contesting any such claims. As of the date of the filing of this Quarterly Report, no legal proceedings or claims have been made or threatened by any investors in our offering. Such payments and expenses, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, or force us to raise additional funding, which funding may not be available on favorable terms, if at all.
Working Capital
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, 2022 and December 31, 2021 was as follows:
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Current assets | $ | 74,245 | $ | 77,671 | ||||
| Current liabilities | (117,242 | ) | (116,413 | ) | ||||
| Working capital deficit | (42,997 | ) | (38,742 | ) | ||||
As of September 30, 2022, we had a working capital deficit of $42,997, as compared to $38,742 as of December 31, 2021, consisting of $74,245 in total current assets and $117,242 in total current liabilities. As of December 31, 2021, our working capital deficit consisted of $77,671 in total current assets and $116,413 in total current liabilities.
Our cash flows during the nine months ended September 30, 2022 and 2021 consisted of the following:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (14,676 | ) | $ | (8,262 | ) | ||
| Net cash used in investing activities | (12,315 | ) | (10,674 | ) | ||||
| Net cash provided by financing activities | 30,945 | 18,130 | ||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 3,954 | $ | (806 | ) | |||
| Cash, cash equivalents, and restricted cash, end of period | $ | 13,805 | $ | 8,729 | ||||
| 35 |
For the nine months ended September 30, 2022, net cash used in operating activities was $14,676, consisting primarily of $184,858 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services; and $7,209 of cash paid for interest, offset by $177,391 of cash received from customers. For the nine months ended September 30, 2021, net cash used in operating activities was $8,262, consisting primarily of $132,422 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services; and $902 of cash paid for interest, offset by $125,062 of cash received from customers.
For the nine months ended September 30, 2022, net cash used in investing activities was $12,315, consisting primarily of $10,331 for the acquisition of a business; $3,990 for capitalized costs for our Platform; and $444 for property and equipment, offset by $2,450 from the sale of an equity investment. For the nine months ended September 30, 2021, net cash used in investing activities was $10,674, consisting primarily of $7,357 for the acquisition of businesses; $3,017 for capitalized costs for our Platform; and $300 for property and equipment.
For the nine months ended September 30, 2022, net cash provided by financing activities was $30,945, consisting primarily of $30,490 (net of issuance costs paid of $1,568) in net proceeds from a public offering of common stock; $6,486 from advancements of our FastPay line of credit; and $94 from exercises of common stock options, offset by $3,520 for tax payments relating to the withholding of shares of common stock for certain employees; $2,152 related to payments of restricted stock liabilities; and $453 payment for The Spun deferred cash payment. For the nine months ended September 30, 2021, net cash provided by financing activities was $18,130 consisting primarily of $19,838 (net of issuance cost paid of $167) in net proceeds from a private placement of common stock, offset by $1,165 related to payments of restricted stock liabilities; $473 from repayments of our FastPay line of credit; and $70 for tax payments relating to the withholding of shares of common stock for certain employees.
Results of Operations
Three Months Ended September 30, 2022 and 2021
| Three Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue | $ | 66,706 | $ | 59,575 | $ | 7,131 | 12.0 | % | ||||||||
| Cost of revenue | 40,504 | 32,215 | 8,289 | 25.7 | % | |||||||||||
| Gross profit | 26,202 | 27,360 | (1,158 | ) | -4.2 | % | ||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 20,103 | 22,892 | (2,789 | ) | -12.2 | % | ||||||||||
| General and administrative | 13,847 | 14,557 | (710 | ) | -4.9 | % | ||||||||||
| Depreciation and amortization | 4,478 | 4,055 | 423 | 10.4 | % | |||||||||||
| Loss on lease termination | - | 7,345 | (7,345 | ) | -100.0 | % | ||||||||||
| Loss impairment of assets | 209 | 904 | (695 | ) | -76.9 | % | ||||||||||
| Total operating expenses | 38,637 | 49,753 | (11,116 | ) | -22.3 | % | ||||||||||
| Loss from operations | (12,435 | ) | (22,393 | ) | 9,958 | -44.5 | % | |||||||||
| Total other (expense) | (3,523 | ) | (2,544 | ) | (979 | ) | 38.5 | % | ||||||||
| Loss before income taxes | (15,958 | ) | (24,937 | ) | 8,979 | -36.0 | % | |||||||||
| Income taxes | (547 | ) | 230 | (777 | ) | -337.8 | % | |||||||||
| Net loss | $ | (16,505 | ) | $ | (24,707 | ) | $ | (8,202 | ) | -33.2 | % | |||||
| Basic and diluted net loss per common share | $ | (0.90 | ) | $ | (2.15 | ) | $ | 1.25 | -58.1 | % | ||||||
| Weighted average number of common shares outstanding – basic and diluted | 18,284,670 | 11,491,412 | 6,793,258 | 59.1 | % | |||||||||||
| 36 |
Net Loss
For the three months ended September 30, 2022, as referenced in the above table, net loss was $16,505, as compared to $24,707 for the three months ended September 30, 2021, which represents a decrease of $8,202. The primary driver for the decrease in net loss was an increase of $7,131 in revenue, with a decrease in operating expenses of $11,116 during the three months ended September 30, 2022.
Revenue
The following table sets forth revenue by product line and the corresponding percent of total revenue:
| Three Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Digital revenue | ||||||||||||||||
| Digital advertising | $ | 28,513 | $ | 18,325 | $ | 10,188 | 55.6 | % | ||||||||
| Digital subscriptions | 4,629 | 7,699 | (3,070 | ) | -39.9 | % | ||||||||||
| Other revenue | 4,848 | 4,221 | 627 | 14.9 | % | |||||||||||
| Total digital revenue | 37,990 | 30,245 | 7,745 | 25.6 | % | |||||||||||
| Print revenue | ||||||||||||||||
| Print advertising | 12,541 | 3,356 | 9,185 | 273.7 | % | |||||||||||
| Print subscriptions | 16,175 | 25,974 | (9,799 | ) | -37.7 | % | ||||||||||
| Total print revenue | 28,716 | 29,330 | (614 | ) | -2.1 | % | ||||||||||
| Total revenue | $ | 66,706 | $ | 59,575 | $ | 7,131 | 12.0 | % | ||||||||
For the three months ended September 30, 2022, as referenced in the above table, total revenue increased $7,131 or 12.0% from $59,575 to $66,706. The majority of the revenue driver was derived from total digital revenue which increased $7,745, or 25.6%, from the prior year period primarily due to an increase in digital advertising revenue of $10,188, or 55.6%. The increase in digital advertising revenue was mainly driven by a 32% increase in monthly average pageviews and a 10% increase in revenue per pageview with 86% of the total increase driven by organic growth and the remainder due to the acquisition of Athlon. Other revenue increased by $627, or 15%, despite the fact that the Sports Illustrated Swim magazine (“SI Swim”) launch added $3,033 of revenue to the third quarter of 2021 but was launched in the second quarter of 2022. Total print revenue decreased $614, or 2.1%, from $29,330 for the three months ended September 30, 2021 to $28,716 for the three months ended September 30, 2022 primarily related to a planned decrease from the Sports Illustrated media business as we reduced the rate base from 1.7 million to 1.2 million to focus on more profitable subscriptions. This was largely offset by the addition of the Athlon publications, which were acquired during the second quarter of 2022.
Cost of Revenue
The following table sets forth cost of revenue by category:
| Three Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Publisher Partner revenue share payments | $ | 4,471 | $ | 4,913 | $ | (442 | ) | -9.0 | % | |||||||
| Technology, Platform and software licensing fees | 4,851 | 2,363 | 2,488 | 105.3 | % | |||||||||||
| Royalty fees | 3,750 | 3,750 | - | 0.0 | % | |||||||||||
| Content and editorial expenses | 11,057 | 11,943 | (886 | ) | -7.4 | % | ||||||||||
| Printing, distribution and fulfillment costs | 11,058 | 5,240 | 5,818 | 111.0 | % | |||||||||||
| Amortization of developed technology and platform development | 2,413 | 2,242 | 171 | 7.6 | % | |||||||||||
| Stock-based compensation | 2,772 | 1,732 | 1,040 | 60.0 | % | |||||||||||
| Other cost of revenue | 132 | 32 | 100 | 312.5 | % | |||||||||||
| Total cost of revenue | $ | 40,504 | $ | 32,215 | $ | 8,289 | 25.7 | % | ||||||||
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For the three months ended September 30, 2022, as referenced in the above table, we recognized cost of revenue of $40,504, as compared to $32,215 for the three months ended September 30, 2021, which represents an increase of $8,289 or 25.7%. Cost of revenue for the third quarter of 2022, was impacted by increases in printing, distribution, and fulfillment costs of $5,818, primarily due to the Athlon acquisition, which was acquired in the second quarter of 2022. We announced that we would be shutting down the Parade print business as of November 13, 2022, eliminating unprofitable aspects of the business.
Operating Expenses
Selling and Marketing
The following table sets forth selling and marketing expenses by category:
| Three Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Payroll and employee benefits of selling and marketing account management support teams | $ | 5,025 | $ | 3,004 | $ | 2,021 | 67.3 | % | ||||||||
| Stock-based compensation | 810 | 1,421 | (611 | ) | -43.0 | % | ||||||||||
| Professional marketing services | 550 | 882 | (332 | ) | -37.6 | % | ||||||||||
| Circulation costs | 1,808 | 1,056 | 752 | 71.2 | % | |||||||||||
| Subscription acquisition costs | 9,778 | 13,013 | (3,235 | ) | -24.9 | % | ||||||||||
| Advertising costs | 1,474 | 2,344 | (870 | ) | -37.1 | % | ||||||||||
| Other selling and marketing expenses | 658 | 1,172 | (514 | ) | -43.9 | % | ||||||||||
| Total selling and marketing | $ | 20,103 | $ | 22,892 | $ | (2,789 | ) | -12.2 | % | |||||||
For the three months ended September 30, 2022, as referenced in the above table, we incurred selling and marketing expenses of $20,103 as compared to $22,892 for the three months ended September 30, 2021, a decrease of $2,789 or 12.2% from the prior period. The decrease in selling and marketing expenses of $2,789 was primarily due to decreases in subscription acquisition costs of $3,235; advertising costs of $870; stock-based compensation of $611; and other selling and marketing expenses $514. Offsetting these decreases, payroll and employee benefits of selling and marketing account management support teams increased $2,021 and circulation costs grew by $752, both of which were a result of the addition of the Athlon properties, which were acquired in the second quarter of 2022.
General and Administrative
The following table sets forth general and administrative expenses by category:
| Three Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Payroll and related expenses for executive and administrative personnel | $ | 4,573 | $ | 3,586 | $ | 987 | 27.5 | % | ||||||||
| Stock-based compensation | 4,729 | 5,322 | (593 | ) | -11.1 | % | ||||||||||
| Professional services, including accounting, legal and insurance | 3,166 | 4,090 | (924 | ) | -22.6 | % | ||||||||||
| Other general and administrative expenses | 1,379 | 1,559 | (180 | ) | -11.5 | % | ||||||||||
| Total general and administrative | $ | 13,847 | $ | 14,557 | $ | (710 | ) | -4.9 | % | |||||||
| 38 |
For the three months ended September 30, 2022, as referenced in the above table, we incurred general and administrative expenses of $13,847 as compared to $14,557 for the three months ended September 30, 2021, a decrease of $710 or 4.9% from the prior period. The decrease is primarily related to professional services of $924; and stock-based compensation of $593, offset by an increase in payroll and related expenses of $987.
Other (Expenses) Income
The following table sets forth other (expense) income:
| Three Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Change in valuation of warrant derivative liabilities | $ | - | $ | 802 | $ | (802 | ) | -100.0 | % | |||||||
| Interest expense | (3,184 | ) | (2,512 | ) | (672 | ) | 26.8 | % | ||||||||
| Liquidated damages | (339 | ) | (834 | ) | 495 | -59.4 | % | |||||||||
| Total other expenses | $ | (3,523 | ) | $ | (2,544 | ) | $ | (979 | ) | 38.5 | % | |||||
Change in Valuation of Warrant Derivative Liabilities. The change of $802 in the valuation of warrant derivative liabilities for the three months ended September 30, 2021 was the result no longer having any warrant derivative liabilities as of September 30, 2022.
Interest Expense. We incurred interest expense of $3,184 for the three months ended September 30, 2022, as compared to $2,512 for the three months ended September 30, 2021. The increase in interest expense of $672 was primarily from additional cash paid interest from our debt.
Liquidated Damages. We recorded liquidated damages of $339 for the three months ended September 30, 2022, as compared to $834 for the three months ended September 30, 2021. The decrease of $495 primarily resulted from no further liquidated damages assessed under certain corresponding agreements and only recording interest expense related to the previous liquidated damages assessed.
| 39 |
Nine Months Ended September 30, 2022 and 2021
| Nine Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue | $ | 180,024 | $ | 127,936 | $ | 52,088 | 40.7 | % | ||||||||
| Cost of revenue | 115,730 | 83,264 | 32,466 | 39.0 | % | |||||||||||
| Gross profit | 64,294 | 44,672 | 19,622 | 43.9 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 56,626 | 54,232 | 2,394 | 4.4 | % | |||||||||||
| General and administrative | 43,325 | 37,587 | 5,738 | 15.3 | % | |||||||||||
| Depreciation and amortization | 13,124 | 11,982 | 1,142 | 9.5 | % | |||||||||||
| Loss on lease termination | - | 7,345 | (7,345 | ) | -100.0 | % | ||||||||||
| Loss on impairment of assets | 466 | 904 | (438 | ) | -48.5 | % | ||||||||||
| Total operating expenses | 113,541 | 112,050 | 1,491 | 1.3 | % | |||||||||||
| Loss from operations | (49,247 | ) | (67,378 | ) | 18,131 | -26.9 | % | |||||||||
| Total other (expense) | (9,149 | ) | (3,679 | ) | (5,470 | ) | 148.7 | % | ||||||||
| Loss before income taxes | (58,396 | ) | (71,057 | ) | 12,661 | -17.8 | % | |||||||||
| Income taxes | 1,235 | 230 | 1,005 | 437.0 | % | |||||||||||
| Net loss | $ | (57,161 | ) | $ | (70,827 | ) | $ | 13,666 | -19.3 | % | ||||||
| Basic and diluted net loss per common share | $ | (3.30 | ) | $ | (6.38 | ) | $ | 3.08 | -48.3 | % | ||||||
| Weighted average number of common shares outstanding – basic and diluted | 17,339,882 | 11,100,416 | 6,239,466 | 56.2 | % | |||||||||||
Net loss
For the nine months ended September 30, 2022, as referenced in the above table, net loss was $57,161, as compared to $70,827 for the nine months ended September 30, 2021, which represents an improvement of $13,666. The primary driver for the improvement in net loss was due to an $52,088 increase in revenue, which was partially offset by an increase in cost of revenue of $32,466; and an increase in operating expenses of $1,491 during the nine months ended September 30, 2022.
Revenue
The following table sets forth revenue by product line and the corresponding percent of total revenue:
| Nine Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Digital revenue | ||||||||||||||||
| Digital advertising | $ | 74,852 | $ | 39,397 | $ | 35,455 | 90.0 | % | ||||||||
| Digital subscriptions | 16,580 | 22,474 | (5,894 | ) | -26.2 | % | ||||||||||
| Other revenue | 13,193 | 5,834 | 7,359 | 126.1 | % | |||||||||||
| Total digital revenue | 104,625 | 67,705 | 36,920 | 54.5 | % | |||||||||||
| Print revenue | ||||||||||||||||
| Print advertising | 27,697 | 6,904 | 20,793 | 301.2 | % | |||||||||||
| Print subscriptions | 47,702 | 53,327 | (5,625 | ) | -10.5 | % | ||||||||||
| Total print revenue | 75,399 | 60,231 | 15,168 | 25.2 | % | |||||||||||
| Total revenue | $ | 180,024 | $ | 127,936 | $ | 52,088 | 40.7 | % | ||||||||
| 40 |
For the nine months ended September 30, 2022, as referenced in the above table, total revenue increased $52,088, or 40.7% from $127,936 to $180,024. Total digital revenue increased $36,920, or 54.5%, from the prior year period, primarily due to an increase in digital advertising revenue of $35,455, or 90.0%. The increase in digital advertising revenue was mainly due to a 58% increase in average pageviews and a 16% increase in revenue per pageview for the nine months ended September 30, 2022, as compared to the same period in the prior year with 95% of the total increase driven by organic growth and the remainder due to the acquisition of Athlon. Other revenue increased by $7,359, or 126%, as we added new licensing and syndication relationships and by expanding existing ones to leverage our content with increased monetization. Total print revenue increased $15,168, or 25.2%, from $60,231 for the nine months ended September 30, 2021 to $75,399 for the nine months ended September 30, 2022 primarily related to $26,988 from Athlon magazine circulations, which was acquired during the second quarter of 2022, offset by a decrease of $11,820 from the Sports Illustrated media business.
Cost of Revenue
The following table sets forth cost of revenue by category:
| Nine Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Publisher Partner revenue share payments | $ | 14,242 | $ | 15,759 | $ | (1,517 | ) | -9.6 | % | |||||||
| Technology, Platform and software licensing fees | 12,561 | 7,579 | 4,982 | 65.7 | % | |||||||||||
| Royalty fees | 11,250 | 11,250 | - | 0.0 | % | |||||||||||
| Content and editorial expenses | 36,104 | 25,864 | 10,240 | 39.6 | % | |||||||||||
| Printing, distribution and fulfillment costs | 26,602 | 11,171 | 15,431 | 138.1 | % | |||||||||||
| Amortization of developed technology and platform development | 7,099 | 6,566 | 533 | 8.1 | % | |||||||||||
| Stock-based compensation | 7,602 | 4,930 | 2,672 | 54.2 | % | |||||||||||
| Other cost of revenue | 270 | 145 | 125 | 86.2 | % | |||||||||||
| Total cost of revenue | $ | 115,730 | $ | 83,264 | $ | 32,466 | 39.0 | % | ||||||||
For the nine months ended September 30, 2022, as referenced in the above table, we recognized cost of revenue of $115,730, as compared to $83,264 for the nine months ended September 30, 2021, which represents an increase of $32,466 or 39.0%. Cost of revenue for the nine months ended September 30, 2022 was impacted by increases in printing, distribution and fulfillment costs of $15,431; and content and editorial expenses of $10,240, with both increases primarily due to the Athlon acquisition, which occurred in the second quarter of 2022; technology, Platform and software licensing fees of $4,982; stock-based compensation of $2,672; and amortization of developed technology and platform development of $533; partially offset by a decrease in Publisher Partner revenue share payments of $1,517.
| 41 |
Operating Expenses
Selling and Marketing
The following table sets forth selling and marketing expenses by category:
| Nine Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Payroll and employee benefits of selling and marketing account management support teams | $ | 13,276 | $ | 8,518 | $ | 4,758 | 55.9 | % | ||||||||
| Stock-based compensation | 2,149 | 4,059 | (1,910 | ) | -47.1 | % | ||||||||||
| Professional marketing services | 2,390 | 1,895 | 495 | 26.1 | % | |||||||||||
| Circulation costs | 3,613 | 2,831 | 782 | 27.6 | % | |||||||||||
| Subscription acquisition costs | 28,463 | 28,539 | (76 | ) | -0.3 | % | ||||||||||
| Advertising costs | 4,591 | 5,503 | (912 | ) | -16.6 | % | ||||||||||
| Other selling and marketing expenses | 2,144 | 2,887 | (743 | ) | -25.7 | % | ||||||||||
| Total selling and marketing | $ | 56,626 | $ | 54,232 | $ | 2,394 | 4.4 | % | ||||||||
For the nine months ended September 30, 2022, as referenced in the above table, we incurred selling and marketing expenses of $56,626, as compared to $54,232 for the nine months ended September 30, 2021, an increase of $2,394 or 4.4% from the prior year period. The increase in selling and marketing expenses of $2,394 is primarily related to increase in payroll of selling and marketing account management support teams of $4,758, of which $3,355 was related to the addition of the Athlon business.
General and Administrative
The following table sets forth general and administrative expenses by category:
| Nine Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Payroll and related expenses for executive, sales and administrative personnel | $ | 13,501 | $ | 11,018 | $ | 2,483 | 22.5 | % | ||||||||
| Stock-based compensation | 15,026 | 12,700 | 2,326 | 18.3 | % | |||||||||||
| Professional services, including accounting, legal and insurance | 10,043 | 10,125 | (82 | ) | -0.8 | % | ||||||||||
| Other general and administrative expenses | 4,755 | 3,744 | 1,011 | 27.0 | % | |||||||||||
| Total general and administrative | $ | 43,325 | $ | 37,587 | $ | 5,738 | 15.3 | % | ||||||||
For the nine months ended September 30, 2022, as referenced in the above table, we incurred general and administrative expenses of $43,325, as compared to $37,587 for the nine months ended September 30, 2021, an increase of $5,738 or 15.3% from the prior year period. The increase was primarily related to payroll and related expenses for executive and administrative personnel of $2,483; stock-based compensation of $2,326; and other general and administrative expenses of $1,011.
| 42 |
Other (Expenses) Income
The following table sets forth other (expense) income:
| Nine Months Ended September 30, | 2022 versus 2021 | |||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Change in valuation of warrant derivative liabilities | $ | - | $ | 497 | $ | (497 | ) | -100.0 | % | |||||||
| Interest expense | (8,510 | ) | (7,695 | ) | (815 | ) | 10.6 | % | ||||||||
| Liquidated damages | (639 | ) | (2,198 | ) | 1,559 | -70.9 | % | |||||||||
| Gain upon debt extinguishment | - | 5,717 | (5,717 | ) | -100.0 | % | ||||||||||
| Total other expenses | $ | (9,149 | ) | $ | (3,679 | ) | $ | (5,470 | ) | 148.7 | % | |||||
Change in Valuation of Warrant Derivative Liabilities. The change of $497 in the valuation of warrant derivative liabilities for the nine months ended September 30, 2021 was the result of no longer having any warrant derivative liabilities as of September 30, 2022.
Interest Expense. We incurred interest expense of $8,510 for the nine months ended September 30, 2022, as compared to $7,695 for the nine months ended September 30, 2021. The increase in interest expense of $815 was primarily from additional cash paid interest from our debt.
Liquidated Damages. We recorded liquidated damages of $639 for the nine months ended September 30, 2022, as compared to $2,198 for the nine months ended September 30, 2021. The decrease of $1,559 primarily resulted from no further liquidated damages assessed under certain corresponding agreements and only recording interest expense related to the previous liquidated damages assessed.
Gain Upon Debt Extinguishment. We recorded a gain upon debt extinguishment of $5,717 (including accrued interest) pursuant to the forgiveness of the Paycheck Protection Program Loan for the nine months ended September 30, 2021.
Use of Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles in the United States of America (“GAAP”); however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We believe Adjusted EBITDA provides visibility to the underlying continuing operating performance by excluding the impact of certain items that are noncash in nature or not related to our core business operations. We calculate Adjusted EBITDA as net loss, adjusted for (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in derivative valuations, (vi) liquidated damages, (vii) gain upon extinguishment of debt, (viii) loss on lease termination, (ix) loss on impairment of assets, (x) professional and vendor fees, and (xi) employee restructuring payments.
Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by other companies, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP Adjusted EBITDA as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are that Adjusted EBITDA:
| ● | does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us; | |
| ● | does not reflect deferred income taxes, which is a noncash expense; | |
| ● | does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements; | |
| ● | does not reflect stock-based compensation and, therefore, does not include all of our compensation costs; | |
| ● | does not reflect the change in derivative valuations and, although this is a noncash expense, the change in the valuations each reporting period are not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock; |
| 43 |
| ● | does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to); | |
| ● | does not reflect any gains upon debt extinguishment, which we do not consider in our evaluation of our business operations; | |
| ● | does not reflect any losses on termination of our leases, which is a noncash operating expense; | |
| ● | does not reflect any losses from the impairment of assets, which is a noncash operating expense; | |
| ● | does not reflect the professional and vendor fees incurred by us for services provided by consultants, accountants, lawyers, and other vendors, which services were related to certain types of events that are not reflective of our business operations; and | |
| ● | does not reflect payments related to employee restructuring changes for the former Chief Financial Officer of Athlon and our former Chief Executive Officer. |
The following table presents a reconciliation of Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net loss | $ | (16,505 | ) | $ | (24,707 | ) | $ | (57,161 | ) | $ | (70,827 | ) | ||||
| Add: | ||||||||||||||||
| Interest expense (1) | 3,184 | 2,512 | 8,510 | 7,695 | ||||||||||||
| Deferred income taxes | 547 | (230 | ) | (1,235 | ) | (230 | ) | |||||||||
| Depreciation and amortization (2) | 6,891 | 6,297 | 20,223 | 18,548 | ||||||||||||
| Stock-based compensation (3) | 8,311 | 8,475 | 24,777 | 21,689 | ||||||||||||
| Change in derivative valuations | - | (802 | ) | - | (497 | ) | ||||||||||
| Liquidated damages (4) | 339 | 834 | 639 | 2,198 | ||||||||||||
| Gain upon debt extinguishment (5) | - | - | - | (5,717 | ) | |||||||||||
| Loss on lease termination (6) | - | 7,345 | - | 7,345 | ||||||||||||
| Loss on impairment of assets (7) | 209 | 904 | 466 | 904 | ||||||||||||
| Professional and vendor fees (8) | - | 2,124 | - | 5,152 | ||||||||||||
| Employee restructuring payments (9) | - | 513 | 679 | 580 | ||||||||||||
| Adjusted EBITDA | $ | 2,976 | $ | 3,265 | $ | (3,102 | ) | $ | (13,160 | ) | ||||||
| (1) | Represents interest expense (net of interest income) of $3,184 and $2,512, for the three months ended September 30, 2022 and 2021, respectively, and interest expense (net of interest income) of $8,510 and $7,695, for the nine months ended September 30, 2022 and 2021, respectively. Interest expense is related to our capital structure. Interest expense varies over time due to a variety of financing transactions. Interest expense includes $281 and $533 for amortization of debt discounts for the three months ended September 30, 2022 and 2021, respectively, and $1,215 and $1,534 for amortization of debt discounts for the nine months ended September 30, 2022 and 2021, as presented in our condensed consolidated statements of cash flows, which are a noncash item. Investors should note that interest expense will recur in future periods. | |
| (2) | Represents depreciation and amortization related to our developed technology and Platform included within cost of revenues of $2,413 and $2,242, for the three months ended September 30, 2022 and 2021, respectively, and depreciation and amortization included within operating expenses of $4,478 and $4,055 for the three months ended September 30, 2022 and 2021, respectively. Represents depreciation and amortization related to our developed technology and Platform included within cost of revenues of $7,099 and $6,566, for the nine months ended September 30, 2022 and 2021, respectively, and depreciation and amortization included within operating expenses of $13,124 and $11,982 for the nine months ended September 30, 2022 and 2021, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods. |
| 44 |
| (3) | Represents noncash costs arising from the grant of stock-based awards to employees, consultants and directors. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future. | |
| (4) | Represents damages (or interest expense related to accrued liquidated damages) we owe to certain of our investors in private placements offerings conducted in fiscal years 2018 through 2020, pursuant to which we agreed to certain covenants in the respective securities purchase agreements and registration rights agreements, including the filing of resale registration statements and becoming current in our reporting obligations, which we were not able to timely meet. | |
| (5) | Represents a gain upon extinguishment of the Paycheck Protection Program Loan. | |
| (6) | Represents our loss related to the surrender and termination of our lease of office space located in New York based on our decision to no longer lease office space. | |
| (7) | Represents our impairment of certain assets that no longer are useful. | |
| (8) | Represents one-time, non-recurring third party professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers, and other vendors (these fees are collectively referred to as “Professional Fees”) related to (i) the preparation of periodic reports in order for us to become current on our Exchange Act reporting obligations, (ii) up-list to a national exchange, (iii) contemplated and completed acquisitions, (iv) public and private offerings of our securities and other financings, and (v) stockholder disputes and the implementation of our Rights Agreement. |
The table below summarizes the costs defined above that we incurred during fiscal 2021:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Category | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| (i) Catch-up periodic reports | $ | - | $ | 1,654 | $ | - | $ | 3,795 | ||||||||
| (ii) Up-list | - | 61 | - | 93 | ||||||||||||
| (iii) M&A | - | 89 | - | 338 | ||||||||||||
| (iv) Public & private offerings and other financings | - | 120 | - | 388 | ||||||||||||
| (v) Stockholder disputes/Rights Agreement | - | 200 | - | 538 | ||||||||||||
| Totals | $ | - | $ | 2,124 | $ | - | $ | 5,152 | ||||||||
We incurred the majority of the Professional Fees during the three and nine months ended September 30, 2021 for preparation of our Exchange Act periodic reports, and because these costs were incurred for multiple reporting periods over several years simultaneously, the invoices received from our vendors itemized the services that each vendor provided for each respective reporting obligation (i.e., a quarterly or annual audit by year). As such, we were able to reasonably estimate the cost of a normal year’s compliance with Exchange Act reporting requirements related to periodic reports. Therefore, we did not adjust for (or add back) such normal year’s fees in calculating Adjusted EBITDA. Management believes that these Professional Fees represent non-recurring, infrequent and unusual expenses and does not expect to incur such expenses in the future.
| (9) | Represents severance payments to the former Chief Financial Officer of Athlon and our former Chief Executive Officer for the three and nine months ended September 30, 2022 and 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, conducted in accordance with SEC’s guidance in Release No. 34-55929, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were 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.
| 45 |
As permitted by SEC guidance, management excluded from its assessment the operations of Athlon, which was acquired on April 1, 2022, and which accounted for approximately 14.9% of our consolidated total assets as of September 30, 2022 and approximately 17.1% of our consolidated revenue, for the nine months ended September 30, 2022.
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-Oxley Act of 2002, 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 period covered by this Quarterly Report 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, 2021, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report and in our other filings with SEC in connection with evaluating us, our business and the forward-looking statements contained in this Quarterly Report. 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
During the three months ended September 30, 2022, we issued or repurchased unregistered securities to the extent identified in this Item 2.
Unregistered Issuances
None.
Repurchases
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
| 46 |
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following documents are filed as part of this Quarterly Report:
* Filed herewith.
# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
+ In accordance with Regulation S-T, the Inline XBRL related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith but not “filed”.
| 47 |
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| The Arena Group Holdings, Inc. | ||
| Date: November 9, 2022 | By: | /s/ ROSS LEVINSOHN |
| Ross Levinsohn | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 9, 2022 | By: | /s/ SPIROS CHRISTOFORATOS |
| Spiros Christoforatos | ||
| Chief Accounting Officer | ||
| (Principal Accounting Officer) | ||
| 48 |
Exhibit 3.1
Exhibit 31.1
Certification of Principal Executive Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934
I, Ross Levinsohn, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q (this “Report”) for the quarterly period ended September 30, 2022 of The Arena Group Holdings, Inc.; | |
| 2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and | |
| d) | Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
Date: November 9, 2022
| /s/ Ross Levinsohn | |
| Ross Levinsohn | |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
Certification of Principal Financial Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934
I, Douglas Smith, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q (this “Report”) for the quarterly period ended September 30, 2022 of The Arena Group Holdings, Inc.; | |
| 2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and | |
| d) | Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
Date: November 9, 2022
| /s/ Douglas Smith | |
| Douglas Smith | |
Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
Certification of Principal Executive Officer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of The Arena Group Holdings, Inc. (the “Company”) does hereby certify, to the best of such officer’s knowledge, that:
| 1. | The quarterly report on Form 10-Q of the Company for the quarterly period ended September 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: | November 9, 2022 | By: | /s/ Ross Levinsohn |
| Ross Levinsohn | |||
Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of The Arena Group Holdings, Inc. (the “Company”) does hereby certify, to the best of such officer’s knowledge, that:
| 1. | The quarterly report on Form 10-Q of the Company for the quarterly period ended September 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 9, 2022 | By: | /s/ Douglas Smith |
| Douglas Smith | ||
Chief Financial Officer (Principal Financial Officer) |