UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
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.) | |
|
||
| (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. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller
reporting company |
| Emerging
growth company |
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ or
As of May 8, 2023, 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 Part I, Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023. The discussion in this Quarterly Report should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report and our consolidated financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022.
This 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
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
| ($ in thousands, except share data) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Subscription acquisition costs, current portion | ||||||||
| 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 liability | ||||||||
| Contingent consideration | ||||||||
| Liquidated damages payable | ||||||||
| Bridge notes | ||||||||
| Term debt | ||||||||
| Total current liabilities | ||||||||
| Unearned revenue, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Liquidated damages payable, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 18) | ||||||||
| 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 March 31, 2023 and December 31, 2022, 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 March 31, | ||||||||
| 2023 | 2022 | |||||||
| ($ in thousands, except per share data) | ||||||||
| Revenue | $ | $ | ||||||
| Cost of revenue (includes amortization of platform development and developed
technology for 2023 and 2022 of $ | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Depreciation and amortization | ||||||||
| Loss on impairment of assets | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expenses | ||||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Liquidated damages | ( | ) | ( | ) | ||||
| Total other expenses | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax provision | ( | ) | ( | ) | ||||
| 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 Months Ended March 31, 2023
| Common Stock | Common Stock to be Issued | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| ($ in thousands, except per share data) | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock in connection with the acquisition of Fexy Studios | - | |||||||||||||||||||||||||||
| 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 | - | ( | ) | |||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||||||
| Issuance of common stock in connection with registered direct offering | - | |||||||||||||||||||||||||||
| Reclassification to liability upon modification of common stock option | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Three Months Ended March 31, 2022
| Common Stock | Common Stock to be Issued | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| ($ in thousands, except per 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 | - | ( | ) | |||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Repurchase restricted stock classified as liabilities | ( | ) | - | |||||||||||||||||||||||||
| Issuance of common stock in connection with public offering | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 7 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| ($ 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 | ||||||||
| Amortization of debt discounts | ||||||||
| Loss on impairment of assets | ||||||||
| Change in fair value of contingent consideration | ||||||||
| Liquidated damages | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ||||||||
| Bad debt expense | ||||||||
| 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 | ( | ) | ( | ) | ||||
| Payments for acquisition | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayments under line of credit, net borrowing | ( | ) | ( | ) | ||||
| Proceeds from common stock from registered direct offering | ||||||||
| Payments of offering cost from common stock from registered direct offering | ( | ) | ||||||
| Proceeds from issuance of common stock from public offering, net of offering cost | ||||||||
| Payment of taxes from common stock withheld | ( | ) | ( | ) | ||||
| Payment of deferred cash payments | ( | ) | ||||||
| Payment of restricted stock liabilities | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase 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 | $ | $ | ||||||
| Offering costs included in accrued expenses and other | ||||||||
| Issuance of common stock in connection with settlement of liquidated damages | ||||||||
| Issuance of common stock upon conversion of Series H convertible preferred stock | ||||||||
| Issuance of common stock issued in connection with an acquisition | ||||||||
| Deferred cash payments recorded in connection with acquisitions | ||||||||
| Reclassification to liability upon common stock modification | ||||||||
See accompanying notes to condensed consolidated financial statements.
| 8 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
($ in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements 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 changed its legal 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, 2022, filed with the SEC on March 31, 2023.
The condensed consolidated financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, are unaudited but, in management’s opinion, include all adjustments necessary for a fair presentation of the results of interim periods. All such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet as of December 31, 2022, was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year.
The Company is subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including as a result of inflation, increasing interest rates or foreign exchange rates, instability in the global banking system, geopolitical factors, including the ongoing Ukraine – Russia conflict, supply chain disruptions and the ongoing effects of the COVID-19 pandemic. Given that certain of the Company’s sports businesses rely on sporting events to generate content and comprise a material portion of the Company’s revenues, the Company’s cash flows and results of operations could be negatively impacted by a significant downturn in economic activity, or general spending on sporting events or a general limitation of societal activity, due to market conditions, economic uncertainty or recession.
The
Company operates in
Reverse Stock Split
On
February 8, 2022, the Company’s board of directors (the “Board”) approved
| 9 |
Going Concern
The Company’s condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company’s condensed consolidated financial statements do not include any adjustments that might be necessary if it is unable to continue as a going concern.
For
the three months ended March 31, 2023, the Company incurred a net loss of $
As a result, management determined there is substantial doubt about the Company’s ability to continue as a going concern for a one-year period following the financial statement issuance date, unless it is able to refinance or extend the maturities of its current debt.
The Company plans to refinance or extend the maturities of its current debt to alleviate the conditions that raise substantial doubt about its ability to continue as a going concern, however, there can be no assurance that the Company will be able to refinance or extend the maturities of its current debt.
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 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 March 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, addressing areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard (ASU 2016-13) that introduced the current expected credit losses (CECL) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. This update requires an entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. As the Company has already adopted ASU 2016-13, the new guidance was adopted on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s condensed consolidated financial statements.
| 10 |
Basic loss per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of common stock equivalent shares, such as stock options, restricted stock, and warrants. All restricted stock awards are considered outstanding but are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. All restricted stock units are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. Contingently issuable shares are included in basic loss per common share only when there are no circumstances under which those shares would not be issued. Diluted loss per common share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method.
The Company excluded the outstanding securities summarized below (capitalized terms are described herein), which entitle the holders thereof to acquire shares of the Company’s common stock, from its calculation of net loss per common share, as their effect would have been anti-dilutive. Common stock equivalent shares are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Series G convertible preferred stock | ||||||||
| Series H convertible preferred stock | ||||||||
| Financing warrants | ||||||||
| ABG Warrants | ||||||||
| AllHipHop warrants | ||||||||
| Publisher Partner Warrants | ||||||||
| Restricted stock awards | ||||||||
| Restricted stock units | ||||||||
| Common stock options | ||||||||
| Total | ||||||||
2. Acquisitions
The Company uses the acquisition method of accounting, which is based on ASC, Business Combinations (Topic 805), and uses the fair value concepts which requires, among other things, that most assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date.
Teneology,
Inc. – On January 11, 2023, the Company entered into an asset purchase agreement with Teneology, Inc.,
(“Teneology”) pursuant to which it acquired certain assets (consisting of the RoadFood media business, including digital
and television assets; the Moveable Feast media business, including digital and television assets; the Fexy-branded content studio
business; and the MonkeySee YouTube Channel media business, collectively “Fexy Studios”), for a purchase price of $
| 11 |
The composition of the preliminary purchase price is as follows:
| Cash | $ | |||
| Common stock | ||||
| Contingent consideration | ||||
| Deferred cash payments, as discounted | ||||
| Total purchase consideration | $ |
The Company accounted for the asset acquisition as a business combination in accordance with ASC 805 since the acquisition met the definition of a business under the applicable guidance.
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:
| Advertiser relationships | $ | |||
| Brand names | ||||
| Goodwill | ||||
| Net assets acquired | $ |
The
Company utilized an independent appraisal firm to assist in the preliminary determination of the fair values of the assets acquired and
liabilities assumed, which required certain significant management assumptions and estimates. The fair value of the advertiser relationships
were valued using the excess earnings method of the income approach and the brand names were valued using the relief-from-royalty method
of the income approach. The estimated useful life is fifteen years (
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. A portion of the goodwill will be deductible for tax purposes.
Supplemental Pro forma Information
The pro forma disclosures have been deemed impracticable for this acquisition since after making reasonable efforts the Company is unable to accept assumptions made by Teneology. The Company has determined, based on the information provided by Teneology and made available to the Company, that the earnings from the prior periods could not be verified since the acquisition only included certain activities of Teneology and financial statements were not available. In this regard, the Company: (1) made reasonable effort to obtain certain financial results of the certain activities but Teneology was unable to apply the requirement; and (2) the presentation of the pro forma results and the assumptions made by management were unable to be independently substantiated.
| 12 |
3. Balance Sheet Components
The components of certain balance sheet amounts are as follows:
Accounts
Receivable – The Company receives payments from advertising customers based upon contractual payment terms; accounts receivable
is recorded when the right to consideration becomes unconditional and are generally collected within 90 days. The Company generally receives
payments from digital and print subscription customers at the time of sign up for each subscription; accounts receivable from merchant
credit card processors are recorded when the right to consideration becomes unconditional and are generally collected weekly. Accounts
receivable have been reduced by an allowance for doubtful accounts. The Company maintains the allowance for estimated losses resulting
from the inability of the Company’s customers to make required payments. The allowance represents the current estimate of lifetime
expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable
forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectibility, customer creditworthiness,
historical levels of credit losses, and future expectations. Accounts receivable are written off when deemed uncollectible and collection
of the receivable is no longer being actively pursued. Accounts receivable as of March 31, 2023 and December 31, 2022 of $
Three Months Ended March 31, 2023 (unaudited) | Year Ended December 31, 2022 | |||||||
| Allowance for doubtful accounts beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Deductions – write-offs | ( | ) | ( | ) | ||||
| Allowance for doubtful accounts end of period | $ | $ | ||||||
Subscription Acquisition Costs – Subscription acquisition costs include the incremental costs of obtaining a contract with a customer, paid to external parties, if the Company expects to recover those costs. The Company has determined that sales commissions paid on all third-party agent sales of subscriptions are direct and incremental and, therefore, meet the capitalization criteria. The Company has elected to apply the practical expedient to account for these costs at the portfolio level. The sales commissions paid to third-party agents are amortized as magazines are sent to the subscriber on an issue-by-issue basis. Subscription acquisition costs are included within selling and marketing expenses on the condensed consolidated statements of operations.
The
current portion of the subscription acquisition costs as of March 31, 2023 and December 31, 2022 was $
Amortization
of subscription acquisition costs of $
| 13 |
Prepayments and other current assets – Prepayments and other current assets are summarized as follows:
| As of | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepaid supplies | ||||||||
| Refundable income and franchise taxes | ||||||||
| Unamortized debt costs | ||||||||
| Employee retention credits | ||||||||
| Other receivables | ||||||||
| Total prepayments and other current assets | $ | $ | ||||||
Under
the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the subsequent extensions
of the Cares Act, the Company is eligible for refundable employee retention credits subject to certain criteria. The Company determined
that it qualifies for the tax credit under the CARES Act. In connection with the CARES Act, the Company adopted a policy to recognize
the employee retention credits when earned and to offset the credit against the related expenditure. For the three months ended March
31, 2023, the Company recorded the employee retention credits as a reduction to payroll and related expenses of $
Property and Equipment – Property and equipment are summarized as follows:
| As of | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
| 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 March 31, 2023 and 2022 was $
| 14 |
Platform Development – Platform development costs are summarized as follows:
| As of | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
| Platform development | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net platform development | $ | $ | ||||||
A summary of platform development activity for the three months ended March 31, 2023 is as follows:
| Platform development beginning of period | $ | |||
| Payroll-based costs capitalized | ||||
| Less dispositions | ( | ) | ||
| Total capitalized costs | ||||
| Stock-based compensation | ||||
| Impairments | ( | ) | ||
| Platform development end of period | $ |
Amortization
expense for the three months ended March 31, 2023 and 2022, was $
Intangible Assets – Intangible assets subject to amortization consisted of the following:
| As
of March 31, 2023 (unaudited) | As of December 31, 2022 | |||||||||||||||||||||||
| Carrying Amount | Accumulated Amortization | Net Carrying Amount | Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
| Developed technology | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Trade name | ( | ) | ( | ) | ||||||||||||||||||||
| Brand name | ( | ) | ( | ) | ||||||||||||||||||||
| Subscriber relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Advertiser relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Database | ( | ) | ( | ) | ||||||||||||||||||||
| Digital content | ( | ) | ( | ) | ||||||||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Intangible
assets subject to amortization were recorded as part of the Company’s business acquisitions. Amortization expense for the
three months ended March 31, 2023 and 2022 was $
4. Leases
The
Company’s real estate lease for the use of office space is subleased (as further described below). The Company’s current
lease is a long-term operating lease with a remaining fixed payment term of
| 15 |
The table below presents supplemental information related to operating leases:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| 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.
Variable lease expense includes rental increases that are not fixed, such as those based on amounts paid to the lessor based on cost or consumption, such as maintenance and utilities.
The components of operating lease costs were as follows:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| 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 March 31, 2023 are summarized as follows:
| Years Ending December 31, | ||||
| 2023 (remaining nine months of the year) | $ | |||
| 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 March 31, 2023, the Company is entitled to receive 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(the “membership”). This
membership provides a certain number of accounts that equate to the use of the space granted, or membership accounts. Effective June
1, 2022, the SaksWorks membership agreement was amended and assigned to Convene SW MSA Holdings, LLC (“Convene”). The
term of the membership agreement with Convene is for twenty-seven months from the initial effective date of October 1, 2021 with
SaksWorks. The annual membership fee with Convene is $
| 16 |
5. Goodwill
The changes in carrying value of goodwill are as follows:
| As of | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
| Carrying value at beginning of year | $ | $ | ||||||
| Goodwill acquired in acquisition of Parade | ||||||||
| Goodwill acquired in acquisition of Men’s Journal | ||||||||
| Goodwill acquired in acquisition of Fexy Studios | ||||||||
| Carrying value at end of period | $ | $ | ||||||
6. Line of Credit
SLR
Credit Facility – On December 15, 2022, the Company entered into an amendment to its financing and security agreement for
its line of credit with SLR Digital Finance LLC (formerly FPP Finance LLC) (“SLR”), pursuant to which (i) the maximum
amount of advances available was increased to $
Information for the three months ended March 31, 2023 and 2022 with respect to interest expense related to the line of credit is provided under the heading Interest Expense in Note 11.
7. Restricted Stock Liabilities
On December 15, 2020, the Company entered into an amendment for certain restricted stock awards and units that were previously issued to certain employees in connection with a previous merger with HubPages. Pursuant to the amendment, the Company agreed to purchase the vested restricted stock awards, at a price of $ per share in 24 equal monthly installments on the second business day of each calendar month beginning on January 4, 2021, subject to certain conditions.
The
Company recorded the repurchase of shares of the Company’s restricted common stock during the three months ended March 31,
2022 on the condensed consolidated statements of stockholders’ deficiency, representing a payment of $
Further details are provided under the heading Repurchases of Restricted Stock in Note 17.
| 17 |
8. 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 March 31, 2023 (unaudited) | ||||||||||||||||
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 | $ | $ | $ | $ | ||||||||||||
| As of December 31, 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 | $ | $ | $ | $ | ||||||||||||
| (1) |
As
of March 31, 2023 and December 31, 2022, the short-term liquidated damages payable were $
On
February 8, 2023, the Company entered into a stock purchase agreement with an investor, where the Company was liable for liquidated
damages, pursuant to which the Company agreed to the issue shares of its common stock at a price equal to $ per share (determined
based on the volume-weighted average price of the Company’s common stock at the close of trading on the sixty (60) previous trading
days), to the investor in lieu of an aggregate of $
| 18 |
Further details subsequent to the date of these condensed consolidated financial statements were issued are provided under the heading Liquidated Damages in Note 19.
9. Fair Value
The Company estimates the fair value of financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts the Company would realize upon disposition.
The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2. Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level 3. Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.
The Company accounted for certain common stock issued in connection with the Fexy Studios acquisition that is subject to a put option (which provides for a cash payment to the sellers on the first anniversary date of the closing (or January 11, 2024) in the event the common stock trading price on such date is less than the common stock trading price on the day immediately preceding the acquisition date, or $ per share), as a derivative liability, which requires the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end.
Liabilities measured at fair value on a recurring basis consisted of the following as of March 31, 2023:
| Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
Contingent
Consideration – The fair value of the contingent consideration is primarily dependent on the common stock trading price on
the first anniversary of the closing of Fexy Studios, or January 11, 2024. The estimated fair value was calculated using the Black Scholes
option pricing model using the following inputs: (i) $ exercise price equal to the closing price of the Company’s common stock
at the acquisition date; (ii) $ common stock price equal to the trading price of the Company’s common stock as of the reporting
date; (iii) years for the expected term; (iv) % annualized risk free rate; and (v) % selected volatility. For the three
months ended March 31, 2023, the change in valuation of the contingent consideration of $
| 19 |
10. Bridge Notes
On
December 15, 2022, the Company issued $
Information for the three months ended March 31, 2023 with respect to interest expense related to the Bridge Notes is provided under the heading Interest Expense in Note 11.
11. Term Debt
Senior Secured Notes
As of March 31, 2023 and December 31, 2022, the Company had an outstanding obligation with BRF, in its capacity as agent for the purchasers and as purchaser, pursuant to a third amended and restated note purchase agreement (the “Senior Secured Notes”) entered into on December 15, 2022, where it amended the second amended and restated note purchase agreement issued on January 23, 2022.
The Senior Secured Notes, prior to and including the third amended and restated note purchase agreement, provide for:
| ● | a
provision for the Company to enter into Delayed Draw Term Notes (as described below), in an aggregate principal amount of $ | |
| ● | a
provision where the Company added $ | |
| ● | a provision where the paid in-kind interest can be paid in shares of the Company’s common stock based upon the conversion rate specified in the Certificate of Designation for the Series K convertible preferred stock, subject to certain adjustments; | |
| ● | an
interest rate of | |
| ● | interest on the notes will be payable after February 15, 2022, at the agent’s sole discretion, either (a) in cash quarterly in arrears on the last day of each fiscal quarter or (b) by continuing to add such interest due on such payment dates to the principal amount of the notes; | |
| ● | a maturity date of December 31, 2023, subject to certain acceleration conditions; | |
| ● | all borrowings under the notes to be collateralized by substantially all assets of the Company; and | |
| ● | the
Company to enter into the Bridge Notes for $ |
| 20 |
Delayed Draw Term Notes
As of March 31, 2023 and December 31, 2022, the Company had an outstanding obligation with BRF, in its capacity as agent for the purchasers and as purchaser, pursuant to a third amended and restated note purchase agreement (the “Delayed Draw Term Notes”) entered into on December 15, 2022, where it amended the second amended and restated note purchase agreement issued on January 23, 2022.
The Delayed Draw Term Notes, prior to and including the third amended and restated note purchase agreement, provide for:
| ● | an
interest rate of | |
| ● | interest on the notes to be payable after February 15, 2022, at the agent’s sole discretion, either (a) in cash quarterly in arrears on the last day of each fiscal quarter or (b) by continuing to add such interest due on such payment dates to the principal amount of the notes; | |
| ● | a maturity date on December 31, 2023, subject to certain acceleration terms; and | |
| ● | all borrowings under the notes to be collateralized by substantially all assets of the Company. |
The following table summarizes the term debt:
As of March 31, 2023 (unaudited) | As of December 31, 2022 | |||||||||||||||||||||||
| Principal Balance | Unamortized Discount and Debt Issuance Costs | Carrying Value | Principal Balance | Unamortized Discount and Debt Issuance Costs | Carrying Value | |||||||||||||||||||
| Senior Secured Notes, as amended, matures | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Delayed Draw Term Notes, as amended, matures | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
As of March 31, 2023 and December 31, 2022, the term debt carrying value of $
The
Company’s principal maturities of term debt are due December 31, 2023 in the amount of $
Information for the three months ended March 31, 2023 and 2022 with respect to interest expense related to term debt is provided below.
Interest Expense
The following table represents interest expense:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Amortization of debt costs: | ||||||||
| Line of credit | $ | $ | ||||||
| Bridge Notes | ||||||||
| Senior Secured Notes | ||||||||
| Delayed Draw Term Notes | ||||||||
| Total amortization of debt costs | ||||||||
| Cash paid interest: | ||||||||
| Line of credit | ||||||||
| Bridge Notes | ||||||||
| Senior Secured Notes | ||||||||
| Delayed Draw Term Notes | ||||||||
| Other | ||||||||
| Total cash paid interest | ||||||||
| Total interest expense | $ | $ | ||||||
| 21 |
12. Preferred Stock
The Company has the authority to issue shares of preferred stock, $ par value per share, consisting of authorized and/or outstanding shares as of March 31, 2023 as follows:
| ● | authorized shares designated as “Series G Convertible Preferred Stock”, of which shares are outstanding. | |
| ● | authorized shares designated as “Series H Convertible Preferred Stock” (as further described below), of which shares are outstanding. |
13. Stockholders’ Equity
Common Stock
The Company has the authority to issue shares of common stock, $ par value per share.
On
March 31, 2023, the Company entered into common stock purchase agreements with certain purchasers, pursuant to which the Company
agreed to issue and sell in a registered direct offering an aggregate of shares
of the Company’s common stock, $par
value per share at a purchase price of $per
share. The gross proceeds received were $
On
February 15, 2022 and March 11, 2022, the Company raised gross proceeds of $
The Company provides stock-based and equity-based compensation in the form of (a) restricted stock awards and restricted stock units to certain employees (the “Restricted Stock”), (b) stock option awards, unrestricted stock awards and stock appreciation rights to employees, directors and consultants under various plans (the “Common Stock Options”), and (c) common stock warrants, referred to as the ABG Warrants and Publisher Partner Warrants (collectively the “Warrants”) as referenced in the below table.
| 22 |
| Three Months Ended March 31, 2023 | ||||||||||||||||
| Restricted Stock | Common Stock Options | Warrants | Totals | |||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total costs charged to operations | ||||||||||||||||
| Capitalized platform development | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||
| Restricted Stock | Common Stock Options | Warrants | Totals | |||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total costs charged to operations | ||||||||||||||||
| Capitalized platform development | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
Unrecognized compensation expense and expected weighted-average period to be recognized related to the stock-based compensation awards and equity-based awards as of March 31, 2023 were as follows:
| As of March 31, 2023 | ||||||||||||||||
| Restricted Stock | Common Stock Options | Warrants | Totals | |||||||||||||
| Unrecognized compensation expense | $ | $ | $ | $ | ||||||||||||
| Weighted average period expected to be recognized (in years) | ||||||||||||||||
Modification
of Awards – On February 28, 2023, the Company modified certain equity awards as a result of the resignation of a senior
executive employee where
restricted stock units with time-based vesting that were unvested were vested and
options for shares of the Company’s common stock with time-based vesting that were unvested were vested, each subject to
compliance with applicable securities laws and certain other provisions. In connection with the modification of these equity awards,
the Company agreed to purchase a total of
options of shares of the Company’s common stock (including previously vested options of shares of the Company’s common
stock of ) as of the resignation date of the employee at a price of $
per share, reduced by the exercise price and required tax withholdings, subject to certain conditions. The modification of the
equity awards resulted in the unamortized costs being recognized at the modification date. The cash price of $
per option less the strike price of $
per option resulted in incremental cost of $
being recognized at the modification date. The modification resulted in liability classification of the equity awards, with $
Publisher
Partner Warrants – On March 13, 2023, the Company issued
warrants for shares of the Company’s common stock (
warrants were issued with an effective date of November 3, 2022 and an exercise price of $
| 23 |
15. Revenue Recognition
Disaggregation of Revenue
The following table provides information about disaggregated revenue by category, geographical market and timing of revenue recognition:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue by category: | ||||||||
| Digital revenue | ||||||||
| Digital advertising | $ | $ | ||||||
| Digital subscriptions | ||||||||
| Licensing and syndication revenue | ||||||||
| Other digital 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 | ||||||||
March 31, 2023 (unaudited) | December 31, 2022 | |||||||
| Unearned revenue (short-term contract liabilities): | ||||||||
| Digital revenue | $ | $ | ||||||
| Print revenue | ||||||||
| $ | $ | |||||||
| Unearned revenue (long-term contract liabilities): | ||||||||
| Digital revenue | $ | $ | ||||||
| Print revenue | ||||||||
| $ | $ | |||||||
Unearned Revenue – Unearned revenue, also referred to as contract liabilities, include payments received in advance of performance under certain contracts and are recognized as revenue over time. The Company records contract liabilities as unearned revenue on the condensed consolidated balance sheets.
| 24 |
16. Income Taxes
The provision for income taxes in interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly provision for income taxes, and estimate of the Company’s annual effective tax rate, are subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company conducts business, and tax law developments.
The
income tax provision effective tax rate for the three months ended March 31, 2023 and 2022 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 March 31, 2023 and 2022.
As
of March 31, 2023 and 2022, the Company has
17. Related Party Transactions
Principal Stockholder
For
the three months ended March 31, 2023 and 2022, the Company paid in cash interest of $
On
March 31, 2023, the Company entered into common stock purchase agreements with certain purchasers, pursuant to which the Company
agreed to issue and sell in a registered direct offering an aggregate of
shares of the Company’s common stock. Certain affiliates of B. Riley participated in the registered direct offering and
purchased an aggregate of
shares of the Company’s common stock at a price per share of $
per share for a total consideration of $
For
the three months ended March 31, 2022, the Company had certain transactions with B. Riley, a principal stockholder, where it paid fees
associated with the common stock public offering totaling $
Consulting and Service Contracts
For
the three months ended March 31, 2023 and 2022, the Company paid an entity affiliated with James C. Heckman, its former Chief Executive
Officer, Roundtable Media, L.L.C., net revenue share amounts of $
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, pursuant to which the Company agreed to repurchase from certain key personnel
of HubPages, Inc., including 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 $
| 25 |
18. Commitments and Contingencies
Claims and Litigation – From time to time, the Company may be subject to claims and litigation arising in the ordinary course of business. The Company is not currently a party to any pending or threatened legal proceedings that it believes would reasonably be expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
Royalty
Fees – The Company guaranteed minimum annual royalties of $
19. 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
On
April 10, 2023, the Company issued shares of its common stock in connection with a stock purchase agreement, where the Company
was liable for liquidated damages in lieu of an aggregate of $
Series H Convertible Preferred Stock
On April 17, 2023, the Company issued shares of its common stock upon conversion of shares of its Series H convertible preferred stock.
Common Stock
On April 14, 2023 and May 3, 2023, the Company issued in aggregate shares of its common stock upon the vesting of certain restricted stock units.
Compensation Plans
From April 1, 2023 through the date these condensed consolidated financial statements were issued, the Company granted options for shares of the Company’s common stock, restricted stock units and restricted stock awards totaling , all of which remain outstanding.
| 26 |
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 months ended March 31, 2023 and 2022 should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Annual Report on Form 10-K filed with the SEC on March 31, 2023. 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. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Forward-Looking Statements.”
Overview
We are a tech-powered media company that focuses on building deep content verticals powered by a best-in-class digital media platform (the “Platform”) empowering premium publishers who impact, inform, educate, and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports and finance), and where we can leverage the strength of our core brands to grow our audience and increase monetization both within our core brands as well as our media publisher partners (each, a “Publisher Partner”). Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize audience reach, improve engagement, and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our greater than 40 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated, own and operate TheStreet, Inc. College Spun Media Incorporated, Parade Media, and Men’s Journal and power more than 225 independent Publisher Partners, including the many sports team sites that comprise FanNation. Each Publisher Partner joins the Platform by invitation only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization, social media, ad monetization and subscription marketing, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While the Publisher Partners benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management.
Of the more than 225 Publisher Partners, a large majority of them publish content within one of our four verticals of sports, finance, lifestyle or men’s lifestyle, and oversee an online community for their respective sites, leveraging our Platform, monetization operation, distribution channels and data and analytics offerings and benefiting from our ability to engage the collective audiences within a single network. Generally, Publisher Partners are independently owned, strategic partners who receive a share of revenue from the interaction with their content. Audiences expand and advertising revenue may improve due to the scale we have achieved by combining all Publisher Partners onto a single platform and a large and experienced sales organization. They may also benefit from our membership marketing and management systems, which we believe will enhance their revenue.
Our growth strategy is to continue to expand by adding new premium publishers with high quality brands and content either as independent Publisher Partners or by acquiring publishers as owned and operated entities.
| 27 |
Impact of Macroeconomic Conditions
Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including as a result of increases in inflation, rising interest rates and instability in the global banking system and geopolitical factors, including the ongoing conflict between Russia and Ukraine and the responses thereto, and the remaining effects of the COVID-19 pandemic. While we are closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside of our control and could exist for an extended period of time. As a result, we are subject to continuing risks and uncertainties and continue to closely monitor the impact of the current conditions on our business. For additional information, see the sections titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 and in this Quarterly Report.
Key Operating Metrics
We monitor and review the key operating metrics described below as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods, including a 74% increase year-over-year from 2021 to 2022 and a 9% increase in the three months ended March 31, 2023, as compared to the same period in fiscal 2022. Management monitors and reviews these metrics because such metrics are readily measurable in real time and can provide valuable insight into the performance of and trends related to our digital advertising revenue and our overall business. We consider only those key operating metrics described here to be material to our financial condition, results of operations and future prospects.
Our key operating metrics are identified below:
| ● | Revenue per page view (“RPM”) – represents the advertising revenue earned per 1,000 pageviews. It is calculated as our advertising revenue during a period divided by our total page views during that period and multiplied by $1,000; and | |
| ● | Monthly average pageviews – represents the total number of pageviews in a given month or the average of each month’s pageviews in a fiscal quarter or year, which is calculated as the total number of page views recorded in a quarter or year divided by three months or 12 months, respectively. |
For pricing indicators, we focus on RPM as it is the pricing metric most closely aligned with monthly average pageviews. RPM is an indicator of yield and pricing driven by both advertising density and demand from our advertisers.
Monthly average pageviews are measured across all properties hosted on the Arena Platform and provide us with insight into volume, engagement and effective page management and are therefore our primary measure of traffic. We utilize a third-party source, Google Analytics, to confirm this traffic data.
As described above, these key operating 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 months ended March 31, 2023 and 2022 our RPM was $16.77 and $15.02, respectively. For the three months ended March 31, 2023 and 2022 our monthly average pageviews were 467,296,344 and 480,352,466, respectively.
All dollar figures presented below are in thousands unless otherwise stated.
| 28 |
Liquidity and Capital Resources
Cash and Working Capital Facility
As of March 31, 2023, our principal sources of liquidity consisted of cash of $15,961. In addition, as of March 31, 2023, we had $30,441 available for additional use, subject to eligible accounts receivable, under our working capital line of credit with SLR Digital Finance LLC (formerly FastPay) (“SLR”). As of March 31, 2023, the outstanding balance of the SLR working capital line of credit was $9,559. We also had accounts receivable, net of our advances from SLR of $14,002 as of March 31, 2023. Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements is $6,144.
Off-Balance Sheet Arrangements
As of March 31, 2023, pursuant to our line of credit with SLR, as disclosed above, in the event that our line of credit is accelerated, we will be obligated to pay SLR a termination fee of $900.
As of March 31, 2023, in connection with the Sports Illustrated media business, we guaranteed a minimum annual royalty of $15,000 through December 31, 2029, for a total of $86,250.
Material Contractual Obligations
We have 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, 8, 10 and 11 in our accompanying condensed consolidated financial statements for amounts outstanding as of March 31, 2023, related to leases, liquidated damages, bridge notes and term debt. During 2022, we assumed the lease from Men’s Journal for office space in Carlsbad, California, that expires in March 2025, and we remain responsible for $3,074 over the lease term. The lease provides for fixed payments ranging from $89 to $94 over the remainder of the lease term, with an estimate of common expenses per month of $25 through the end of the lease term. There have been no material changes from the disclosures in our Annual Report on Form 10-K.
Working Capital Deficit
We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of March 31, 2023 and December 31, 2022 was as follows:
| As of | ||||||||
| March 31, 2023 | December 31, 2022 | |||||||
| Current assets | $ | 83,969 | $ | 78,695 | ||||
| Current liabilities | (216,845 | ) | (216,364 | ) | ||||
| Working capital deficit | (132,876 | ) | (137,669 | ) | ||||
As of March 31, 2023, we had a working capital deficit of $132,876, as compared to $137,669 as of December 31, 2022, consisting of $83,969 in total current assets and $216,845 in total current liabilities. As of December 31, 2022, our working capital deficit consisted of $78,695 in total current assets and $216,364 in total current liabilities.
| 29 |
Our cash flows for the three months ended March 31, 2023 and 2022 consisted of the following:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (1,672 | ) | $ | (13,311 | ) | ||
| Net cash used in investing activities | (1,688 | ) | (1,653 | ) | ||||
| Net cash provided by (used in) financing activities | 5,450 | 28,095 | ||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 2,090 | $ | 13,131 | ||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 16,463 | $ | 22,982 | ||||
For the three months ended March 31, 2023, net cash used in operating activities was $1,672, consisting primarily of $59,394 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 $3,252 of cash paid for interest, offset by $60,974 of cash received from customers. For the three months ended March 31, 2022, net cash used in operating activities was $13,311, consisting primarily of $58,227 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services; and $2,160 of cash paid for interest, offset by $47,076 of cash received from customers.
For the three months ended March 31, 2023, net cash used in investing activities was $1,688, consisting primarily of $1,188 for capitalized costs for our Platform and $500 for the acquisition of a business. For the three months ended March 31, 2022, net cash used in investing activities was $1,653 consisting primarily of $1,582 for capitalized costs for our Platform and $71 for property and equipment.
For the three months ended March 31, 2023, net cash provided by financing activities was $5,450, consisting primarily of $11,431 (excluding accrued offering costs of $69) in net proceeds from the public offering of common stock less (i) $4,533 from repayments of our SLR line of credit; (ii) $25 in payment of deferred cash payments, and (iii) $1,423 for tax payments relating to the withholding of shares of common stock for certain employees. For the three months ended March 31, 2022, net cash provided by financing activities was $28,095 consisting primarily of $32,058 (excluding accrued offering costs of $1,568) in net proceeds from the public offering of common stock less (i) $2,697 from repayments of our SLR line of credit; (ii) $710 related to payments of restricted stock liabilities; and (iii) $556 for tax payments relating to the withholding of shares of common stock for certain employees.
Results of Operations
Three Months Ended March 31, 2023 and 2022
| Three months ended March 31, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 51,380 | $ | 48,243 | $ | 3,137 | 6.5 | % | ||||||||
| Cost of revenue | 30,035 | 28,497 | 1,538 | 5.4 | % | |||||||||||
| Gross profit | 21,345 | 19,746 | 1,599 | 8.1 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 17,969 | 17,216 | 753 | 4.4 | % | |||||||||||
| General and administrative | 13,053 | 13,514 | (461 | ) | -3.4 | % | ||||||||||
| Depreciation and amortization | 4,766 | 4,202 | 564 | 13.4 | % | |||||||||||
| Loss on disposition of assets | 119 | 257 | (138 | ) | -53.7 | % | ||||||||||
| Total operating expenses | 35,907 | 35,189 | 718 | 2.0 | % | |||||||||||
| Loss from operations | (14,562 | ) | (15,443 | ) | 881 | -5.7 | % | |||||||||
| Total other expenses | (4,808 | ) | (2,992 | ) | (1,816 | ) | 60.7 | % | ||||||||
| Loss before income taxes | (19,370 | ) | (18,435 | ) | (935 | ) | 5.1 | % | ||||||||
| Income tax provision | (7 | ) | (14 | ) | 7 | -50.0 | % | |||||||||
| Net loss | $ | (19,377 | ) | $ | (18,449 | ) | $ | (928 | ) | 5.0 | % | |||||
| Basic and diluted net loss per common share | $ | (1.04 | ) | $ | (1.20 | ) | $ | 0.16 | -13.3 | % | ||||||
| Weighted average number of shares outstanding – basic and diluted | 18,718,555 | 15,381,306 | ||||||||||||||
| 30 |
For the three months ended March 31, 2023, net loss was $19,377, as compared to $18,449 for the three months ended March 31, 2022, which represents an increase of $928. While the loss from operations improved $881 due to a $3,137 increase in revenue, which was partially offset by an increase in operating expenses of $718 during the three months ended March 31, 2023, the increase in net loss reflected an increase in other expenses, primarily as a result of an increase in interest expense of $1,362 included in other expenses.
Revenue
The following table sets forth revenue, cost of revenue, and gross profit:
| Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 51,380 | $ | 48,243 | $ | 3,137 | 6.5 | % | ||||||||
| Cost of revenue | 30,035 | 28,497 | 1,538 | 5.4 | % | |||||||||||
| Gross profit | $ | 21,345 | $ | 19,746 | $ | 1,599 | 8.1 | % | ||||||||
For the three months ended March 31, 2023 we had gross profit of $21,345, as compared to $19,746 for the three months ended March 31, 2022, an increase of $1,599. Gross profit percentage for the three months ended March 31, 2023 was 41.5%, as compared to 40.9% for the three months ended March 31, 2022.
The improvement in gross profit percentage was driven by more favorable revenue shares on premium digital advertising. As a result, Publisher Partner revenue share as a percentage of digital advertising revenue was 23.3% for the three months ended March 31, 2023, as compared to 55.0% for the three months ended March 31, 2022.
The following table sets forth revenue by category:
| Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Digital revenue: | ||||||||||||||||
| Digital advertising | $ | 23,504 | $ | 21,646 | $ | 1,858 | 8.6 | % | ||||||||
| Digital subscriptions | 3,871 | 6,461 | (2,590 | ) | -40.1 | % | ||||||||||
| Licensing and syndication revenue | 4,622 | 3,101 | 1,521 | 49.0 | % | |||||||||||
| Other digital revenue | 636 | 364 | 272 | 74.7 | % | |||||||||||
| Total digital revenue | 32,633 | 31,572 | 1,061 | 3.4 | % | |||||||||||
| Print revenue: | ||||||||||||||||
| Print advertising | 2,082 | 1,368 | 714 | 52.2 | % | |||||||||||
| Print subscriptions | 16,665 | 15,303 | 1,362 | 8.9 | % | |||||||||||
| Total print revenue | 18,747 | 16,671 | 2,076 | 12.5 | % | |||||||||||
| Total revenue | $ | 51,380 | $ | 48,243 | $ | 3,137 | 6.5 | % | ||||||||
For the three months ended March 31, 2023, total revenue increased $3,137 to $51,380 from $48,243 for the three months ended March 31, 2022. The primary sources of revenue for the three months ended March 31, 2023 were as follows: (i) digital advertising of $23,504, (ii) digital subscriptions of $3,871, (iii) licensing and syndication revenue and other digital revenue of $5,258, (iv) print advertising of $2,082 and (v) print subscriptions of $16,665.
The primary driver of the increase in our total revenue is derived from our licensing and syndication, digital advertising revenue and other digital revenue which increased by $1,521, $1,858 and $272, respectively. This was offset by a $2,590 decrease in digital subscriptions, resulting in a $1,061 increase in total digital revenue in the three months ended March 31, 2023 as compared to the prior year period. In addition, total print revenue increased by $2,076 as print advertising increased by $714 and print subscriptions grew by $1,362, both reflecting improvements in the results of Sports Illustrated and the addition of the Athlon Outdoor properties, which were acquired as part of the Parade Media acquisition in April of 2022.
| 31 |
Cost of Revenue
The following table sets forth cost of revenue by category:
| Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Publisher Partner revenue share payments | $ | 4,247 | $ | 5,042 | $ | (795 | ) | -15.8 | % | |||||||
| Technology, Platform and software licensing fees | 4,237 | 3,174 | 1,063 | 33.5 | % | |||||||||||
| Royalty fees | 3,750 | 3,750 | - | 0.0 | % | |||||||||||
| Content and editorial expenses | 9,403 | 9,192 | 211 | 2.3 | % | |||||||||||
| Printing, distribution and fulfillment costs | 3,853 | 2,857 | 996 | 34.9 | % | |||||||||||
| Amortization of developed technology and platform development | 2,369 | 2,311 | 58 | 2.5 | % | |||||||||||
| Stock-based compensation | 2,085 | 2,157 | (72 | ) | -3.3 | % | ||||||||||
| Other cost of revenue | 91 | 14 | 77 | 550.0 | % | |||||||||||
| Total cost of revenue | $ | 30,035 | $ | 28,497 | $ | 1,538 | 5.4 | % | ||||||||
For the three months ended March 31, 2023, we recognized cost of revenue of $30,035, as compared to $28,497 for the three months ended March 31, 2022, which represents an increase of $1,538. Cost of revenue for the first quarter of 2023 was impacted by increases in (i) technology, Platform and software licensing fees of $1,063, (ii) printing, distribution and fulfillment costs of $996, partially offset by decreases in (iii) Publisher Partner revenue share payments of $795.
Operating Expenses
Selling and Marketing
The following table sets forth selling and marketing expenses from continuing operations by category:
| Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Payroll and employee benefits of selling and marketing account management support teams | $ | 4,288 | $ | 3,281 | $ | 1,007 | 30.7 | % | ||||||||
| Stock-based compensation | 453 | 600 | (147 | ) | -24.5 | % | ||||||||||
| Professional marketing services | 679 | 617 | 62 | 10.0 | % | |||||||||||
| Circulation costs | 1,048 | 783 | 265 | 33.8 | % | |||||||||||
| Subscription acquisition costs | 10,005 | 9,723 | 282 | 2.9 | % | |||||||||||
| Advertising costs | 985 | 1,310 | (325 | ) | -24.8 | % | ||||||||||
| Other selling and marketing expenses | 511 | 902 | (391 | ) | -43.3 | % | ||||||||||
| Total selling and marketing | $ | 17,969 | $ | 17,216 | $ | 753 | 4.4 | % | ||||||||
For the three months ended March 31, 2023, we incurred selling and marketing costs of $17,969, as compared to $17,216 for the three months ended March 31, 2022. The increase in selling and marketing costs of $753 is primarily related to a $1,007 increase in payroll and employee benefits for our selling and marketing account management support teams, partially offset by a decrease in other selling and marketing expenses of $391. The increase in circulation costs reflects the addition of the Athlon Outdoor properties.
| 32 |
General and Administrative
The following table sets forth general and administrative expenses by category:
| Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Payroll and related expenses for executive and administrative personnel | $ | 3,798 | $ | 3,974 | $ | (176 | ) | -4.4 | % | |||||||
| Stock-based compensation | 3,889 | 4,610 | (721 | ) | -15.6 | % | ||||||||||
| Professional services, including accounting, legal and insurance | 3,425 | 3,638 | (213 | ) | -5.9 | % | ||||||||||
| Other general and administrative expenses | 1,941 | 1,292 | 649 | 50.2 | % | |||||||||||
| Total general and administrative | $ | 13,053 | $ | 13,514 | $ | (461 | ) | -3.4 | % | |||||||
For the three months ended March 31, 2023, we incurred general and administrative costs of $13,053 as compared to $13,514 for the three months ended March 31, 2022. The $461 decrease in general and administrative expenses is primarily due to a decrease in stock-based compensation of $721, partially offset by an increase in other general corporate expenses of $649.
Other Expenses
The following table sets forth other expenses:
| Three Months Ended March 31, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Change in fair value of contingent consideration | $ | (499 | ) | $ | - | $ | (499 | ) | 100.0 | % | ||||||
| Interest expense, net | (4,182 | ) | (2,820 | ) | (1,362 | ) | 48.3 | % | ||||||||
| Liquidated damages | (127 | ) | (172 | ) | 45 | -26.2 | % | |||||||||
| Total other expenses | $ | (4,808 | ) | $ | (2,992 | ) | $ | (1,816 | ) | 60.7 | % | |||||
Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $499 for the three months ended March 31, 2023 represents the change in the put option on our common stock in connection with the Fexy Studios acquisition.
Interest Expense. We incurred interest expense of $4,182 and $2,820 for the three months ended March 31, 2023 and 2022, respectively, as a result of our debt increase.
Liquidated Damages. We recorded $127 of accrued interest on our liquidated damages payable for the three months ended March 31, 2023 primarily from the issuance of our convertible debentures, Series H convertible preferred stock, Series I convertible preferred stock, Series J convertible preferred stock and Series K convertible preferred stock. We recorded $172 of accrued interest on our liquidated damages payable for the three months ended March 31, 2022 primarily from issuance of the same securities as outlined above.
| 33 |
Use of Non-GAAP Financial Measures
We report our financial 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 fair value of contingent consideration; (vi) liquidated damages, (vii) loss on impairment of assets, (viii) employee retention credit, and (ix) employee restructuring payments.
Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by other companies, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP Adjusted EBITDA as superior to, or a substitute for, the 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 fair value of contingent consideration, which is a noncash expense; | |
| ● | does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to); | |
| ● | does not reflect any losses from the impairment of assets, which is a noncash operating expense; | |
| ● | does not reflect the employee retention credits recorded by us for payroll related tax credits under the Cares Act; and | |
| ● | does not reflect payments related to employee restructuring changes for our former Chief Executive Officer. |
The following table presents a reconciliation of Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, for the periods indicated:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net loss | $ | (19,377 | ) | $ | (18,449 | ) | ||
| Add (deduct): | ||||||||
| Interest expense, net (1) | 4,182 | 2,820 | ||||||
| Income tax benefit | 7 | 14 | ||||||
| Depreciation and amortization (2) | 7,135 | 6,513 | ||||||
| Stock-based compensation (3) | 6,427 | 7,367 | ||||||
| Change in fair value of contingent consideration (4) | 499 | - | ||||||
| Liquidated damages (5) | 127 | 172 | ||||||
| Loss on impairment of assets (6) | 119 | 257 | ||||||
| Employee retention credit (7) | (6,868 | ) | - | |||||
| Employee restructuring payments (8) | 3,288 | 174 | ||||||
| Adjusted EBITDA | $ | (4,461 | ) | $ | (1,132 | ) | ||
| (1) | Interest expense is related to our capital structure and varies over time due to a variety of financing transactions. Interest expense includes $930 and $660 for amortization of debt discounts for the three months ended March 31, 2023 and 2022, respectively, as presented in our condensed consolidated statements of cash flows, which is a noncash item. Investors should note that interest expense will recur in future periods. |
| 34 |
| (2) | Depreciation and amortization is related to our developed technology and Platform included within cost of revenues of $2,369 and $2,311, for the three months ended March 31, 2023 and 2022, respectively, and depreciation and amortization included within operating expenses of $4,766 and $4,202 for the three months ended March 31, 2023 and 2022, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods. | |
| (3) | Stock-based compensation represents noncash costs arise from the grant of stock-based awards to employees, consultants and directors. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future. | |
| (4) | Change in fair value of contingent consideration represents the change in the put option on our common stock in connection with the Fexy Studios acquisition. | |
| (5) | Liquidated damages (or interest expense related to accrued liquidated damages) represents amounts we owe to certain of our investors in private placements offerings conducted in fiscal years 2018 through 2020, pursuant to which we agreed to certain covenants in the respective securities purchase agreements and registration rights agreements, including the filing of resale registration statements and becoming current in our reporting obligations, which we were not able to timely meet. | |
| (6) | Loss on impairment of assets represents certain assets that are no longer useful. | |
| (7) | Employee retention credit represents payroll related tax credits under the Cares Act. | |
| (8) | Employee restructuring payments represents severance payments to employees under employer restructuring arrangements and payments to our former Chief Executive Officer for the three months ended March 31, 2023 and 2022, respectively. |
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the condensed consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenue, expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.
Except as described in Note 1, Summary of Significant Accounting Policies, of the Notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 that was filed with the SEC on March 31, 2023.
Recent Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies, of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted as of the date of this report.
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 Rule13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports 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.
| 35 |
In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. In light of the material weaknesses described in Part II, Item 9A to our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 that continue and have not been remediated as of the date of filing of this Quarterly Report, we have performed additional analyses, reconciliations, and other post-closing procedures to determine whether our condensed consolidated financial statements are prepared in accordance with GAAP. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2023 in providing reasonable assurance that the 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.
Changes in Internal Control over Financial Reporting
In connection with our continued monitoring and maintenance of our control procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act of 2002, we continue to review, test, and improve the effectiveness of our internal controls. There 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) that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
| 36 |
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 following risk factor supplements and, to the extent inconsistent, supersedes, 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, 2022 filed with the SEC on March 31, 2023 (the “2022 Form 10-K”). The risk factor included herein as well as the risk factors described in the 2022 Form 10-K should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with SEC in connection with evaluating us, our business and the forward-looking statements contained in this Quarterly Report on Form 10-Q. Additional risks and uncertainties not known to us at present, or that we currently deem immaterial, may affect us. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition and results of operations.
Unfavorable economic and market conditions could adversely affect our business, reputation and results of operations.
Our services, products and properties are may be adversely impacted by uncertain economic conditions, including the impact of the ongoing COVID-19 pandemic; the Ukraine – Russia conflict; adverse changes in interest rates, foreign currency exchange rates, tax laws or tax rates; inflation; a recession; contraction in the availability of credit in the marketplace due to legislation or other economic conditions, which may potentially impair our ability to access the capital markets on terms acceptable to us or at all; and the effects of government initiatives to manage economic conditions. Moreover, there has been recent turmoil in the global banking system. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection & Innovation and the Federal Deposit Insurance Corporation (the “FDIC”) was named Receiver. While at the time of closing on March 10, 2023, [we had minimal cash, cash equivalents, restricted cash and investments] at SVB or under SVB management and the FDIC has taken steps to make whole all depositors of SVB, there is no assurance that similar guarantees will be made in the event of further bank closures and continued instability in the global banking system. Our ongoing cash management strategy is to maintain diversity in our deposit accounts across financial institutions, but deposits in these institutions may exceed the amount of insurance provided on such deposits and there can be no assurance that this strategy will be successful. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, then our ability to access our cash, cash equivalents, restricted cash and investments may be threatened, which could have a material adverse effect on our business and financial condition. Moreover, events such as the closure of SVB, in addition to other global macroeconomic conditions, may cause further turbulence and uncertainty in the capital markets. Furthermore, we cannot predict how future economic conditions will affect our users and Publisher Partners and any negative impact on our users or Publisher Partners may also have an adverse impact on our results of operations or financial condition. A severe or prolonged economic downturn, as result of a global pandemic such as the COVID-19 pandemic or otherwise, could result in a variety of risks to our business, including weakened demand for our products and services and our ability to raise additional capital when needed on favorable terms, if at all. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
| 37 |
ITEM 6. EXHIBITS
The following documents are filed as part of this Quarterly Report:
Exhibit Number |
Description of Document | |
| 10.1 | ||
| 31.1* | Chief Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Chief Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1# | Chief Executive Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2# | Chief Financial Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* 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.
| 38 |
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| The Arena Group Holdings, Inc. | ||
| Date: May 10, 2023 | By: | /s/ ROSS LEVINSOHN |
| Ross Levinsohn | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 10, 2023 | By: | /s/ DOUGLAS B. SMITH |
| Douglas B. Smith | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| 39 |
Exhibit 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ross Levinsohn, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q 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 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 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: May 10, 2023 | /s/ Ross Levinsohn |
| Ross Levinsohn | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Douglas B. Smith, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q 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 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 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: May 10, 2023 | /s/ Douglas B. Smith |
| Douglas B. Smith | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Ross Levinsohn, the Chief Executive Officer of The Arena Group Holdings, Inc. (the “Company”) hereby certify, that, to my knowledge:
| 1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; 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: May 10, 2023 | /s/ Ross Levinsohn |
| Ross Levinsohn | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Douglas B. Smith, the Chief Financial Officer of The Arena Group Holdings, Inc. (the “Company”), hereby certify, that, to my knowledge:
| 1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; 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: May 10, 2023 | /s/ Douglas B. Smith |
| Douglas B. Smith | |
| Chief Financial Officer | |
| (Principal Financial Officer) |