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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2023

 

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

 

For the transition period from __________ to __________

 

Commission file number 1-12471

 

THE ARENA GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   68-0232575

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

200 Vesey Street, 24th Floor

New York, New York

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

 

(212) 321-5002

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.01   AREN   NYSE American

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. 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 ☐ Accelerated filer
Non-accelerated filer ☐ Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ or No

 

As of May 8, 2023, the Registrant had 21,999,098 shares of common stock outstanding.

 

 

 

  

 

 

TABLE OF CONTENTS

 

 

Page

Number

   
PART I - FINANCIAL INFORMATION 4
   
Item 1. Condensed Consolidated Financial Statements 4
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
   
Item 4. Controls and Procedures 35
   
PART II - OTHER INFORMATION 37
   
Item 1. Legal Proceedings 37
   
Item 1A. Risk Factors 37
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
   
Item 3. Defaults Upon Senior Securities 37
   
Item 4. Mine Safety Disclosures 37
   
Item 5. Other Information 37
   
Item 6. Exhibits 38
   
SIGNATURES 39

 

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

 

  PAGE
Condensed Consolidated Balance Sheets - March 31, 2023 (Unaudited) and December 31, 2022 5
Condensed Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2023 and 2022 6
Condensed Consolidated Statements of Stockholders’ Deficiency (Unaudited) - Three Months Ended March 31, 2023 and 2022 7
Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2023 and 2022 8
Notes to Condensed Consolidated Financial Statements (Unaudited) 9

 

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  $15,961   $13,871 
Restricted cash   502    502 
Accounts receivable, net   23,561    33,950 
Subscription acquisition costs, current portion   31,908    25,931 
Prepayments and other current assets   12,037    4,441 
Total current assets   83,969    78,695 
Property and equipment, net   565    735 
Operating lease right-of-use assets   327    372 
Platform development, net   10,189    10,330 
Subscription acquisition costs, net of current portion   12,460    14,133 
Acquired and other intangible assets, net   54,844    58,970 
Other long-term assets   1,025    1,140 
Goodwill   41,329    39,344 
Total assets  $204,708   $203,719 
Liabilities, mezzanine equity and stockholders’ deficiency          
Current liabilities:          
Accounts payable  $15,458   $12,863 
Accrued expenses and other   21,467    23,102 
Line of credit   9,559    14,092 
Unearned revenue   60,584    58,703 
Subscription refund liability   940    845 
Operating lease liability   442    427 
Contingent consideration   1,060    - 
Liquidated damages payable   5,970    5,843 
Bridge notes   35,433    34,805 
Term debt   65,932    65,684 
Total current liabilities   216,845    216,364 
Unearned revenue, net of current portion   21,234    19,701 
Operating lease liability, net of current portion   242    358 
Liquidated damages payable, net of current portion   124    494 
Other long-term liabilities   5,314    5,307 
Deferred tax liabilities   472    465 
Total liabilities   244,231    242,689 
Commitments and contingencies (Note 18)   -    - 
Mezzanine equity:          
Series G redeemable and convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 1,800 shares designated; aggregate liquidation value: $168; Series G shares issued and outstanding: 168; common shares issuable upon conversion: 8,582 at March 31, 2023 and December 31, 2022   168    168 
Series H convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 23,000 shares designated; aggregate liquidation value: $14,356; Series H shares issued and outstanding: 14,356; common shares issuable upon conversion: 1,981,128 at March 31, 2023 and December 31, 2022   13,008    13,008 
Total mezzanine equity   13,176    13,176 
Stockholders’ deficiency:          
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 21,773,078 and 18,303,193 shares at March 31, 2023 and December 31, 2022, respectively   217    182 
Common stock to be issued   -    - 
Additional paid-in capital   289,532    270,743 
Accumulated deficit   (342,448)   (323,071)
Total stockholders’ deficiency   (52,699)   (52,146)
Total liabilities, mezzanine equity and stockholders’ deficiency  $204,708   $203,719 

 

See accompanying notes to condensed consolidated financial statements.

 

5
 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   2023   2022 
   Three Months Ended March 31, 
   2023   2022 
   ($ in thousands, except per share data) 
Revenue  $51,380   $48,243 
Cost of revenue (includes amortization of platform development and developed technology for 2023 and 2022 of $2,369 and $2,311, respectively)   30,035    28,497 
Gross profit   21,345    19,746 
Operating expenses          
Selling and marketing   17,969    17,216 
General and administrative   13,053    13,514 
Depreciation and amortization   4,766    4,202 
Loss on impairment of assets   119    257 
Total operating expenses   35,907    35,189 
Loss from operations   (14,562)   (15,443)
Other expenses          
Change in fair value of contingent consideration   (499)   - 
Interest expense   (4,182)   (2,820)
Liquidated damages   (127)   (172)
Total other expenses   (4,808)   (2,992)
Loss before income taxes   (19,370)   (18,435)
Income tax provision   (7)   (14)
Net loss  $(19,377)  $(18,449)
Basic and diluted net loss per common share  $(1.04)  $(1.20)
Weighted average number of common shares outstanding – basic and diluted   18,718,555    15,381,306 

 

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

 

   Shares   Par Value   Shares   Par Value  

Capital

  

Deficit

  

Deficiency

 
   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   18,303,193   $182    41,283   $-   $270,743   $(323,071)  $(52,146)
Issuance of common stock in connection with the acquisition of Fexy Studios   274,692    3    -    -    1,997    -    2,000 
Issuance of common stock in connection with settlement of liquidated damages   35,486    -    -    -    324    -    324 
Gain upon issuance of common stock in connection with settlement of liquidated damages   -    -    -    -    46    -    46 
Issuance of common stock for restricted stock units   397,376    4    -    -    (4)   -    - 
Common stock withheld for taxes   (202,382)   (2)   -    -    (1,421)   -    (1,423)
Issuance of common stock upon exercise of stock options   795    -              -    -    - 
Issuance of common stock in connection with registered direct offering   2,963,918    30    -    -    11,181    -    11,211 
Reclassification to liability upon modification of common stock option   -    -    -    -    (68)   -    (68)
Stock-based compensation   -    -    -    -    6,734    -    6,734 
Net loss   -    -    -    -    -    (19,377)   (19,377)
Balance at March 31, 2023   21,773,078   $217    41,283   $-   $289,532   $(342,448)  $(52,699)

 

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   12,635,591   $126    49,134   $-   $200,410   $(252,213)  $(51,677)
Issuance of common stock upon conversion of Series H convertible preferred stock   70,380    1    -    -    510    -    511 
Issuance of common stock for restricted stock units in connection with an acquisition   16,760    -    -    -    -    -    - 
Issuance of common stock in connection with professional services   14,617    -    -    -    184    -    184 
Issuance of common stock in connection with settlement of liquidated damages   505,655    5    -    -    6,680    -    6,685 
Gain upon issuance of common stock in connection with settlement of liquidated damages   -    -    -    -    323    -    323 
Issuance of common stock for restricted stock units   155,211    2    -    -    (2)   -    - 
Common stock withheld for taxes   (67,023)   (1)   -    -    (555)   -    (556)
Repurchase restricted stock classified as liabilities   (8,064)   -    -    -    -    -    - 
Issuance of common stock in connection with public offering   4,181,603    42    -    -    30,448    -    30,490 
Stock-based compensation   -    -    -    -    8,054    -    8,054 
Net loss   -    -    -    -    -    (18,449)   (18,449)
Balance at March 31, 2022   17,504,730   $175    49,134   $-   $246,052   $(270,662)  $(24,435)

 

See accompanying notes to condensed consolidated financial statements.

 

7
 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

   2023   2022 
   Three Months Ended March 31, 
   2023   2022 
   ($ in thousands) 
Cash flows from operating activities          
Net loss  $(19,377)  $(18,449)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property and equipment   114    114 
Amortization of platform development and intangible assets   7,021    6,399 
Amortization of debt discounts   930    660 
Loss on impairment of assets   119    257 
Change in fair value of contingent consideration   499    - 
Liquidated damages   127    172 
Stock-based compensation   6,427    7,367 
Deferred income taxes   7    14 
Bad debt expense   36    183 
Change in operating assets and liabilities net of effect of business combination:          
Accounts receivable   10,303    1,594 
Subscription acquisition costs   (4,304)   6,150 
Royalty fees   -    3,750 
Prepayments and other current assets   (7,596)   (224)
Other long-term assets   61    52 
Accounts payable   2,595    (4,912)
Accrued expenses and other   (2,144)   (7,444)
Unearned revenue   3,464    (8,358)
Subscription refund liability   95    (553)
Operating lease liabilities   (56)   (54)
Other long-term liabilities   7    (29)
Net cash used in operating activities   (1,672)   (13,311)
Cash flows from investing activities          
Purchases of property and equipment   -    (71)
Capitalized platform development   (1,188)   (1,582)
Payments for acquisition   (500)   - 
Net cash used in investing activities   (1,688)   (1,653)
Cash flows from financing activities          
Repayments under line of credit, net borrowing   (4,533)   (2,697)
Proceeds from common stock from registered direct offering   11,500    - 
Payments of offering cost from common stock from registered direct offering   (69)   - 
Proceeds from issuance of common stock from public offering, net of offering cost   -    32,058 
Payment of taxes from common stock withheld   (1,423)   (556)
Payment of deferred cash payments   (25)   - 
Payment of restricted stock liabilities   -    (710)
Net cash provided by financing activities   5,450    28,095 
Net increase in cash, cash equivalents, and restricted cash   2,090    13,131 
Cash, cash equivalents, and restricted cash – beginning of period   14,373    9,851 
Cash, cash equivalents, and restricted cash – end of period  $16,463   $22,982 
Cash, cash equivalents, and restricted cash          
Cash and cash equivalents  $15,961   $22,480 
Restricted cash   502    502 
Total cash, cash equivalents, and restricted cash  $16,463   $22,982 
Supplemental disclosure of cash flow information          
Cash paid for interest  $3,252   $2,160 
Cash paid for income taxes   -    - 
Noncash investing and financing activities          
Reclassification of stock-based compensation to platform development  $307   $687 
Offering costs included in accrued expenses and other   220    1,568 
Issuance of common stock in connection with settlement of liquidated damages   370    7,008 
Issuance of common stock upon conversion of Series H convertible preferred stock   -    511 
Issuance of common stock issued in connection with an acquisition   2,000    - 
Deferred cash payments recorded in connection with acquisitions   246    - 
Reclassification to liability upon common stock modification   68    - 

 

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 one reportable segment.

 

Reverse Stock Split

 

On February 8, 2022, the Company’s board of directors (the “Board”) approved a one-for-twenty-two (1-for-22) reverse stock split of its outstanding shares of common stock that was effective February 8, 2022. The Company’s common stock began trading on the NYSE American (the “NYSE American”) on February 9, 2022. At the effective time, every twenty-two shares of issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in the number of authorized shares. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would otherwise have resulted from the reverse stock split were rounded up to the next whole number.

 

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 $19,377. For the three months ended March 31, 2023 and year ended December 31, 2022, the Company had cash on hand of $15,961 and $13,871 and a working capital deficit of $132,876 and $137,669, respectively. The Company’s net loss and working capital deficit have been evaluated by management to determine if the significance of those conditions or events would limit its ability to meet its obligations when due. Furthermore, since the Company’s Bridge Notes of $36,000, Senior Secured Notes of $62,691 and Delayed Draw Term Notes of $4,000, totaling $102,691 (collectively “its current debt”) are due within twelve months from the date these (unaudited) condensed consolidated financial statements were issued, unless the Company is able to refinance or extend its current debt beyond its current maturity, it may not be able to meet its obligations when due.

 

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
 

 

Loss per Common Share

 

Basic loss per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of common stock equivalent shares, such as stock options, restricted stock, and warrants. All restricted stock awards are considered outstanding but are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. All restricted stock units are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. Contingently issuable shares are included in basic loss per common share only when there are no circumstances under which those shares would not be issued. Diluted loss per common share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method.

 

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.

 

   2023   2022 
   As of March 31, 
   2023   2022 
Series G convertible preferred stock   8,582    8,582 
Series H convertible preferred stock   1,981,128    2,004,971 
Financing warrants   107,956    116,118 
ABG Warrants   999,540    999,540 
AllHipHop warrants   5,681    5,681 
Publisher Partner Warrants   11,002    26,893 
Restricted stock awards   97,403    194,806 
Restricted stock units   888,152    1,209,508 
Common stock options   6,183,262    5,541,818 
Total   10,282,706    10,107,917 

 

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 $3,307. The purchase price consisted of the following: (1) $500 cash paid at closing (including an advance payment of $250 prior to closing); (2) $75 deferred cash payments due in three equal installments of $25 on March 1, 2023 (paid), April 1, 2023 and May 1, 2023, with the remaining payments subject to certain conditions; (3) $200 deferred cash payment due on the first anniversary of the closing date, subject to certain indemnity provisions; and (4) the issuance of 274,692 shares of the Company’s common stock, subject to certain lock-up provisions, with a fair value of $2,000 on the transaction closing date (fair value was determined based on a preliminary independent appraisal); and which is subject to a put option under certain conditions (the “contingent consideration”) (as further described below in Note 9). The number of shares of the Company’s common stock issued was determined based on a $2,225 value using the common stock trading price on the day immediately preceding the January 11, 2023 closing date (on the closing date the common stock trading price was $7.94 per share). The agreement also provided for a cash retention pool for certain employees of $300, subject to vesting over three years upon continued employment and other conditions.

 

11
 

 

The composition of the preliminary purchase price is as follows:

 

      
Cash  $500 
Common stock   2,000 
Contingent consideration   561 
Deferred cash payments, as discounted   246 
Total purchase consideration  $3,307 

 

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 $99 in transaction costs related to the acquisition, which primarily consisted of legal and accounting expenses. The acquisition-related expenses were recorded in general and administrative expenses on the condensed consolidated statements of operations.

 

The preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the closing date of the acquisition based upon their respective fair values as summarized below:

 

      
Advertiser relationships  $663 
Brand names   659 
Goodwill   1,985 
Net assets acquired  $3,307 

 

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 (15.0 years) for the advertiser relationships and twelve years (12.0 years) for the brand names.

 

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 $23,561 and $33,950, respectively, are presented net of allowance for doubtful accounts. The following table summarizes the allowance for doubtful accounts activity:

 

  

Three Months Ended March 31, 2023

(unaudited)

   Year Ended
December 31, 2022
 
Allowance for doubtful accounts beginning of period  $2,236   $1,578 
Additions   64    980 
Deductions – write-offs   (28)   (322)
Allowance for doubtful accounts end of period  $2,272   $2,236 

 

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 $31,908 and $25,931, respectively. The noncurrent portion of the subscription acquisition costs as of March 31, 2023 and December 31, 2022 was $12,460 and $14,133, respectively. Subscription acquisition costs as of March 31, 2023 presented as current assets of $31,908 are expected to be amortized over a one-year period, or through March 31, 2024, and $12,460 presented as long-term assets are expected to be amortized after the one-year period ending March 31, 2024.

 

Amortization of subscription acquisition costs of $10,005 and $9,723 for the three months ended March 31, 2023 and 2022, respectively, are included in selling and marketing expenses on the condensed consolidated statements of operations. No impairment losses have been recognized for subscription acquisition costs for the three months ended March 31, 2023 and 2022.

 

13
 

 

Prepayments and other current assets – Prepayments and other current assets are summarized as follows:

 

  

March 31, 2023

(unaudited)

   December 31, 2022 
   As of 
  

March 31, 2023

(unaudited)

   December 31, 2022 
Prepaid expenses  $3,840   $2,321 
Prepaid supplies   923    927 
Refundable income and franchise taxes   157    957 
Unamortized debt costs   216    216 
Employee retention credits   6,868    - 
Other receivables   33    20 
Total prepayments and other current assets  $12,037   $4,441 

 

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 $6,868 in operating expenses on the condensed consolidated statements of operations with a corresponding receivable included in prepaid expenses and other current assets on the condensed consolidated balance sheets.

 

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

 

  

March 31, 2023

(unaudited)

   December 31, 2022 
   As of 
  

March 31, 2023

(unaudited)

   December 31, 2022 
Office equipment and computers  $1,777   $1,744 
Furniture and fixtures   133    240 
Property and equipment, Gross   1,910    1,984 
Less accumulated depreciation and amortization   (1,345)   (1,249)
Net property and equipment  $565   $735 

 

Depreciation and amortization expense for the three months ended March 31, 2023 and 2022 was $114 and $114, respectively. For the three months ended March 31, 2023 and 2022, impairment charges of $55 and $0, respectively, have been recorded for property and equipment on the condensed consolidated statements of operations.

 

14
 

 

Platform Development – Platform development costs are summarized as follows:

 

  

March 31, 2023

(unaudited)

   December 31, 2022 
   As of 
  

March 31, 2023

(unaudited)

   December 31, 2022 
Platform development  $22,764   $21,493 
Less accumulated amortization   (12,575)   (11,163)
Net platform development  $10,189   $10,330 

 

A summary of platform development activity for the three months ended March 31, 2023 is as follows:

 Summary of Platform Development Cost Activity

      
Platform development beginning of period  $21,493 
Payroll-based costs capitalized   1,188 
Less dispositions   (160)
Total capitalized costs   22,521 
Stock-based compensation   307 
Impairments   (64)
Platform development end of period  $22,764 

 

Amortization expense for the three months ended March 31, 2023 and 2022, was $1,573 and $1,344, respectively. Amortization expense for platform development is included in cost of revenues on the condensed consolidated statements of operations. For the three months ended March 31, 2023 and 2022, impairment charges of $64 and $210, respectively, have been record for platform development on the condensed consolidated statements of operations.

 

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  $17,333   $(15,679)  $1,654   $17,333   $(14,883)  $2,450 
Trade name   5,380    (1,287)   4,093    5,380    (1,180)   4,200 
Brand name   12,774    (1,274)   11,500    12,115    (908)   11,207 
Subscriber relationships   73,459    (50,769)   22,690    73,459    (47,146)   26,313 
Advertiser relationships   15,965    (1,776)   14,189    15,302    (1,368)   13,934 
Database   2,397    (1,856)   541    2,397    (1,753)   644 
Digital content   355    (178)   177    355    (133)   222 
Total intangible assets  $127,663   $(72,819)  $54,844   $126,341   $(67,371)  $58,970 

 

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 $5,448 and $5,055, respectively, of which amortization expense for developed technology of $796 and $967, respectively, is included in cost of revenues on the condensed consolidated statements of operations. For the three months ended March 31, 2023 and 2022, impairment charges of $0 and $47, respectively, have been recorded for the intangible assets on the condensed consolidated statements of operations.

 

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 1.51 years.

 

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)  $240   $179 
Cash payments included in the measurement of operating lease liabilities during the period  $121   $117 
Weighted-average remaining lease term (in years) as of period-end   1.51    2.51 
Weighted-average discount rate during the period   9.9%   9.9%

 

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

 

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

 

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

 

The components of operating lease costs were as follows:

 

   2023   2022 
   Three Months Ended March 31, 
   2023   2022 
Operating lease costs:          
Cost of revenue  $-   $- 
Selling and marketing   -    - 
General and administrative   295    234 
Total operating lease costs (1)   295    234 
Sublease income   (55)   (55)
Total  $240   $179 

 

(1) Includes certain costs associated with a business membership agreement (see below) that permits access to certain office space for the three months ended March 31, 2023 and 2022 of $155 and $170, respectively, and month-to-month lease arrangements for the three months ended March 31, 2023 and 2022 of $76 and $0, respectively.

 

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)  $366 
2024   373 
Minimum lease payments   739 
Less imputed interest   (55)
Present value of operating lease liability  $684 
Current portion of operating lease liability  $442 
Long-term portion of operating lease liability   242 
Total operating lease liability  $684 

 

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 $414.

 

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 $620 ($500 for a dedicated membership area and $120 for minimum membership accounts) payable in equal monthly installments. The membership agreement also provides for: (1) additional membership accounts at predetermined pricing; and (2) renewal of the membership agreement at the end of the term for a twelve-month period at the then-current market price and pricing structure on such renewal date. As of March 31, 2023, the Company had $568 of remaining payments under the membership agreement with Convene.

 

16
 

 

5. Goodwill

 

The changes in carrying value of goodwill are as follows:

 

  

March 31, 2023

(unaudited)

   December 31, 2022 
   As of 
  

March 31, 2023

(unaudited)

   December 31, 2022 
Carrying value at beginning of year  $39,344   $19,619 
Goodwill acquired in acquisition of Parade   -    2,587 
Goodwill acquired in acquisition of Men’s Journal   -    17,138 
Goodwill acquired in acquisition of Fexy Studios   1,985    - 
Carrying value at end of period  $41,329   $39,344 

 

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 $40,000 (subject to certain limits and eighty-five (85%) of eligible accounts receivable), (ii) the interest rate on the line of credit was amended to be the prime rate plus 4.0% per annum of the amount advanced (subject to minimum utilization of at least 10% of the maximum amount of advances available) (as of March 31, 2023 the rate was 12.0%), and (iii) the maturity of the line of credit was extended to December 31, 2024; provided that the maturity date will be December 31, 2023 if the Company has not refinanced, repaid or extended all of its Senior Secured Notes (as defined below) due December 31, 2023 by August 31, 2023, and provided further, that SLR will be entitled to accelerate the maturity date of the obligations if the Company has not refinanced, repaid or extended all of its Senior Secured Notes due December 31, 2023 by September 30, 2023. In the event that the line of credit is accelerated, the Company will be obligated to pay SLR a termination fee of $900. The amendment also permitted the Company to enter into the Bridge Notes (as defined below). The line of credit is for working capital purposes and is secured by a first lien on all the Company’s cash and accounts receivable and a second lien on all other assets. In connection with the line of credit, the Company incurred debt costs of $441 that are being amortized over the life of the line of credit with the unamortized balance, as of March 31, 2023, reflected in prepayment and other current assets of $216 and other long-term assets of $162. As of December 31, 2022, the unamortized balance was reflected in other current assets of $216 and other long-term assets of $216. As of March 31, 2023, the effective interest rate on the line of credit was 14.0%. As of March 31, 2023 and December 31, 2022, the balance outstanding under the line of credit was $9,559 and $14,092, respectively, as reflected on the condensed consolidated balance sheets.

 

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 $88.00 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 8,064 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 $710, exclusive of imputed interest of $78, as reflected on the condensed consolidated statements of cash flows. On April 4, 2022, the Company paid $1,597 for the remaining 18,134 shares of the Company’s restricted common stock that were outstanding as of March 31, 2022 that were subject to repurchase.

 

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)  $15   $-   $-   $15 
Series H convertible preferred stock   618    626    607    1,851 
Convertible debentures   -    704    300    1,004 
Series J convertible preferred stock   932    932    580    2,444 
Series K convertible preferred stock   306    289    185    780 
Total  $1,871   $2,551   $1,672   $6,094 

 

   As of December 31, 2022 
  

Registration

Rights

Damages

  

Public

Information

Failure

Damages

  

Accrued

Interest

   Balance 
MDB common stock to be issued (1)  $15   $-   $-   $15 
Series H convertible preferred stock   618    626    570    1,814 
Convertible debentures   -    704    280    984 
Series J convertible preferred stock   932    932    525    2,389 
Series K convertible preferred stock   437    478    220    1,135 
Total  $2,002   $2,740   $1,595   $6,337 

 

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

 

As of March 31, 2023 and December 31, 2022, the short-term liquidated damages payable were $5,970 and $5,843, respectively, and the long-term liquidated damages payable were, $124 and $494, respectively. During the three months ended March 31, 2023 a portion of the long-term portion was converted into shares of the Company’s common stock on February 10, 2023, as further described below. The Company will continue to accrue interest on the liquidated damages balance at 1.0% per month based on the balance outstanding as of March 31, 2023, or $5,970, until paid. There is no scheduled date when the unpaid liquidated damages become due. The Series K convertible preferred stock remains subject to Registration Rights Damages and Public Information Failure Damages, which will accrue in certain circumstances, limited to 6% of the aggregate amount invested.

 

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 47,252 shares of its common stock at a price equal to $10.56 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 $494 owed in liquidated damages as of the conversion date. On February 10, 2023 and April 10, 2023, the Company issued 35,486 and 11,766 shares of its common stock, respectively, in satisfaction of the liquidated damages. The Company prepared and filed a registration statement covering the resale of these shares of the Company’s common stock issued in lieu of payment of these liquidated damages in cash. On February 10, 2023, the Company recorded $324 in connection with the issuance of shares of the Company’s common stock and a gain of $46 on the settlement of the liquidated damages, totaling $370, which was recorded in additional paid-in capital on the condensed consolidated statement of stockholders’ deficiency.

 

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 $8.10 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  $1,060   $   -   $1,060   $     - 

 

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) $8.10 exercise price equal to the closing price of the Company’s common stock at the acquisition date; (ii) $4.25 common stock price equal to the trading price of the Company’s common stock as of the reporting date; (iii) 0.78 years for the expected term; (iv) 4.77% annualized risk free rate; and (v) 70.00% selected volatility. For the three months ended March 31, 2023, the change in valuation of the contingent consideration of $499 was recognized in other expenses on the condensed consolidated statement of operations.

 

19
 

 

10. Bridge Notes

 

On December 15, 2022, the Company issued $36,000 aggregate principal amount of senior secured notes (the “Bridge Notes”) pursuant to a third amended and restated note purchase agreement (as described below) with BRF Finance Co., LLC, (“BRF”) an affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for the purchasers and as purchaser. The Company received net proceeds of $34,728 from the issuance of the Bridge Notes. Interest on the Bridge Notes is payable in cash at a rate of 12% per annum quarterly in arrears on March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023; provided that, on March 1, 2023, May 1, 2023, and July 1, 2023, the interest rate on the Bridge Notes will increase by 1.5% per annum, with maturity on December 31, 2023. The Bridge Notes are subject to certain mandatory prepayment requirements, including, but not limited to, a requirement that the Company apply the net proceeds from certain debt incurrences or equity offerings to repay the Bridge Notes. The Company may elect to prepay the Bridge Notes, at any time, in whole or in part with no premium or penalty. The Bridge Notes are secured by liens on the same collateral that secures indebtedness under the Company’s outstanding Senior Secured Notes (as defined below) and are guaranteed by the Company’s subsidiaries that guarantee the Senior Secured Notes. The Bridge Notes provide for certain covenants and event of default provisions similar to those contained in the Senior Secured Notes. In connection with the Bridge Notes, the Company incurred debt costs of $1,272 that are being amortized over the expected life of the debt. As of March 31, 2023, the effective interest rate was 19.0%. As of March 31, 2023 and December 31, 2022, the balance outstanding under the Bridge Notes was $35,433 ($36,000 principal balance less unamortized debt costs of $567) and $34,805 ($36,000 principal balance less unamortized debt costs of $1,195), respectively.

 

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 $9,928 as of December 31, 2021 (the Company repaid $5,928 on December 31, 2022);
     
  a provision where the Company added $13,852 to the principal balance of the notes for interest payable on the notes on last day of a fiscal quarter from September 30, 2020 to December 31, 2021 as payable in-kind;
     
  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 10.0% per annum, subject to adjustment in the event of default, with a provision that within one (1) business day after receipt of cash proceeds from any issuance of equity interests, unless waived, the Company will prepay certain obligations in an amount equal to such cash proceeds, net of underwriting discounts and commissions;
     
  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 $36,000 and to increase the line of credit with SLR in an aggregate principal amount not to exceed $40,000.

 

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 10.0% per annum, subject to adjustment in the event of default;
     
  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:

 

Schedule of Long 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 December 31, 2023  $62,691   $(681)  $62,010   $62,691   $(904)  $61,787 
Delayed Draw Term Notes, as amended, matures December 31, 2023   4,000    (78)   3,922    4,000    (103)   3,897 
Total  $66,691   $(759)  $65,932   $66,691   $(1,007)  $65,684 

 

As of March 31, 2023 and December 31, 2022, the term debt carrying value of $65,932 and $65,684, respectively, was reflected as a current liability on the condensed consolidated balance sheets. As of March 31, 2023, the effective interest rate of the Senior Secured Notes and Delayed Draw Term Notes were 11.4% and 12.5%, respectively.

 

The Company’s principal maturities of term debt are due December 31, 2023 in the amount of $66,691.

 

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  $54   $- 
Bridge Notes   628    - 
Senior Secured Notes   223    350 
Delayed Draw Term Notes   25    310 
Total amortization of debt costs   930    660 
Cash paid interest:          
Line of credit   438    252 
Bridge Notes   1,127    - 
Senior Secured Notes   1,567    1,567 
Delayed Draw Term Notes   100    247 
Other   20    94 
Total cash paid interest   3,252    2,160 
Total interest expense  $4,182   $2,820 

 

21
 

 

12. Preferred Stock

 

The Company has the authority to issue 1,000,000 shares of preferred stock, $0.01 par value per share, consisting of authorized and/or outstanding shares as of March 31, 2023 as follows:

 

  1,800 authorized shares designated as “Series G Convertible Preferred Stock”, of which 168 shares are outstanding.
     
  23,000 authorized shares designated as “Series H Convertible Preferred Stock” (as further described below), of which 14,356 shares are outstanding.

 

13. Stockholders’ Equity

 

Common Stock

 

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

 

On 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 2,963,918 shares of the Company’s common stock, $0.01 par value per share at a purchase price of $3.88 per share. The gross proceeds received were $11,500 and after deducting offering expenses of $289, the Company received net proceeds of $11,211, as reflected on the condensed consolidated statements of stockholder’s deficiency. No underwriter or placement agent participated in the registered direct offering. The Company intends to use the net proceeds for working capital and other general corporate purposes.

 

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

 

14. Compensation Plans

 

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
 

 

Stock-based compensation and equity-based expense charged to operations or capitalized are summarized as follows:

 

   Three Months Ended March 31, 2023 
   Restricted Stock   Common Stock Options   Warrants   Totals 
Cost of revenue  $794   $1,291   $-   $2,085 
Selling and marketing   65    388    -    453 
General and administrative   2,352    1,291    246    3,889 
Total costs charged to operations   3,211    2,970    246    6,427 
Capitalized platform development   -    307    -    307 
Total stock-based compensation  $3,211   $3,277   $246   $6,734 

 

   Three Months Ended March 31, 2022 
   Restricted Stock   Common Stock Options   Warrants   Totals 
Cost of revenue  $868   $1,289   $-   $2,157 
Selling and marketing   73    527    -    600 
General and administrative   1,858    2,237    515    4,610 
Total costs charged to operations   2,799    4,053    515    7,367 
Capitalized platform development   -    687    -    687 
Total stock-based compensation  $2,799   $4,740   $515   $8,054 

 

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  $10,757   $13,941   $794   $25,492 
Weighted average period expected to be recognized (in years)   1.39    1.47    0.84    1.42 

 

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 38,026 restricted stock units with time-based vesting that were unvested were vested and 21,117 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 45,632 options of shares of the Company’s common stock (including previously vested options of shares of the Company’s common stock of 24,515) as of the resignation date of the employee at a price of $10.29 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 $10.29 per option less the strike price of $8.82 per option resulted in incremental cost of $68 being recognized at the modification date. The modification resulted in liability classification of the equity awards, with $68 reflected in accrued expenses and other as of March 31, 2023 on the condensed consolidated balance sheets.

 

Publisher Partner Warrants – On March 13, 2023, the Company issued 9,800 warrants for shares of the Company’s common stock (3,000 warrants were issued with an effective date of November 3, 2022 and an exercise price of $10.56 and 6,800 warrants were issued with an effective date of March 13, 2023 and an exercise price of $5.30) un