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 | ||||||||