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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 September 30, 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 November 10, 2023, the Registrant had 23,834,891 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 34
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 47
   
Item 4. Controls and Procedures 47
   
PART II - OTHER INFORMATION 49
   
Item 1. Legal Proceedings 49
   
Item 1A. Risk Factors 49
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 52
   
Item 3. Defaults Upon Senior Securities 52
   
Item 4. Mine Safety Disclosures 52
   
Item 5. Other Information 52
   
Item 6. Exhibits 53
   
SIGNATURES 54

 

2
 

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) of The Arena Group Holdings, Inc. (the “Company,” “Arena, ” “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, the timing, outcome or financial impacts of the planned Business Combination (as defined below) and related transactions 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 and in Item 1A of Part II of the Quarterly Report on Form 10-Q. 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 – September 30, 2023 (Unaudited) and December 31, 2022   5
Condensed Consolidated Statements of Operations (Unaudited) - Three Months and Nine Months Ended September 30, 2023 and 2022   6
Condensed Consolidated Statements of Stockholders’ Deficiency (Unaudited) - Three Months and Nine Months Ended September 30, 2023 and 2022   7
Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2023 and 2022   9
Notes to Condensed Consolidated Financial Statements (Unaudited)   10

 

4
 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  

September 30,

2023

(unaudited)

  

December 31,

2022

 
   ($ in thousands, except share data) 
Assets        
Current assets:          
Cash and cash equivalents  $7,290   $13,871 
Restricted cash   -    502 
Accounts receivable, net   37,977    33,950 
Subscription acquisition costs, current portion   31,944    25,931 
Prepayments and other current assets   6,906    4,441 
Total current assets   84,117    78,695 
Property and equipment, net   404    735 
Operating lease right-of-use assets   229    372 
Platform development, net   9,265    10,330 
Subscription acquisition costs, net of current portion   9,751    14,133 
Acquired and other intangible assets, net   44,211    58,970 
Other long-term assets   1,041    1,140 
Goodwill   42,575    39,344 
Total assets  $191,593   $203,719 
Liabilities, mezzanine equity and stockholders’ deficiency          
Current liabilities:          
Accounts payable  $11,333   $12,863 
Accrued expenses and other   25,765    23,102 
Line of credit   17,303    14,092 
Unearned revenue   63,757    58,703 
Subscription refund liability   750    845 
Operating lease liability   471    427 
Contingent consideration   1,030    - 
Liquidated damages payable   6,293    5,843 
Bridge notes   5,767    34,805 
Term debt   19,980    65,684 
Total current liabilities   152,449    216,364 
Unearned revenue, net of current portion   14,532    19,701 
Operating lease liability, net of current portion   -    358 
Liquidated damages payable, net of current portion   -    494 
Other long-term liabilities   758    5,307 
Deferred tax liabilities   574    465 
Term debt   82,362    - 
Total liabilities   250,675    242,689 
Commitments and contingencies (Note 19)   -    - 
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 September 30, 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: $0 and $14,356; Series H shares issued and outstanding: none and 14,356; common shares issuable upon conversion: none and 1,981,128 at September 30, 2023 and December 31, 2022, respectively   -    13,008 
Total mezzanine equity   168    13,176 
Stockholders’ deficiency:          
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 23,823,476 and 18,303,193 shares at September 30, 2023 and December 31, 2022, respectively   237    182 
Common stock to be issued   -    - 
Additional paid-in capital   313,611    270,743 
Accumulated deficit   (373,098)   (323,071)
Total stockholders’ deficiency   (59,250)   (52,146)
Total liabilities, mezzanine equity and stockholders’ deficiency  $191,593   $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   2023   2022 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2023   2022   2023   2022 
   ($ in thousands, except share data) 
Revenue  $63,418   $57,277   $173,604   $159,272 
Cost of revenue (includes amortization of platform development and developed technology for three months ended 2023 and 2022 of $2,191 and $2,413, respectively and for the nine months ended 2023 and 2022 of $6,883 and $7,099, respectively)   35,245    32,671    102,422    98,790 
Gross profit   28,173    24,606    71,182    60,482 
Operating expenses                    
Selling and marketing   19,271    18,424    56,743    53,123 
General and administrative   11,028    13,493    35,803    41,841 
Depreciation and amortization   4,726    4,478    14,227    13,124 
Loss on impairment of assets   -    -    119    257 
Total operating expenses   35,025    36,395    106,892    108,345 
Loss from operations   (6,852)   (11,789)   (35,710)   (47,863)
Other (expense) income                    
Change in fair value of contingent consideration   (60)   -    (469)   - 
Interest expense   (4,042)   (3,184)   (13,225)   (8,510)
Liquidated damages   (151)   (339)   (455)   (639)
Total other expenses   (4,253)   (3,523)   (14,149)   (9,149)
Loss before income taxes   (11,105)   (15,312)   (49,859)   (57,012)
Income tax (provision) benefit   (61)   (547)   (168)   1,180 
Loss from continuing operations   (11,166)   (15,859)   (50,027)   (55,832)
Loss from discontinued operations, net of tax   -    (646)   -    (1,329)
Net loss  $(11,166)  $(16,505)  $(50,027)  $(57,161)
Basic and diluted net loss per common share:                    
Continuing operations  $(0.48)  $(0.87)  $(2.32)  $(3.22)
Discontinued operations   -    (0.04)   -    (0.08)
Basic and diluted net loss per common share  $(0.48)  $(0.90)  $(2.33)  $(3.30)
Weighted average number of common shares outstanding – basic and diluted   23,445,675    18,284,670    21,567,166    17,339,882 

 

 

See accompanying notes to condensed consolidated financial statements.

 

6
 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Three and Nine Months Ended September 30, 2023

 

                                    
   Common Stock   Common Stock to be Issued   Additional      Total 
   Shares   Par Value   Shares   Par Value   Paid-in Capital   Accumulated Deficit   Stockholders’
Deficiency
 
   ($ in thousands, except per share data) 
Balance at June 30, 2023   22,014,927   $219    41,283   $-   $297,522   $(361,932)  $(64,191)
Issuance of common stock upon conversion of Series H convertible preferred stock   1,774,128    18    -    -    11,490    -    11,508 
Issuance of common stock for restricted stock units   5,442    -    -    -    -    -    - 
Issuance of common stock in connection with acquisition   28,979         (28,979)   -    -    -    - 
Stock-based compensation   -    -    -    -    4,599    -    4,599 
Net loss   -    -    -    -    -    (11,166)   (11,166)
Balance at September 30, 2023   23,823,476   $237    12,304   $-   $313,611   $(373,098)  $(59,250)

 

   Common Stock   Common Stock to be Issued   Additional        Total 
   Shares   Par Value   Shares   Par Value  

Paid-in

Capital

   Accumulated Deficit   Stockholders’
Deficiency
 
   ($ in thousands, except 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 settlement of Series H convertible preferred stock   1,981,128    20    -    -    12,988    -    13,008 
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   47,252    -    -    -    369    -    369 
Gain upon issuance of common stock in connection with settlement of liquidated damages   -    -    -    -    130    -    130 
Issuance of common stock for restricted stock units   425,901    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 acquisition   28,979    -    (28,979)   -    -    -    - 
Issuance of common stock in connection with registered direct offering   2,963,918    30    -    -    11,114    -    11,144 
Reclassification to liability upon modification of common stock option   -    -    -         (68)   -    (68)
Stock-based compensation   -    -    -    -    17,763    -    17,763 
Net loss   -    -    -    -    -    (50,027)   (50,027)
Balance at September 30, 2023   23,823,476   $237    12,304   $-   $313,611   $(373,098)  $(59,250)

 

7
 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Three and Nine Months Ended September 30, 2022

 

   Common Stock   Common Stock to be Issued   Additional       Total 
   Shares   Par Value   Shares   Par Value  

Paid-in

Capital

   Accumulated Deficit   Stockholders’
Deficiency
 
   ($ in thousands, except share data) 
Balance at June 30, 2022   17,830,154   $178    41,283   $-   $258,727   $(292,869)  $(33,964)
Issuance of common stock for restricted stock units   541,719    5    -    -    (5)   -    - 
Issuance of common stock for exercise   38,152    -    -    -    94    -    94 
Common stock withheld for taxes upon issuance of underlying shares for restricted stock units   (257,775)   (1)   -    -    (2,963)   -    (2,964)
Stock-based compensation   -    -    -    -    8,715    -    8,715 
Net loss   -    -    -    -    -    (16,505)   (16,505)
Balance at September 30, 2022   18,152,250   $182    41,283   $-   $264,568   $(309,374)  $(44,624)

 

   Common Stock   Common Stock to be Issued   Additional       Total 
   Shares   Par Value   Shares   Par Value  

Paid-in

Capital

   Accumulated Deficit   Stockholders’
Deficiency
 
   ($ in thousands, except share data) 
Balance at January 1, 2022   12,635,591   $126    49,134   $-   $200,410   $(252,213)  $(51,677)
Issuance of common stock upon conversion of series H preferred stock   70,380    1    -    -    510    -    511 
Issuance of stock in connection with the acquisition of Athlon   314,103    3    -    -    3,138    -    3,141 
Issuance of stock in connection with the merger of Say Media   7,851    -    (7,851)   -    -    -    - 
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 in connection with the exercise of stock options   38,152    -    -    -    94    -    94 
Issuance of common stock for restricted stock units   718,530    7    -    -    (7)   -    - 
Common stock withheld for taxes upon issuance of underlying shares for restricted stock units   (324,798)   (2)   -    -    (3,518)   -    (3,520)
Repurchase restricted stock classified as liabilities   (26,214)   -    -    -    -    -    - 
Issuance of common stock in connection with public offering   4,181,603    42    -    -    30,448    -    30,490 
Issuance of common stock for exercise   20    -    -    -    -    -    - 
Stock-based compensation   -    -    -    -    26,306    -    26,306 
Net loss   -    -    -    -    -    (57,161)   (57,161)
Balance at September 30, 2022   18,152,250   $182    41,283   $-   $264,568   $(309,374)  $(44,624)

 

See accompanying notes to condensed consolidated financial statements.

 

8
 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   2023   2022 
   Nine Months Ended September 30, 
   2023   2022 
   ($ in thousands) 
Cash flows from operating activities          
Net loss  $(50,027)  $(57,161)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property and equipment   276    395 
Amortization of platform development and intangible assets   20,834    19,828 
Amortization of debt discounts   2,178    1,215 
Noncash and accrued interest   754    86 
Loss on impairment of assets   119    466 
Change in fair value of contingent consideration   469    - 
Liquidated damages   455    639 
Stock-based compensation   16,978    24,777 
Deferred income taxes   109    (1,235)
Bad debt expense   217    609 
Other   -    184 
Change in operating assets and liabilities net of effect of business combination:          
Accounts receivable, net   (4,213)   (1,710)
Subscription acquisition costs   (1,631)   8,100 
Royalty fees   -    11,250 
Prepayments and other current assets   (2,465)   2,107 
Other long-term assets   (62)   75 
Accounts payable   (1,719)   (7,652)
Accrued expenses and other   1,670    (3,390)
Unearned revenue   (146)   (7,382)
Subscription refund liability   (95)   (2,250)
Operating lease liabilities   (171)   (162)
Other long-term liabilities   (5,795)   (3,465)
Net cash used in operating activities   (22,265)   (14,676)
Cash flows from investing activities          
Purchases of property and equipment   -    (444)
Capitalized platform development   (2,967)   (3,990)
Proceeds from sale of equity investment   -    2,450 
Payments for acquisition of business, net of cash acquired   (500)   (10,331)
Net cash used in investing activities   (3,467)   (12,315)
Cash flows from financing activities          
Proceeds (repayments) under line of credit, net borrowing   3,211    6,486 
Proceeds from common stock registered direct offering   11,500    32,058 
Payments of issuance costs from common stock registered direct offering   (167)   - 
Proceeds from common stock public offering, net of offering costs   -    94 
Payments of issuance costs from common stock public offering   -    (1,568)
Proceeds from bridge notes   5,703    - 
Payments of debt issuance costs   (100)   - 
Payment of deferred cash payments   (75)   (453)
Payment of taxes from common stock withheld   (1,423)   (3,520)
Payment of restricted stock liabilities   -    (2,152)
Net cash provided by financing activities   18,649    30,945 
Net increase (decrease) in cash, cash equivalents, and restricted cash   (7,083)   3,954 
Cash, cash equivalents, and restricted cash – beginning of period   14,373    9,851 
Cash, cash equivalents, and restricted cash – end of period  $7,290   $13,805 
Cash, cash equivalents, and restricted cash          
Cash and cash equivalents  $7,290   $13,303 
Restricted cash   -    502 
Total cash, cash equivalents, and restricted cash  $7,290   $13,805 
Supplemental disclosure of cash flow information          
Cash paid for interest  $10,835   $7,209 
Cash paid for income taxes   85    - 
Noncash investing and financing activities          
Reclassification of stock-based compensation to platform development  $785   $1,529 
Issuance cost of offerings recorded in accrued expenses and other   189    

-

 
Issuance of common stock in connection with settlement of liquidated damages   499    7,008 
Issuance of common stock upon conversion of Series H convertible preferred stock   13,008    511 
Issuance of common stock in connection with acquisitions   2,000    3,141 
Deferred cash payments recorded in connection with acquisitions   246    949 
Assumptions of liabilities in connection with acquisitions   1,246    11,602 
Reclassification to liability upon common stock modification   68    - 

 

See accompanying notes to condensed consolidated financial statements.

 

9
 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

($ in thousands, unless otherwise stated)

 

1. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements include the accounts of The Arena Group Holdings, Inc. (formerly known as TheMaven, Inc.) and its wholly owned subsidiaries (“The Arena Group” or the “Company”), after eliminating all significant intercompany balances and transactions. The Company 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 September 30, 2023, and for the three and nine months ended September 30, 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, instability in the global banking system, geopolitical factors, including the ongoing conflicts in Ukraine and Israel, supply chain disruptions and the remaining 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 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.

 

10
 

 

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 nine months ended September 30, 2023, the Company incurred a net loss of $50,027. For the nine months ended September 30, 2023 and year ended December 31, 2022, the Company had cash on hand of $7,290 and $13,871 and a working capital deficit of $68,332 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, while the Company has executed an amendment to extend the maturity of its 2022 Bridge Notes of $36,000, Senior Secured Notes of $62,691, Delayed Draw Term Notes of $4,000 and to extend additional borrowings on its 2023 Notes of $6,000 (each as described in Note 11 and Note 12), totaling $108,691, if the Business Combination (as further described under the heading Business Combination in Note 20) is not completed by December 31, 2023 it would represent an event of default under the related debt agreements in which case the Company 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 they are able to close the Business Combination by December 31, 2023 or extend the date at which such a default would occur.

 

The Company plans to consummate the Business Combination 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 consummate the Business Combination.

 

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.

 

Reclassifications

 

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

 

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.

 

11
 

 

Loss per Common Share

 

Basic loss per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of common stock equivalent shares, such as stock options, restricted stock, and warrants. All restricted stock awards are considered outstanding but are included in the computation of basic loss per common share only when the 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 September 30, 
   2023   2022 
Series G convertible preferred stock   8,582    8,582 
Series H convertible preferred stock   -    2,008,728 
Financing warrants   39,774    116,118 
ABG Warrants   999,540    999,540 
AllHipHop warrants   5,682    5,682 
Publisher Partner Warrants   9,800    5,629 
Restricted stock awards   -    97,402 
Restricted stock units   845,903    1,488,345 
Common stock options   5,744,890    6,228,853 
Total   7,654,171    10,958,879 

 

2. Discontinued Operations

 

The Company, upon Board approval on September 15, 2022, discontinued (i.e., the “discontinued operations”) the Parade print business (“Parade Print”) that was acquired on April 1, 2022 (as part of the Parade acquisition, as further described below in Note 3), on November 13, 2022 (the last date of any obligation to deliver issues of Parade Print).

 

The table below sets forth the loss from discontinued operations for the period from April 1, 2022 to September 30, 2022:

 

      
Revenue  $20,753 
Cost of revenue   16,940 
Gross profit   3,813 
Operating expense:     
Selling and marketing   3,504 
General and administrative   1,484 
Loss on impairment of assets  $209 
Total operating expenses   5,197 
Loss from discontinued operations   (1,384)
Income tax benefit   55 
Net loss from discontinued operations  $(1,329)

 

The discontinued operations of Parade Print also included Relish and Spry Living print products that were acquired as part of the Parade acquisition. Further information is provided under the heading Supplemental Pro Forma Information in Note 3 and Note 16.

 

During the three and nine months ended September 30, 2022, the Company recorded depreciation and amortization of $0 and $0, respectively; and operating and investing noncash items of $209 and $209, respectively, as part of the discontinued operations.

 

12
 

 

3. 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.

 

2023 Acquisition

 

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 (paid) and May 1, 2023 (paid); (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 10). 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.

 

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.

 

13
 

 

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 comply with this request; and (2) the presentation of the pro forma results and the assumptions made by Teneology management were unable to be independently substantiated.

 

2022 Acquisition

 

Athlon Holdings, Inc. - On April 1, 2022, the Company acquired 100% of the issued and outstanding capital stock of Athlon Holdings, Inc. (“Athlon” or Parade), a Tennessee corporation, for a purchase price of $15,854, as adjusted for the working capital adjustment as of the closing date of the transaction. The working capital adjustment is pending acceptance by the sellers (further details are provided in Note 19). As a part of the closing consideration, the Company also acquired cash of $1,840, that was further adjusted post-closing for the working capital adjustment. The purchase price of $15,854, as discounted, is comprised of (i) a cash portion of $12,827, with $11,840 paid at closing and $987 estimated to be paid post-closing (as further described below) and (ii) the issuance of 314,103 shares of the Company’s common stock with a fair market value of $3,141. The number of shares of the Company’s common stock issued was determined based on a $3,000 value using the common stock trading price for the 10 trading days preceding the April 1, 2022 closing date. Certain of Parade’s key employees entered into either advisory agreements or employment agreements with the Company. Parade operates in the United States.

 

The amount estimated to be paid post-closing of $987 will be or was paid as follows: (i) $742 is expected to be paid upon receipts of certain tax refunds due to the sellers (consisting of $3,000 for the deferred cash payments, as discounted, less a $2,258 cash adjustment); and (ii) $245 was paid within two business days from the date the Company received proceeds from the sale of the equity interest in Just Like Falling Off a Bike, LLC that was held by Parade as of the closing date (paid on April 7, 2022).

 

The Company received a final valuation report from a third-party valuation firm after the preliminary purchase price was adjusted during the quarterly period ended September 30, 2022. After considering the results of the final valuation report, the Company estimated that the purchase consideration decreased by $321. The decrease in the purchase price was related to an increase in identifiable assets of $54, an increase in deferred tax liabilities of $27, with a decrease in the working capital adjustment of $321, resulting in a decrease in goodwill of $348.

 

The composition of the purchase price is as follows:

 

         
Cash   $ 12,085  
Common stock     3,141  
Deferred cash payments, as discounted     628  
Total purchase consideration   $ 15,854  

 

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

 

14
 

 

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

 

         
Cash   $ 2,604  
Accounts receivable     10,855  
Other current assets     1,337  
Equity investment     2,450  
Fixed assets     108  
Digital content     355  
Advertiser relationships     6,202  
Trade names     2,261  
Goodwill     2,587  
Accounts payable     (7,416)  
Accrued expenses and other     (2,440)  
Unearned revenue     (1,203)  
Other long-term liabilities     (543)  
Deferred tax liabilities     (1,303)  
Net assets acquired   $ 15,854  

 

The Company utilized an independent appraisal firm to assist in the determination of the fair values of the assets acquired and liabilities assumed, which required certain significant management assumptions and estimates. The fair value of the digital content was determined using a cost approach. The fair values of the advertiser relationships were determined by projecting the acquired entity’s cash flows, deducting notional contributory asset charges on supporting assets (working capital, tangible assets, trade names, and the assembled workforce) to compute the excess cash flows associated with the advertiser relationships. The fair values of the trade names were determined by projecting revenue associated with each trade name and applying a royalty rate to compute the amount of the royalty payments the company is relieved from paying due to its ownership of the trade names. The estimated weighted average useful life is two years (2.00 years) for digital content, eight point seventy-five years (8.75 years) for advertiser relationships, and fourteen point five years (14.50 years) for trade names.

 

The excess purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill from the acquisition. Goodwill is recorded as a non-current asset that is not amortized but is subject to an annual review for impairment. No portion of the goodwill related to the acquisition will be deductible for tax purposes.

 

15
 

 

Supplemental Pro forma Information

 

The following table summarizes the results of operations of the Parade acquisition from the acquisition date included in the condensed consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisition been as of the beginning of the reporting period during the year of the acquisition, or January 1, 2021:

 

  

Three Months Ended

September 30, 2022

  

Nine Months Ended

September 30, 2022

 
Parade from acquisition date of April 1, 2022 (unaudited):          
Revenue  $13,373   $30,801 
Net income   81    2,521 
Combined entity supplemental pro forma information had the acquisition date been January 1, 2021 (unaudited):          
Revenue:          
Parade  $13,373   $46,710 
Arena   53,333    149,224 
Total supplemental pro forma revenue  $66,706   $195,934 
Net income (loss):          
Parade  $81   $1,945 
Arena   (16,586)   (59,106)
Adjustment   317    (1,724)
Total supplemental pro forma net loss  $(16,188)  $(58,885)

 

The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred at the beginning of the Company’s reporting period and does not reflect the discontinued operations of Parade Print that was acquired on April 1, 2022 (as part of the Parade acquisition).

 

The adjustments for the three months ended September 2022 of $317, represents adjustments: (1) to record depreciation and amortization expense related to the fixed and intangible assets acquired from the acquisition of ($216); and (2) to reverse the deferred tax provision related to the acquisition $533. The adjustments for the nine months ended September 2022 of ($1,724), represents adjustments: (1) to record depreciation and amortization expense related to the fixed and intangible assets acquired from the acquisition of ($648); (2) to reverse the nonrecurring transaction cost related to the acquisition of $200; and (3) to reverse the deferred tax benefit related to the acquisition of ($1,276).

 

Buffalo Groupe, LLC – On September 27, 2022, the Company entered into an asset purchase agreement with Buffalo Groupe, LLC, doing business as Morning Read, a Virginia limited liability company, where it purchased certain intellectual properties (including all media properties, trademarks, service marks, domain names, trade names corporate names and other identifiers of goodwill), certain assumed contracts, and other certain rights related to the intellectual properties (collectively, the “Morning Read Purchased Assets”) and assumed certain liabilities related to the Morning Read Purchased Assets. The purchase consideration consisted of a cash payment of $850,000 at closing.

 

The Company accounted for the asset acquisition in accordance with ASC 805-50, as substantially all of the fair value of the gross assets acquired by the Company is concentrated in a group of similar identifiable assets.

 

The purchase consideration totaled $850,000, which was assigned to the brand name acquired on the closing date of the acquisition. The useful life for the brand name is ten years (10.0 years).

 

16
 

 

4. 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 collectability, 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 September 30, 2023 and December 31, 2022 of $37,977 and $33,950, respectively, are presented net of allowance for doubtful accounts. The following table summarizes the allowance for doubtful accounts activity:

 

  

Nine Months Ended

September 30, 2023

(unaudited)

  

Year Ended

December 31, 2022

 
Allowance for doubtful accounts beginning of year  $2,236   $1,578 
Additions   217    980 
Deductions – write-offs   (1,514)   (322)
Allowance for doubtful accounts end of period  $939   $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 September 30, 2023 and December 31, 2022 was $31,944 and $25,931, respectively. The noncurrent portion of the subscription acquisition costs as of September 30, 2023 and December 31, 2022 was $9,751 and $14,133, respectively. Subscription acquisition costs as of September 30, 2023 presented as current assets of $31,944 are expected to be amortized over a one-year period, or through September 30, 2024, and presented as long-term assets of $9,751 are expected to be amortized after the one-year period ending September 30, 2024.

 

Amortization of subscription acquisition costs of $9,819 and $9,778 for the three months ended September 30, 2023 and 2022, respectively, are included in selling and marketing expenses on the condensed consolidated statements of operations. Amortization of subscription acquisition costs of $29,166 and $28,236 for the nine months ended September 30, 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 and nine months ended September 30, 2023 and 2022.

 

17
 

 

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

 

         
   As of 
  

September 30, 2023

(unaudited)

   December 31, 2022 
Prepaid expenses  $2,891   $2,321 
Prepaid supplies   1,101    927 
Refundable income and franchise taxes   157    957 
Unamortized debt costs   216    216 
Employee retention credits   2,468    - 
Other receivables   73    20 
Total prepayments and other current assets  $6,906   $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 a refundable employee retention credit 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 credit when earned and to offset the credit against the related expenditure. For the three and nine months ended September 30, 2023, the Company recorded the employee retention credits as a reduction to payroll and related expenses of $0 and $6,868, respectively, 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 balance sheets for the respective periods. During the three months ended September 30, 2023 the Company received $4,400 in employee retention credits and has a receivable balance remaining of $2,468 as of September 30, 2023.

 

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

 

         
   As of 
  

September 30, 2023

(unaudited)

   December 31, 2022 
Office equipment and computers  $1,777   $1,744 
Furniture and fixtures   133    240 
Gross property and equipment   1,910    1,984 
Less accumulated depreciation and amortization   (1,506)   (1,249)
Net property and equipment  $404   $735 

 

Depreciation and amortization expense for the three months ended September 30, 2023 and 2022 was $79 and $150, respectively. Depreciation and amortization expense for the nine months ended September 30, 2023 and 2022 was $276 and $395, respectively. Impairment charges for the three and nine months ended September 30, 2023 of $0 and $55, respectively, were recorded for property and equipment on the condensed consolidated statements of operations. No impairment charges for the three and nine months ended September 30, 2022 were recorded for property and equipment.

 

18
 

 

Platform Development – Platform development costs are summarized as follows:

 

         
   As of 
  

September 30, 2023

(unaudited)

   December 31, 2022 
Platform development  $25,017   $21,493 
Less accumulated amortization   (15,752)   (11,163)
Net platform development  $9,265   $10,330 

 

A summary of platform development activity for the nine months ended September 30, 2023 is as follows:

 

      
Platform development beginning of period  $21,493 
Payroll-based costs capitalized   2,967 
Less dispositions   (164)
Total capitalized costs   24,296 
Stock-based compensation   785 
Impairments   (64)
Platform development end of period  $25,017 

 

Amortization expense for the three months ended September 30, 2023 and 2022, was $1,595 and $1,511, respectively. Amortization expense for the nine months ended September 30, 2023 and 2022, was $4,753 and $4,268, respectively. Amortization expense for platform development is included in cost of revenues on the condensed consolidated statements of operations. Impairment charges for the three and nine months ended September 30, 2023 of $0 and $64, respectively, were recorded for platform development on the condensed consolidated statements of operations. Impairment charges for the three and nine months ended September 30, 2022 of $0 and $210, respectively, were recorded for platform development on the condensed consolidated statements of operations.

 

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

 

  

As of September 30, 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   $(17,012)  $321   $17,333   $(14,883)  $2,450 
Trade name   5,380    (1,490)   3,890    5,380    (1,180)   4,200 
Brand name   12,774    (2,007)   10,767    12,115    (908)   11,207 
Subscriber relationships   73,459    (58,028)   15,431    73,459    (47,146)   26,313 
Advertiser relationships   15,965    (2,583)   13,382    15,302    (1,368)   13,934 
Database   2,397    (2,066)   331    2,397    (1,753)   644 
Digital content   355    (266)   89    355    (133)   222 
Total intangible assets  $127,663   $(83,452)  $44,211   $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 September 30, 2023 and 2022 was $5,243 and $5,230, respectively, of which amortization expense for developed technology of $596 and $902, respectively, is included in cost of revenues on the condensed consolidated statements of operations. Amortization expense for the nine months ended September 30, 2023 and 2022 was $16,081 and $15,560, respectively, of which amortization expense for developed technology of $2,130 and $2,831, respectively, is included in cost of revenues on the condensed consolidated statements of operations. No impairment charges for the three and nine months ended September 30, 2023 were recorded for the intangible assets. Impairment charges for the three and nine months ended September 30, 2022 of $0 and $47, respectively, were recorded for the intangible assets on the condensed consolidated statements of operations.

 

19
 

 

5. 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 1.01 years.

 

The table below presents supplemental information related to operating leases:

 

   Nine Months Ended September 30, 
   2023   2022 
Operating lease costs during the period (1)  $758   $727 
Cash payments included in the measurement of operating lease liabilities during the period  $362   $351 
Weighted-average remaining lease term (in years) as of period-end   1.01    2.01 
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:

 

                 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2023   2022   2023   2022 
Operating lease costs:                    
Cost of revenue  $-   $-   $-   $- 
Selling and marketing   -    -    -    - 
General and administrative   259    328    922    891 
Total operating lease costs (1)   259    328    922    891 
Sublease income   (55)   (55)   (164)   (164)
Total  $204   $273   $758   $727 

 

(1) Includes certain costs associated with a business membership agreement (see below) that permits access to certain office space for the three and nine months ended September 30, 2023 of $155 and $465, respectively, and month-to-month lease arrangements for the three and nine months ended September 30, 2023 of $95 and $266, respectively.

 

Maturities of the operating lease liability as of September 30, 2023 are summarized as follows:

 

Years Ending December 31,     
2023 (remaining three months of the year)  $124 
2024   373 
Minimum lease payments   497 
Less imputed interest   (26)
Present value of operating lease liability  $471 
Current portion of operating lease liability  $471 
Long-term portion of operating lease liability   - 
Total operating lease liability  $471 

 

Sublease Agreement – In November 2021, the Company entered into an agreement to sublease its leased office space for the duration of its operating lease through September 2024. As of September 30, 2023, the Company is entitled to receive sublease income of $288.

 

20
 

 

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”), referred to as SaksWorks Memberships. This membership provides a certain number of accounts that equate to the use of the space granted. Effective June 1, 2022, the SaksWorks membership agreement was amended and assigned to Convene SW MSA Holdings, LLC (“Convene”). The term of the 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 dedicated area and $120 for minimum membership accounts) payable in equal monthly installments. The agreement also provides for: (1) additional accounts at predetermined pricing; and (2) renewal of the 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 September 30, 2023, the Company had $259 of remaining payments under the agreement with Convene.

 

6. Goodwill

 

The changes in carrying value of goodwill are as follows:

 

         
   As of 
  

September 30, 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   1,246    17,138 
Goodwill acquired in acquisition of Fexy Studios   1,985    - 
Carrying value at end of period  $42,575   $39,344 

 

In connection with the acquisition of Men’s Journal, the Company received a final valuation report during the quarterly period ended September 30, 2023 from a third-party valuation firm after the preliminary purchase price was determined. After considering the results of the final valuation report, the Company estimated that the purchase consideration increased by $1,246 as a result of an increase in the fair value of the assumed lease obligation with an offset recorded to goodwill.

 

7. Line of Credit

 

SLR Line of Credit – 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” or the “amended line of credit”), as further amended on August 31, 2023 in connection with the Business Combination (see Note 20) (the “SLR Amendment”) pursuant to which the SLR Amendment provided for an extension of the maturity date, additional event of default provisions in connection with the Business Combination, payment of certain fees in connection with the Business Combination, additional borrowings under the 2023 Notes pursuant to the First Amendment (see Note 11 and Note 18), and issuance of Series L preferred stock in connection with the Business Combination, all of which are more fully described herein and collectively the amended line of credit and SLR Amendment are referred to as the “line of credit”. The line of credit provides for (i) $40,000 maximum amount of advances available (subject to certain limits and eighty-five (85%) of eligible accounts receivable), (ii) an interest rate at 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 September 30, 2023 the stated interest rate was 12.5%), (iii) payment of a fee equal to 2.25% of the maximum line amount with respect to any termination of the agreement prior to December 31, 2025 at the option of the Company at any time with 60 day notice, (iv) a payment of a performance fee in the amount equal to 2.25% of the maximum line amount, under certain circumstances pursuant to the Business Combination in connection with a deal deadline or in the event of a deal failure, as defined in the SLR Amendment, further the performance fee will survive the termination of the agreement, (v) a payment of a success fee if the Business Combination is consummated, of 0.3% or 0.6% of the maximum line amount if the Business Combination closes on or before December 31, 2023 or after December 31, 2023, respectively, or $0 if the transaction closes after the deal deadline, and (vi) a maturity date of December 31, 2025. The SLR Amendment also provided that an event of default will occur thereunder if the Business Combination is not consummated by March 31, 2024 (or June 30, 2024 if the lenders under the Note Purchase Agreement (see Note 18) agree to extend the deadline for consummation of the Business Combination to March 31, 2024 or thereafter). The SLR Amendment also permitted the Company to enter into the 2023 Notes in an aggregate of $8,000 and permits the issuance of the Series L preferred stock for $25,000 in connection with the Business Combination. 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 SLR Amendment and amended line of credit, the Company incurred debt costs of $200 of $441, respectively, with the SLR Amendment debt cost plus the unamortized debt cost at the time of the SLR Amendment being amortized over the life of the extended maturity date of line of credit. The unamortized balance, as of September 30, 2023, reflected in prepayment and other current assets of $216 and other long-term assets of $254. As of December 31, 2022, the unamortized balance was reflected in prepayments and other current assets of $216 and other long-term assets of $216. As of September 30, 2023, the effective interest rate on the line of credit was 13.7%. As of September 30, 2023 and December 31, 2022, the balance outstanding under the line of credit was $17,303 and $14,092, respectively, as reflected on the condensed consolidated balance sheets.

 

Information for the three and nine months ended September 30, 2023 and 2022 with respect to interest expense related to the line of credit is provided under the heading Interest Expense in Note 12.

 

21
 

 

8. 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 26,214 shares of the Company’s restricted common stock during the nine months ended September 30, 2022 on the condensed consolidated statements of stockholders’ deficiency. Effective April 4, 2022, there are no longer any shares of the Company’s common stock subject to repurchase. During the nine months ended September 30, 2022, the Company paid $2,307 in cash for the repurchase ($2,152 in principal and $155 in interest).

 

Further details are provided under the heading Repurchases of Restricted Stock in Note 18.

 

9. Liquidated Damages Payable

 

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

 

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

 

  

As of September 30, 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    681    1,925 
Convertible debentures   -    704    343    1,047 
Series J convertible preferred stock   932    932    692    2,556 
Series K convertible preferred stock   263    226    261    750 
Total  $1,828   $2,488   $1,977   $6,293 

 

   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 September 30, 2023 and December 31, 2022, the short-term liquidated damages payable were $6,293 and $5,843, respectively, and the long-term liquidated damages payable were, $0 and $494, respectively. The long-term portion was converted into shares of the Company’s common stock, 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 September 30, 2023, or $6,293, 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.

 

22
 

 

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 $499 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. During the nine months ended September 30, 2023, the Company recorded $369 ($45 on April 10, 2023 and $324 on February 10, 2023) in connection with the issuance of shares of the Company’s common stock and a gain of $130 ($84 on April 10, 2023 and $46 on February 10, 2023) on the settlement of the liquidated damages, totaling $499, which was recorded in additional paid-in capital on the condensed consolidated statement of stockholders’ deficiency.

 

10. 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 September 30, 2023:

 

Schedule of Fair Value of Financial Instruments

   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  $1,030   $      -   $1,030   $          - 

 

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) $4.28 common stock price equal to the trading price of the Company’s common stock as of the reporting date; (iii) 0.25 years for the expected term; (iv) 5.34% annualized risk free rate; (v) 76.00% selected volatility and (vi) 0.00% dividend yield. For the three and nine months ended September 30, 2023, the change in valuation of the contingent consideration of $60 and $469 in expense, respectively, was recognized in other expense on the condensed consolidated statement of operations.

 

23
 

 

11. Bridge Notes

 

2023 Notes

 

In connection with the Note Purchase Agreement and First Amendment (both as further described under the heading Principal Stockholder in Note 18), entered into in contemplation of the Business Combination (see Note 20), on August 31, 2023, the Company issued $5,000 aggregate principal amount of senior secured notes (the “2023 Notes”). The First Amendment also permits certain incremental borrowings in the amount up to $3,000 at the sole discretion of the purchaser (the “Incremental 2023 Notes”), subject to a minimum amount of $1,000 and other conditions. On September 29, 2023, the Company issued $1,000 aggregate principal amount of senior secured notes pursuant to the incremental borrowings. In connection with the issuance of the 2023 Notes, the Company received net proceeds of $5,703 from the issuance of the notes and incurred debt costs of $297 that is being amortized over the expected life of the debt.

 

Pursuant to the Note Purchase Agreement and First Amendment, the 2023 Notes provide for:

 

  an interest rate fixed at 10.0% per annum;
     
  a maturity date of December 31, 2023, subject to consummation of the Business Combination on or prior to December 31, 2023, which may result in an event of default if not consummated, and a prepayment requirement to apply a portion of the net proceeds from the Business Combination to repay $6,000 (and any additional amounts borrowed pursuant to the incremental borrowing arrangement described above) under the notes;
     
  a provision for the failure to repay the $6,000 prepayment requirement in full with the proceeds of the Business Combination or failure to consummate the Business Combination by December 31, 2023 will result in an event of default under the notes; and
     
  an election to prepay the notes, at any time, at 100% of the principal amount due with no premium or penalty.

 

As of September 30, 2023, the effective interest rate on the 2023 Notes was 24.8%. As of September 30, 2023, the balance outstanding under the 2023 Notes was $5,767 ($6,000 principal balance less unamortized debt costs of $233), with the principal balance due upon the earlier of December 31, 2023 or the closing of the Business Combination.

 

2022 Bridge Notes

 

On December 15, 2022, the Company issued $36,000 aggregate principal amount of senior secured notes (the “2022 Bridge Notes”) pursuant to the Note Purchase Agreement. In connection with the issuance of the notes, the Company received net proceeds of $34,728 from the issuance of the 2022 Bridge Notes and incurred debt costs of $1,272 that were being amortized over the expected life of the debt. As of December 31, 2022, the balance outstanding under the 2022 Bridge Notes was $34,805 ($36,000 principal balance less unamortized debt costs of $1,195), which was due on December 31, 2023. Pursuant to the First Amendment and in connection with the Business Combination, the Company incurred debt issuance costs of $100 that are being amortized over the life of the notes and a portion of the note maturity was extended (further details are provided under the heading 2022 Bridge Notes in Note 12).

 

Information for the three and nine months ended September 30, 2023 with respect to interest expense related to the 2022 Bridge Notes is provided under the heading Interest Expense in Note 12.

 

12. Term Debt

 

Senior Secured Notes

 

Pursuant to the Note Purchase Agreement and the First Amendment, as of September 30, 2023 and December 31, 2022, the Company has certain notes outstanding referred to as the senior secured notes (the “Senior Secured Notes”).

 

24
 

 

Pursuant to the Note Purchase Agreement and First Amendment (see Note 18), the Senior Secured Notes 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 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, 2026 (as amended from December 31, 2023 pursuant to the First Amendment), subject to consummation of the Business Combination on or prior to December 31, 2023, which may result in an event of default if not consummated, and subject to certain acceleration conditions; and
     
  the Company to enter into the 2022 Bridge Notes for $36,000 and to increase the line of credit with SLR in an aggregate principal amount not to exceed $40,000.

 

Delayed Draw Term Notes

 

Pursuant to the Note Purchase Agreement, as of September 30, 2023 and December 31, 2022, the Company has outstanding obligations of $4,000 for delayed draw term notes (the “Delayed Draw Term Notes”) that was further amended pursuant to the First Amendment, which include terms prior to and including the second amended and restated note purchase agreement.

 

Pursuant to the Note Purchase Agreement and First Amendment (see Note 18), the Delayed Draw Term Notes provide for:

 

  an interest rate of 10.0% per annum, subject to adjustment in the event of default;
     
  interest on the notes 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; and
     
  a maturity date on December 31, 2026 (as amended from December 31, 2023 pursuant to the First Amendment), subject to consummation of the Business Combination on or prior to December 31, 2023, which may result in an event of default if not consummated, and subject to certain acceleration terms.

 

25
 

 

2022 Bridge Notes

 

Pursuant to the First Amendment, the 2022 Bridge Notes outstanding as of December 31, 2022 were amended and reclassified from a current liability to a noncurrent liability.

 

Pursuant to the Note Purchase Agreement and First Amendment (see Note 18), the 2022 Bridge Notes provide for:

 

  an interest rate fixed at 10.0% per annum (as amended from interest that was 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 notes increased by 1.5% per annum pursuant to the First Amendment);
     
  a maturity date of December 31, 2026 (as amended from December 31, 2023 pursuant to the First Amendment), subject to consummation of the Business Combination on or prior to December 31, 2023, which may result in an event of default if not consummated, and 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 notes;
     
  a prepayment requirement to apply a portion of the net proceeds from the Business Combination to repay $20,000 of the principal balance under the notes upon the earlier of December 31, 2023 or the closing of the Business Combination;
     
  a provision for the failure to repay the $20,000 prepayment requirement in full with the proceeds of the Business Combination or failure to consummate the Business Combination by December 31, 2023 will result in an event of default under the notes; and
     
  an election to prepay the notes, at any time, in whole or in part with no premium or penalty.

 

The following table summarizes the term debt:

 

  

As of September 30, 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, effective interest rate of 11.4% as of September 30, 2023, as amended, matures December 31, 2026, subject to acceleration  $62,691   $(228)  $62,463   $62,691   $(904)  $61,787 
Senior Secured Notes, effective interest rate of 11.4% as of September 30, 2023, as amended, matures December 31, 2026, subject to acceleration  $62,691   $(228)  $62,463   $62,691   $(904)  $61,787 
Delayed Draw Term Notes, effective interest rate of 12.5% as of September 30, 2023, as amended, matures December 31, 2026, subject to acceleration   4,000    (26)   3,974    4,000    (103)   3,897 
2022 Bridge Notes, effective interest rate of 10.2% as of September 30, 2023, as amended, matures December 31, 2026, subject to acceleration   36,000    (95)   35,905    -    -    - 
Total  $102,691   $(349)  $102,342   $66,691   $(1,007)  $65,684 

 

As of September 30, 2023, the current maturities and noncurrent maturities under the term debt were $19,980 and $82,362, respectively, totaling $102,342, and as of December 31, 2022, the current maturities and noncurrent maturities were $65,684 an $0, respectively, totaling $65,684.

 

The Company’s principal maturities of the term debt of $102,691 are due as follows: (i) $20,000 due upon the earlier of December 31, 2023 or the closing of the Business Combination; and (ii) $82,691 due on December 31, 2026, subject acceleration if the Business Combination in not consummated on or prior to December 31, 2023.

 

Information for the three and nine months ended September 30, 2023 and 2022 with respect to interest expense related to the term debt is provided below.

 

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Interest Expense

 

The following table represents interest expense:

 

   2023   2022   2023   2022 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2023   2022   2023   2022 
Amortization of debt costs:                    
Line of credit  $54   $-   $161   $- 
2022 Bridge Notes   161    -    1,200    - 
Senior Secured Notes   228    228    676    803 
Delayed Draw Term Notes   26    52    77    412 
2023 Notes   64    -    64    - 
Total amortization of debt costs   533    280    2,178    1,215 
Noncash and accrued interest:                    
Parade   -    -    -    86 
Other accrued interest   152    -    754    - 
Total noncash and accrued interest   152    -    754    86 
Cash paid interest:                    
Line of credit   598    372    1,345    814 
2022 Bridge Notes   1,317    -    3,763    - 
Senior Secured Notes   1,602    1,602    4,754    4,754 
Delayed Draw Term Notes   102    254    303    753 
2023 Notes   44    -    44    - 
Other   32    676    422    888 
Total cash paid interest   3,695    2,904    10,631    7,209 
Less interest income (1)   (338)   -    (338)   - 
Total interest expense  $4,042   $3,184   $13,225   $8,510 

 

(1)During the three and nine months ended September 30, 2023, the Company recorded interest income of $338 related to the refunds received from the employee retention credits.

 

Noncash and accrued interest of $204 as of December 31, 2022, related to the 2022 Bridge Notes, was paid in cash during the nine months ended September 30, 2023.

 

13. 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 September 30, 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 none and 14,356 shares are outstanding as of September 30, 2023 and December 31, 2022, respectively.

 

Series H Convertible Preferred Stock – All the outstanding shares of Series H convertible preferred stock automatically converted into shares of the Company’s common stock on August 10, 2023, at the conversion price of $7.26. Further details are provided under the heading Common Stock in Note 14.

 

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14. 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 issued and sold 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 $356, the Company received net proceeds of $11,144, as reflected on the condensed consolidated statements of stockholder’s deficiency. No underwriter or placement agent participated in the registered direct offering. The net proceeds were intended for working capital and other general corporate purposes. Further information is provided in Note 18.

 

During the three months ended September 30, 2023, the Company recorded the issuance of 14,904 (issued July 21, 2023 upon conversion of 108 shares of Series H convertible preferred stock) and 1,759,224 (issued August 10, 2023 upon conversion of 12,748 shares of Series H convertible preferred stock) shares of the Company’s common stock totaling 1,774,128 as result of the conversion of shares of the Company’s Series H convertible preferred stock (12,856 shares of Series H convertible preferred stock) with a corresponding amount of $11,508 (totaling $12,856, representing 12,856 shares of Series H convertible preferred stock at $1,000 stated par value per share, less issuance cost of $1,348) as reflected on the condensed consolidated statement of stockholders’ deficiency. The August 10, 2023 issuance was in accordance with the automatic mandatory conversion on the fifth anniversary date of the initial first closing of the Company’s Series H convertible preferred. During the nine months ended September 30, 2023, the Company recorded the issuance of 1,981,128 (includes issuance of 207,000 shares of common stock on April 17, 2023 upon conversion of 1,500 shares of the Company’s Series H convertible preferred stock) shares of the Company’s common stock with a corresponding amount of $13,008 (includes $1,500 representing 1,500 shares of Series H convertible preferred stock at $1,000 stated par value) as reflected on the condensed consolidated statement of stockholders’ deficiency.

 

On January 24, 2022, the Company entered into several stock purchase agreements with several investors, where the Company was liable for liquidated damages, pursuant to which the Company issued an aggregate of 505,655 shares of its common stock at a price equal to $13.86 per share (determined based on the volume-weighted average price of the Company’s common stock at the close of trading on the sixty (60) previous trading days), to the investors in lieu of an aggregate of $7,008 owed in liquidated damages. The Company recorded $6,685 in connection with the issuance of shares of the Company’s common stock and recognized a gain of $323 on the settlement of the liquidated damages, which was recorded as additional paid-in capital on the condensed consolidated statement of stockholders’ deficiency.

 

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 of $2,440 to B. Riley (see Note 18). 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.

 

Between March 22, 2022 and March 25, 2022, the Company recorded the issuance of 70,380 shares of the Company’s common stock upon conversion of 510 shares of the Company’s Series H convertible preferred stock, with a corresponding amount of $511 as reflected on the condensed consolidated statements of stockholders’ deficiency.

 

15. 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.

 

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

 

   Three Months Ended September 30, 2023 
   Restricted Stock   Common Stock Options   Warrants   Totals 
Cost of revenue  $197   $1,007   $1   $1,205 
Selling and marketing   65    342    -    407 
General and administrative   1,611    882    257    2,750 
Total costs charged to operations   1,873    2,231    258    4,362 
Capitalized platform development   -    237    -    237 
Total stock-based compensation  $1,873   $2,468   $258   $4,599 

 

   Three Months Ended September 30, 2022 
   Restricted Stock   Common Stock Options   Warrants   Totals 
Cost of revenue  $901   $1,871   $-   $2,772 
Selling and marketing   61    749    -    810 
General and administrative   2,439    2,039    251    4,729 
Total costs charged to operations   3,401    4,659    251    8,311 
Capitalized platform development   -    404    -    404 
Total stock-based compensation  $3,401   $5,063   $251   $8,715 

 

   Nine Months Ended September 30, 2023 
   Restricted Stock   Common Stock Options   Warrants   Totals 
Cost of revenue  $1,655   $3,388   $7   $5,050 
Selling and marketing   193    1,082    -    1,275 
General and administrative   6,298    3,602    753    10,653 
Total costs charged to operations   8,146    8,072    760    16,978 
Capitalized platform development   -    785    -    785 
Total stock-based compensation  $8,146   $8,857   $760   $17,763 

 

   Nine Months Ended September 30, 2022 
   Restricted Stock   Common Stock Options   Warrants   Totals 
Cost of revenue  $2,800   $4,802   $-   $7,602 
Selling and marketing   207    1,942    -    2,149 
General and administrative   7,083    6,697    1,246    15,026 
Total costs charged to operations   10,090    13,441    1,246    24,777 
Capitalized platform development   -    1,529    -    1,529 
Total stock-based compensation  $10,090   $14,970   $1,246   $26,306 

 

29
 

 

Unrecognized compensation expense and expected weighted-average period to be recognized related to the stock-based compensation awards and equity-based awards as of September 30, 2023 were as follows:

 

   As of September 30, 2023 
   Restricted Stock   Common Stock Options   Warrants   Totals 
Unrecognized compensation expense  $5,123   $7,592   $257   $12,972 
Weighted average period expected to be recognized (in years)   1.19    1.19    0.46    2.84 

 

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 paid during the nine months ended September 30, 2023.

 

On June 30, 2023, the Company modified certain equity awards upon the resignation of a senior executive employee pursuant to which unvested restricted stock units for 42,635 shares of the Company’s common stock vested, and unvested options for 29,701 shares of the Company’s common stock vested with the exercise period extended for the 10-year contractual term of the options from the grant date of the award. In connection with the termination, the unamortized costs of the awards of $773 was recognized at the termination date and $284 of incremental cost was recognized as a result of the option award modification upon termination of the senior executive.

 

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) under the warrant incentive plan approved on November 2, 2022, referred to as the New Publisher Partner Warrants (or the “Publisher Partner Warrants”), with the following terms: (i) one-third of the warrants will become exercisable and vest on the one-year anniversary of the issuance; (ii) the remaining warrants will become exercisable and vest in a series of twenty-four (24) successive equal monthly installments following the first anniversary of the issuance; and (iii) a five-year term. The issuance of the New Publisher Partner Warrants is administered by management and approved by the Board.

 

Amendment to Stock Compensation Plan – On April 16, 2023 the Board approved an increase to the number of shares of the Company’s common stock reserved for issuance under the 2022 Stock and Incentive Compensation Plan from 1,800,000 shares to 3,600,000 shares, which was subsequently approved by the Company’s stockholders on June 1, 2023.

 

30
 

 

16. Revenue Recognition

 

Disaggregation of Revenue

 

The following table provides information about disaggregated revenue by category, geographical market and timing of revenue recognition:

 

   2023   2022   2023   2022 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2023   2022   2023   2022 
Revenue by category:                    
Digital revenue                    
Digital advertising  $36,659   $28,512   $89,458   $74,849 
Digital subscriptions   3,181    4,629    10,430    16,580 
Licensing and syndication revenue   4,468    4,391    13,523    11,820 
Other digital revenue   1,516    458    3,486    1,374 
Total digital revenue   45,824    37,990    116,897    104,623 
Print revenue                    
Print advertising   2,259    3,443    7,677    7,786 
Print subscriptions   15,335    15,844    49,030    46,863 
Total print revenue   17,594    19,287    56,707    54,649 
Total  $63,418   $57,277   $173,604   $159,272 
Revenue by geographical market:                    
United States  $61,126   $55,374   $169,326   $156,447 
Other   2,292    1,903    4,278    2,825 
Total  $63,418   $57,277   $173,604   $159,272 
Revenue by timing of recognition:                    
At point in time  $60,237   $52,648   $163,174   $142,692 
Over time   3,181    4,629    10,430    16,580 
Total  $63,418   $57,277   $173,604   $159,272 

 

For the three and nine months ended September 30, 2022, disaggregated revenue represents revenue from continuing operations.

 

Contract Balances

 

The timing of the Company’s performance under its various contracts often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. A contract asset is recognized when a good or service is transferred to a customer and the Company does not have the contractual right to bill for the related performance obligations. A contract liability is recognized when consideration is received from the customer prior to the transfer of goods or services.

 

The following table provides information about contract balances:

 

  

September 30, 2023

(unaudited)

   December 31, 2022 
   As of 
  

September 30, 2023

(unaudited)

   December 31, 2022 
Unearned revenue (short-term contract liabilities):          
Digital revenue  $18,452   $18,571 
Print revenue   45,305    40,132 
Total short-term contract liabilities  $63,757   $58,703 
Unearned revenue (long-term contract liabilities):          
Digital revenue  $738   $1,118 
Print revenue   13,794    18,583 
Total long-term contract liabilities  $14,532   $19,701 

 

Unearned Revenue – Unearned revenue, also referred to as contract liabilities, include payments received in advance of performance under certain contracts and are recognized as revenue over time. The Company records contract liabilities as unearned revenue on the condensed consolidated balance sheets.

 

17. Income Taxes

 

The provision for income taxes in interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly provision for income taxes, and estimate of the Company’s annual effective tax rate, are subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company conducts business, and tax law developments.

 

31
 

 

The income tax provision (benefit) effective tax rate for the nine months ended September 30, 2023 and 2022 was 0.33% and (2.06%), respectively. The deferred income taxes for the nine months ended September 30, 2023 and 2022 was primarily due to deferred tax liabilities on indefinite lived intangible assets.

 

The realization of deferred tax assets is dependent upon a variety of factors, including the generation of future taxable income, the reversal of deferred tax liabilities, and tax planning strategies. Based upon the Company’s historical operating losses and the uncertainty of future taxable income, the Company has provided a valuation allowance against most of the deferred tax assets as of September 30, 2023 and 2022.

 

As of September 30, 2023 and 2022, the Company has no uncertain tax positions or interest and penalties accrued.

 

18. Related Party Transactions

 

Principal Stockholder

 

The Company has an outstanding obligation 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, pursuant to the third amended and restated note purchase agreement entered into on December 15, 2022 (the “Note Purchase Agreement”), as amended by the first amendment to the Note Purchase Agreement on August 14, 2023 (the “First Amendment”) with an effective date of August 31, 2023. The Note Purchase Agreement contains provisions related to the 2022 Bridge Notes, 2023 Notes, Senior Secured Notes, and Delayed Draw Term Notes, all as further described above and referred to as the “Notes”. Under the terms of the Note Purchase Agreement and First Amendment, in the event there is a mandatory prepayment requirement, the principal payment of the Notes will be applied to: (1) the 2023 Notes until paid in full; (2) then to the 2022 Bridge Notes until paid in full; (3) then to the Delayed Draw Terms Notes until paid in full; and (4) then to the Senior Secured Notes. All borrowings under the Notes are collateralized by substantially all assets of the Company secured by liens and guaranteed by the Company’s subsidiaries. The Notes provide for a default interest rate equal to the rate of interest in effect at the time of default plus 4.0%, along with other provision for acceleration of the Notes under certain conditions. The Notes provide for certain affirmative covenants, including certain financial reporting obligations.

 

For the three and nine months ended September 30, 2023, the Company paid in cash interest of $3,065 and $9,068 (including cash interest paid of $204 from December 31, 2022), respectively, on the 2022 Bridge Notes, Senior Secured Notes, Delayed Draw Term Notes and 2023 Notes due to BRF, which is an affiliate of B. Riley, a principal stockholder. For the three and nine months ended September 30, 2022, the Company paid in cash interest of $1,856 and $5,507, respectively, on the Senior Secured Notes and Delayed Draw Term Notes due to BRF, which is an affiliate of B. Riley, a principal stockholder.

 

On March 31, 2023, in connection with the registered direct offering, the Company entered into common stock purchase agreements for 1,009,021 shares of the Company’s common stocks for a total of $3,915 in gross proceeds with B. Riley, a principal stockholder, at a price per share of $3.88 per share.

 

For the nine months ended September 30, 2022, the Company had certain transactions with B. Riley, a principal stockholder, where it paid fees associated with the common stock public offering totaling $2,440.

 

On August 10, 2023, the Company’s Series H convertible preferred stock automatically converted into shares of the Company’s common stock at the conversion price of $7.26, of which 134,550 shares were issued to B Riley, a principal stockholder.

 

On August 31, 2023, in connection with the 2023 Notes, BRF, which is an affiliate of B Riley, a principal stockholder, issued $6,000 in aggregate principal amount under the note, where the Company incurred fees of $297.

 

32
 

 

Registered Direct Offering

 

On March 31, 2023, in connection with the registered direct offering, the Company entered into common stock purchase agreements for 317,518 shares of the Company’s common stocks for a total of $1,232 in gross proceeds with certain directors and affiliates, at a price of $3.88 per share, as follows: (i) 64,000 shares for $248 to H. Hunt Allred, a director, through certain trusts (32,000 shares are directly beneficially owned by the Allred 2002 Trust - HHA and 32,000 shares are directly beneficially owned by the by Allred 2002 Trust - NLA); (ii) 195,529 shares for $759 to 180 Degree Capital Corp, a beneficial holder of more than 5% of the Company’s common stock; (iii) 25,773 shares for $100 to Daniel Shribman, a director; (iv) 25,773 shares for $100 to Ross Levinsohn, a director and the Company’s Chief Executive Officer; and (v) 6,443 shares for $25 to Paul Edmonson, an executive officer.

 

Repurchases of Restricted Stock

 

On December 15, 2020, the Company entered into an amendment for certain restricted stock awards and units that were previously issued to certain employees in connection with the HubPages merger, pursuant to which the Company agreed to repurchase from certain key personnel of HubPages, Inc., including Paul Edmondson, one of the Company’s officers, and his spouse, an aggregate of 764 shares of the Company’s common stock at a price of $88.00 per share each month for a period of 24 months, for aggregate proceeds to Mr. Edmondson and his spouse of $67 per month. For the nine months ended September 30, 2022, the Company paid Mr. Edmonson and his spouse $269 for 3,056 shares of the Company’s common stock.

 

19. Commitments and Contingencies

 

Claims and Litigation From time to time, the Company may be subject to claims and litigation arising in the ordinary course of business. The Company is not currently a party to any pending or threatened legal proceedings that it believes would reasonably be expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

 

In connection with the Athlon working capital adjustment (as previously disclosed in Note 3), the Company prepared the working capital adjustment. The sellers are challenging the Company’s adjustments and both parties have agreed to a standstill and tolling agreement while the adjustments are being reviewed and discussed. The amount due from this challenge, if any, is not estimatable as of the issuance date of these condensed consolidated financial statements.

 

Royalty Fees – The Company guaranteed minimum annual royalties of $15,000 to ABG-SI, LLC. The initial term of the minimum guarantee will expire December 31, 2029.

 

20. Subsequent Events

 

The Company performed an evaluation of subsequent events through the date of filing of these condensed consolidated financial statements with the SEC. Other than the below described subsequent events, there were no material subsequent events which affected, or could affect, the amounts or disclosures on the condensed consolidated financial statements.

 

Business Combination

 

On November 5, 2023, the Company signed a definitive business combination agreement (the “BCA”) to combine its operations with those of Bridge Media Networks, LLC (“Bridge Media Networks” or “Bridge Media”) a wholly owned subsidiary of Simplify Inventions, LLC (“Simplify”). The transactions contemplated by the BCA are subject to customary conditions, including the approval by the Company’s shareholders and certain regulatory approvals. Key components of the BCA and related transactions include: (i) a restructure of the Company’s balance sheet and pay down of approximately $20,000 of the 2022 Bridge Notes and $6,000 of the 2023 Notes and the extension of the maturity date of its remaining Notes for a period of three years at an interest rate of 10.0%; (ii) a cash investment of approximately $50,000, comprised of a $25,000 purchase of common stock and a $25,000 investment in newly created Series L preferred stock with a 10.0% non-cash paid-in-kind (PIK) dividend; (iii) an advertising commitment of approximately $60,000 to be spent $12,000 annually for five (5) years from a group of consumer brands also owned by Simplify; and (iv) a business combination resulting in the Company owning and operating Bridge Media Networks’ two 24-hour networks, NEWSnet and Sports News Highlights, as well as the automotive and travel properties Driven and TravelHost (these components collectively defined as the “Business Combination”). The Business Combination will result in Simplify and related entities holding approximately 65.0% upon consummation of the transaction of the fully diluted common stock of a newly formed company (“New Arena”) to effectuate the Business Combination.

 

In addition, at the closing of the Business Combination, New Arena will enter into a stock purchase agreement with Simplify or one of its affiliates (the “Simplify SPA Party”), pursuant to which the Simplify SPA Party will agree to purchase such number of shares of New Arena common stock having an aggregate value of $20,000 in one or more private placements at New Arena’s option for one-year from the closing date of the Business Combination. Pursuant to the stock purchase agreement, at closing of the Business Combination, 60,000 shares of New Arena’s common stock will be issued as payment of a 1.5% commitment fee.

 

Compensation Plans

 

From October 1, 2023 through the date these condensed consolidated financial statements were issued, the Company granted options for shares of the Company’s common stock totaling 8,295, all of which remain outstanding.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2023 and 2022 should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Annual Report on Form 10-K filed with the SEC on March 31, 2023. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors.. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Forward-Looking Statements.”

 

Overview

 

We are a tech-powered media company that focuses on building deep content verticals powered by a best-in-class digital media platform (the “Platform”) empowering premium publishers who impact, inform, educate, and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports and finance), and where we can leverage the strength of our core brands to grow our audience and increase monetization both within our core brands as well as our media publisher partners (each, a “Publisher Partner”). Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize audience reach, improve engagement, and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our greater than 40 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated, own and operate TheStreet, Inc. College Spun Media Incorporated, Parade Media, and Men’s Journal and power more than 320 independent Publisher Partners, including the many sports team sites that comprise FanNation. Each Publisher Partner joins the Platform by invitation only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization, social media, ad monetization and subscription marketing, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While the Publisher Partners benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management.

 

Of the more than 320 Publisher Partners, a large majority of them publish content within one of our four verticals of sports, finance, lifestyle or men’s lifestyle, and oversee an online community for their respective sites, leveraging our Platform, monetization operation, distribution channels and data and analytics offerings and benefiting from our ability to engage the collective audiences within a single network. Generally, Publisher Partners are independently owned, strategic partners who receive a share of revenue from the interaction with their content. Audiences expand and advertising revenue may improve due to the scale we have achieved by combining all Publisher Partners onto a single platform and a large and experienced sales organization. They may also benefit from our membership marketing and management systems, which we believe will enhance their revenue.

 

Our growth strategy is to continue to expand by adding new premium publishers with high quality brands and content either as independent Publisher Partners, by acquiring publishers as owned and operated entities or strategic expansion as described under Recent Developments.

 

Recent Developments

 

On November 5, 2023, we signed a definitive business combination agreement (the “BCA”) to combine its operations with those of Bridge Media Networks, LLC (“Bridge Media Networks” or “Bridge Media”) a wholly owned subsidiary of Simplify Inventions, LLC (“Simplify”). The transactions contemplated by the BCA (the “Transaction(s)” or the “Transaction Agreement”) are subject to customary conditions, including the approval by the Company’s shareholders and certain regulatory approvals. Key components of the BCA and related transactions include: (i) a restructure of the Company’s balance sheet and pay down of approximately $20,000 of the 2022 Bridge Notes and $6,000 of the 2023 Notes and the extension of the maturity date of its remaining Notes for a period of three years at an interest rate of 10.0%; (ii) a cash investment of approximately $50,000, comprised of a $25,000 purchase of common stock and a $25,000 investment in newly created Series L preferred stock with a 10.0% non-cash paid-in-kind (PIK) dividend; (iii) an advertising commitment of approximately $60,000 to be spent $12,000 annually for five (5) years from a group of consumer brands also owned by Simplify; and (iv) a business combination resulting in the Company owning and operating Bridge Media Networks’ two 24-hour networks, NEWSnet and Sports News Highlights, as well as the automotive and travel properties Driven and TravelHost (these components collectively defined as the “Business Combination”). The Business Combination will result in Simplify and related entities holding approximately 65.0% upon consummation of the transaction of the fully diluted common stock of a newly formed company (“New Arena”) to effectuate the Business Combination.

 

In addition, at the closing of the Business Combination, New Arena will enter into a stock purchase agreement with Simplify or one of its affiliates (the “Simplify SPA Party”), pursuant to which the Simplify SPA Party will agree to purchase such number of shares of New Arena common stock having an aggregate value of $20,000 in one or more private placements at New Arena’s option for one-year from the closing date of the Business Combination (the “additional equity issuances”). Pursuant to the stock purchase agreement, at closing of the Business Combination, 60,000 shares of New Arena’s common stock will be issued as payment of a 1.5% commitment fee.

 

For additional information related to the BCA, refer to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2023, which includes the full text of the BCA as Exhibit 2.1. 

 

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Impact of Macroeconomic Conditions

 

Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including as a result of increases in inflation, rising interest rates and instability in the global banking system and geopolitical factors, including the ongoing conflicts in Ukraine and Israel and the responses thereto, and the remaining effects of the COVID-19 pandemic. While we are closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside of our control and could exist for an extended period of time. As a result, we are subject to continuing risks and uncertainties and continue to closely monitor the impact of the current conditions on our business. For additional information, see the sections titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 and in this Quarterly Report.

 

Key Operating Metrics

 

We monitor and review the key operating metrics described below as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods, for the three and nine months ended September 30, 2023, an increase of 19% and 14%, respectively, as compared to the same period in fiscal 2022. Management monitors and reviews these metrics because such metrics are readily measurable in real time and can provide valuable insight into the performance of and trends related to our digital advertising revenue and our overall business. We consider only those key operating metrics described here to be material to our financial condition, results of operations and future prospects.

 

Our key operating metrics are identified below:

 

  Revenue per page view (“RPM”) – represents the advertising revenue earned per 1,000 pageviews. It is calculated as our advertising revenue during a period divided by our total page views during that period and multiplied by $1,000; and
     
  Monthly average pageviews – represents the total number of pageviews in a given month or the average of each month’s pageviews in a fiscal quarter or year, which is calculated as the total number of page views recorded in a quarter or year divided by three months or 12 months, respectively.

 

For pricing indicators, we focus on RPM as it is the pricing metric most closely aligned with monthly average pageviews. RPM is an indicator of yield and pricing driven by both advertising density and demand from our advertisers.

 

Monthly average pageviews are measured across all properties hosted on the Arena Platform and provide us with insight into volume, engagement and effective page management and are therefore our primary measure of traffic. We utilize a third-party source, Google Analytics, to confirm this traffic data.

 

As described above, these key operating metrics are critical for management as they provide insights into our digital advertising revenue generation and overall business performance. This information also provides feedback on the content on our website and its ability to attract and engage users, which allows us to make strategic business decisions designed to drive more users to read or view more of our content and generate higher advertising revenue across all properties hosted on the Arena Platform.

 

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For the three and nine months ended September 30, 2023 our RPM was $22.98 and $19.73, representing a 35% and 23% increase from RPM of $17.00 and $16.01 for the three and nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2023 our monthly average pageviews were 424,892,705 and 446,094,684, representing a decline of 12% and 8% as compared to monthly average pageviews were 484,299,721 and 482,326,093 for the three and nine months ended September 30, 2022, respectively.

 

All dollar figures presented below are in thousands unless otherwise stated.

 

Liquidity and Capital Resources

 

Going Concern

 

Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Our 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 nine months ended September 30, 2023, we incurred a net loss of $50,027. For the nine months ended September 30, 2023 and year ended December 31, 2022, we had cash on hand of $7,290 and $13,871 and a working capital deficit of $68,332 and $137,669, respectively. Our net loss and working capital deficit have been evaluated by management to determine if the significance of those conditions or events would limit our ability to meet our obligations when due. Furthermore, while we have executed an amendment to extend the maturity of our 2022 Bridge Notes of $36,000, Senior Secured Notes of $62,691, Delayed Draw Term Notes of $4,000 and to extend additional borrowings on our 2023 Notes of $6,000 (each as described in the condensed consolidated financial statements), totaling $108,691, if the Business Combination is not completed by December 31, 2023 it would represent an event of default under the related debt agreements in which case we may not be able to meet our obligations when due.

 

As a result, management determined there is substantial doubt about our ability to continue as a going concern for a one-year period following the financial statement issuance date, unless we are able to close the Business Combination by December 31, 2023 or extend the date at which such a default would occur.

 

Cash and Working Capital Facility

 

As of September 30, 2023, our principal sources of liquidity consisted of cash of $7,290. In addition, as of September 30, 2023, we had $22,697 available for additional use, subject to eligible accounts receivable, under our working capital line of credit with SLR Digital Finance LLC (formerly FastPay) (“SLR”). As of September 30, 2023, the outstanding balance of the SLR working capital line of credit was $17,303. We also had accounts receivable, net of our advances from SLR of $20,674 as of September 30, 2023. Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements is $4,586.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2023, pursuant to our SLR line of credit, as disclosed above, in the event that our line of credit is accelerated, we will be obligated to pay SLR either a termination fee or performance fee equal to $900.

 

As of September 30, 2023, in connection with the Sports Illustrated media business, we guaranteed a minimum annual royalty of $15,000 through December 31, 2029, for a total of $78,750.

 

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Material Contractual Obligations

 

We have material contractual obligations that arise in the normal course of business primarily consisting of employment contracts, consulting agreements, leases, liquidated damages, debt and related interest payments. Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months. See Notes 5, 9, 11 and 12 in our accompanying condensed consolidated financial statements for amounts outstanding as of September 30, 2023, related to leases, liquidated damages, bridge notes and term debt. During 2022, we assumed the lease from Men’s Journal for office space in Carlsbad, California, that expires in March 2025, and we remain responsible for $2,142 over the lease term that may be offset after considering certain space that we sublet where we are entitled to receive $435. The lease provides for fixed payments ranging from $89 to $94 over the remainder of the lease term, with an estimate of common expenses per month of $25 through the end of the lease term. There have been no material changes from the disclosures in our Annual Report on Form 10-K.

 

Working Capital Deficit

 

We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of September 30, 2023 and December 31, 2022 was as follows:

 

   As of 
   September 30, 2023   December 31, 2022 
Current assets  $84,117   $78,695 
Current liabilities   (152,449)   (216,364)
Working capital deficit   (68,332)   (137,669)

 

As of September 30, 2023, we had a working capital deficit of $68,332, as compared to $137,669 as of December 31, 2022, consisting of $84,117 in total current assets and $152,449 in total current liabilities. As of December 31, 2022, our working capital deficit consisted of $78,695 in total current assets and $216,364 in total current liabilities.

 

Our cash flows for the nine months ended September 30, 2023 and 2022 consisted of the following:

 

   Nine Months Ended September 30, 
   2023   2022 
Net cash used in operating activities  $(22,265)  $(14,676)
Net cash used in investing activities   (3,467)   (12,315)
Net cash provided by (used in) financing activities   18,649    30,945 
Net increase (decrease) in cash, cash equivalents, and restricted cash  $(7,083)  $3,954 
Cash, cash equivalents, and restricted cash, end of period  $7,290   $13,805 

 

For the nine months ended September 30, 2023, net cash used in operating activities was $22,265, consisting primarily of $178,732 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, professional services, and $10,835 of cash paid for interest, offset by $167,302 of cash received from customers. For the nine months ended September 30, 2022, net cash used in operating activities was $14,676, consisting primarily of $164,106 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services, and $7,209 of cash paid for interest, offset by $156,639 of cash received from customers.

 

For the nine months ended September 30, 2023, net cash used in investing activities was $3,467, consisting primarily of $2,967 for capitalized costs for our Platform and $500 for the acquisition of a business. For the nine months ended September 30, 2022, net cash used in investing activities was $12,315, consisting primarily of $10,331 for the acquisition of a business; $3,990 for capitalized costs for our Platform, and $444 for property and equipment, offset by $2,450 from the sale of an equity investment.

 

For the nine months ended September 30, 2023, net cash provided by financing activities was $18,649, consisting primarily of $11,333 (excluding accrued offering costs of $167) in net proceeds from the public offering of common stock and $3,211 from borrowings under our SLR line of credit, $5,603 (excluding debt issuance costs of $100) in net proceeds from issuance of notes; offset by $1,423 tax payments relating to the withholding of shares of common stock for certain employees, and $75 payment of deferred cash payments. For the nine months ended September 30, 2022, net cash provided by financing activities was $30,945, consisting primarily of $30,490 (excluding accrued offering costs of $1,568) in net proceeds from the public offering of common stock, $6,486 from borrowings under our SLR line of credit and $94 in proceeds from exercise of common stock options; offset by $3,520 tax payments relating to the withholding of shares of common stock for certain employees, $2,152 payments of restricted stock liabilities, and $453 payment for The Spun deferred cash payment.

 

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Results of Operations

 

Three Months Ended September 30, 2023 and 2022

 

   Three Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Revenue  $63,418   $57,277   $6,141    10.7%
Cost of revenue   35,245    32,671    2,574    7.9%
Gross profit   28,173    24,606    3,567    14.5%
Operating expenses                    
Selling and marketing   19,271    18,424    847    4.6%
General and administrative   11,028    13,493    (2,465)   -18.3%
Depreciation and amortization   4,726    4,478    248    5.5%
Total operating expenses   35,025    36,395    (1,370)   -3.8%
Loss from operations   (6,852)   (11,789)   4,937    -41.9%
Total other expenses   (4,253)   (3,523)   (730)   20.7%
Loss before income taxes   (11,105)   (15,312)   4,207    -27.5%
Income tax provision   (61)   (547)   486    -88.8%
Net loss from continuing operations   (11,166)   (15,859)   4,693    -29.6%
Net loss from discontinued operations, net of tax   -    (646)   646    -100.0%
Net loss  $(11,166)  $(16,505)  $5,339    -32.3%

 

For the three months ended September 30, 2023, the loss from operations narrowed by $4,937 due to a $6,141 increase in revenue and a decrease in operating expenses of $1,370. This was offset by an increase in interest expense of $858 included in other expenses leading to an improvement of $5,339 in net loss to $11,166 for the three months ended September 30, 2023, as compared to $16,505 for the three months ended September 30, 2022.

 

Revenue

 

The following table sets forth revenue, cost of revenue, and gross profit:

 

   Three Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Revenue  $63,418   $57,277   $6,141    10.7%
Cost of revenue   35,245    32,671    2,574    7.9%
Gross profit  $28,173   $24,606   $3,567    14.5%

 

For the three months ended September 30, 2023 we had gross profit of $28,173, as compared to $24,606 for the three months ended September 30, 2022, an increase of $3,567, or 14.5%. Gross profit percentage for the three months ended September 30, 2023 was 44.4%, as compared to 43.0% for the three months ended September 30, 2022, an improvement of 1.5 percentage points.

 

The improvement in gross profit percentage was driven by a higher mix of premium digital advertising, as reflected in the 35% increase in RPM, as well as more than tripling of other digital revenue, largely e-commerce. In addition, stock based compensation included in cost of revenue declined by $1,567 from $2,772 in the three months ended September 30, 2022 to $1,205 in the three months ended September 30, 2023.

 

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The following table sets forth revenue by category:

 

   Three Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Digital revenue:                    
Digital advertising  $36,659   $28,512   $8,147    28.6%
Digital subscriptions   3,181    4,629    (1,448)   -31.3%
Licensing and syndication revenue   4,468    4,391    77    1.8%
Other digital revenue   1,516    458    1,058    231.0%
Total digital revenue   45,824    37,990    7,834    20.6%
Print revenue:                    
Print advertising   2,259    3,443    (1,184)   -34.4%
Print subscriptions   15,335    15,844    (509)   -3.2%
Total print revenue   17,594    19,287    (1,693)   -8.8%
Total revenue  $63,418   $57,277   $6,141    10.7%

 

For the three months ended September 30, 2023, total revenue increased $6,141, or 10.7%, to $63,418 from $57,277 for the three months ended September 30, 2022. The primary sources of revenue for the three months ended September 30, 2023 were as follows: (i) digital advertising of $36,659, (ii) digital subscriptions of $3,181, (iii) licensing and syndication revenue and other digital revenue of $5,984, (iv) print advertising of $2,259 and (v) print subscriptions of $15,335.

 

The primary driver of the increase in our digital revenue of $7,834 is derived from our digital advertising revenue and other digital revenue which increased by $8,147 and $1,058, respectively, which was primarily offset by a decrease in our digital subscriptions of $1,448. Digital revenue represented 72.3% of total revenue in the three months ended September 30, 2023 as compared to $66.3% in the prior year period, an increase of 6.0 percentage points. Offsetting the increase in our digital revenue, our print revenue decreased by $1,693 with a 34.4% decrease in print advertising and a 3.2% decrease in print subscription revenue. Revenue for the three months ended September 30, 2022 has been adjusted for the discontinued operations of the Parade print business that was acquired in April 2022 totaling $20,753 since the operations were discontinued during the year ended December 31, 2022.

 

Cost of Revenue

 

The following table sets forth cost of revenue by category:

 

   Three Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Publisher Partner revenue share payments  $7,586   $4,471   $3,115    69.7%
Technology, Platform and software licensing fees   5,721    4,721    1,000    21.2%
Royalty fees   3,750    3,750    -    0.0%
Content and editorial expenses   11,381    10,642    739    6.9%
Printing, distribution and fulfillment costs   3,411    3,770    (359)   -9.5%
Amortization of developed technology and platform development   2,191    2,413    (222)   -9.2%
Stock-based compensation   1,205    2,772    (1,567)   -56.5%
Other cost of revenue   -    132    (132)   -100.0%
Total cost of revenue  $35,245   $32,671   $2,574    7.9%

 

For the three months ended September 30, 2023, we recognized cost of revenue of $35,245, as compared to $32,671 for the three months ended September 30, 2022, which represents an increase of $2,574, or 7.9% as compared to the 10.7% increase in revenue. Cost of revenue for the third quarter of 2023 was impacted by increases in (i) Publisher Partner revenue share payments of $3,115 due to very high growth among our FanNation publisher partners, (ii) technology, Platform and software licensing fees of $1,000 and (iii) content and editorial expenses of $739; partially offset by decreases in (iv) stock-based compensation costs of $1,567; (v) printing, distributions and fulfillment costs of $359; and (vi) amortization of our Platform of $222.

 

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Operating Expenses

 

Selling and Marketing

 

The following table sets forth selling and marketing expenses from continuing operations by category:

 

   Three Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Payroll and employee benefits of selling and marketing account management support teams  $4,957   $4,026   $931    23.1%
Stock-based compensation   407    810    (403)   -49.8%
Professional marketing services   1,221    500    721    144.2%
Circulation costs   1,461    1,466    (5)   -0.3%
Subscription acquisition costs   9,819    9,778    41    0.4%
Advertising costs   880    1,280    (400)   -31.3%
Other selling and marketing expenses   526    564    (38)   -6.7%
Total selling and marketing  $19,271   $18,424   $847    4.6%

 

For the three months ended September 30, 2023, we incurred selling and marketing costs of $19,271, as compared to $18,424 for the three months ended September 30, 2022. The increase in selling and marketing costs of $847 or 4.6% is primarily related to increases in (i) payroll and employee benefits costs of $931 related to the higher mix of premium and direct advertising, (ii) professional fees of $721; partially offset by decreases in (iii) stock based compensation of $403 and (iv) advertising costs of $400.

 

General and Administrative

 

The following table sets forth general and administrative expenses by category:

 

   Three Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Payroll and related expenses for executive and administrative personnel  $3,370   $4,424   $(1,054)   -23.8%
Stock-based compensation   2,750    4,729    (1,979)   -41.8%
Professional services, including accounting, legal and insurance   3,216    3,062    154    5.0%
Other general and administrative expenses   1,692    1,278    414    32.4%
Total general and administrative  $11,028   $13,493   $(2,465)   -18.3%

 

For the three months ended September 30, 2023, we incurred general and administrative costs of $11,028 as compared to $13,493 for the three months ended September 30, 2022. The $2,465 or 18.3% decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $1,979 or 41.8% and payroll and related expenses of $1,054 or 23.8%.

 

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Other Expenses

 

The following table sets forth other expenses:

 

   Three Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Change in fair value of contingent consideration  $(60)  $-   $(60)   100.0%
Interest expense, net   (4,042)   (3,184)   (858)   26.9%
Liquidated damages   (151)   (339)   188    -55.5%
Total other expenses  $(4,253)  $(3,523)  $(730)   20.7%

 

Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $60 for the three months ended September 30, 2023 represents the change in the put option on our common stock in connection with the Fexy Studios acquisition.

 

Interest Expense. We incurred interest expense of $4,042 and $3,184 for the three months ended September 30, 2023 and 2022, respectively, as a result of our debt increase.

 

Liquidated Damages. We recorded $151 of accrued interest on our liquidated damages payable for the three months ended September 30, 2023 primarily from the issuance in past years of our convertible debentures, Series H convertible preferred stock, Series I convertible preferred stock, Series J convertible preferred stock and Series K convertible preferred stock in prior years. We recorded $339 of accrued interest on our liquidated damages payable for the three months ended September 30, 2022 primarily from issuance of the same securities as outlined above.

 

Nine Months Ended September 30, 2023 and 2022

 

   Nine Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Revenue  $173,604   $159,272   $14,332    9.0%
Cost of revenue   102,422    98,790    3,632    3.7%
Gross profit   71,182    60,482    10,700    17.7%
Operating expenses                    
Selling and marketing   56,743    53,123    3,620    6.8%
General and administrative   35,803    41,841    (6,038)   -14.4%
Depreciation and amortization   14,227    13,124    1,103    8.4%
Loss on disposition of assets   119    257    (138)   -53.7%
Total operating expenses   106,892    108,345    (1,453)   -1.3%
Loss from operations   (35,710)   (47,863)   12,153    -25.4%
Total other expenses   (14,149)   (9,149)   (5,000)   54.7%
Loss before income taxes   (49,859)   (57,012)   7,153    -12.5%
Income tax provision   (168)   1,180    (1,348)   -114.2%
Net loss from continuing operations   (50,027)   (55,832)   5,805    -10.4%
Net loss from discontinued operations, net of tax   -    (1,329)   1,329    -100.0%
Net loss  $(50,027)  $(57,161)  $7,134    -12.5%

 

For the nine months ended September 30, 2023, the loss from operations improved $12,153 to $35,710 as compared to $47,863 during the nine months ended September 30, 2022 due to a $14,332 increase in revenue, with an $1,453 decrease in operating expenses. For the nine months ended September 30, 2023, the net loss was $50,027, a decrease of $7,134 as compared to $57,161 for the nine months ended September 30, 2022 as the improvement in the loss from operations was partially offset by an increase in interest expense of $4,715 included in other expenses.

 

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Revenue

 

The following table sets forth revenue, cost of revenue, and gross profit:

 

   Nine Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Revenue  $173,604   $159,272   $14,332    9.0%
Cost of revenue   102,422    98,790    3,632    3.7%
Gross profit  $71,182   $60,482   $10,700    17.7%

 

For the nine months ended September 30, 2023 we had gross profit of $71,182, as compared to $60,482 for the nine months ended September 30, 2022, an increase of $10,700. Gross profit percentage for the nine months ended September 30, 2023 was 41.0%, as compared to 38.0% for the nine months ended September 30, 2022.

 

The improvement in gross profit percentage was driven by a higher mix of premium digital advertising, as reflected in the 23% increase in RPM, as well as an more than doubling of other digital revenue, largely e-commerce. In addition, stock based compensation included in cost of revenue declined by $2,552.

 

The following table sets forth revenue by category:

 

   Nine Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Digital revenue:                    
Digital advertising  $89,458   $74,849   $14,609    19.5%
Digital subscriptions   10,430    16,580    (6,150)   -37.1%
Licensing and syndication revenue   13,523    11,820    1,703    14.4%
Other digital revenue   3,486    1,374    2,112    153.7%
Total digital revenue   116,897    104,623    12,274    11.7%
Print revenue:                    
Print advertising   7,677    7,786    (109)   -1.4%
Print subscriptions   49,030    46,863    2,167    4.6%
Total print revenue   56,707    54,649    2,058    3.8%
Total revenue  $173,604   $159,272   $14,332    9.0%

 

For the nine months ended September 30, 2023, total revenue increased $14,332 to $173,604 from $159,272 for the nine months ended September 30, 2022. The primary sources of revenue for the nine months ended September 30, 2023 were as follows: (i) digital advertising of $89,458, (ii) digital subscriptions of $10,430, (iii) licensing and syndication revenue and other digital revenue of $17,009, (iv) print advertising of $7,677 and (v) print subscriptions of $49,030.

 

The primary driver of the increase in our total revenue is derived from digital advertising revenue, licensing and syndication, and other digital revenue which increased by $14,609, $1,703, and $2,112, respectively, for the nine months ended September 30, 2023 as compared to the prior year period. This was offset by a $6,150 decrease in digital subscriptions, resulting in a $12,274 increase in total digital revenue for the nine months ended September 30, 2023 as compared to the prior year period. In addition, total print revenue increased by $2,058 as print advertising decreased by $109 and print subscriptions grew by $2,167.

 

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Cost of Revenue

 

The following table sets forth cost of revenue by category:

 

   Nine Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Publisher Partner revenue share payments  $17,360   $14,242   $3,118    21.9%
Technology, Platform and software licensing fees   15,510    12,293    3,217    26.2%
Royalty fees   11,250    11,250    -    0.0%
Content and editorial expenses   34,626    35,034    (408)   -1.2%
Printing, distribution and fulfillment costs   11,652    11,000    652    5.9%
Amortization of developed technology and platform development   6,883    7,099    (216)   -3.0%
Stock-based compensation   5,050    7,602    (2,552)   -33.6%
Other cost of revenue   91    270    (179)   -66.3%
Total cost of revenue  $102,422   $98,790   $3,632    3.7%

 

For the nine months ended September 30, 2023, we recognized cost of revenue of $102,422, as compared to $98,790 for the nine months ended September 30, 2022, representing an increase of $3,632 or 3.7% as compared to the 9.0% increase in total revenue. Cost of revenue for the first nine months of 2023 was impacted by increases in (i) technology, Platform and software licensing fees of $3,217, (ii) Publisher Partner revenue share payments of $3,118 and (iii) printing, distribution and fulfillment costs of $652; partially offset by decreases in (iv) stock-based compensation of $2,552, and (v) content and editorial expenses of $408.

 

Operating Expenses

 

Selling and Marketing

 

The following table sets forth selling and marketing expenses from continuing operations by category:

 

   Nine Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Payroll and employee benefits of selling and marketing account management support teams  $14,118   $11,175   $2,943    26.3%
Stock-based compensation   1,275    2,149    (874)   -40.7%
Professional marketing services   3,518    2,275    1,243    54.6%
Circulation costs   4,070    3,158    912    28.9%
Subscription acquisition costs   29,166    28,236    930    3.3%
Advertising costs   2,935    4,205    (1,270)   -30.2%
Other selling and marketing expenses   1,661    1,925    (264)   -13.7%
Total selling and marketing  $56,743   $53,123   $3,620    6.8%

 

For the nine months ended September 30, 2023, we incurred selling and marketing costs of $56,743, as compared to $53,123 for the nine months ended September 30, 2022. The increase in selling and marketing costs of $3,620 is primarily related to increases in (i) payroll and employee benefits of $2,943, (ii) professional marketing services costs of $1,243 , (iii) circulation costs of $912, and (iv) subscription acquisition costs of $930; partially offset by decreases in (v) advertising costs of $1,270 and (vi) stock-based compensation costs of $874. The increase in circulation costs reflects the addition of the Athlon Outdoor properties.

 

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General and Administrative

 

The following table sets forth general and administrative expenses by category:

 

   Nine Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Payroll and related expenses for executive and administrative personnel  $11,037   $12,704   $(1,667)   -13.1%
Stock-based compensation   10,653    15,026    (4,373)   -29.1%
Professional services, including accounting, legal and insurance   9,003    9,732    (729)   -7.5%
Other general and administrative expenses   5,110    4,379    731    16.7%
Total general and administrative  $35,803   $41,841   $(6,038)   -14.4%

 

For the nine months ended September 30, 2023, we incurred general and administrative costs of $35,803 as compared to $41,841 for the nine months ended September 30, 2022. The $6,038 or 14.4% decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $4,373, payroll and related expenses of $1,667 and professional services of $729.

 

Other Expenses

 

The following table sets forth other expenses:

 

   Nine Months Ended September 30,   2023 versus 2022 
   2023   2022   $ Change   % Change 
Change in fair value of contingent consideration  $(469)  $-   $(469)   100.0%
Interest expense, net   (13,225)   (8,510)   (4,715)   55.4%
Liquidated damages   (455)   (639)   184    -28.8%
Total other expenses  $(14,149)  $(9,149)  $(5,000)   54.7%

 

Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $469 for the nine months ended September 30, 2023 represents the change in the put option on our common stock in connection with the Fexy Studios acquisition.

 

Interest Expense. We incurred interest expense of $13,225 and $8,510 for the nine months ended September 30, 2023 and 2022, respectively, as a result of our debt increase.

 

Liquidated Damages. We recorded $455 of accrued interest on our liquidated damages payable for the nine months ended September 30, 2023 primarily from the issuance in past years of our convertible debentures, Series H convertible preferred stock, Series I convertible preferred stock, Series J convertible preferred stock and Series K convertible preferred stock in prior years. We recorded $639 of accrued interest on our liquidated damages payable for the nine months ended September 30, 2022 primarily from issuance of the same securities as described above.

 

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Use of Non-GAAP Financial Measures

 

We report our financial results in accordance with generally accepted accounting principles in the United States of America (“GAAP”); however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We believe Adjusted EBITDA provides visibility to the underlying continuing operating performance by excluding the impact of certain items that are noncash in nature or not related to our core business operations. We calculate Adjusted EBITDA as net loss as adjusted for loss from discontinued operations, with additional adjustments for (i) interest expense (net), (ii) provision for or benefit from income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in fair value of contingent consideration; (vi) liquidated damages, (vii) loss on impairment of assets, (viii) employee retention credit, (ix) employee restructuring payments, and (x) professional and vendor fees.

 

Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by other companies, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP Adjusted EBITDA as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are that Adjusted EBITDA:

 

  does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us;
  does not reflect deferred income taxes, which is a noncash expense;
  does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements;
  does not reflect stock-based compensation and, therefore, does not include all of our compensation costs;
  does not reflect the change in fair value of contingent consideration, which is a noncash expense;
  does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to);
  does not reflect any losses from the impairment of assets, which is a noncash operating expense;
  does not reflect the employee retention credits recorded by us for payroll related tax credits under the Cares Act;
  does not reflect payments related to employee restructuring changes for our former Chief Executive Officer; and
  does not reflect the professional and vendor fees incurred by us for services provided by consultants, accountants, lawyers, and other vendors, which services were related to certain types of events that are not reflective of our business operations.

 

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The following table presents a reconciliation of Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, for the periods indicated:

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2023   2022   2023   2022 
Net loss  $(11,166)  $(16,505)  $(50,027)  $(57,161)
Net loss from discontinued operations   -    646    -    1,329 
Net loss from continued operations   (11,166)   (15,859)   (50,027)   (55,832)
Add (deduct):                    
Interest expense, net (1)   4,042    3,184    13,225    8,510 
Income tax provision (benefit)   61    547    168    (1,180)
Depreciation and amortization (2)   6,917    6,891    21,110    20,223 
Stock-based compensation (3)   4,362    8,311    16,978    24,777 
Change in fair value of contingent consideration (4)   60    -    469    - 
Liquidated damages (5)   151    339    455    639 
Loss on impairment of assets (6)   -    -    119    257 
Employee retention credit (7)   -    -    (6,868)   - 
Employee restructuring payments (8)   735    -    4,997    679 
Professional and vendor fees (9)     1,194       -       1,194       -  
Adjusted EBITDA  $6,356   $3,413   $1,820   $(1,927)

 

  (1) Interest expense is related to our capital structure and varies over time due to a variety of financing transactions. Interest expense includes $533 and $280 for amortization of debt discounts for the three months ended September 30, 2023 and 2022, respectively, as presented in our condensed consolidated statements of cash flows, which is a noncash item. Interest expense includes $2,178 and $1,215 for amortization of debt discounts for the nine months ended September 30, 2023 and 2022, respectively. Investors should note that interest expense will recur in future periods.
  (2) Depreciation and amortization is related to our developed technology and Platform included within cost of revenues of $2,191 and $2,413, for the three months ended September 30, 2023 and 2022, respectively, and depreciation and amortization included within operating expenses of $4,726 and $4,478 for the three months ended September 30, 2023 and 2022, respectively. Depreciation and amortization is related to our developed technology and Platform included within cost of revenues of $6,883 and $7,099, for the nine months ended September 30, 2023 and 2022, respectively, and depreciation and amortization included within operating expenses of $14,227 and $13,124 for the nine months ended September 30, 2023 and 2022, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods.
  (3) Stock-based compensation represents noncash costs arise from the grant of stock-based awards to employees, consultants and directors. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future.
  (4) Change in fair value of contingent consideration represents the change in the put option on our common stock in connection with the Fexy Studios acquisition.
  (5) Liquidated damages (or interest expense related to accrued liquidated damages) represents amounts we owe to certain of our investors in private placements offerings conducted in fiscal years 2018 through 2020, pursuant to which we agreed to certain covenants in the respective securities purchase agreements and registration rights agreements, including the filing of resale registration statements and becoming current in our reporting obligations, which we were not able to timely meet.
  (6) Loss on impairment of assets represents certain assets that are no longer useful.
  (7) Employee retention credit represents payroll related tax credits under the Cares Act.
  (8) Employee restructuring payments represents severance payments to employees under employer restructuring arrangements and payments to our former Chief Executive Officer for the three and nine months ended September 30, 2023 and 2022, respectively.
(9)Represents professional and vendor fees that are nonrecurring in connection with the Business Combination resulting in a change of control, including fees incurred by consultants, accountants, lawyers, and other vendors.

 

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Critical Accounting Policies and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the condensed consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenue, expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.

 

Except as described in Note 1, Summary of Significant Accounting Policies, of the Notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 that was filed with the SEC on March 31, 2023.

 

Recent Accounting Pronouncements

 

See Note 1, Summary of Significant Accounting Policies, of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted as of the date of this report.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer(s) and principal financial officer(s), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

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In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. In light of the material weaknesses described in Part II, Item 9A to our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 that continue and have not been remediated as of the date of filing of this Quarterly Report, we have performed additional analyses, reconciliations, and other post-closing procedures to determine whether our condensed consolidated financial statements are prepared in accordance with GAAP. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2023 in providing reasonable assurance that the information required to be disclosed in our reports filed or submitted under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

 

Changes in Internal Control over Financial Reporting

 

In connection with our continued monitoring and maintenance of our control procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act of 2002, we continue to review, test, and improve the effectiveness of our internal controls. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Inherent Limitations on the Effectiveness of Controls

 

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be subject to claims and litigation arising in the ordinary course of business. We are not currently subject to any pending or threatened legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.

 

ITEM 1A. RISK FACTORS

 

There are numerous factors that affect our business and operating results, many of which are beyond our control. The following risk factors supplement and, to the extent inconsistent, supersede, the risk factors described in Part I, “Item IA. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 (the “2022 10-K”). The risk factors included herein as well as the risk factors described in the 2022 Form 10-K should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with SEC in connection with evaluating us, our business and the forward-looking statements contained in this Quarterly Report on Form 10-Q. Additional risks and uncertainties not known to us at present, or that we currently deem immaterial, may affect us. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition and results of operations.

 

Risks Related to the Pending Transaction with Bridge Media Networks and Simplify.

 

The Transactions may not be completed on the terms or timeline currently contemplated, or at all, and failure to complete the Transactions may result in material adverse consequences to our business and operations.

 

The Transactions are subject to several closing conditions, including the adoption of the Transaction Agreement and approval of the Transactions by our stockholders, the effectiveness of a registration statement relating to the registration of the issuance of the New Arena common stock in the Transactions, the approval of the listing of the New Arena common stock on the NYSE American and the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). If any one of these conditions is not satisfied or waived, the Transactions may not be completed. There is no assurance that the Transactions will be completed on the terms or timeline currently contemplated, or at all.

 

Under the Transaction Agreement, the parties’ obligations to complete the Transactions are conditioned on the expiration or termination of the applicable waiting period under the HSR Act.

 

If our stockholders do not adopt the Transaction Agreement and approve the Transactions or if the Transactions are not completed for any other reason, we would be subject to a number of risks, including the following:

 

our stockholders would not become stockholders of New Arena and therefore would not realize the anticipated benefits of the Transactions, including any anticipated synergies from combining New Arena and Bridge Media;
 

the failure to consummate the Transactions by December 31, 2023 would result in an event of default under certain of our debt facilities; and

the trading price of our common stock may experience increased volatility to the extent that the current market prices reflect a market assumption that the Transactions will be completed.

 

The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations or the trading price of our common stock. We are also exposed to general competitive pressures and risks, which may be increased if the Transactions are not completed.

 

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Each of Arena and Bridge Media will be subject to business uncertainties and contractual restrictions while the Transactions are pending that could adversely affect each of them.

 

Uncertainty about the effect of the Transactions on employees, customers and suppliers may have an adverse effect on either or both of us and Bridge Media, regardless of whether the Transactions are eventually completed, and, consequently, on New Arena. These uncertainties may impair our and Bridge Media’s ability to attract, retain and motivate key personnel until the Transactions are completed, or the Transaction Agreement is terminated, and for a period of time thereafter, and could cause customers, suppliers and others that deal with us or Bridge Media to seek to change or discontinue existing business relationships with us or Bridge Media.

 

Employee retention and recruitment may be particularly challenging for us and Bridge Media during the pendency of the Transactions, as employees and prospective employees may experience uncertainty about their future roles with New Arena. For each of us and Bridge Media, the departure of existing key employees or the failure of potential key employees to accept employment with New Arena, despite Arena’s and Bridge Media’s retention and recruiting efforts, could have a material adverse impact on our and New Arena’s business, financial condition and operating results, regardless of whether the Transactions are eventually completed.

 

The pursuit of the Transactions and the preparation for the integration of Arena and Bridge Media have placed, and will continue to place, a significant burden on the management and internal resources of Arena and Bridge Media. There is a significant degree of difficulty and management distraction inherent in the process of closing the Transactions and integrating Arena and Bridge Media, which could cause an interruption of, or loss of momentum in, the activities of each of the existing businesses, regardless of whether the Transactions are eventually completed. Before and immediately following the closing, the management teams of Arena and Bridge Media will be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage their respective existing businesses, service existing customers, attract new customers and develop new products, services or strategies. One potential consequence of such distractions could be the failure of management to realize other opportunities that could be beneficial to Arena or Bridge Media, respectively. If Arena’s or Bridge Media’s senior management is not able to effectively manage the process leading up to and immediately following the closing, or if any significant business activities are interrupted as a result of the integration process, the business of Arena or Bridge Media could suffer.

 

In addition, the Transaction Agreement restricts Arena and Simplify (with respect to Bridge Media) from taking specified actions without the consent of the other until the Transactions are consummated or the Transaction Agreement is terminated. These restrictions may prevent Arena and Simplify (with respect to Bridge Media) from pursuing otherwise attractive business opportunities and making other changes to their businesses before completion of the Transactions or termination of the Transaction Agreement.

 

Further, we and our directors could become subject to lawsuits relating to the Transactions that may be filed. While we intend to defend against any such actions vigorously, the costs of the defense of such lawsuits and other effects of such litigation could have an adverse effect on our business, financial condition and operating results.

 

The integration of Arena and Bridge Media following the closing will present challenges that may not result in the anticipated benefits of the Transactions.

 

The Transactions involve the combination of businesses that currently operate as independent businesses. New Arena will be required to devote management attention and resources to integrating its business practices and operations, and prior to the Transactions, management attention and resources will be required to plan for such integration. Potential difficulties New Arena may encounter in the integration process include the following:

 

the inability to successfully integrate the businesses, including operations, technologies, products and services, in a manner that permits New Arena to achieve the anticipated benefits from the Transactions, which could result in the anticipated benefits of the Transactions not being realized partly or wholly in the time frame currently anticipated or at all;
lost sales and customers as a result of certain customers of any of the businesses deciding not to do business with New Arena;
the necessity of coordinating geographically separated organizations, systems and facilities;
potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Transactions;
integrating personnel with diverse business backgrounds and business cultures, while maintaining focus on providing consistent, high-quality products and services;
consolidating and rationalizing information technology platforms and administrative infrastructures as well as accounting systems and related financial reporting activities and difficulty implementing effective internal controls over financial reporting and disclosure controls and procedures in particular; and
preserving important relationships of Arena and Bridge Media and resolving potential conflicts that may arise.

 

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If New Arena experiences difficulties with the integration process, the anticipated benefits of the Transactions may not be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on the business, results of operations, financial condition or prospects of New Arena during this transition period and for an undetermined period after completion of the Transactions.

 

The Transaction Agreement contains provisions that may discourage other companies from trying to acquire Arena.

 

The Transaction Agreement contains provisions that may discourage third parties from submitting business combination proposals to Arena that might result in greater value to Arena stockholders than the Transactions. The Transaction Agreement generally prohibits Arena from soliciting any competing acquisition proposal.

 

Following the completion of the Transactions, New Arena will be controlled by Simplify. The interests of Simplify may differ from the interests of other stockholders of New Arena.

 

Immediately following the closing, Simplify will beneficially own 58.02% of the outstanding shares of New Arena common stock and 5-Hour will own 6.98% of the outstanding shares of New Arena common stock, in each case on a fully diluted basis. 5-Hour is an affiliate of Simplify. Such amounts exclude the ownership of shares of New Arena common stock that may be issued from time to time pursuant to the additional equity issuances to be provided to Arena by Simplify or an affiliate thereof.

 

Through its ownership of at least a majority of the shares of New Arena common stock and the provisions set forth in the certificate of incorporation of New Arena, the bylaw of New Arena and the nominating agreement to be entered into in connection with the Transactions, Simplify will have the ability to designate and elect a majority of the directors of the New Arena board of directors. New Arena will avail itself of available “Controlled Company” exemptions to the corporate governance listing standards of the NYSE American that would otherwise require New Arena to have (i) a majority of the board of directors consist of independent directors, (ii) a nominating/corporate governance committee that is composed solely of independent directors and (iii) a compensation committee that is composed solely of independent directors.

 

For as long as Simplify beneficially owns a majority of the outstanding shares of Common Stock, Simplify will also have control over all other matters submitted to stockholders for approval, including changes in capital structure, transactions requiring stockholder approval under Delaware law and corporate governance. Simplify and its subsidiaries may have different interests than other holders of New Arena common stock and may make decisions adverse to your interests.

 

Among other things, Simplify’s control could delay, defer, or prevent a sale of New Arena that New Arena’s other stockholders support, or, conversely, this control could result in the consummation of such a transaction that other stockholders do not support. This concentrated control could discourage a potential investor from seeking to acquire New Arena common stock and, as a result, might impact the market price of New Arena common stock.

 

51
 

 

Arena and New Arena will incur transaction-related costs in connection with the Transactions and the integration of the businesses.

 

Arena has incurred transaction-related costs in connection with the Transactions and both Arena and New Arena will incur costs in connection with the integration of Arena’s and Bridge Media’s businesses. There are many systems that must be integrated, including information management, purchasing, accounting and finance, sales, billing, payroll and benefits, fixed asset and lease administration systems and regulatory compliance. Arena and Bridge Media are in the early stages of assessing the magnitude of these costs and, therefore, are not able to provide estimates of these costs. Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. These expenses could, particularly in the near term, reduce the anticipated benefits that New Arena expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost synergies related to the integration of the businesses following the completion of the Transactions, and accordingly, any net synergies may not be achieved in the near term or at all. These integration expenses may result in New Arena taking significant charges against earnings following the completion of the Transactions. Some of these costs and expenses will be incurred even if the Transactions are not consummated.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

52
 

 

ITEM 6. EXHIBITS

 

The following documents are filed as part of this Quarterly Report:

 

Exhibit

Number

  Description of Document
     
4.1   Form of 2023 Notes
     
10.1   Binding Letter of Intent, dated August 14, 2023, by and between the Company and Simplify Inventions, LLC
     
10.2   Form of Voting and Support Agreement, dated August 14, 2023, by and between the Company and certain stockholders
     
10.3   Amendment to Third Amended and Restated Note Purchase Agreement, dated August 14, 2023, by and between the Company, the subsidiary guarantors party thereto, BRF Finance Co., LLC, as agent and purchaser, and the other purchasers from time to time party thereto
     
10.4+  

Amendment No. 3 to Second Amended & Restated Executive Employment Agreement, dated as of September 7, 2023, by and between the Company and Ross Levinsohn

     
10.5+   First Amendment to Executive Employment Agreement, dated August 15, 2023, by and between the Company and Henry Robertson Barrett
     
10.6+   Severance Agreement, dated August 14, 2023, by and between the Company and Henry Robertson Barrett
     
10.7+   Severance Agreement, dated August 14, 2023, by and between the Company and Douglas B. Smith
     
10.8   Seventh Amendment to Financing and Security Agreement, dated August 31, 2023, by and among the Company, certain subsidiaries of the Company party thereto and SLR Digital Finance LLC
     
10.9^   Side Letter to Licensing Agreement, dated October 1, 2023, by and between the Company and ABG-SI LLC
     
31.1*   Chief Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Chief Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1#   Chief Executive Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2#   Chief Financial Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS*   Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
     
101.SCH*   Inline XBRL Taxonomy Extension Schema Document
     
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document

 

* Filed herewith.

+ Indicates a management or compensatory plan or arrangement in which directors or executive officers are eligible to participate.
^ Registrant has omitted portions of the exhibit as permitted under Item 601(b)(10) of Regulations S-K.

 

# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

 

53
 

 

SIGNATURES

 

In accordance with the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  The Arena Group Holdings, Inc.
   
Date: November 14, 2023 By: /s/ ROSS LEVINSOHN
    Ross Levinsohn
    Chief Executive Officer
    (Principal Executive Officer)
     
Date: November 14, 2023 By: /s/ DOUGLAS B. SMITH
    Douglas B. Smith
    Chief Financial Officer
    (Principal Financial Officer)

 

54

 

Exhibit 4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.2

 

VOTING AND SUPPORT AGREEMENT

 

This VOTING AND SUPPORT AGREEMENT (this “Agreement”), dated as of August 14, 2023, is entered into by and between The Arena Group Holdings, Inc., a Delaware corporation (the “Company”) and [●], a [●] (“Stockholder”). All terms used but not otherwise defined in this Agreement shall have the respective meanings ascribed to such terms in the Binding LOI (as defined below).

 

WHEREAS, concurrently with the execution hereof, Company, Simplify Inventions, LLC (“Simplify”) are entering into a Binding Letter of Intent and Term Sheet, dated as of the date hereof (a copy of which is attached hereto as Attachment 1, as it may be amended from time to time, the “Binding LOI”), which provides, among other things, for the issuance and sale by the Company, and the purchase by the Simplify of (i) shares of Common Stock for an aggregate purchase price of $25.0 million and (ii) shares of Series L Preferred Stock for an aggregate purchase price of $25.0 million upon the terms and subject to the conditions set forth in the Binding LOI (the shares referred to in (i) and (ii) above being referred to herein as the “Company Securities”);

 

WHEREAS, the transactions contemplated by the Binding LOI (the “Transactions”) will require the approval of the Company’s shareholders (the “Stockholder Approval”) pursuant to the rules of the NYSE American which require shareholder approval for (i) the sale or issuance of common stock equal to 20% or more of the presently outstanding common stock of the Company for less than the greater of book or market value and (ii) issuances of common stock of the Company that will result in a change of control of the Company (the “Company Change in Control”);

 

WHEREAS, as of the date hereof, Stockholder is the record and beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of the shares of Common Stock set forth on the signature page hereto (such shares, the “Current Owned Common Stock” and together with any shares of Common Stock or other voting equity securities of the Company that are hereafter issued to or otherwise directly or indirectly acquired or beneficially owned by Stockholder prior to the valid termination of this Agreement, being referred to herein as the “Subject Shares”); and

 

WHEREAS, as a condition to the willingness of Simplify to enter into the Binding LOI, and as an inducement and in consideration for the SIC Entities to enter into the Binding LOI, Stockholder has agreed to enter into this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:

 

1. Agreement to Vote and Approve. Stockholder agrees that it shall, and shall cause any other holder of record of any Subject Shares to, at any meeting of the stockholders of the Company (whether annual or special and whether or not an adjourned or postponed meeting) or in any other circumstances upon which a vote, consent or other approval of the stockholders of the Company is sought (a) when a meeting is held, appear at such meeting or otherwise cause the Subject Shares to be counted as present for the purpose of establishing a quorum; and (b) vote (or cause to be voted, including by proxy or by delivering a written consent) the Subject Shares (i) in favor of (A) the Transactions, including, but not limited to the issuance of the Company Securities (the “Stock Issuance Proposal”) and the resultant Company Change in Control (the “Change in Control Proposal”), and (B) any proposal to adjourn or postpone any such meeting of stockholders of the Company to a later date if there are not sufficient votes to adopt both the Stock Issuance Proposal and the Change in Control Proposal; and (ii) against any other proposal, action or agreement for an acquisition of, or change in control transaction involving, the Company. Stockholder agrees to waive, and to not exercise, any appraisal rights that may be available under Delaware law with respect to the Transactions. Any attempt by Stockholder to vote, consent or express dissent with respect to (or otherwise to utilize the voting power of), the Subject Shares in contravention of this Section 1 shall be null and void ab initio. Except as set forth in this Section 1, Stockholder shall not be restricted from voting in favor of, against or abstaining with respect to any matter presented to the stockholders of the Company.

 

 
 

 

2. No Transfer. Except in accordance with the terms of this Agreement, the Binding LOI and the definitive agreement to be entered into between Simplify and the Company in furtherance of the Transactions (the “Stock Purchase Agreement”), Stockholder hereby covenants and agrees that during the term of this Agreement, Stockholder will not (a) sell, transfer, pledge, encumber, assign, tender, exchange, hedge, short sell or otherwise dispose of (“Transfer”) any of the Subject Shares, (b) enter into any legally binding contract, option or other arrangement or undertaking providing for the Transfer of any Subject Shares, (c) deposit any of the Subject Shares into a voting trust or enter into a voting agreement or arrangement with respect to the Subject Shares or grant any proxy or power of attorney with respect thereto that is inconsistent with this Agreement or (d) knowingly take any action that would make any representation or warranty of Stockholder contained herein untrue or incorrect in any material respect or have the effect of materially preventing or disabling Stockholder from performing its obligations under this Agreement. Any action taken in violation of the immediately preceding sentence shall be null and void ab initio. If any involuntary Transfer of any of the Subject Shares shall occur (including, but not limited to, a sale by Stockholder’s trustee in any bankruptcy, or a sale to a purchaser at any creditor’s or court sale), the transferee (which term, as used herein, shall include any and all transferees and subsequent transferees of the initial transferee) shall, subject to applicable Law, take and hold the Subject Shares subject to all of the restrictions, obligations, liabilities and rights under this Agreement, which shall continue in full force and effect until valid termination of this Agreement in accordance with its terms.

 

3. Effectiveness of Agreement; Termination.

 

(a) This Agreement shall not be effective unless and until (i) the Binding LOI is executed and delivered by all parties thereto and (ii) this Agreement is executed by all parties hereto.

 

(b) This Agreement shall terminate automatically, without any notice or other action by any person, entity or organization upon the first to occur of (i) the valid termination or expiration of the Binding LOI (or, if executed by the Company prior to such termination, the valid termination or expiration of the Stock Purchase Agreement) in accordance with their respective terms without the consummation of the transactions contemplated thereby, (ii) the consummation of the Transactions pursuant to the Letter of Intent or the Stock Purchase Agreement, (iii) the mutual written consent of the Company and Stockholder and (iv) fourteen days following a Change in Board Recommendation. Upon termination of this Agreement, no party shall have any further obligations or liabilities under this Agreement; provided, however, that nothing set forth in this Section 3 shall relieve any party from liability for fraud or any breach of this Agreement prior to termination hereof; and provided, further, that the provisions of this Section 3 and Sections 5 through 14 hereof, inclusive, shall survive any termination of this Agreement.

 

(c) As used herein: a “Change in Board Recommendation” means, prior to obtaining the Stockholder Approval and upon receipt of a Superior Proposal, the withdrawal, change, amendment, modification or qualification of the recommendation of the Company’s Board of Directors (the “Board”) to approve the Transactions and adopt the Stock Purchase Agreement pursuant to a determination by the Board in good faith that the failure to so withdraw, change, amend, modify or qualify such recommendation would be inconsistent with the fiduciary duties of the Board, (ii) a “Superior Proposal” means any bona fide written Acquisition Proposal that the Board determines in its good faith judgment (after consultation with the Company’s financial advisors and outside legal counsel), and considering such factors as the Board considers to be relevant in good faith, to be (A) more favorable to the shareholders of the Company from a financial point of view than the Transactions and (B) reasonably capable of being completed in accordance with its terms, in each case, taking into account all financial, regulatory, legal and other aspects of the proposal, (iii) an “Acquisition Proposal” means any proposal or offer from any person or group (other than IC or its affiliates) relating to, in a single transaction or series of related transactions, (A) any (1) direct or indirect acquisition the assets or business of the Company (including securities, assets or business of the subsidiaries of the Company) equal to more than 50% of the Company’s consolidated assets or to which more than 50% of the Company’s revenues or earnings on a consolidated basis are attributable, (2) direct or indirect acquisition or issuance of more than 50% of any class of voting equity securities of the Company, (B) any tender offer or exchange offer, as defined pursuant to the Exchange Act, that if consummated would result, directly or indirectly, in any person or group (or the shareholders of any person or group) beneficially owning 50% or more of the outstanding voting power of the Company or (C) any merger, consolidation, business combination, share exchange, recapitalization or other similar transaction involving the Company that would result in any person or group (or the shareholders of any person or group) beneficially owning, directly or indirectly, more than 50% of the outstanding voting power of the Company or 50% of the voting power of the surviving entity in a merger involving the Company or the resulting direct or indirect parent of the Company or such surviving entity (or any securities convertible into, or exchangeable for, securities representing such voting power) , (iv) the “Exchange Act” means the Securities Exchange Act of 1934 and (v) “group” has the meaning set forth in Rule 13d-3 of the Exchange Act.

 

 
 

 

4. Representations and Warranties. Stockholder represents and warrants to the Company that:

 

(a) Existence, Power; Binding Agreement. If Stockholder is an entity, Stockholder is validly existing and in good standing under the laws of the jurisdiction of its formation. Stockholder has the requisite power and authority (if Stockholder is an entity) or legal capacity (if Stockholder is a natural person) to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Stockholder and, assuming due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of Stockholder, enforceable against Stockholder in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar Laws affecting creditors’ rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law).

 

(b) No Conflicts. Except for filings required under, and compliance with other applicable requirements of, the Exchange Act and the rules and regulations of The New York Stock Exchange, (i) no consent, approval, order, authorization, release or waiver of, or registration, declaration or filing with, any governmental entity or other person is necessary on the part of Stockholder for the execution and delivery of this Agreement by Stockholder and the consummation by Stockholder of the transactions contemplated hereby and (ii) neither the execution and delivery of this Agreement by Stockholder nor the consummation by Stockholder of the transactions contemplated hereby or compliance by Stockholder with any of the provisions hereof shall (A) if Stockholder is an entity, conflict with or violate any provision of its certificate of formation or operating agreement (or similar organizational documents), (B) result in any breach or violation of, or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien on any property or asset of Stockholder pursuant to any contract or agreement to which it is a party or by which Stockholder or any of its properties or assets are bound or affected or (C) violate any law, judgment, order or decree applicable to Stockholder or any of its properties or assets, except in the case of (B) or (C) for violations, breaches or defaults that would not in the aggregate materially impair the ability of Stockholder to perform its obligations hereunder.

 

 
 

 

(c) Ownership. As of the date hereof, Stockholder is the record and beneficial owner of, and has good and valid title to, the Current Owned Common Stock. As of the date hereof, Stockholder has full voting power, full power of disposition, full power to issue instructions with respect to the matters set forth herein and full power to agree to all of the matters set forth in this Agreement, in each case, with respect to all of the Current Owned Common Stock. Except as disclosed in the Company’s most recent proxy statement filed with the U.S. Securities and Exchange Commission, as of the date hereof, Stockholder does not own any options, equity awards, warrants, or equity interests or shares of the Company other than the Current Owned Common Stock.

 

(d) No Inconsistent Agreements. Stockholder (i) has not entered into any voting agreement or voting trust with respect to the Subject Shares, (ii) has not granted a proxy or power of attorney with respect to the Subject Shares that is inconsistent with its obligations pursuant to this Agreement and (iii) has not entered into any agreement or undertaking that is otherwise inconsistent with its obligations pursuant to this Agreement.

 

5. Notices. All notices and other communications hereunder must be in writing and will be deemed to have been duly delivered and received hereunder (a) four Business Days after being sent by registered or certified mail, return receipt requested, postage prepaid; (b) one Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable nationwide overnight courier service; or (c) immediately upon delivery by hand (with a written or electronic confirmation of delivery) or by email transmission, in each case to the intended recipient as set forth on the signature pages to this Agreement. Any notice received at the addressee’s location, or by email at the addressee’s email address, on any Business Day after 5:00 p.m., addressee’s local time, or on any day that is not a Business Day will be deemed to have been received at 9:00 a.m., addressee’s local time, on the next Business Day. From time to time, any party may provide notice to the other parties of a change in its address, email address, or fax number through a notice given in accordance with this Section 5, except that that notice of any change to the address, email address or any of the other details specified in or pursuant to this Section 5 will not be deemed to have been received until, and will be deemed to have been received upon, the later of the date (A) specified in such notice; or (B) that is five Business Days after such notice would otherwise be deemed to have been received pursuant to this Section 5.

 

6. Fiduciary Duties. Notwithstanding anything in this Agreement to the contrary, (a) Stockholder makes no agreement or understanding herein in any capacity other than in such Stockholder’s capacity as a record holder and beneficial owner of the Subject Shares and (b) nothing herein will be construed to limit or affect any action or inaction by such Stockholder (or its representative) in such person’s capacity as a member of the board of directors of the Company or as an officer, employee or fiduciary of the Company, in each case, acting in such person’s capacity as a director, officer, employee or fiduciary of the Company.

 

7. Amendments and Waivers. Any provision of this Agreement may be amended or waived if such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective. The waiver by any party of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

 
 

 

8. Entire Agreement; Assignment. This Agreement and the other documents and certificates delivered pursuant hereto, constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement. This Agreement shall not be assigned by any party (including by operation of law, by merger or otherwise) without the prior written consent of (a) the Company, in the case of an assignment by Stockholder and (b) Stockholder, in the case of an assignment by the Company; provided that the Company may assign any of its rights and obligations to any direct or indirect Subsidiary of the Company, but no such assignment shall relieve the Company of its obligations hereunder.

 

9. Rules of Construction. The parties to this Agreement have been represented by counsel during the negotiation and execution of this Agreement and waive the application of any laws or rules of construction providing that ambiguities in any agreement or other document will be construed against the party drafting such agreement or other document.

 

10. Governing Law; Consent to Jurisdiction.

 

(a) This Agreement, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance of this Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement) shall be governed by, and construed, interpreted and enforced in accordance with, the Laws of the State of Delaware, without regard to conflict of laws principles that would result in the application of the laws of another jurisdiction.

 

(b) Any legal action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be heard and determined exclusively in the Court of Chancery of the State of Delaware or, in the event (but only in the event) that such court does not have subject matter jurisdiction over such action or proceeding, in the federal courts of the United States of America located in the State of Delaware. Each party hereto hereby irrevocably (i) submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware or federal courts of the United States of America located in the State of Delaware in respect of any legal action, suit or proceeding arising out of or relating to this Agreement and (ii) waives, and agrees not to assert, as a defense in any such action, suit or proceeding, any claim that it is not subject personally to the jurisdiction of such courts, that its property is exempt or immune from attachment or execution, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of action, suit or proceeding is improper or that this Agreement or the transactions contemplated hereby may not be enforced in or by such courts.

 

(c) To the fullest extent permitted by law, each party hereto agrees that notice or the service of process in any action, suit or proceeding arising out of or relating to this Agreement shall be properly served or delivered if delivered in the manner contemplated by Section 5.

 

(d) The consents to jurisdiction set forth in this Section 9 shall not constitute general consents to service of process in the State of Delaware and shall have no effect for any purpose except as provided in this Section 9 and shall not be deemed to confer rights on any person other than the parties hereto. The parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law.

 

 
 

 

11. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

12. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that the parties hereto shall be entitled to specific performance of the terms hereof and injunctive and other equitable relief, in addition to any other remedy at law or equity, without posting any bond or other undertaking.

 

13. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement.

 

14. Further Assurances. Stockholder will execute and deliver, or cause to be executed and delivered, all further documents and instruments and use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable law, to perform its obligations under this Agreement.

 

15. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterpart, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same.

 

[signature page to follow]

 

 
 

 

IN WITNESS WHEREOF, the Company and Stockholder have executed or caused to be executed this Agreement as of the date first written above.

 

  THE ARENA GROUP HOLDINGS, INC.
     
  By:                     
  Name:  
  Title:  

 

  Notice to the Company:
   
  The Arena Group Holdings, Inc.
  200 Vesey Street, 24th Floor
  New York, NY 12081
  Attention: Legal Department
  legal@thearenagroup.net
   
  With a copy (which does not constitute notice) to:
   
  Fenwick & West LLP
  555 California Street, #12
  San Francisco, CA 94104
  Attention: Samuel Angus; Victoria Lupu
  E-mail: sangus@fenwick.com; vlupu@fenwick.com

 

[Signature Page to Voting Agreement]

 

 
 

 

IN WITNESS WHEREOF, the Company and Stockholder have executed or caused to be executed this Agreement as of the date first written above.

 

  STOCKHOLDER
     
  By:                        
  Name:  
  Title:  

 

  Shares of Common Stock: _________________
   
  Notice to Stockholder:
   
  [Name]
  [Address]
  [Address]
  [Attention]
  [Email]
   
  With a copy (which does not constitute notice) to:
   
  [Name]
  [Address]
  [Address]
  [Attention]
  [Email]

 

[Signature Page to Voting Agreement]

 

 
 

 

Attachment 1

 

Binding LOI

 

See attached.

 

 

 

Exhibit 10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.4

 

 

 
 

 

 

 
 

 

 

 

 

 

 

Exhibit 10.5

 

FIRST AMENDMENT TO

EXECUTIVE EMPLOYMENT AGREEMENT

 

This First Amendment to Executive Employment Agreement (“Amendment”) is hereby entered into by and between Robertson Barrett (“Executive”) and The Arena Group Holdings, Inc. (“Company”). This First Amendment amends the Executive Employment Agreement between Executive and Company (the “Agreement”). The Effective Date of this Amendment shall be August 1, 2023 (“Effective Date”). Until the Effective Date, the Agreement shall remain in full force and effect in its current form. Unless otherwise defined herein, capitalized terms used herein shall have the meanings given to such terms in the Agreement.

 

In consideration of the mutual covenants and agreements set forth in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Executive and Company agree as follows.

 

Amendments.

 

1. The first sentence of Section 1.2(a) shall be removed and replaced in its entirety with the following new sentence:

 

From the Effective Date, the Executive shall receive an annualized salary of $500,000 (“Annual Salary”).

 

2. A new Section 1.2(b)(iv) shall be added as follows:

 

Signing Bonus. The Executive shall receive a signing bonus in the amount of $150,000 (less applicable taxes and withholdings), which $100,000 shall be paid on or before August 15, 2023 and the balance of $50,000 shall be paid on or before October 15, 2023.

 

3. Section 1.2(c) shall be removed and replaced in its entirety with the following new Section 1.2(c):

 

Stock Option Grant. Company will grant to Executive options to purchase shares of Company’s Common Stock, restricted stock units or restricted stock awards (collectively, “New Options”) pursuant to Company’s 2019 Equity Incentive Plan (the “Plan”) subject to the conditions described therein. The type and number of New Options and the terms associated with vesting and accelerated vesting of the New Options shall be upon agreement by the Board and CEO.

 

No Other Modifications.

 

Except as expressly provided in this Amendment, each of the terms and provisions of the Agreement shall remain in full force and effect. The Amendment set forth herein is limited precisely as written and shall not be deemed to be an amendment or waiver to any other term or condition of the Agreement or any of the documents referred to therein. From and after the Effective Date, all references in the Agreement to this “Agreement” shall be deemed to be references to the Agreement, as amended.

 

 

 

 

Counterparts.

 

This Amendment may be executed in counterparts, each of which shall be deemed to be an original, and all of which taken together shall constitute one instrument.

 

Please sign below to indicate the parties’ agreement with the terms and conditions set forth in this Amendment.

 

ROBERTSON BARRETT  
         
By:  /s/ Robertson Barrett   Date:  
  Robertson Barrett    

 

THE ARENA GROUP HOLDINGS, INC.  
   
By:  /s/ Ross Levinsohn   Date:  
  Ross Levinsohn    
  Chief Executive Officer    

 

2

 

 

Exhibit 10.6

 

 

 
 

 

 

 

 

 

Exhibit 10.7

 

 

 

 

 

 

 

 

 

Exhibit 10.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.9

 

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKEDBY [*], HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELYCAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED

 

SIDE LETTER

TO

LICENSING AGREEMENT

 

THIS SIDE LETTER TO THE LICENSING AGREEMENT (this “September 1st Letter”) is effective as of September 1, 2023 (the “Effective Date”), and is entered into by and between ABG-SI LLC (“Licensor”) and The Arena Group Holdings, Inc. (f/k/a TheMaven, Inc., “Licensee”) concerning that certain Licensing Agreement dated as of June 14, 2019, as amended by Amendment No. 1 to the Licensing Agreement effective as of September 1, 2019, Amendment No. 2 to the Licensing Agreement effective as of April 1, 2020, Amendment No. 3 to the Licensing Agreement effective as of July 28, 2020, Amendment No. 4 to the Licensing Agreement effective as of June 4, 2021, that certain side letter agreement dated June 4, 2021 (the “June 4th Letter”), Amendment No. 5 to the Licensing Agreement effective as of September 16, 2022 (“Amendment No. 5”), and from time to time (collectively, the “License Agreement”). All capitalized terms used and not specifically defined herein shall have the meanings ascribed to them in the License Agreement.

 

In consideration of the mutual covenants and agreements hereinafter contained on the part of each of the parties hereto to be kept, observed and performed, and for such other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto covenant and agree as follows:

 

1.Payment Terms.

 

(a)Notwithstanding the terms of Section 7(a)(i) of the License Agreement, as of the payment that would otherwise be due on October 1, 2023, the GMR shall be payable by Licensee to Licensor in equal monthly payments of [*] ($[*]), due upon the first day of October, November, and December (each a “Monthly Payment”) in 2023 only.
   
(b)Should Licensee fail to timely make a Monthly Payment and such failure is not cured within ten (10) days, Licensor may, at its sole discretion, by written notice to Licensee accelerate the full amount of any remaining GMR payment for the applicable Contract Quarter, which shall become due and payable immediately, and Section 1(a) above will be of no further effect.
   
(c)Licensor and Licensee acknowledge and agree that Licensee has signed a binding letter of intent with Simplify Inventions, LLC and its founder, Manoj Bhargava, to enter into that certain transaction that is described in greater detail in the ‘News Release’ attached hereto as Exhibit A of this September 1st Letter (the “Transaction”). Should the Transaction close at any time prior to any Monthly Payment becoming due under Section 1(a) above, then the full amount of any remaining GMR payment for the applicable Contract Quarter (e.g., each and every Monthly Payment that has not yet been paid by Licensee to Licensor), shall become due and payable immediately, and Section 1(a) above will be of no further effect.

 

[SIGNATURE PAGE FOLLOWS]

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have entered into this September 1st Letter effective as of the Effective Date.

 

Licensor:   Licensee:
ABG-SI LLC   The Arena Group Holdings, Inc.
  (f/k/a TheMaven, Inc.)
         
By: /s/ Jay Dubliner   By:

/s/ Andrew Q. Kraft

Print: Jay Dubliner   Print:

Andrew Q. Kraft

Title: Chief Legal Officer   Title:

Chief Operating Officer

Date: 10/1/2023   Date:

9/30/2023

 

2

 

 

Exhibit A

 

See attached.

 

3

 

Exhibit 31.1

 

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Ross Levinsohn, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of The Arena Group Holdings, Inc.;
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2023 /s/ Ross Levinsohn
  Ross Levinsohn
  Chief Executive Officer
  (Principal Executive Officer)

 

 

 

Exhibit 31.2

 

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Douglas B. Smith, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of The Arena Group Holdings, Inc.;
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2023 /s/ Douglas B. Smith
  Douglas B. Smith
  Chief Financial Officer
  (Principal Financial Officer)

 

 

 

Exhibit 32.1

 

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Ross Levinsohn, the Chief Executive Officer of The Arena Group Holdings, Inc. (the “Company”) hereby certify, that, to my knowledge:

 

  1. The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
     
  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 14, 2023 /s/ Ross Levinsohn
  Ross Levinsohn
  Chief Executive Officer
  (Principal Executive Officer)

 

 

 

Exhibit 32.2

 

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Douglas B. Smith, the Chief Financial Officer of The Arena Group Holdings, Inc. (the “Company”), hereby certify, that, to my knowledge:

 

  1. The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
     
  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 14, 2023 /s/ Douglas B. Smith
  Douglas B. Smith
  Chief Financial Officer
  (Principal Financial Officer)