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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 June 30, 2024

 

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, indicate 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 August 19, 2024, the Registrant had 29,591,630 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 33
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 46
   
Item 4. Controls and Procedures 47
   
PART II - OTHER INFORMATION 48
   
Item 1. Legal Proceedings 48
   
Item 1A. Risk Factors 48
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50
   
Item 3. Defaults Upon Senior Securities 50
   
Item 4. Mine Safety Disclosures 51
   
Item 5. Other Information 51
   
Item 6. Exhibits 51
   
SIGNATURES 53

 

2

 

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) of The Arena Group Holdings, Inc. (the “Company,” “we,” “our,” and “us”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning our business strategy, future revenues, market growth, capital requirements, product introductions, the timing, outcome or financial impacts of the pending Business Combination (as described in Note 18 and Note 20 of the Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1 herein) and related transactions, 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, 2023 filed with the SEC on April 1, 2024. 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, 2023.

 

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 – June 30, 2024 (Unaudited) and December 31, 2023 5
Condensed Consolidated Statements of Operations (Unaudited) - Three Months and Six Months Ended June 30, 2024 and 2023 6
Condensed Consolidated Statements of Stockholders’ Deficiency (Unaudited) - Three Months and Six Months Ended June 30, 2024 and 2023 7
Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months and Six Months Ended June 30, 2024 and 2023 9
Notes to Condensed Consolidated Financial Statements (Unaudited) 10

 

4

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  

June 30, 2024

(unaudited)

   December 31,
2023
 
   ($ in thousands, except share data) 
Assets          
Current assets:          
Cash and cash equivalents  $6,085   $9,284 
Accounts receivable, net   22,698    31,676 
Prepayments and other current assets   5,555    5,791 
Current assets from discontinued operations   1,014    43,648 
Total current assets   35,352    90,399 
Property and equipment, net   225    328 
Operating lease right-of-use assets   2,565    176 
Platform development, net   7,380    8,723 
Acquired and other intangible assets, net   24,489    27,457 
Other long-term assets   773    1,003 
Goodwill   42,575    42,575 
Noncurrent assets from discontinued operations   -    18,217 
Total assets  $113,359   $188,878 
Liabilities, mezzanine equity and stockholders’ deficiency          
Current liabilities:          
Accounts payable  $4,977   $7,803 
Accrued expenses and other   27,270    28,903 
Line of credit   -    19,609 
Unearned revenue   10,719    16,938 
Subscription refund liability   131    46 
Operating lease liabilities   122    358 
Contingent consideration   -    1,571 
Liquidated damages payable   3,076    2,924 
Simplify loan   12,748    - 
Bridge notes   8,000    7,887 
Debt   102,372    102,309 
Current liabilities from discounted operations   97,516    47,673 
Total current liabilities   266,931    236,021 
Unearned revenue, net of current portion   530    542 
Operation lease liabilities, net of current portion   2,101    - 
Other long-term liabilities   169    406 
Deferred tax liabilities   661    599 
Noncurrent liabilities from discontinued operations   -    10,137 
Total liabilities   270,392    247,705 
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 June 30, 2024 and December 31, 2023   168    168 
Total mezzanine equity   168    168 
Stockholders’ deficiency:          
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 29,573,932 and 23,836,706 shares at June 30, 2024 and December 31, 2023, respectively   295    237 
Common stock to be issued   -    - 
Additional paid-in capital   332,702    319,421 
Accumulated deficit   (490,198)   (378,653)
Total stockholders’ deficiency   (157,201)   (58,995)
Total liabilities, mezzanine equity and stockholders’ deficiency  $113,359   $188,878 

 

See accompanying notes to condensed consolidated financial statements

 

5

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   2024   2023   2024   2023 
  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2024   2023   2024   2023 
   ($ in thousands, except share data) 
Revenue  $27,183   $34,072   $56,124   $62,490 
Cost of revenue (includes amortization of platform development and developed technology for the three months ended June 30, 2024 and 2023 of $1,507 and $2,323, respectively and for the six months ended June 30, 2024 and 2023 of $3,056 and $4,692, respectively)   16,465    20,855    36,473    38,945 
Gross profit   10,718    13,217    19,651    23,545 
Operating expenses                    
Selling and marketing   3,751    6,904    8,315    12,751 
General and administrative   8,632    11,601    18,767    24,576 
Depreciation and amortization   913    1,065    1,900    2,161 
Loss on impairment of assets   -    -    1,198    119 
Total operating expenses   13,296    19,570    30,180    39,607 
Loss from operations   (2,578)   (6,353)   (10,529)   (16,062)
Other (expense) income                    
Change in fair value of contingent consideration   -    90    (313)   (409)
Interest expense   (4,249)   (5,001)   (8,588)   (9,183)
Liquidated damages   (76)   (177)   (152)   (304)
Total other expenses   (4,325)   (5,088)   (9,053)   (9,896)
Loss before income taxes   (6,903)   (11,441)   (19,582)   (25,958)
Income tax provision   (35)   (86)   (76)   (93)
Loss from continuing operations   (6,938)   (11,527)   (19,658)   (26,051)
Loss from discontinued operations, net of tax   (1,249)   (7,957)   (91,887)   (12,810)
Net loss  $(8,187)  $(19,484)  $(111,545)  $(38,861)
Basic and diluted net loss per common share:                    
Continuing operations  $(0.24)  $(0.52)  $(0.70)  $(1.27)
Discontinued operations   (0.04)   (0.36)   (3.27)   (0.62)
Basic and diluted net loss per common share  $(0.28)  $(0.88)  $(3.97)  $(1.89)
Weighted average number of common shares outstanding – basic and diluted   29,399,365    22,074,500    28,110,331    20,509,676 

 

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 Six Months Ended June 30, 2024

 

   Shares   Par
Value
   Shares   Par
Value
  

Paid-in

Capital

  

Accumulated

Deficit

  

Stockholders’
Deficiency

 
   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 April 1, 2024   29,513,563   $294    2,701   $-   $332,165   $(482,011)  $  (149,552)
Issuance of common stock for restricted stock units   68,975    1    -    -    (1)   -    - 
Common stock withheld for taxes   (8,606)   -    -    -    (7)   -    (7)
Stock-based compensation   -    -    -    -    545    -    545 
Net loss   -    -    -    -    -    (8,187)   (8,187)
Balance at June 30, 2024   29,573,932   $295    2,701   $-   $332,702   $(490,198)  $(157,201)

 

   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, 2024   23,836,706   $237    2,701   $-   $319,421   $(378,653)  $    (58,995)
Issuance of common stock in connection with private placement   5,555,555    56    -    -    11,944    -    12,000 
Issuance of common stock for restricted stock units   747,140    8    -    -    (8)   -    - 
Common stock withheld for taxes   (290,777)   (3)   -    -    (483)   -    (486)
Repurchase of common stock for Fexy put option   (274,692)   (3)   -    -    (376)   -    (379)
Stock-based compensation   -    -    -    -    2,204    -    2,204 
Net loss   -    -    -    -    -    (111,545)   (111,545)
Balance at June 30, 2024   29,573,932   $295    2,701   $-   $332,702   $(490,198)  $(157,201)

 

7

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Three and Six Months Ended June 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 April 1, 2023   21,773,078   $217    41,283   $-   $289,532   $(342,448)  $    (52,699)
Issuance of common stock in connection with settlement of Series H convertible preferred stock   207,000    2    -    -    1,498    -    1,500 
Issuance of common stock in connection with settlement of liquidated damages   11,766    -    -    -    45    -    45 
Gain upon issuance of common stock in connection with settlement of liquidated damages   -    -    -    -    84    -    84 
Issuance of common stock for restricted stock units   23,083    -    -    -    -    -    - 
Costs incurred upon issuance of common stock in connection with registered direct offering   -    -    -    -    (67)   -    (67)
Stock-based compensation   -    -    -    -    6,430    -    6,430 
Net loss   -    -    -    -    -    (19,484)   (19,484)
Balance at June 30, 2023   22,014,927   $219    41,283   $-   $297,522   $(361,932)  $(64,191)

 

   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   207,000    2              1,498         1,500 
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   420,459    4    -    -    (4)   -    - 
Common stock withheld for taxes   (202,382)   (2)   -    -    (1,421)   -    (1,423)
Issuance of common stock in connection with the exercise of stock options   795    -    -    -    -    -    - 
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   -    -    -    -    13,164    -    13,164 
Net loss   -    -    -    -    -    (38,861)   (38,861)
Balance at June 30, 2023   22,014,927   $219    41,283   $-   $297,522   $(361,932)  $(64,191)

 

See accompanying notes to condensed consolidated financial statements.

 

8

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   2024   2023 
   Six Months Ended June 30, 
   2024   2023 
   ($ in thousands) 
Cash flows from operating activities          
Net loss  $(111,545)  $(38,861)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property and equipment   130    197 
Amortization of platform development and intangible assets   7,227    13,996 
Amortization of debt discounts   596    1,645 
Noncash and accrued interest   5,959    602 
Loss on impairment of assets   40,589    119 
Change in fair value of contingent consideration   313    409 
Liquidated damages   152    304 
Stock-based compensation   1,976    12,616 
Deferred income taxes   62    73 
Bad debt expense   672    54 
Other   (21)   - 
Change in operating assets and liabilities net of effect of business combination:          
Accounts receivable, net   20,458    2,213 
Subscription acquisition costs   6,131    (7,273)
Prepayments and other current assets   1,043    (7,327)
Other long-term assets   230    8 
Accounts payable   (3,645)   742 
Accrued expenses and other   41,155    (800)
Unearned revenue   (14,304)   5,526 
Subscription refund liability   105    45 
Operating lease liabilities   (524)   (114)
Contingent consideration   

(1,683

)   

-

 
Other long-term liabilities   (237)   (574)
Net cash used in operating activities   (5,161)   (16,400)
Cash flows from investing activities          
Purchases of property and equipment   (27)   - 
Capitalized platform development   (1,485)   (2,132)
Payments for acquisition of business, net of cash acquired   -    (500)
Net cash used in investing activities   (1,512)   (2,632)
Cash flows from financing activities          
Payment of Fexy put option   (561)   - 
(Repayments) proceeds under line of credit, net borrowing   (20,027)   815 
Proceeds from common stock private placement   12,000    - 
Proceeds from Simplify loan   12,748    - 
Proceeds from common stock registered direct offering   -    11,500 
Payments of issuance costs from common stock registered direct offering   -    (167)
Payment of deferred cash payments   (200)    (75)
Payment of taxes from common stock withheld   (486)   (1,423)
Net cash provided by financing activities   3,474    10,650 
Net decrease in cash, cash equivalents, and restricted cash   (3,199)   (8,382)
Cash, cash equivalents, and restricted cash – beginning of period   9,284    14,373 
Cash, cash equivalents, and restricted cash – end of period  $6,085   $5,991 
Cash, cash equivalents, and restricted cash          
Cash and cash equivalents  $6,085   $5,489 
Restricted cash   -    502 
Total cash, cash equivalents, and restricted cash  $6,085   $5,991 
Supplemental disclosure of cash flow information          
Cash paid for interest  $2,033   $7,140 
Cash paid for income taxes   85    85 
Noncash investing and financing activities          
Reclassification of stock-based compensation to platform development  $228   $548 
Issuance cost of registered direct offering recorded in accrued expenses and other   -    189 
Repurchase of common stock for Fexy put option   379    - 
Issuance of common stock in connection with settlement of liquidated damages   -    499 
Issuance of common stock upon conversion of Series H convertible preferred stock   -    1,500 
Issuance of common stock in connection with acquisition   -    2,000 
Deferred cash payments recorded in connection with acquisitions   -    246 
Reclassification to liability upon common stock modification   -    68 

 

See accompanying notes to condensed consolidated financial statements.

 

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. and its wholly owned subsidiaries (“The Arena Group” or the “Company”), after eliminating all significant intercompany balances and transactions.

 

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, 2023, filed with the SEC on April 1, 2024.

 

The condensed consolidated financial statements as of June 30, 2024, and for the three months ended June 30, 2024 and 2023, 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, 2023, 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’s business and operations are sensitive to general business and economic conditions in the United States and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the United States and world economy. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse developments in these general business and economic conditions could have a material adverse effect on the Company’s financial condition and the results of its operations.

 

In addition, the Company will compete with many companies that currently have extensive and well-funded projects, marketing and sales operations as well as extensive human capital. The Company may be unable to compete successfully against these companies. The Company’s industry is characterized by rapid changes in technology and market demands. As a result, the Company’s products, services, or expertise may become obsolete or unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer and market demands, and enhance its current technology under development.

 

Uncertainty in the global economy presents significant risks to the Company’s business. Increases in inflation, increasing and continued elevated interest rates, instability in the global banking system, geopolitical factors, including the ongoing conflicts in Ukraine and Israel and the responses thereto, and the remaining effects of the COVID-19 pandemic may have an adverse effect on the Company’s business. While the Company is closely monitoring the impact of the current macroeconomic conditions on all aspects of its business, the ultimate extent of the impact on its 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 the Company’s control and could exist for an extended period of time. As a result, the Company is subject to continuing risks and uncertainties.

 

The Company operates in one reportable segment.

 

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 six months ended June 30, 2024, the Company incurred a net loss from continuing operations of $19,658, and as of June 30, 2024, had cash on hand of $6,085 and a working capital deficit of $231,579. The Company’s net loss from continuing operations 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. Management also evaluated the Company’s 2023 Notes (see Note 11), Senior Secured Notes, Delayed Draw Term Notes and 2022 Bridge Notes (see Note 12) (collectively its “current debt”) that are subject to a forbearance period through the earlier of the following: (a) September 30, 2024, as further extended on July 12, 2024 to December 31, 2024 (as further described under the heading Arena Loan Agreement in Note 20); (b) the occurrence of the closing of the Business Combination (as further described in Note 18); or (c) the termination of the Business Combination prior to closing. In addition to the forgoing, management evaluated the August 2, 2024 shut down all of the operations and layoff of substantially all of the employees of Bridge Media Networks, LLC (“Bridge Media”), an affiliated entity of Simplify Inventions, LLC (“Simplify”), and both parties to the Business Combination. Unless the Company is able to refinance or modify the terms of its current debt it runs the risk that its debt could be called, therefore, it may not be able to meet its obligations when due.

 

In its evaluation, management determined that substantial doubt exists about the Company’s ability to continue as a going concern for a one-year period following the financial statement issuance date. The plans to seek refinancing or modification of the terms of its current debt, complete the Business Combination or enter into possible alternative structures or options to the transactions contemplated under the Business Combination which are discussed below are outside of management’s control.

 

The Company plans to refinance or modify the terms of its current debt, complete the Business Combination or enter into possible alternative structures or options to the transactions contemplated under the Business Combination based on its continuing discussions with Simplify (as further discussed under the heading Business Combination in Note 20) to alleviate the conditions that raised substantial doubt about its ability to continue as a going concern. However, there can be no assurance that the Company will be able to refinance or modify the terms of its current debt, complete the Business Combination or enter into possible alternative structures or options to the transactions contemplated under the Business Combination.

 

Use of Estimates

 

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported results of operations during the reporting period. Significant estimates include: reserves for bad debt; capitalization of platform development costs and associated useful lives; goodwill and other acquired intangible assets and associated useful lives; assumptions used in accruals for potential liabilities; revenue recognition and estimates of standalone selling price of performance obligations for revenue contracts with multiple performance obligations; stock-based compensation and the determination of the fair value; valuation allowances for deferred tax assets and uncertain tax positions; accounting for business combinations; and assumptions used to calculate contingent liabilities. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.

 

Recently Adopted Accounting Standards

 

In June 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This update also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain disclosures for equity securities subject to contractual sale restrictions. The adoption of ASU 2022-03 on January 1, 2024 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.

 

   2024   2023 
   As of June 30, 
   2024   2023 
Series G convertible preferred stock   8,582    8,582 
Series H convertible preferred stock   -    1,774,128 
Financing warrants   39,774    39,774 
ABG Warrants   999,540    999,540 
AllHipHop warrants   5,682    5,682 
Publisher Partner Warrants   9,800    9,800 
Restricted stock units   194,212    878,706 
Common stock options   3,840,700    5,878,838 
Total   5,098,290    9,595,050 

 

2. Discontinued Operations

 

On March 18, 2024, the Company discontinued the Sports Illustrated media business (the “SI Business”) that was operated under the Licensing Agreement with ABG-SI, LLC (“ABG”) dated June 14, 2019 (as amended to date, the “Licensing Agreement”). This discontinuation of the SI Business (i.e., discontinued operations) followed the termination of the Licensing Agreement by ABG on January 18, 2024. The last date of any obligation of the Company to perform under the Licensing Agreement was March 18, 2024. In connection with the termination, certain ABG Warrants vested (further details are provided under the heading Vesting of Warrants in Note 15).

 

The table below sets forth the loss from discontinued operations:

 

   2024   2023   2024   2023 
  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2024   2023   2024   2023 
   ($ in thousands, except share data) 
Revenue  $404   $24,734   $22,252   $47,696 
Cost of revenue   865    16,287    14,846    28,232 
Gross profit (loss)   (461)   8,447    7,406    19,464 
Operating expense                    
Selling and marketing   499    12,599    12,002    24,721 
General and administrative (1)   301    121    45,493    199 
Depreciation and amortization   -    3,670    2,401    7,340 
Loss on impairment of assets (2)   -    -    39,391    - 
Total operating expenses   800    16,390    99,287    32,260 
Loss from discontinued operations   (1,261)   (7,943)   (91,881)   (12,796)
Income tax benefit   12    (14)   (6)   (14)
Net loss from discontinued operations  $(1,249)  $(7,957)  $(91,887)  $(12,810)

 

  (1)General and administrative expenses for the six months ended June 30, 2024, includes a $45,000 termination fee liability.
  (2)Loss on impairment of assets for the six months ended June 30, 2024 of $39,391, includes $8,601 for the impairment of intangible assets and $30,790 for the impairment of subscription acquisition costs.

 

12

 

 

The table below sets forth the major classes of assets and liabilities of the discontinued operations:

 

   June 30, 2024   December 31, 2023 
   As of 
   June 30, 2024   December 31, 2023 
Assets          
Accounts receivable, net  $1,014   $13,135 
Subscription acquisition costs, current portion   -    29,706 
Prepayments and other current assets   -    807 
Current assets from discontinued operations   1,014    43,648 
Subscription acquisition costs, net of current portion   -    7,215 
Acquired and other intangibles assets, net   -    11,002 
Noncurrent assets from discontinued operations   -    18,217 
Total assets from discontinued operations  $1,014   $61,865 
Liabilities          
Accounts payable  $1,735   $2,554 
Accrued expenses and other   1,665    1,868 
Subscription refund liability   423    403 
Royalty fee liability(1)   3,750    - 
Termination fee liability(1)   45,000    - 
Subscription liability, current portion   44,943    42,848 
Current liabilities from discontinued operations   97,516    47,673 
Subscription liability, net of current portion   -