UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

[  ] 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

 

THEMAVEN, 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.)
     

225 Liberty Street, 27th Floor

New York, New York

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

 

(775) 600-2765

(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
N/A   N/A   N/A

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.01 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

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 [X]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files). Yes [  ] No [X]

 

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 [X] Smaller reporting company [X]
   
Emerging growth company [  ]  

 

If 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(b) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [  ]

 

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

 

As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the Common Stock held by non-affiliates was $15,478,406. This calculation is based upon the closing price of the Common Stock of $0.65 per share on that date, as reported by the OTC Markets Group Inc.

 

As of March 31, 2021, the Registrant had 230,202,832 shares of Common Stock outstanding.

 

 

 

 

 

 

Form 10-K

 

Table of Contents

 

    Page
     
Part I.   4
     
Item 1. Business 4
     
Item 1A. Risk Factors 14
     
Item 1B. Unresolved Staff Comments 24
     
Item 2. Properties 24
     
Item 3. Legal Proceedings 25
     
Item 4. Mine Safety Disclosure 25
     
Part II.   26
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26
     
Item 6. Selected Financial Data 27
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51
     
Item 8. Financial Statements and Supplementary Data 51
     
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 51
     
Item 9A. Controls and Procedures 52
     
Item 9B. Other Information 54
     
Part III.   54
     
Item 10. Directors, Executive Officers and Corporate Governance 54
     
Item 11. Executive Compensation 61
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 68
     
Item 13. Certain Relationships and Related Transactions, and Director Independence 74
     
Item 14. Principal Accounting Fees and Services 77
     
Part IV.   78
     
Item 15. Exhibits, Financial Statement Schedules 78
     
Signatures 87

 

2

 

 

EXPLANATORY NOTE

 

TheMaven, Inc. (“Maven,” the “Company,” “us,” “we,” or “our”), is filing this comprehensive Annual Report on Form 10-K (this “Annual Report”) for the fiscal year ended December 31, 2019 (the “Fiscal Year Period”) and the interim periods for the three months ended March 31, 2019, the three and six months ended June 30, 2019, and the three and nine months ended September 30, 2019 (the “Interim Periods”) as part of its efforts to become current in its filing obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Included in this Annual Report are the Company’s audited financial statements and related financial information for the Fiscal Year Period, which have not previously been filed with the Securities and Exchange Commission (the “SEC”). In addition, this Annual Report also includes unaudited quarterly financial statements and related information for the Interim Periods.

 

We intend to file Quarterly Reports on Form 10-Q for the first, second and third quarters of fiscal 2020 and the Annual Report on Form 10-K for the year ended December 31, 2020 as soon as reasonably practicable.

 

3

 

 

Cautionary Statement Regarding Forward-Looking Information

 

Certain statements and information in this Annual Report may constitute “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 Exchange Act. Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning our business strategy, future revenues, market growth, capital requirements, product introductions, and expansion plans and the adequacy of our funding. Other statements contained in this Annual 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 comparable terminology.

 

We caution investors that any forward-looking statements presented in this Annual Report, or that we may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information currently available to, us. Such statements are based on assumptions, and the actual outcome 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. Certain risks are discussed in this Annual Report and also from time to time in our other filings with the SEC.

 

This Annual 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 Annual Report.

 

This Annual Report is being filed for the fiscal year ended December 31, 2019, as a late report to comply with the reporting obligations applicable to us under the Exchange Act. Unless specifically required to provide information for the fiscal year ended December 31, 2019, by the rules and regulations of the SEC, the discussion of the business of the Company reflects its current assets and current operations. Where the information relates to the fiscal year ended December 31, 2019, or the Interim Periods, we have made a reasonable effort herein to make that clear. Also, to be clear, the financial information in the consolidated financial statements and footnotes accompanying this Annual Report and the other financial information and management’s discussion about the consolidated financial statements relate to the historical periods for the years ended December 31, 2019 and 2018 and the Interim Periods.

 

Part I

 

Item 1. Business

 

We operate a best-in-class technology platform empowering premium publishers who impact, inform, educate and entertain. We operate a significant portion of the media businesses for Sports Illustrated (as defined below), own and operate TheStreet, Inc. (the “TheStreet”), and power more than 250 independent brands including History, Maxim, and Biography. The Maven technology platform (the “Maven Platform”) provides digital publishing, distribution, and monetization capabilities for the Sports Illustrated and TheStreet businesses as well as a coalition of independent, professionally managed, online media publishers (each a “Channel Partner”). Each Channel Partner joins the media-coalition by invitation-only and is drawn from premium media brands, professional journalists, subject matter experts and social leaders. Channel Partners publish content and oversee an online community for their respective channels, leveraging our proprietary technology platform to engage the collective audiences within a single network. Generally, Channel Partners are independently owned, strategic partners who receive a share of revenue from the interaction with their content. When they join, we believe Channel Partners will benefit from the proprietary technology of the Maven Platform, techniques and relationships. Advertising revenue may improve due to the scale we have achieved by combining all Channel Partners onto a single platform and the large and experienced sales organization. They may also benefit from our membership marketing and management systems, which we believe will enhance their revenue. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Channel Partners in the vertical while each of them adds to the breadth and quality of content. While they benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management.

 

Please see “Our Future Business” and “Future Liquidity” for additional important information in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

4

 

 

Corporate History

 

We were originally incorporated in Delaware as Integrated Surgical Systems, Inc. (“Integrated”) in 1990. On July 22, 2016, Amplify Media, Inc. was incorporated in Delaware and on July 27, 2016, it changed its name to Amplify Media Network, Inc. (“Amplify Media Network”). Amplify Media Network changed its name again on October 14, 2016 to TheMaven Network, Inc. (“Maven Network”).

 

On October 11, 2016, Integrated and Maven Network entered into a share exchange agreement (the “Share Exchange Agreement”), whereby the stockholders of Maven Network agreed to exchange all of the then-issued and outstanding shares of common stock for shares of common stock of Integrated. On November 4, 2016, the parties consummated a recapitalization pursuant to the Share Exchange Agreement and, as a result, Maven Network became a wholly owned subsidiary of Integrated. Integrated changed its name to TheMaven, Inc. on December 2, 2016. On March 5, 2018, TheMaven Network changed its name to Maven Coalition, Inc. (“Maven Coalition 1”).

 

HubPages Merger

 

HubPages, Inc., a Delaware corporation (“HubPages”), became our wholly-owned subsidiary pursuant to that certain agreement and plan of merger, dated March 13, 2018 (“Agreement and Plan of Merger”), and as amended by the Amendment to Agreement and Plan of Merger, dated April 25, 2018 (“First Amendment”), the Second Amendment to Agreement and Plan of Merger, dated June 1, 2018 (“Second Amendment”), the Third Amendment to Agreement and Plan of Merger, dated May 31, 2019 (“Third Amendment”), and the Fourth Amendment to Agreement and Plan of Merger, dated December 15, 2020 (the “Fourth Amendment” and, collectively with the Agreement and Plan of Merger, the First Amendment, the Second Amendment, and the Third Amendment, the “HubPages Merger Agreement”) between us, HubPages, and HP Acquisition Co, Inc. (“HPAC”), a wholly-owned subsidiary of ours incorporated in Delaware on March 13, 2018 in order to facilitate the acquisition of HubPages by us. Pursuant to the HubPages Merger Agreement, HPAC merged with and into HubPages, with HubPages continuing as the surviving corporation in the merger and as a wholly-owned subsidiary of ours (the “HubPages Merger”). On August 23, 2018, we acquired all the outstanding shares of HubPages pursuant to the HubPages Merger.

 

Say Media Merger

 

Say Media, Inc., a Delaware corporation (“Say Media”), became our wholly owned subsidiary pursuant to that certain agreement and plan of merger, dated October 12, 2018 and as amended on October 17, 2018 (collectively, the “Say Media Merger Agreements”) between us, Say Media, SM Acquisition Co., Inc., a Delaware corporation (“SMAC”), which is a wholly owned subsidiary of ours incorporated on September 6, 2018 to facilitate a merger, and Matt Sanchez, solely in his capacity as a representative of the Say Media security holders. Pursuant to the Say Media Merger Agreement, SMAC merged with and into Say Media, with Say Media continuing as the surviving corporation in the merger as a wholly owned subsidiary of ours (the “Say Media Merger”). On December 12, 2018, we acquired all the outstanding shares of Say Media pursuant to the Say Media Merger Agreements.

 

Acquisition of TheStreet, Inc. and Relationship with Cramer Digital

 

TheStreet became our wholly-owned subsidiary pursuant to that certain agreement and plan of merger, dated June 11, 2019, as amended (the “TheStreet Merger Agreement”), between us, Say Media, and TST Acquisition Co., Inc., a Delaware corporation (“TSTAC”), a newly-formed indirect wholly-owned subsidiary of ours formed in order to facilitate the acquisition of TheStreet by us. Pursuant to TheStreet Merger Agreement, TSTAC merged with and into TheStreet, with TheStreet continuing as the surviving corporation in the merger as a wholly-owned subsidiary of ours (the “TheStreet Merger”). On August 7, 2019, we acquired all the outstanding shares of TheStreet pursuant to the TheStreet Merger.

 

5

 

 

On August 7, 2019, in connection with the TheStreet Merger, we entered into a letter agreement (the “Original Cramer Agreement”) with finance and stock market expert Jim Cramer, who co-founded TheStreet, which sets forth the terms of the Cramer Services to be provided by Mr. Cramer and Cramer Digital, Inc. (“Cramer Digital”), a production company owned and controlled by Mr. Cramer, featuring the digital rights and content created by Mr. Cramer and his team of financial experts. A second letter agreement providing additional terms was entered into on April 16, 2020 (the “Second Cramer Agreement”). We entered into a third letter agreement on January 25, 2021, which extended the notice date to cancel the third year of the term of the Original Cramer Agreement from February 7, 2021 to April 9, 2021 (the “Third Cramer Agreement” and, together with the Original Cramer Agreement and the Second Cramer Agreement, the “Cramer Agreement”).

 

The Cramer Agreement provides for Mr. Cramer and Cramer Digital to create content for us on each business day during the term of the Cramer Agreement, prepare special content for us, make certain personal appearances and provide other services as reasonably requested and mutually agreed to (collectively, the “Cramer Services”). In consideration for the Cramer Services, we pay Cramer Digital a commission on subscription revenues and net advertising revenues for certain content (the “Revenue Share”). In addition, we pay Cramer Digital approximately $3,000,000 as an annualized guarantee payment in equal monthly draws, recoupable against the Revenue Share. We also issued two options to Cramer Digital pursuant to our 2019 Equity Incentive Plan (the “2019 Plan”). The first option was to purchase up to two million shares of our common stock at an exercise price of $0.72, the closing stock price on August 7, 2019, the grant date. This option vests over 36 months. The second option was to purchase up to three million shares of our common stock at an exercise price of $0.54, the closing stock price on April 21, 2020, the grant date. In the event Cramer Digital and we agree to renew the term of the Cramer Agreement for a minimum of three years from the end of the second year of the current term, 900,000 shares will vest on the first day of the third year of the term as so extended (the “Trigger Date”). The remaining shares will vest equally on the 12-month anniversary of the Trigger Date, the 24-month anniversary of the Trigger Date and the 36-month anniversary of the Trigger Date.

 

In addition, we provide Cramer Digital with a marketing budget, access to personnel and support services, and production facilities. Finally, the Cramer Agreement provides that we will reimburse fifty percent of the cost of the rented office space by Cramer Digital, up to a maximum of $4,250 per month.

 

The Sports Illustrated Licensing Agreement

 

On June 14, 2019, we entered into a licensing agreement (the “Initial Licensing Agreement”), as amended by Amendment No. 1 to Licensing Agreement, dated September 1, 2019 (the “First Amendment”), Amendment No. 2 to Licensing Agreement, dated April 1, 2020 (the “Second Amendment”), and Amendment No. 3 to Licensing Agreement, dated July 28, 2020 (the “Third Amendment” and, together with the Initial Licensing Agreement, First Amendment, and the Second Amendment, the “Sports Illustrated Licensing Agreement”) with ABG-SI LLC (“ABG”), a Delaware limited liability company and indirect wholly-owned subsidiary of Authentic Brands Group, pursuant to which we have the exclusive right and license in the United States, Canada, Mexico, United Kingdom, Republic of Ireland, Australia, and New Zealand to operate the Sports Illustrated (“Sports Illustrated”) media business (in the English and Spanish languages), including to (i) operate the digital and print editions of Sports Illustrated (including all special interest issues and the swimsuit issue) and Sports Illustrated for Kids, (ii) develop new digital media channels under the Sports Illustrated brands, and (iii) operate certain related businesses, including without limitation, special interest publications, video channels, bookazines, and the licensing and/or syndication of certain products and content under the Sports Illustrated brand (collectively, the “Sports Illustrated Licensed Brands”).

 

The initial term of the Sports Illustrated Licensing Agreement commenced on October 4, 2019 upon the termination of the Meredith License Agreement (as defined below) and continues through December 31, 2029. We have the option, subject to certain conditions, to renew the term of the Sports Illustrated Licensing Agreement for nine consecutive renewal terms of 10 years each (collectively with the initial term, the “Term”), for a total of 100 years. The Sports Illustrated Licensing Agreement provides that we will pay to ABG annual royalties in respect of each year of the Term based on gross revenues (“Royalties”) with guaranteed minimum annual amounts. On the execution of the Sports Illustrated Licensing Agreement, we prepaid ABG $45,000,000 against future Royalties. ABG will pay to us a share of revenues relating to certain Sports Illustrated business lines not licensed to us, such as all gambling-related advertising and monetization, events, and commerce. The two companies are partnering in building the brand worldwide.

 

6

 

 

Pursuant to a publicly announced agreement, dated May 24, 2019, between ABG and Meredith Corporation (“Meredith”), an Iowa corporation, Meredith previously operated the Sports Illustrated Licensed Brands under license from ABG (the “Meredith License Agreement”). On October 3, 2019, we, and Meredith entered into a Transition Services Agreement and an Outsourcing Agreement (collectively, the “Transition Agreement”), whereby the parties agreed to the terms and conditions under which Meredith continued to operate certain aspects of the business, and provided certain services during the fourth quarter of 2019 as all activities were transitioned over to us. Through these agreements, we took over operating control of the Sports Illustrated Licensed Brands, and the Transition Agreement was terminated.

 

Merger of Subsidiaries

 

On December 19, 2019, our wholly owned subsidiaries, Maven Coalition 1 and HubPages, were merged into another of our wholly owned subsidiaries, Say Media. On January 6, 2020, Say Media changed its name to Maven Coalition, Inc. (the “Maven Coalition”).

 

Asset Acquisition of Petametrics Inc.

 

On March 9, 2020, we entered into an asset purchase agreement with Petametrics Inc., doing business as LiftIgniter, a Delaware corporation (“LiftIgniter”), and Maven Coalition, whereby Maven Coalition purchased substantially all the assets of LiftIgniter’s machine learning platform, which personalizes content and product recommendations in real-time. The purchased assets included LiftIgniter’s intellectual property and excluded certain accounts receivable. Maven Coalition also assumed certain of LiftIgniter’s liabilities. The purchase price consisted of: (i) a cash payment of $184,087 on February 19, 2020, in connection with the repayment of certain of its outstanding indebtedness; (ii) a cash payment at closing of $131,202; (iii) collections of certain accounts receivable; (iv) on the first anniversary date of the closing issuance of restricted stock units for an aggregate of up to 312,500 shares of our common stock; and (v) on the second anniversary date of the closing issuance of restricted stock units for an aggregate of up to 312,500 shares of our common stock.

 

Corporate Offices

 

Our executive offices are located at 225 Liberty Street, 27th Floor, New York, New York 10281. At our California and Seattle locations, we carry out the software development and other operational activities. Our current telephone number is (775) 600-2765.

 

Capital Restructuring

 

On October 11, 2016, Integrated and Maven Network entered into the Share Exchange Agreement that provided for each outstanding share of common stock of Maven Network to be converted into 4.13607 shares of our common stock (the “Exchange Ratio”), and for each outstanding warrant and stock option to purchase shares of common stock of Maven Network be cancelled in exchange for a warrant or stock option to purchase shares of our common stock-based on the Exchange Ratio (the “Recapitalization”).

 

On November 4, 2016, the consummation of the Recapitalization became effective and pursuant to the Recapitalization, we: (i) issued to the stockholders of Maven Network an aggregate of 9,533,355 shares of our common stock; and (ii) issued to MDB Capital Group, LLC (“MDB”), as an advisory fee, warrants to purchase 1,169,607 shares of our common stock. Existing stock options to purchase 175,000 shares of our common stock were assumed pursuant to the Recapitalization.

 

Business and Technology

 

We have developed a proprietary online publishing platform that provides Channel Partners the ability to produce and manage editorially focused content and community interaction through tools and services provided by us. We have also developed proprietary advertising technology, techniques and relationships that allow our Channel Partners to monetize online editorially focused content through various display and custom content advertising solutions and services (the “Advertising Solutions” and, together with the Maven Platform, the “Maven Platform Services”).

 

7

 

 

The Maven Platform launched in “preview” form in May 2017 when the first channels went live and has been substantially enhanced with ongoing development and the integration of three other platform acquisitions. We have incorporated state-of-the-art mobile, video, communications, social, notifications and other technology into the Maven Platform, including modern DevOps processes with continuous integration/continuous deployment and an entirely cloud-based back-end. The software engineering and product development teams are experienced at delivering service at scale. We continue to develop the Maven Platform software by combining proprietary code with components from the open-source community, plus select commercial services as well as identifying, acquiring, and integrating other platform technologies, where we see unique long-term benefits to us.

 

The Maven Platform Services feature:

 

  1. Content management, personalized content recommendations, traffic redistribution, hosting and bandwidth;
     
  2. Video publishing, hosting, and player solution;
     
  3. Access to site statistics and analytics;
     
  4. Digital subscriptions and membership with paywalls, exclusive member access, and metering, credit card processing and reporting;
     
  5. User account management;
     
  6. User account migration to platform, including emails and membership data;
     
  7. Technical support team to train and support our Channel Partners and staff (if applicable) on the Maven Platform;
     
  8. Advertising serving, trafficking/insertion orders, yield management and reporting;
     
  9. Dedicated customer service and sales center to assist our Channel Partners with premium customer support, sign-ups, cancellations, and “saves”;
     
  10. Various syndication integrations (e.g., Apple News, Facebook Instant Articles, Google AMP, Google news, and RSS feeds);
     
  11. Structured data objects (i.e., structured elements such as recipes or products); and
     
  12. Other features as added to the Maven Platform from time to time.

 

In connection with providing the Maven Platform Services, we enter into contracts with advertising networks to serve display or video advertisements on the digital media pages associated with its various channels. We also enter into contracts with internet users that subscribe to premium content on the digital media channels. These contracts provide internet users with a membership subscription (each, a “Membership”) to access the premium content for a given period of time, which is generally one year.

 

Our Channel Partners use the Maven Platform Services to produce, manage, host and monetize their content in accordance with the terms and conditions between partner agreements between each of our Channel Partners and us (the “Partnership Agreements”). Pursuant to the Partnership Agreements, we and our Channel Partners split revenue generated from the Maven Platform Services used in connection with our Channel Partner’s content based on certain metrics such as whether the revenue was from direct sales, whether revenue was generated by our Channel Partner or us, whether the revenue was generated in connection with a Membership, whether based on standalone or bundled subscriptions and whether the revenue was derived from affiliate links.

 

8

 

 

Subject to the terms and conditions of each Partnership Agreement and in exchange for the Maven Platform Services, our Channel Partners grant us, for so long as our Channel Partner’s assets are hosted on the Maven Platform, (i) exclusive control of ads.txt with respect to our Channel Partner’s domains and (ii) the exclusive right to include our Channel Partner’s website domains and related URLs in our network in a consolidated listing assembled by third party measurement companies such as comScore, Nielsen and/or other similar measuring services selected by us. As such, the Maven Platform serves as the primary digital media and social platform with respect to each of our Channel Partners’ website domains during the applicable term of each Partnership Agreement.

 

Our Brands and Growth Strategy

 

Our growth strategy is to continue to expand the coalition by adding new Channel Partners in key verticals that management believes will expand the scale of unique users interacting on the Maven Platform. In each vertical, we seek to build around a leading brand, such as Sports Illustrated (for sports) and TheStreet (for finance), surround it with subcategory specialists, and further enhance coverage with individual expert contributors. The primary means of expansion is adding independent Channel Partners and/or acquiring publishers that have premium branded content and can broaden the reach and impact of the Maven Platform.

 

Maven

 

We operate a best-in-class technology platform empowering premium publishers who impact, inform, educate, and entertain. We operate the media businesses for Sports Illustrated and TheStreet, and power more than 250 independent brands including History, Maxim, and Biography. These brands range from individual thought-leaders to world-leading independent publishers, operating on the Maven Platform, a shared digital publishing, monetization, and distribution platform.

 

Sports Illustrated

 

We assumed management of certain Sports Illustrated media assets (pursuant to the Sports Illustrated License Agreement) on October 4, 2019. Sports Illustrated is owned by ABG, a brand development, marketing, and entertainment company that owns a global portfolio of media, entertainment, and lifestyle brands. Since assuming management of the Sports Illustrated media assets, we have implemented significant changes to rebuild the historic brand and beacon of sports journalism, to evolve and expand the business, and to position it for growth and continued success going forward.

 

TheStreet and Cramer Digital

 

TheStreet is a leading financial news and information provider to investors and institutions worldwide and has produced business news and market analysis for individual investors for more than 20 years. TheStreet brings its editorial tradition, strong subscription platform, and valuable membership base to us, and benefits from our mobile-friendly CMS, social, video, and monetization technology.

 

Finance and stock market expert Jim Cramer, who co-founded TheStreet, and his team of financial experts continue their influential work with the brand. As part of the closing of the TheStreet Merger, we entered into the Cramer Agreement with Mr. Cramer, pursuant to which Mr. Cramer and Cramer Digital, a new production company, will provide the Cramer Services, including certain content offerings under Mr. Cramer’s editorial control.

 

HubPages

 

We acquired HubPages to enhance the user’s experience by increasing content. HubPages operates a network of 27 premium content channels that act as an open community for writers, explorers, knowledge seekers, and conversation starters to connect in an interactive and informative online space. HubPages operates in the United States.

 

9

 

 

Say Media

 

We acquired Say Media to enhance the user’s experience by increasing content. Say Media operates a comprehensive online media publishing platform and enables brand advertisers to engage today’s social media consumer through rich advertising experiences across its network of web properties. Say Media operates in the United States and has subsidiaries located in the United Kingdom, Canada, and Australia.

 

LiftIgniter

 

LiftIgniter provides a distribution and recommendation engine for premium publishers. The LiftIgniter platform connects users efficiently to hundreds of professional content creators, with custom recommendations of content aligned with users’ personal passions. Aided by machine-learning technology, publishers can identify and target those interested in their content. LiftIgniter activates the value of hosting hundreds of premium journalists on a single platform by interconnecting them through unified content distribution.

 

Intellectual Property

 

We have seven patent registrations in the United States in connection with our technology. All of our patent registrations are owned by Maven Coalition.

 

Maven and Key Design

 

We currently have trademark registrations directed to our primary key design logo and the MAVEN name in the United States, Australia, China, the European Union (the “EU”), India, and New Zealand, as well as international Madrid Protocol registrations. We have trademark applications directed to our primary key design logo and the MAVEN name pending in Japan and Canada.

 

Moreover, we have a United States trademark registration for the word mark MAVEN COALITION, a EU trademark registration for the word mark THEMAVEN, and a United States trademark registration for the word mark A MAVEN CHANNEL. We have trademark applications for the word mark A MAVEN CHANNEL pending in Australia, Canada, the EU, the United Kingdom, Mexico, and New Zealand, as well as a pending international Madrid Protocol application.

 

We have a trademark registration for the word mark BULL MARKET FANTASY in the United States and a trademark application for BULL MARKET FANTASY pending in Canada. We have trademark applications for the word marks SPORTSLIGHTNING and STREETLIGHTNING pending in the United States.

 

TheStreet

 

We have a trademark registration for the word marks THE STREET, THESTREET, THESTREET.COM, and the related design in the United States. We have a trademark registration for the word marks ALERTS PLUS, ALPHA RISING, BANKING MY WAY, INCOME SEEKER, and REALMONEY in the United States.

 

HubPages

 

We have trademark registrations for the word mark HUBPAGES in the United States, Australia, China, the EU, Japan, the Republic of Korea, Canada, Hong Kong, New Zealand, India, Peru, South Africa, Argentina, Brazil, Colombia, Indonesia, Mexico, and the Philippines, as well as an international Madrid Protocol registration.

 

We continue to file updated trademark applications to reflect our branding evolution and intend to continue strengthening our trademark portfolio as financial resources permit.

 

10

 

 

Our Channel Partners and Licensing

 

In connection with our Partnership Agreements and any other applicable agreements between us and our Channel Partners, (i) we and our affiliates own and retain (a) all right, title, and interest in and to the Maven Platform, Advertising Solutions and data collected by us, and (b) we and our licensors’ trademarks and branding and all software and technology we use to provide and operate the Maven Platform and Advertising Solutions, and (ii) each Channel Partner owns and retains (a) all right, title, and interest in and to the Channel Partner’s assets, content, and data collected by Channel Partner and (b) each Channel Partner’s trademarks and branding.

 

Seasonality

 

We expect to experience typical media company advertising and membership sales seasonality, which is strong in the fiscal fourth quarter and slower in the fiscal first quarter.

 

Competition

 

Currently, we believe that there are dozens of competitors delivering niche media content on the web and on mobile devices and an even broader array of general media companies and major media brands. All those competitors use mobile alerts, invest heavily in video, and leverage social media. We believe that we have developed distribution, production, and technology tactics that are superior because our management team’s tactics in the past with prior companies have proven to be highly engaging and effective for our particular model, which organizes channels into interest groups, led by key brands, such as Sports Illustrated in the sports vertical and TheStreet.com in the finance vertical.

 

The web provides unlimited access to the market by niche or general media companies, so there are a large number and variety of direct competitors of ours competing for audience and ad and membership dollars. The general business of online media, combined with some level or method of leveraging community attracts many potential entrants, and in the future, there may be strong competitors that will compete with us in general or in selected markets. These and other companies may be better financed and be able to develop their markets more quickly and penetrate those market more effectively. The following is a list of possible competitors and their respective categories:

 

  Vice, Buzzfeed, Business Insider, et al. – niche content, leverages social, mobile, and video, and competes for ad dollars;
     
  Fortune, CNN, ESPN, Yahoo!, Google, et al. – general content, major media companies, and competes for ad dollars;
     
  WordPress, Medium, RebelMouse, Arc – content management software, open to all including experts and professionals, and competes for publishers;
     
  Leaf Group Ltd. and Future PLC – competes for partners and ad dollars;
     
  YouTube, Twitter, Facebook, Reddit – social platforms open to all including experts and professionals; and
     
  Affiliate networks such as Liberty Alliance – competes for ad dollars.

 

We believe that we compete on the basis of our technology, substantial scale in traffic, ease of use, recognized lead media brands, and platform evolution through a continuing development and acquisition program. We believe that our scale, methods, technology and experience enable us to compete for a material amount of market share of media dollars and membership revenue.

 

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Government Regulations

 

Our operations are subject to a number of United States federal and state laws and regulations that involve privacy, rights of publicity, data protection, content regulation, intellectual property, or other subjects. Many of these laws and regulations are still evolving and being tested in courts and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and regulations often are uncertain, particularly in the new and rapidly evolving industry in which we operate.

 

A number of government authorities, both in the United States and abroad, and private parties are increasing their focus on privacy issues and the use of personal information. All states have enacted some form of data privacy legislation, including data security and breach notification laws in all 50 states, and some form of regulation regarding the collection, use and disclosure of personal information at the federal level and in several states. California has been the most active in the area of consumer privacy legislation, including passing a comprehensive law requiring transparency, access, and choice known as the California Consumer Privacy Act of 2018 (the “CCPA”), which was amended in November 2020 by a ballot measure known as the California Privacy Rights Act (the “CPRA”). The CCPA went into effect January 1, 2020, with enforcement having begun in June 2020. The CPRA goes into effect over time, with enforcement to begin July 2023. Other states are also considering comprehensive consumer privacy legislation. Certain states have also enacted legislation requiring certain encryption technologies for the storage and transmission of personally identifiable information, including credit card information, and more states are considering laws for or have enacted laws about information security, which may require the adoption of written information security policies that are consistent with state laws if businesses have personal information of residents of those states. Data privacy and information security legislation is also being considered at the federal level, concerning the privacy of individuals and use of internet and marketing information. In the United States, the Federal Trade Commission (“FTC”) and attorneys general in several states have oversight of business operations concerning the use of personal information and breaches of the privacy laws under existing consumer protection laws. In particular, an attorney general or the FTC may examine privacy policies to ensure that a company discloses all material practices and fully complies with representations in the policies regarding the manner in which the information provided by consumers and other visitors to a website is used and disclosed by it, and the failure to do so could give rise to a complaint under state or federal unfair competition or consumer protection laws. The California Attorney General has begun aggressively investigating companies, especially those with websites, with respect to CCPA compliance and these investigations reportedly include inquiries into issues for which there has not yet been clear guidance issued by the state, such as regarding third party cookies that collect personal information from users when they visit our and other websites.

 

We review our privacy policies and overall operations on a regular basis to ensure compliance with applicable United States federal and state laws, and to the extent applicable, any foreign laws. We launched a CCPA compliance program in January 2020 and at the end of 2020 reviewed the program and made adjustments to our privacy notice and compliance program practices to account for our evolving practices and the new CCPA regulations, which were promulgated in July 2020 and continue to be subject to ongoing rulemaking. We believe the position we take regarding various CCPA issues, including third party cookies, is based on sound and good faith interpretations of the law based on consultation with legal counsel. However, there are conflicting interpretations of the law that have been adopted by various parties in the digital media industry, and given the lack of guidance to date on many of these issues, our compliance posture on some issues might not be accepted by the State of California.

 

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In addition to the laws of the United States, we may be subject to foreign laws regulating web sites and online services, and the laws in some jurisdictions outside of the United States are stricter than the laws in the United States. For instance, in May 2018, the General Data Protection Regulation (the “GDPR”) went into effect in the EU and European Economic Area and Switzerland. The GDPR includes operational requirements for companies that receive or process personal data of residents of the EU that include significant penalties for non-compliance. In addition, some EU countries are considering or have passed legislation implementing additional data protection requirements or requiring local storage and processing of personal data or similar requirements that could increase the cost and complexity of delivering our services. How the GDPR will be fully applied to online services, including cookies and digital advertising, is still being determined through ongoing rulemaking and evolving interpretation by applicable authorities. We operate a GDPR compliance program that we believe, based on our good faith interpretation of the GDPR in consultation with counsel, is consistent with our obligations under that law. The highest court in the EU recently ruled that the United States/EU Privacy Shield was inadequate under GDPR and questioned the viability or legality of any EU to United States personal data transfer methods. We are working to address this issue, for instance, including standard contractual clauses as part of our Data Processing Agreements, and we continue to monitor the development of EU to United States personal data transfer methods and the law relating thereto.

 

Social networking websites are under increasing scrutiny. Legislation has been introduced on the state and federal level that could regulate social networking websites. Some rules call for more stringent age-verification techniques, attempt to mandate data retention or data destruction by Internet providers, and impose civil and/or criminal penalties on owners or operators of social networking websites.

 

The FTC regularly considers issues relating to online behavioral advertising (a/k/a interest-based advertising), which is a significant revenue source for us, and Congress and state legislatures are frequently asked to regulate this type of advertising, including requiring consumers to provide express consent for tracking purposes, so that advertisers may know their interests and are, therefore, able to serve them more relevant, targeted ads. Targeted ads generate higher per impression fees than non-targeted ads. New laws, or new interpretations of existing laws, could potentially place restrictions on our ability to utilize our database and other marketing data (e.g., from third parties) on our own behalf and on behalf of our advertising clients, which may adversely affect our business.

 

Legislation concerning the above described online activities has either been enacted or is in various stages of development and implementation in other countries around the world and could affect our ability to make our websites available in those countries as future legislation is made effective. It is possible that state and foreign governments might also attempt to regulate our transmissions of content on our website or prosecute us for violations of their laws. United States law offers limited safe harbors and immunities to publishers for certain liability arising out of user-posted content, but other countries do not. Further, there are a number of legislative proposals in the United States, and internationally, that could impose new obligations in areas affecting our business, such as liability for copyright infringement by third parties and liability for defamation or other claims arising out of user-posted content. Our business could be negatively impacted if applicable laws subject us to greater regulation or risk of liability.

 

Our business could also be adversely affected if regulatory enforcement authorities, such as the California Attorney General or EU/EEA data protection authorities, take issue with any of our approaches to compliance, or if new laws, regulations or decisions regarding the collection, storage, transmission, use and/or disclosure of personal information are implemented in such ways that impose new or additional technology requirements on us, limit our ability to collect, transmit, store and use or disclose the information, or if government authorities or private parties challenge our data privacy and/or security practices that result in liability to, or restrictions, on us, or we experience a significant data or information breach which would require public disclosure under existing notification laws and for which we may be liable for damages and/or penalties.

 

Furthermore, governments of applicable jurisdictions might attempt to regulate our transmissions or levy sales or other taxes relating to our activities even though we do not have a physical presence and/or operate in those jurisdictions. As our platforms, products and advertisement activities are available over the Internet anywhere in the world, multiple jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each of those jurisdictions and pay various taxes in those jurisdictions. We address state and local jurisdictions where we believe we have nexus, however, there can be no assurance that we have complied with all jurisdictions that may assert that we owe taxes.

 

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Employees

 

Our total number of employees as of March 22, 2021 was 306, of which 299 were full-time employees.

 

Available Information

 

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Section 13 of the Exchange Act, are available free of charge after we electronically file or furnish them to the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically.

 

Item 1A. Risk Factors

 

There are numerous factors that affect our business and operating results, many of which are beyond our control. The following is a description of significant factors that might cause our future results to differ materially from those currently expected. The risks described below are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of the following risks actually occur, our business, financial condition, results of operations, cash flows, and/or our ability to pay our debts and other liabilities could suffer. As a result, the trading price and liquidity of our securities could decline, perhaps significantly, and you could lose all or part of your investment. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See the section entitled “Cautionary Note Concerning Forward-Looking Statements.”

 

RISKS RELATED TO OUR BUSINESS AND OUR FINANCIAL CONDITION

 

Our business operations have been and may continue to be materially and adversely affected by the outbreak of the novel coronavirus (“COVID-19”). An outbreak of respiratory illness caused by COVID-19 emerged in late 2019 and has spread globally. In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout the world. Many national governments and sports authorities around the world have made the decision to postpone/cancel high attendance sports events in an effort to reduce the spread of the COVID-19 virus. In addition, many governments and businesses have limited non-essential work activity, furloughed, and/or terminated many employees and closed some operations and/or locations, all of which has had a negative impact on the economic environment.

 

Beginning in March 2020, as a result of the COVID-19 pandemic, our revenue and earnings began to decline largely due to the cancellation of high attendance sports events and the resulting decrease in traffic to the Maven Platform and advertising revenue. This initial decrease in revenue and earnings were partially offset by revenues generated by TheStreet, as well as some recovery of sporting events (including, in some cases, limited in-person attendance) that have generated content for the Sports Illustrated Licensed Brands. Despite this perceived recovery, the future impact, or continued impact, from the COVID-19 pandemic remains uncertain.

 

The extent of the impact on our operational and financial performance will depend, in part, on future developments, including the duration and spread of the COVID-19 pandemic, related group gathering and sports event advisories and restrictions, and the extent and effectiveness of containment actions taken, all of which remain uncertain at the time of issuance of our accompanying consolidated financial statements.

 

These and other impacts of the COVID-19 pandemic, or other pandemics or epidemics, could have the effect of heightening many of the other risks described in this Annual Report under the “Risk Factors” section.

 

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Because of the effects of COVID-19 pandemic and the uncertainty about their persistence, we may need to raise more capital to continue operations. At December 31, 2019, we had cash of approximately $8.9 million. From January 1, 2020 through the issuance date of our accompany consolidated financial statements, we raised aggregate net proceeds of approximately $43.1 million through various debt and preferred stock private placements. As of the date our accompanying consolidated financial statements for the year ended December 31, 2019 were issued or were available to be issued, we had cash of approximately $5.1 million. Please refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the section entitled “Future Liquidity,” for additional information. We have seen stabilization in our markets since the spring and believe that based on our current assessment of the impact of COVID-19, we have sufficient resources to fully fund our business operations through 12 months from the issuance date of our accompanying consolidated financial statements. However, due to the uncertainty regarding the duration of the impact of COVID-19 and its effect on our financial performance and the potential that our traffic and advertising revenue becomes destabilized again, we may require additional capital. We have not had difficulties accessing the capital markets during 2020, however, due to the uncertainty surrounding COVID-19, we may experience difficulties in the future.

 

As market conditions present uncertainty as to our ability to secure additional capital, there can be no assurances that we will be able to secure additional financing on acceptable terms, or at all, as and when necessary to continue to conduct operations. Our future liquidity and capital requirements will depend upon numerous factors, including the success of our offerings and competing technological and market developments. We may need to raise funds through public or private financings, strategic relationships, or other arrangements. There can be no assurance that such funding, will be available on terms acceptable to us, or at all. Furthermore, any equity financing will be dilutive to existing stockholders, and debt financing, if available, may involve restrictive covenants that may limit our operating flexibility with respect to certain business matters. Strategic arrangements may require us to relinquish our rights or grant licenses to some or substantial parts of our intellectual property. If funds are raised through the issuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution in net book value per share, and such equity securities may have rights, preferences, or privileges senior to those of the holders of our existing capital stock. If adequate funds are not available on acceptable terms, we may not be able to continue operating, develop or enhance products, take advantage of future opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, operating results, and financial condition.

 

We have incurred losses since our inception, have yet to achieve profitable operations, and anticipate that we will continue to incur losses for the foreseeable future. We have had losses from inception, and as a result, have relied on capital funding or borrowings to fund our operations. Our accumulated deficit as of December 31, 2019 was approximately $73.6 million. We have not issued our financial statements for any periods during fiscal 2020. While we anticipate generating profits in fiscal 2021, the uncertainty surrounding the COVID-19 pandemic yields some doubt as to our ability to do so and could require us to raise additional capital. We cannot predict whether we will be able to continue to find capital to support our business plan if the negative effects of the COVID-19 pandemic continue longer than anticipated.

 

15

 

 

We identified material weaknesses in our internal control over financial reporting. If we do not adequately address these material weaknesses or if other material weaknesses or significant deficiencies in our internal control over financial reporting are discovered, our financial statements could contain material misstatements and our business, operations and stock price may be adversely affected. As disclosed under Item 9A, Controls and Procedures, of this Annual Report, our management has identified material weaknesses in our internal control over financial reporting at December 31, 2019 and we expect to identify material weaknesses in our internal controls over financial reporting at December 31, 2020. We expect to have remediated our material weaknesses in our internal control over financial reporting during the quarter ending June 30, 2021. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Although no material misstatement of our historical financial statements was identified, the existence of these material weaknesses or significant deficiencies could result in material misstatements in our financial statements and we could be required to restate our financial statements. Further, significant costs and resources may be needed to remediate the identified material weaknesses or any other material weaknesses or internal control deficiencies. If we are unable to remediate, evaluate, and test our internal controls on a timely basis in the future, management will be unable to conclude that our internal controls are effective and our independent registered public accounting firm will be unable to express an unqualified opinion on the effectiveness of our internal controls. If we cannot produce reliable financial reports, investors may lose confidence in our financial reporting, the price of our common stock could be adversely impacted and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which could negatively impact our business, financial condition, and results of operations.

 

As of the date of filing this Annual Report, we currently lack certain internal controls over our financial reporting. While we have three independent directors serving on our board of directors (our “Board”), have added to our accounting staff, and have hired a new Chief Technology Officer, we are implementing such controls at this time. The lack of such controls makes it difficult to ensure that information required to be disclosed in our reports filed and submitted under the Exchange Act is recorded, processed, summarized, and reported as and when required.

 

We cannot assure you that we will be able to develop and implement the necessary internal controls over financial reporting. The absence of such internal controls may inhibit investors from purchasing our shares and may make it more difficult for us to raise debt or equity financing.

 

If we fail to retain current users or add new users, or if our users decrease their level of engagement with the Maven Platform, our business would be seriously harmed. The success of our business heavily depends on the size of our user base and the level of engagement of our users. Thus, our business performance will also become increasingly dependent on our ability to increase levels of user engagement in existing and new markets. We are continuously subject to a highly competitive market in order to attract and retain our users’ attention. A number of factors could negatively affect user retention, growth, and engagement, including if:

 

  users increasingly engage with competing platforms instead of ours;
     
  we fail to introduce new and exciting products and services, or such products and services do not achieve a high level of market acceptance;
     
  we fail to accurately anticipate consumer needs, or we fail to innovate and develop new software and products that meet these needs;
     
  we fail to price our products competitively;
     
  we do not provide a compelling user experience because of the decisions we make regarding the type and frequency of advertisements that we display;
     
  we are unable to combat spam, bugs, malwares, viruses, hacking, or other hostile or inappropriate usage on our products;

 

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  there are changes in user sentiment about the quality or usefulness of our existing products in the short-term, long-term, or both;
     
  there are increased user concerns related to privacy and information sharing, safety, or security;
     
  there are adverse changes in our products or services that are mandated by legislation, regulatory authorities, or legal proceedings;
     
  technical or other problems frustrate the user experience, particularly if those problems prevent us from delivering our products in a fast and reliable manner;
     
  we, our Channel Partners, or other companies in our industry are the subject of adverse media reports or other negative publicity, some of which may be inaccurate or include confidential information that we are unable to correct or retract; or
     
  we fail to maintain our brand image or our reputation is damaged.

 

Any decrease in user retention, growth, or engagement could render our products less attractive to users, advertisers, or our Channel Partners, thereby reducing our revenues from them, which may have a material and adverse impact on our business, financial condition, and results of operations. In addition, there can be no assurance that we will succeed in developing products and services that eventually become widely accepted, that we will be able to timely release products and services that are commercially viable, or that we will establish ourselves as a successful player in a new business area. Our inability to do so would have an adverse impact on our business, financial condition, and results of operations.

 

The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed. The digital media industry is fragmented and highly competitive. There are many players in the digital media market, many with greater name recognition and financial resources, which may give them a competitive advantage. Some of our current and potential competitors have substantially greater financial, technical, marketing, distribution, and other resources than we do. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, customer, and user requirements and trends. In addition, our customers and strategic partners may become competitors in the future. Certain of our competitors may be able to negotiate alliances with strategic partners on more favorable terms than we are able to negotiate. Pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of the Maven Platform to achieve or maintain more widespread market acceptance, any of which could adversely affect our revenues and operating results. With the introduction of new technologies, the evolution of the Maven Platform, and new market entrants, we expect competition to intensify in the future.

 

We may have difficulty managing our growth. We have added, and expect to continue to add, channel partner and end-user support capabilities, to continue software development activities, and to expand our administrative operations. In the past two years, we have entered into multiple strategic transactions. These strategic transactions, which have significantly expanded our business, have and are expected to place a significant strain on our managerial, operational, and financial resources. To manage any further growth, we will be required to improve existing, and implement new, operational, customer service, and financial systems, procedures and controls and expand, train, and manage our growing employee base. We also will be required to expand our finance, administrative, technical, and operations staff. There can be no assurance that our current and planned personnel, systems, procedures, and controls will be adequate to support our anticipated growth, that management will be able to hire, train, retain, motivate, and manage required personnel or that our management will be able to successfully identify, manage and exploit existing and potential market opportunities. If we are unable to manage growth effectively, our business could be harmed.

 

17

 

 

The strategic relationships that we may be able to develop and on which we may come to rely may not be successful. We will seek to develop strategic relationships with advertising, media, technology, and other companies to enhance the efforts of our market penetration, business development, and advertising sales revenues. These relationships are expected to, but may not, succeed. There can be no assurance that these relationships will develop and mature, or that potential competitors will not develop more substantial relationships with attractive partners. Our inability to successfully implement our strategy of building valuable strategic relationships could harm our business.

 

We rely heavily on our ability to collect and disclose data and metrics in order to attract new advertisers and retain existing advertisers. Any restriction, whether by law, regulation, policy, or other reason, on our ability to collect and disclose data that our advertisers find useful would impede our ability to attract and retain advertisers. Our advertising revenue could be seriously harmed by many other factors, including:

 

  a decrease in the number of active users of the Maven Platform;
  our inability to create new products that sustain or increase the value of our advertisements;
  our inability to increase the relevance of targeted advertisements shown to users;
  adverse legal developments relating to advertising, including changes mandated by legislation, regulation, or litigation; and
  difficulty and frustration from advertisers who may need to reformat or change their advertisements to comply with our guidelines.

 

The occurrence of any of these or other factors could result in a reduction in demand for advertisements, which may reduce the prices we receive for our advertisements or cause advertisers to stop advertising with us altogether, either of which would negatively affect our business, financial condition, and results of operations.

 

The sales and payment cycle for online advertising is long, and such sales, which have been significantly impacted by the COVID-19 pandemic, may not occur when anticipated or at all. The decision process is typically lengthy for brand advertisers and sponsors to commit to online campaigns. Some of their budgets are planned a full year in advance. The COVID-19 pandemic significantly impacted the amount and pricing of advertising throughout the media industry and it is uncertain when and to what extent advertisers will return to more normal spending levels. The decision process for such purchases, even in normal business situations, is subject to delays and aspects that are beyond our control. In addition, some advertisers and sponsors take months after the campaign runs to pay, and some may not pay at all, or require partial “make-goods” based on performance.

 

We are dependent on the continued services and on the performance of our key executive officers, management team, and other key personnel, the loss of which could adversely affect our business. Our future success largely depends upon the continued services of our key executive officers, management team, and other key personnel. The loss of the services of any of such key personnel could have a material adverse effect on our business, operating results, and financial condition. We depend on the continued services of our key personnel as they work closely with both our employees and our Channel Partners. Such key personnel are also responsible for our day-to-day operations. Although we have employment agreements with some of our key personnel, these are at-will employment agreements, albeit with non-competition and confidentiality provisions and other rights typically associated with employment agreements. We do not believe that any of our executive officers are planning to leave or retire in the near term; however, we cannot assure that our executive officers or members of our management team will remain with us. We also depend on our ability to identify, attract, hire, train, retain, and motivate other highly skilled technical, managerial, sales, operational, business development, and customer service personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate, or retain sufficiently qualified personnel. The loss or limitation of the services of any of our executive officers, members of our management team, or key personnel, including our regional and country managers, or the inability to attract and retain additional qualified key personnel, could have a material adverse effect on our business, financial condition, or results of operations.

 

Our revenues could decrease if the Maven Platform does not continue to operate as intended. The Maven Platform performs complex functions and is vulnerable to undetected errors or unforeseen defects that could result in a failure to operate or inefficiency. There can be no assurance that errors and defects will not be found in current or new products or, if discovered, that we will be able to successfully correct them in a timely manner or at all. The occurrence of errors and defects could result in loss of or delay in revenue, loss of market share, increased development costs, diversion of development resources and injury to our reputation or damage to our efforts to expand brand awareness.

 

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Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results. Our growth will depend in part on the ability of our users and Channel Partners to access the Maven Platform at any time and within an acceptable amount of time. We believe that the Maven Platform is proprietary and we rely on the expertise of members of our engineering, operations, and software development teams for their continued performance. It is possible that the Maven Platform may experience performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing the Maven Platform software simultaneously, denial of service attacks, or other security related incidents. We may not be able to identify the cause or causes of any performance problems within an acceptable period of time. It may be that it will be difficult to maintain and/or improve our performance, especially during peak usage times and as the Maven Platform becomes more complex and our user traffic increases. If the Maven Platform software is unavailable or if our users are unable to access it within a reasonable amount of time or at all, our business would be negatively affected. Therefore, in the event of any of the factors described above, or certain other failures of our infrastructure, partner or user data may be permanently lost. Moreover, the Partnership Agreements with our Channel Partners include service level standards that obligate us to provide credits or termination rights in the event of a significant disruption in the Maven Platform. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be adversely affected.

 

We operate our exclusive coalition of professional-managed online media channels on third party cloud platforms and data center hosting facilities. We rely on software and services licensed from, and cloud platforms provided by, third parties in order to offer our digital media services. Any errors or defects in third-party software or cloud platforms could result in errors in, or a failure of, our digital media services, which could harm our business. Any damage to, or failure of, these third-party systems generally could result in interruptions in the availability of our digital media services. As a result of this third-party reliance, we may experience the aforementioned issues, which could cause us to render credits or pay penalties, could cause our Channel Partners to terminate their contractual arrangements with us, and could adversely affect our ability to grow our audience of unique visitors, all of which could reduce our ability to generate revenue. Our business would also be harmed if our users and potential users believe our product and services offerings are unreliable. In the event of damage to, or failure of, these third-party systems, we would need to identify alternative channels for the offering of our digital media services, which would consume substantial resources and may not be effective. We are also subject to certain standard terms and conditions with Amazon Web Services and Google Cloud related to data storage purposes. These providers have broad discretion to change their terms of service and other policies with respect to us, and those changes may be unfavorable to us. Therefore, we believe that maintaining successful partnerships with Amazon Web Services, Google Cloud, and other third-party suppliers is critical to our success.

 

Real or perceived errors, failures, or bugs in the Maven Platform could adversely affect our operating results and growth prospects. Because the Maven Platform is complex, undetected errors, failures, vulnerabilities, or bugs may occur, especially when updates are deployed. Despite testing by us, errors, failures, vulnerabilities, or bugs may not be found in the Maven Platform until after they are deployed to our customers. We expect from time to time to discover software errors, failures, vulnerabilities, and bugs in the Maven Platform and anticipate that certain of these errors, failures, vulnerabilities, and bugs will only be discovered and remediated after deployment to our Channel Partners and used by subscribers. Real or perceived errors, failures, or bugs in our software could result in negative publicity, loss of or delay in market acceptance of the Maven Platform, loss of competitive position, or claims by our Channel Partners or subscribers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem.

 

Malware, viruses, hacking attacks, and improper or illegal use of the Maven Platform could harm our business and results of operations. Malware, viruses, and hacking attacks have become more prevalent in our industry and may occur on our systems in the future. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware, or other computer equipment, and the inadvertent transmission of computer viruses could harm our business, financial condition and operating results. Any failure to detect such attack and maintain performance, reliability, security and availability of products and technical infrastructure to the satisfaction of our users may also seriously harm our reputation and our ability to retain existing users and attract new users.

 

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Our information technology systems are susceptible to a growing and evolving threat of cybersecurity risk. Any substantial compromise of our data security, whether externally or internally, or misuse of agent, customer, or employee data, could cause considerable damage to our reputation, cause the public disclosure of confidential information, and result in lost sales, significant costs, and litigation, which would negatively affect our financial position and results of operations. Although we maintain policies and processes surrounding the protection of sensitive data, which we believe to be adequate, there can be no assurances that we will not be subject to such claims in the future.

 

If we are unable to protect our intellectual property rights, our business could suffer. Our success significantly depends on our proprietary technology. We rely on a combination of copyright, trademark and trade secret laws, employee and third-party non-disclosure and invention assignment agreements and other methods to protect our proprietary technology. However, these only afford limited protection, and unauthorized parties may attempt to copy aspects of the Maven Platform’s features and functionality, or to use information that we consider proprietary or confidential. There can be no assurance that the Maven Platform will be protectable by patents, but if they are, any efforts to obtain patent protection that is not successful may harm our business in that others will be able to use our technologies. For example, previous disclosures or activities unknown at present may be uncovered in the future and adversely impact any patent rights that we may obtain. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate or that third parties will not infringe or misappropriate our trademarks, copyrights, and similar proprietary rights. If we resort to legal proceedings to enforce our intellectual property rights, those proceedings could be expensive and time-consuming and could distract our management from our business operations. Our business, profitability and growth prospects could be adversely affected if we fail to receive adequate protection of our proprietary rights.

 

We could be required to cease certain activities and/or incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights. Some of our competitors, and other third parties, may own technology patents, copyrights, trademarks, trade secrets and website content, which they may use to assert claims against us. We cannot assure you that we will not become subject to claims that we have misappropriated or misused other parties’ intellectual property rights. Any claim or litigation alleging that we have infringed or otherwise violated intellectual property or other rights of third parties, with or without merit, and whether or not settled out of court or determined in our favor, could be time-consuming and costly to address and resolve, and could divert the time and attention of our management and technical personnel.

 

20

 

 

The results of any intellectual property litigation to which we might become a party may require us to do one or more of the following:

 

  cease making, selling, offering, or using technologies or products that incorporate the challenged intellectual property;
  make substantial payments for legal fees, settlement payments, or other costs or damages;
  obtain a license, which may not be available on reasonable terms, to sell or use the relevant technology; or
  redesign technology to avoid infringement.

 

If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against us, such payments or costs could have a material adverse effect upon our business and financial results.

 

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including privacy, data protection, and personal information, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, personal information, electronic contracts and other communications, competition, protection of minors, consumer protection, telecommunications, employee classification, product liability, taxation, economic or other trade prohibitions or sanctions, securities law compliance, and online payment services. The introduction of new products, expansion of our activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations, monetary penalties or other government scrutiny. In addition, foreign data protection, privacy, competition, and other laws and regulations can impose different obligations or be more restrictive than those in the United States. Many of these laws and regulations are still evolving and could be interpreted or applied in ways that could limit or harm our business, require us to make certain fundamental and potentially detrimental changes to the products and services we offer, or subject us to claims. For example, laws relating to the liability of providers of online services for activities of their users and other third-parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright, and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. In addition, there have been calls by members of Congress, from both parties, to limit the scope of the current immunities and safe harbors afforded online publishers with regard to user content and communications under the federal Digital Millennium Copyright Act and the federal Communications Decency Act. Any material reduction of those protections would make us more vulnerable to third party claims arising out of user content published by our online services.

 

These United States federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change, which could adversely affect our business. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. Any change in legislation and regulations could affect our business. For example, regulatory or legislative actions affecting the manner in which we display content to our users or obtain consent to various practices could adversely affect user growth and engagement. Such actions could affect the manner in which we provide our services or adversely affect our financial results.

 

Furthermore, significant penalties could be imposed on us for failure to comply with various statutes or regulations. Violations may result from:

 

  ambiguity in statutes;
  regulations and related court decisions;
  the discretion afforded to regulatory authorities and courts interpreting and enforcing laws;
  new regulations affecting our business; and
  changes to, or interpretations of, existing regulations affecting our business.

 

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While we prioritize ensuring that our business and compensation model are compliant, and that any product or income related claims are truthful and non-deceptive, we cannot be certain that the FTC or similar regulatory body in another country will not modify or otherwise amend its guidance, laws, or regulations or interpret in a way that would render our current practices inconsistent with the same.

 

Our services involve the storage and transmission of digital information; therefore, cybersecurity incidents, including those caused by unintentional errors and those intentionally caused by third parties, may expose us to a risk of loss, unauthorized disclosure or other misuse of this information, litigation liability and regulatory exposure, reputational harm and increased security costs. We and our third-party service providers experience cyber-attacks of varying degrees on a regular basis. We expect to incur significant costs in ongoing efforts to detect and prevent cybersecurity-related incidents and these costs may increase in the event of an actual or perceived data breach or other cybersecurity incident. The COVID-19 pandemic has increased opportunities for cyber-criminals and the risk of potential cybersecurity incidents, as more companies and individuals work online. We cannot ensure that our efforts to prevent cybersecurity incidents will succeed. An actual or perceived breach of our cybersecurity could impact the market perception of the effectiveness of our cybersecurity controls. If our users or business partners, including our Channel Partners, are harmed by such an incident, they could lose trust and confidence in us, decrease their use of our services or stop using them in entirely. We could also incur significant legal and financial exposure, including legal claims, higher transaction fees and regulatory fines and penalties, which in turn could have a material and adverse effect on our business, reputation and operating results. While our insurance policies include liability coverage for certain of these types of matters, a significant cybersecurity incident could subject us to liability or other damages that exceed our insurance coverage.

 

Prior employers of our employees may assert violations of past employment arrangements. Our employees are highly experienced, having worked in our industry for many years. Prior employers may try to assert that our employees are breaching restrictive covenants and other limitations imposed by past employment arrangements. We believe that all of our employees are free to work for us in their various capacities and have not breached past employment arrangements. Notwithstanding our care in our employment practices, a prior employer may assert a claim. Such claims will be costly to contest, highly disruptive to our work environment, and may be detrimental to our operations.

 

Our products may require availability of components or known technology from third parties and their non-availability can impede our growth. We license/buy certain technology integral to our products from third parties, including open-source and commercially available software. Our inability to acquire and maintain any third-party product licenses or integrate the related third-party products into our products in compliance with license arrangements, could result in delays in product development until equivalent products can be identified, licensed, and integrated. We also expect to require new licenses in the future as our business grows and technology evolves. We cannot provide assurance that these licenses will continue to be available to us on commercially reasonable terms, if at all.

 

Government regulations may increase our costs of doing business. The adoption or modification of laws or regulations relating to online media, communities, commerce, security and privacy could harm our business, operating results and financial condition by increasing our costs and administrative burdens. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, security, libel, consumer protection, and taxation apply. Laws and regulations directly applicable to Internet activities are becoming more diverse and prevalent in all global markets. We must comply with regulations in the United States, as well as any other regulations adopted by other countries where we may do business. The growth and development of Internet content, commerce and communities may prompt calls for more stringent consumer protection laws, privacy laws and data protection laws, both in the United States and abroad, as well as new laws governing the taxation of these activities. Compliance with any newly adopted laws may prove difficult for us and may harm our business, operating results, and financial condition.

 

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We may face lawsuits or incur liabilities in the future in connection with our businesses. In the future, we may face lawsuits or incur liabilities in connection with our businesses. For example, we could face claims relating to information that is published or made available on the Maven Platform. In particular, the nature of our business exposes us to claims related to defamation, intellectual property rights and rights of publicity and privacy. We might not be able to monitor or edit a significant portion of the content that appears on the Maven Platform. This risk is enhanced in certain jurisdictions outside the United States where our protection from liability for third-party actions may be unclear and where we may be less protected under local laws than we are in the United States. We could also face fines or orders restricting or blocking our services in particular geographies as a result of content hosted on our services. If any of these events occur, our business could be seriously harmed.

 

RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES

 

There may be no liquid market for our common stock. We provide no assurances of any kind or nature whatsoever that an active market for our common stock will ever develop. There has been no sustained activity in the market for our common stock. Investors should understand that there may be no alternative exit strategy for them to recover or liquidate their investments in our common stock. Accordingly, investors must be prepared to bear the entire economic risk of an investment in us for an indefinite period of time. Even if an active trading market develops over time, we cannot predict how liquid that market might become. Our common stock is quoted on the OTC Markets Group, Inc.’s (the “OTCM”) Pink Open Market (the “OTC Pink”). Trading in stock quoted on over-the-counter markets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include:

 

  Quarterly variations in our results of operations or those of our competitors;
  Announcements by us or our competitors of acquisitions, new products and services, significant contracts, commercial relationships, or capital commitments;
  Disruption or substantive changes to our operations, including the impact of the COVID-19 pandemic;
  Variations in our sales and earnings from period to period;
  Commencement of, or our involvement in, litigation;
  Any major change in our board or management;
  Changes in governmental regulations or in the status of our regulatory approvals; and
  General market conditions and other factors, including factors unrelated to our own operating performance.

 

We are subject to the reporting requirements of the United States securities laws, which will require expenditure of capital and other resources, and may divert management’s attention. We are a public reporting company subject to the information and reporting requirements of the Exchange Act, the Sarbanes-Oxley Act (“Sarbanes”), and other applicable securities rules and regulations. Complying with these rules and regulations have caused us and will continue to cause us to incur additional legal and financial compliance costs, make some activities more difficult, be time-consuming or costly, and continue to increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. We are not current in our SEC filings and the cost of completing historical filings in addition to maintaining current financial reporting has been, and will continue to be, a financial burden for us. If we fail to or are unable to comply with Sarbanes, we will not be able to obtain independent accountant certifications that Sarbanes requires publicly traded companies to obtain. Further, by complying with public disclosure requirements, our business and financial condition are more visible, which we believe may result in the likelihood of increased threatened or actual litigation, including by competitors and other third parties. Compliance with these additional requirements may also divert management’s attention from operating our business. Any of these may adversely affect our operating results.

 

We may not be able to attract the attention of major brokerage firms or securities analysts in our efforts to raise capital. In due course, we plan to seek to have our common stock quoted on a national securities exchange in the United States. There can be no assurance that we will be able to garner a quote for our common stock on an exchange. Even if we are successful in doing so, security analysts and major brokerage houses may not provide coverage of us. We may also not be able to attract any brokerage houses to conduct secondary offerings with respect to our securities.

 

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Because we are subject to the “penny stock” rules and regulations, the level of trading activity in our common stock is limited, and our stockholders may have difficulties selling their shares. SEC regulations define penny stocks to be any non-exchange equity security that has a market price of less than $5.00 per share, subject to certain exemptions. The regulations of the SEC promulgated under the Exchange Act require additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Unless an exception is available, those regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a standardized risk disclosure schedule prepared by the SEC, to provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the purchaser’s account, to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a stock that becomes subject to the penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage market investor interest in and limit the marketability of our common stock. There can be no assurance that our common stock will qualify for exemption from the penny stock rules. In any event, even if our common stock were exempt from the penny stock rules, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

 

In addition to the “penny stock” rules promulgated by the SEC, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our common stock.

 

Item 1B. Unresolved Staff Comments

 

Not Applicable.

 

Item 2. Properties

 

On February 22, 2017, we entered into an agreement (the “Western Sublease”) to sublease approximately 2,900 square feet for our executive offices and operational facilities, located at 2125 Western Avenue, Suite 502, Seattle, Washington 98101, at a rate of $6,180 per month through August 31, 2017. On August 30, 2017, we and the lessor amended the Western Sublease to extend the term through January 31, 2018 and to provide us with an option to extend the term of the Western Sublease through April 30, 2018. We exercised this option and, ultimately, occupied these offices through May 2018.

 

On April 25, 2018, we entered into an office sublease agreement (the “1500 Fourth Ave Sublease”) to sublease a portion of the “master premises” consisting of 7,457 rentable square feet of office space for our then-executive offices at 1500 Fourth Avenue, Suite 200, Seattle, Washington 98101. The 1500 Fourth Ave Sublease commenced on June 1, 2018 with an expiration date of October 31, 2021. The amount of monthly rent payable per square foot under the 1500 Fourth Ave Sublease was $25.95 for the first year, $35.00 for the second year, $36.00 for the third year, and $37.00 for the remainder of the term. On March 1, 2020, we assumed the entire lease for the remaining term of 20 months.

 

On September 19, 2018, we entered into a membership agreement with WeWork for office space located at 995 Market Street, San Francisco, California. The agreement commenced on October 1, 2018. We paid approximately $17,400 per month, which included certain conference room credits and printer credits. We also paid a service retainer in the amount of $26,100. We terminated our membership agreement effective October 31, 2020.

 

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On December 12, 2018, as part of our acquisition of Say Media, we assumed the office lease (the “Portland Lease”) of 10,000 rentable square feet at 424 SW Fourth Avenue, Portland, Oregon 97204. The Portland Lease began on July 1, 2015, and expired June 30, 2020. Monthly lease payments increased from $18,750 in July 2015 to $27,500 in June 2020.

 

On August 7, 2019, as part of its acquisition of TheStreet, we assumed the office lease of approximately 35,000 rentable square feet at 14 Wall Street, 15th Floor, New York, New York 10005. The lease had a remaining term of 16 months, expiring on December 31, 2020. Monthly lease payments from January 1, 2016 through December 31, 2020 were $150,396. On October 30, 2020, we entered into a surrender agreement (the “Surrender Agreement”) pursuant to which we effectively surrendered the property back to the owner and landlord. Pursuant to the Surrender Agreement, we agreed to pay $68,868 per month from January 2020 through June 1, 2021 to satisfy the total outstanding balance of $1,239,626 owed to the lessor. The first $500,000 of payments will be drawn from a security deposit, which is held by the lessor. The lessor agreed not to charge any late fees, interest charges, or other penalties relating to the surrender of the property.

 

Effective October 1, 2019, we entered into an office lease (the “Santa Monica Lease”) of approximately 5,258 rentable square feet at 301 Arizona Avenue, 4th Floor, Santa Monica, California 90401. The Santa Monica Lease has a term of 5 years, expiring on September 30, 2024. The initial monthly rent was $36,806 and increased to $37,910 in October 2020.

 

Effective October 3, 2019, we entered into a condominium lease (the “Washington Square Lease”) of a multifamily townhome at 26 Washington Square North, New York, New York 10011. The Washington Square Lease had a term of one year, expiring on October 2, 2020, with monthly rent payments of $10,000. This property was used by our executive officers when they were in New York for matters related to our business. We terminated this lease in March 2020 when we entered into the 30 West Lease (as defined below).

 

On January 14, 2020, we entered into an office sublease agreement (the “Liberty Street Sublease”) of approximately 40,868 rentable square feet at 225 Liberty Street, 27th Floor, New York, New York 10281, with an effective date of February 1, 2020 with lease payments commencing November 1, 2020 and expiring on November 30, 2032. Monthly lease payments from November 1, 2020 through October 31, 2025 are $252,019.

 

Effective March 1, 2020, we entered into a corporate apartment lease (the “30 West Lease”) at 30 West Street, New York, New York 10004. The 30 West Lease has a term of 18 months, expiring on August 31, 2021, with monthly lease payments of $8,000 through February 2021 and $8,500 from March 2021 through the expiration of the lease.

 

We believe that the rates we are paying under our property leases are competitive in our various real estate markets, and we would be able to find comparable lease properties in the event we changed locations.

 

Item 3. 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 4. Mine Safety Disclosure

 

Not applicable.

 

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Part II.

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

As of December 1, 2016, our common stock is quoted on the OTCM’s OTC Pink trading under the symbol “MVEN.”

 

The following table sets forth the high and low bid prices during the periods indicated, as reported by the OTCM. Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

   Common Stock 
   (MVEN) 
   High   Low 
2021        
First Quarter (1)  $0.95   $0.42 
2020          
First Quarter  $0.99   $0.31 
Second Quarter  $0.80   $0.30 
Third Quarter  $1.12   $0.50 
Fourth Quarter  $0.90   $0.50 
2019          
First Quarter  $0.75   $0.40 
Second Quarter  $0.70   $0.37 
Third Quarter  $1.00   $0.50 
Fourth Quarter  $0.94   $0.56 
2018          
First Quarter  $2.57   $1.26 
Second Quarter  $1.75   $1.00 
Third Quarter  $1.30   $0.43 
Fourth Quarter  $0.81   $0.25 

 

  (1) Through March 22, 2021.

 

Holders

 

As of March 22, 2021, there were approximately 212 holders of record of our common stock. We believe that there are additional holders of our common stock who have their stock in “street name” with their brokers. Currently, we cannot determine the approximate number of those street name holders. As of such date, 230,202,832 shares of our common stock were issued and outstanding.

 

Dividends

 

We have never paid cash dividends on our common stock, and our present policy is to retain any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

Subsequent to the end of fiscal 2019, on December 15, 2020, we entered into the Fourth Amendment, pursuant to which we agreed to repurchase from certain key personnel of HubPages, including Paul Edmondson, one of our officers, and his spouse, an aggregate of approximately 44,356 shares of our common stock at a price of $4 per share each month for a period of 24 months. The details of these repurchases are as follows:

 

Period 

(a)

Total number of shares (or units purchased

  

(b)

Average price paid per share (or unit)

  

(c)

Total number of shares (or units) purchased as part of publicly announced plans or programs

  

(d)

Maximum number (or approximate dollar value) of shares (or units that may yet be purchased under the plans or programs

 
January 4, 2021   44,356   $4.00    -    - 
February 2, 2021   44,356   $4.00    -    - 
March 2, 2021   44,356   $4.00    -    - 

 

Recent Sales of Unregistered Securities

 

On January 11, 2021, we issued 312,500 shares to Whisper Advisors, LLC as payment for services provided pursuant to that certain Services Agreement dated December 22, 2020. The shares had a fair market value of $125,000. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering.

 

Any other securities that we sold that were not registered under the Securities Act during the previous three years have previously been included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

 

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Item 6. Selected Financial Data

 

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

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Annual Report includes, in one comprehensive filing, the business and financial information for the Fiscal Year Period (i.e., the year ended December 31, 2019), as well as for the Interim Periods (i.e., the three months ended March 31, 2019, the three and six months ended June 30, 2019, and the three and nine months ended September 30, 2019). Therefore, this Management’s Discussion and Analysis of Financial Condition and Results of Operations provides an analysis of the financial condition and results of operations for the Fiscal Year Period and the Interim Periods. The following discussion should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Please see Our Future Businessand Future Liquidityfor additional important information.

 

Overview

 

We operate a best-in-class technology platform empowering premium publishers who impact, inform, educate and entertain. We operate the media businesses for Sports Illustrated and TheStreet, and power more than 250 independent brands including History, Maxim, and Biography. The Maven Platform provides digital publishing, distribution and monetization capabilities to our own Sports Illustrated and TheStreet media businesses as well as to the Channel Partners. Generally, the Channel Partners are independently owned strategic partners who receive a share of revenue from the interaction with their content. They also benefit from our membership marketing and management systems to further 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 Channel Partners or by acquiring publishers as owned and operated entities. By adding premium content brands, we will further expand the scale of the Maven Platform, improve monetization effectiveness in both advertising and subscription revenues, and enhance the attractiveness to consumers and advertisers.

 

Liquidity and Capital Resources

 

As of December 31, 2019, our principal sources of liquidity consisted of cash of approximately $8.9 million. As of the issuance date of our consolidated financial statements for the year ended December 31, 2019, we had also received funds from loan proceeds of approximately $17.6 million from additional resources, including proceeds under our working capital facility with FPP Finance LLC (“FastPay”), a delayed draw loan, and payroll protection program loan, all of which are discussed in greater detail below in the section entitled “Future Liquidity.”

 

We continued to be focused on growing our existing operations and seeking accretive and complementary strategic acquisitions as part of our growth strategy. We believed, that with additional sources of liquidity and the ability to raise additional capital or incur additional indebtedness to supplement our then internal projections, we would be able to execute our growth plan and finance our working capital requirements.

 

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We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of December 31, 2019 and 2018 was as follows:

 

   As of December 31, 
   2019   2018 
Current assets  $48,160,360   $9,533,342 
Current liabilities   (87,541,031)   (21,536,090)
Working capital deficit   (39,380,671)   (12,002,748)

 

As of December 31, 2019, we had a working capital deficit of approximately $39.4 million, consisting of approximately $48.2 million in total current assets and approximately $87.5 million in total current liabilities. Included in current assets as of December 31, 2019 was approximately $0.6 million of restricted cash. Also included in our working capital deficit was non-cash current liabilities, consisting of approximately $1.6 million of warrant derivative liabilities and approximately $13.5 million of embedded derivative liabilities, leaving a working capital deficit that required cash payments of approximately $24.9 million. As of December 31, 2018, we had a working capital deficit of approximately $12.0 million, consisting of approximately $9.5 million in total current assets and approximately $21.5 million in total current liabilities.

 

Our cash flows during the years ended December 31, 2019 and 2018 consisted of the following:

 

   Years Ended December 31, 
   2019   2018 
Net cash used in operating activities  $(56,954,306)  $(7,417,680)
Net cash used in investing activities   (19,019,191)   (23,589,027)
Net cash provided by financing activities   82,919,298    29,914,747 
Net (decrease) increase in cash, cash equivalents, and restricted cash  $6,945,801   $(1,091,960)
Cash, cash equivalents, and restricted cash, end of year  $9,473,090   $2,527,289 

 

For the year ended December 31, 2019, net cash used in operating activities was approximately $57.0 million, consisting primarily of approximately $54.7 million used in cash for general and administrative expenses, as compared to the year ended December 31, 2018, where net cash used in operating activities was approximately $7.4 million, consisting primarily of approximately $7.1 million for general and administrative expenses.

 

For the year ended December 31, 2019, net cash used in investing activities was approximately $19.0 million, consisting primarily of approximately $16.3 million for acquisition of businesses (which included the recognition of approximately $4.4 million for developed technology, approximately $2.6 million for the trade name, approximately $2.2 million for subscriber relationships, approximately $2.2 million for advertiser relationships, and approximately $1.1 million for databases acquired in TheStreet Merger), and approximately $2.5 million for our capitalized Maven Platform development. For the year ended December 31, 2018, net cash used in investing activities was approximately $23.6 million, consisting primarily of approximately $18.0 million for acquisition of businesses (which included the recognition of approximately $6.7 million for developed technology and approximately $0.3 million for the trade name in connection with the HubPages Merger, and the recognition of approximately $8.0 million for developed technology, approximately $0.5 million for trade name, and approximately $0.5 million for noncompete agreement in connection with the Say Media Merger), approximately $3.4 million from promissory notes proceeds, and approximately $2.2 million for our capitalized platform development.

 

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For the year ended December 31, 2019, net cash provided by financing activities was approximately $82.9 million, consisting of: (i) approximately $36.1 million in net proceeds from the issuance of Series I Convertible Preferred Stock (“Series I Preferred Stock”) and Series J Convertible Preferred Stock (“Series J Preferred Stock”) (for additional information see below); (ii) $2.0 million in gross proceeds from 12% senior secured subordinated convertible debentures (referred to herein as the “12% convertible debentures”) (for additional information, see Note 17, Convertible Debt, in our accompanying consolidated financial statements); and (iii) $44.9 million in net debt financings, consisting of (x) $46.5 million in net proceeds from issuance of 12% senior secured notes, less repayments of long-term debt and debt issuance costs; offset by (y) approximately $0.4 million in repayment of officer promissory notes; (y) approximately $0.3 million in payments for taxes relating to repurchase of restricted shares; and (z) approximately $1.0 million in repayments of our line of credit. For the year ended December 31, 2018, net cash provided by financing activities was approximately $29.9 million, consisting of: (i) approximately $12.3 million in net proceeds from the issuance of Series H Convertible Preferred Stock (“Series H Preferred Stock”); (ii) approximately $1.3 million in net proceeds from the issuance of our common stock in a private placement; (iii) approximately $16.6 million in proceeds, less repayments, from 8% promissory notes, 10% convertible debentures, 10% original issue discount senior secured convertible debentures (referred to herein as the “10% OID convertible debentures”), and 12% senior convertible debentures; and (iv) approximately $0.7 million in net proceeds from promissory notes issued in favor of certain of our officers, less approximately $1.0 million in repayments under our factoring facility with Sallyport.

 

Net proceeds from issuance of our convertible preferred stock (as further described in Note 19, Preferred Stock, in our accompanying consolidated financial statements) consisted of the following:

 

Series I Preferred Stock. On June 28, 2019, we issued shares of our Series I Preferred Stock pursuant to a securities purchase agreement entered into with certain accredited investors. In accordance with the securities purchase agreement, we issued an aggregate of 23,100 shares of Series I Preferred Stock at a stated value of $1,000, initially convertible into 46,200,000 shares of our common stock at a conversion rate equal to the stated value divided by the conversion price of $0.50 per share, for aggregate gross proceeds of $23.1 million used for working capital and general corporate purposes. Each share of Series I Preferred Stock is entitled to vote on an as-if-converted to common stock basis, subject to certain conditions.

 

The shares of Series I Preferred Stock were subject to limitations on conversion into shares of our common stock until the date an amendment to our certificate of incorporation was filed and accepted with the State of Delaware that increased the number of authorized shares of our common stock to at least a number permitting all the Series H Preferred Stock and Series I Preferred Stock to be converted in full. On December 18, 2020, we filed a Certificate of Amendment to our Restated Certificate of Incorporation, as amended (the “Certificate of Amendment”), to increase the number of authorized shares of our common stock. Accordingly, we do not have any shares of our Series I Preferred Stock currently outstanding. Please see Note 20, Stockholders’ Equity, in our accompanying consolidated financial statements for addition information.

 

Series J Preferred Stock. On October 7, 2019, we issued shares of our Series J Preferred Stock pursuant to a securities purchase agreement with certain accredited investors. In accordance with the securities purchase agreement, we issued an aggregate of 20,000 shares of Series J Preferred Stock at a stated value of $1,000, initially convertible into 28,571,428 shares of our common stock at a conversion rate equal to the stated value divided by the conversion price of $0.70 per share, for aggregate gross proceeds of $20.0 million, and after principal and interest of $5.0 million from the 12% senior secured notes were converted into shares of our Series J Preferred Stock, we received net proceeds of $15.0 million, which we used for working capital and general corporate purposes. Each share of Series J Preferred Stock is entitled to vote on an as-if-converted to common stock basis, subject to certain conditions.

 

The shares of Series J Preferred Stock were subject to limitations on conversion into shares of our common stock until the date an amendment to our certificate of incorporation was filed and accepted with the State of Delaware that increases the number of authorized shares of our common stock to at least a number permitting all the Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock to be converted in full. On December 18, 2020, in connection with the filing of a Certificate of Amendment, we increased the number of authorized shares of our common stock. Accordingly, we do not have any shares of our Series J Preferred Stock currently outstanding. Please see Note 20, Stockholders’ Equity, in our accompanying consolidated financial statements for additional information.

 

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Our consolidated financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We had revenues of approximately $53.2 million during fiscal 2019, and have experienced recurring net losses from operations and negative operating cash flows. Consequently, we were dependent upon continued access to funding and capital resources from both new investors and related parties. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our growth plan and plan of operations. These financings may include terms that may be highly dilutive to existing stockholders.

 

Future Liquidity

 

From January 1, 2020 to the issuance date of our accompanying consolidated financial statements for the Fiscal Year Period and the Interim Periods, we continued to incur operating losses and negative cash flow from operating and investing activities. We have raised $23.7 million in net proceeds pursuant to the sale and issuances of Series H Preferred Stock, Series I Preferred Stock, Series J Preferred Stock, and Series K Convertible Preferred Stock (the “Series K Preferred Stock”) and $17.6 million in various debt financings. Noteholders also converted our 12% convertible debentures representing an aggregate of approximately $18.1 million of the then-outstanding principal and accrued but unpaid interest, with the remaining noteholders holding our 12 convertible debentures representing an aggregate of approximately $1.1 million of outstanding principal and accrued interest were not converted and, instead, such amounts were repaid in cash to such noteholders. We also entered into an Exchange Agreement with a former officer pursuant to which, the parties agreed that in exchange of $0.4 million of outstanding principal and accrued but unpaid interest under certain officer promissory notes we would issue to him shares of our Series H Preferred Stock. Our cash balance as of the date our accompanying consolidated financial statements for the year ended December 31, 2019 were issued or were available to be issued was approximately $5.1 million. Summarized below are the additional debt financings and/or issued equity securities through the issuance of our consolidated financial statements.

 

Equity Financings

 

Included in the $23.7 million of equity financings (see Note 28, Subsequent Events, in our accompanying consolidated financial statements for further details) are the following:

 

Series H Preferred Stock. Between August 14, 2020 and August 20, 2020, we entered into several securities purchase agreements for the sale of Series H Preferred Stock with certain accredited investors, pursuant to which we issued an aggregate of 108 shares (after we rescinded the issuance of 2,145 shares that were deemed null and void and repaid to certain holders on October 28, 2020), at a stated value of $1,000 per share, initially convertible into 327,273shares of our common stock at a conversion rate equal to the stated value divided by the conversion price of $0.33 per share, for aggregate gross proceeds of approximately $130,000 for working capital and general corporate purposes. The number of shares issuable upon conversion of the Series H Preferred Stock will be adjusted in the event of stock splits, stock dividends, combinations of shares and similar transactions. Each share of Series H Preferred Stock is entitled to vote on an as-if-converted to common stock basis, subject to beneficial ownership blocker provisions and other certain conditions.

 

The shares of Series H Preferred Stock were subject to limitations on conversion into shares of our common stock until the date an amendment to our certificate of incorporation was filed and accepted with the State of Delaware that increases the number of authorized shares of our common stock to at least a number permitting all the Series H Preferred Stock to be converted in full. On December 18, 2020, we filed the Certificate of Amendment to increase the number of authorized shares of our common stock.

 

Series J Preferred Stock. On September 4, 2020, we closed on a Series J Preferred Stock issuance with two accredited investors, pursuant to which we issued an aggregate of 10,500 shares of Series J Preferred Stock at a stated value of $1,000 per share, initially convertible into 15,000,000 shares of our common stock at a conversion rate equal to the stated value divided by the conversion price of $0.70, for aggregate gross proceeds of $6.0 million for working capital and general corporate purposes.

 

On December 18, 2020, in connection with the filing of the Certificate of Amendment to increase the number of authorized shares of our common stock, the then-outstanding shares of Series J Preferred Stock automatically converted into shares of our common stock. Accordingly, we do not have any shares of our Series J Preferred Stock currently outstanding.

 

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Series K Preferred Stock. On October 22, 2020, 20,000 shares of our preferred stock were designated by our Board as Series K Preferred Stock. Between October 23, 2020 and November 11, 2020, we entered into several securities purchase agreements with accredited investors, pursuant to which we issued an aggregate of 18,042 shares of Series K Preferred Stock at a stated value of $1,000 per share, initially convertible into 45,105,000 shares of our common stock at a conversion rate equal to the stated value divided by the conversion price of $0.40 per share, for aggregate gross proceeds of approximately $18.0 million. The number of shares issuable upon conversion of the Series K Preferred Stock will be adjusted in the event of stock splits, stock dividends, combinations of shares and similar transactions. Each share of Series K Preferred Stock is entitled to vote on an as-if-converted to common stock basis, subject to other certain conditions.

 

In consideration for its services as placement agent, we paid B. Riley FBR, Inc. (“B. Riley FBR”) a cash fee of $400,500. We used approximately $3.4 million of the net proceeds from the financing to partially repay the Term Note (as defined below) and used approximately $2.6 million for payment on a prior investment, with the remainder of approximately $12.0 million for working capital and general corporate purposes.

 

On December 18, 2020, in connection with the filing of the Certificate of Amendment to increase the number of authorized shares of our common stock, the then-outstanding shares of Series K Preferred Stock automatically converted into shares of our common stock. Accordingly, we do not have any shares of our Series K Preferred Stock currently outstanding.

 

Debt Financings

 

Included in the $16.8 million of debt financings (see Note 28, Subsequent Events, in our accompanying consolidated financial statements for additional information) are the following:

 

Amended and Restated 12% Senior Secured Notes. On February 27, 2020, we entered into a second amendment to the amended and restated note purchase agreement (the “Second Amendment to A&R NPA”), which further amended the amended and restated note purchase agreement, dated as of June 14, 2019 (the “A&R NPA”), with one accredited investor, BRF Finance Co., LLC (“BRF Finance”), an affiliated entity of B. Riley Financial, Inc. (“B. Riley”). The Second Amendment to A&R NPA further amended the amended and restated 12% senior secured note due June 14, 2022. Pursuant to the Second Amendment to A&R NPA, we replaced our previous $3.5 million working capital facility with Sallyport with a new $15.0 million working capital facility with FastPay; and (ii) BRF Finance issued a letter of credit in the amount of approximately $3.0 million to our landlord for our lease of the premises located at 225 Liberty Street, 27th Floor, New York, New York 10281. All borrowings under the amended and restated 12% senior secured notes are collateralized by substantially all assets of the Company.

 

On March 24, 2020, we entered into a second amended and restated note purchase agreement (the “Second A&R NPA”) with BRF Finance, an affiliated entity of B. Riley, in its capacity as agent for the purchasers, which further amended and restated the Second Amendment to A&R NPA. Pursuant to the Second A&R NPA, interest on amounts outstanding under the existing 12% senior secured notes with respect to (i) interest that was payable on such notes on March 31, 2020 and June 30, 2020, and (ii) at our option, with the consent of requisite purchasers, interest that was payable on such on September 30, 2020 and December 31, 2020, in lieu of the payment in cash of all or any portion of the interest due on such dates, would be payable in-kind in arrears on the last day of such applicable fiscal quarter.

 

On October 23, 2020, we entered into Amendment No. 1 to the Second A&R NPA with BRF Finance (“Amendment 1”), pursuant to which the maturity date of the 12% senior secured notes was changed to December 31, 2022 or an earlier date if the obligations have been accelerated pursuant to and in accordance with the terms of Amendment 1. Pursuant to Amendment 1, interest payable on the existing 12% senior secured notes on September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 will be payable in-kind in arrears on the last day of such fiscal quarter. Alternatively, at the option of the holder, such interest amounts originally could have been paid in shares of Series K Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of common stock, all such interest amounts can be paid in shares of our common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock (or $0.40).

 

The balance outstanding under our amended and restated 12% senior secured notes as of the issuance date of our consolidated financial statements for the year ended December 31, 2019 was approximately $56.3 million, which included outstanding principal of approximately $48.8 million, payment of in-kind interest of approximately $4.2 million that we were permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately $3.3 million).

 

FastPay Credit Facility. On February 6, 2020, we entered into a financing and security agreement with FastPay, pursuant to which FastPay extended a $15.0 million line of credit for working capital purposes secured by a first lien on all of our cash and accounts receivable and a second lien on all other assets. Borrowings under the facility bear interest at the LIBOR Rate plus 8.50% and have a final maturity of February 6, 2022. This line of credit was amended by that certain first amendment to financing and security agreement dated March 24, 2020 to permit us to amend and restate the 12% senior secured notes. The aggregate principal amount outstanding, plus accrued and unpaid interest, as of the issuance date of our accompanying consolidated financial statements for the year ended December 31, 2019 was approximately $5.0 million.

 

Sallyport Credit Facility. As of December 31, 2019, we no longer could borrow under our factoring facility with Sallyport and it was effectively closed effective January 30, 2020. As of May 4, 2020, all amounts owed to us by Sallyport were paid and there was no balance outstanding under the facility.

 

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Delayed Draw Term Note. Pursuant to the Second A&R NPA, we agreed to issue, at BRF Finance’s option, a 15% delayed draw term note (the “Term Note”), in the aggregate principal amount of $12.0 million to the investor. On March 24, 2020, we drew down approximately $6.9 million under the Term Note, and after payment of commitment and funding fees paid to BRF Finance in the amount of approximately $0.7 million, and other of its legal fees and expenses that we incurred, we received net proceeds of $6.0 million. The net proceeds were used by us for working capital and general corporate purposes. Additional borrowings under the Term Note requested by us may be made at the option of the purchasers. Up to $8.0 million in principal amount under the Term Note was originally due on March 31, 2021. Interest on amounts outstanding under the Term Note was payable in-kind in arrears on the last day of each fiscal quarter.

 

Pursuant to the terms of Amendment 1, the maturity date was changed from March 31, 2021 to March 31, 2022. Amendment 1 also provided that BRF Finance, as holder, could originally elect, in lieu of receipt of cash for payment of all or any portion of the interest due or cash payments up to the Conversion Portion (as defined in Amendment 1) of the Term Note, to receive shares of Series K Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of our common stock, the holder may elect, in lieu of receipt of cash for such amounts, shares of our common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock (or $0.40).

 

As of March 22, 2021, approximately $3.4 million, including approximately $3.3 million of principal amount of the Term Note and approximately $0.7 million of accrued interest, had been converted into shares of our Series K Preferred Stock. The aggregate principal amount outstanding under the Term Note as of March 22, 2021 was approximately $4.3 million (including payment of in-kind interest of approximately $0.7 million, which was added to the outstanding Term Note balance).

 

Payroll Protection Program Loan. On April 6, 2020, we issued a note in favor of JPMorgan Chase Bank, N.A., pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (“SBA”). We received total proceeds of approximately $5.7 million under the note. In accordance with the requirements of the CARES Act, we will use proceeds from the note primarily for payroll costs. The note is scheduled to mature on April 6, 2022 and has a 0.98% interest rate and is subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act. The balance outstanding as of the issuance date of our accompanying consolidated financial statements for the year ended December 31, 2019 was approximately $5.7 million.

 

The note is eligible for partial forgiveness for the principal amounts that are used for the limited purposes that qualify for forgiveness under SBA requirements. In order to obtain forgiveness, we must request it and must provide documentation in accordance with the SBA requirements, and certify that the amounts we are requesting to be forgiven qualify under those requirements. We will remain responsible under the note for any amounts not forgiven, and that interest payable under the note will not be forgiven but that the SBA may pay the note interest on forgiven amounts. Requirements for forgiveness, among other requirements, provide for eligible expenditures, necessary records/documentation, or possible reductions of the forgiven amount due to changes in number of employees or compensation. It is our expectation that 100% of the principal amount of the note will be forgiven; however, no assurance to this effect can be given.

 

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12% Convertible Debentures. On December 31, 2020, noteholders converted the 12% convertible debentures representing an aggregate of approximately $18.1 million of the then-outstanding principal and accrued but unpaid interest into 53,887,470 shares of our common stock at effective conversion per-share prices ranging from $0.33 to $0.40. Despite the terms of the 12% convertible debentures, the noteholders agreed to allow us to repay accrued but unpaid interest in shares of our common stock. The remaining 12% convertible debentures representing an aggregate of approximately $1.1 million of outstanding principal and accrued interest were not converted and, instead, such amounts were repaid in cash to the noteholders.

 

Going Concern

 

We performed an annual reporting period going concern assessment. Management is required to assess our ability to continue as a going concern. This Annual Report has 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 accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

We have had a history of recurring losses. Our recurring losses from operations and net capital deficiency have been evaluated by management to determine if the significance of those conditions or events would limit our ability to meet its obligations when due. The operating loss realized in fiscal 2019 was primarily a result of a marketing investment in customer growth, together with investment in people and technology as we continued to expand our operations, and operations rapidly expanding during fiscal 2019 with the TheStreet Merger and the Sports Illustrated Licensing Agreement. The operating loss realized in fiscal 2018 was primarily a result of investments in people, infrastructure for the Maven Platform and the operations rapidly expanding during fiscal 2018 with the acquisitions of HubPages and Say Media, along with continued costs based on the strategic growth plans in other verticals.

 

As reflected in our accompanying consolidated financial statements, we had revenues of approximately $53.3 million for the year ended December 31, 2019, and have experienced recurring net losses from operations, negative working capital and negative operating cash flows. During the year ended December 31, 2019, we incurred a net loss attributable to common stockholders of approximately $39.1 million, utilized cash in operating activities of approximately $57.0 million, and as of December 31, 2019, had an accumulated deficit of approximately $73.6 million. We have financed our working capital requirements since inception through the issuance of debt and equity securities.

 

In 2020 and continuing into 2021, we have also been impacted by the COVID-19 pandemic. Many national governments and sports authorities around the world have made the decision to postpone/cancel high attendance sports events in an effort to reduce the spread of COVID-19. In addition, many governments and businesses have limited non-essential work activity, furloughed, and/or terminated many employees and closed some operations and/or locations, all of which has had a negative impact on the economic environment. As a result of these factors, we experienced a decline in traffic, advertising revenue, and earnings since early March 2020, due to the cancellation of high attendance sports events and the resulting decrease in traffic to the Maven Platform and advertising revenue. We have implemented cost reduction measures in an effort to offset our revenue and earnings declines, while experiencing increased cash flows by growth in digital subscriptions. The extent of the impact on our operational and financial performance will depend on future developments, including the duration and spread of the COVID-19 pandemic, related group gathering and sports event advisories and restrictions, and the extent and effectiveness of containment actions taken, all of which remain uncertain at the time of issuance of our accompanying consolidated financial statements.

 

Management has evaluated whether relevant conditions or events, considered in the aggregate, raise substantial doubt about our ability to continue as a going concern. Substantial doubt exists when conditions and events, considered in the aggregate, indicate it is probable that a company will not be able to meet its obligations as they become due within one year after the issuance date of its financial statements. Management’s assessment is based on the relevant conditions that are known or reasonably knowable as of the date our accompanying consolidated financial statements for the year ended December 31, 2019 were issued or were available to be issued.

 

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Management’s assessment of our ability to meet our future obligations is inherently judgmental, subjective and susceptible to change. The factors that we considered important in our going concern analysis, include, but are not limited to, our fiscal 2021 cash flow forecast and our fiscal 2021 operating budget. Management also considered our ability to repay our convertible debt through future equity and the implementation of cost reduction measures in effect to offset revenue and earnings declines from COVID-19. These factors consider information including, but not limited to, our financial condition, liquidity sources, obligations due within one year after the issuance date of our accompanying financial statements, the funds necessary to maintain operations and financial conditions, including negative financial trends or other indicators of possible financial difficulty.

 

In particular, our plan for the: (1) 2021 cash flow forecast, considered the use of our working capital line with FastPay (as described in Note 28, Subsequent Events, to our accompanying consolidated financial statements) to fund changes in working capital, where we have available credit of approximately $8.7 million as of the issuance date of our accompanying consolidated financial statements for the year ended December 31, 2019, and that we do not anticipate the need for any further borrowings that are subject to the holders approval, from our Term Note (as described in Note 28, Subsequent Events, to our accompanying consolidated financial statements) where we may be permitted to borrow up to an additional $5 million; and (2) 2021 operating budget, considered that approximately sixty-five percent of our revenue is from recurring subscriptions, generally paid in advance, and that digital subscription revenue, that accounts for approximately thirty percent of subscription revenue, grew approximately thirty percent in 2020 demonstrating the strength of our premium brand, and the plan to continue to grow our subscription revenue from our 2019 acquisition of TheStreet (as described in Note 28, Subsequent Events, to our accompanying consolidated financial statements) and to launch premium digital subscriptions from our Sports Illustrated licensed brands (as described in Note 28, Subsequent Events, to our accompanying consolidated financial statements), in January 2021.

 

We have considered both quantitative and qualitative factors as part of the assessment that are known or reasonably knowable as of the date our accompanying consolidated financial statements for the year ended December 31, 2019 were issued or were available to be issued, and concluded that conditions and events considered in the aggregate, do not raise substantial doubt about our ability to continue as a going concern for a one-year period following the financial statement issuance date.

 

Results of Operations

 

Selected Financial Information for the Results of Operations for Each of the Quarterly Periods During Fiscal 2019 and Fiscal 2018

 

Revenue

 

The following tables set forth revenue by product line:

 

  

Three Months Ended

March 31,

 
   2019   2018 
Advertising  $6,137,353   $72,843 
Digital subscriptions   51,914    13,842 
Other   84,696    - 
   $6,273,963   $86,685 

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
Advertising  $5,670,713   $135,931   $11,808,066   $208,774 
Digital subscriptions   56,020    16,740    107,934    30,582 
Other   43,550    63,685    128,246    63,685 
   $5,770,283   $216,356   $12,044,246   $303,041 

 

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Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2019   2018   2019   2018 
Advertising  $5,456,555   $1,099,295   $17,264,621   $1,308,069 
Digital subscriptions   1,891,702    15,688    1,999,636    46,270 
Other   237,763    42,934    366,009    106,619 
   $7,586,020   $1,157,917   $19,630,266   $1,460,958 

 

During the three months ended March 31, 2019 and June 30, 2019, our revenue increased over the prior quarters as a result of the HubPages Merger and the Say Media Merger in fiscal 2018. During the three months ended September 30, 2019, our revenue increased over the prior quarters as a result of TheStreet Merger in fiscal 2019 and the HubPages Merger and the Say Media Merger in fiscal 2018.

 

Cost of Revenue

 

The following tables set forth cost of revenue incurred based on primary expenses:

 

  

Three Months Ended

March 31,

 
   2019   2018 
Channel Partner guarantees and revenue share payments  $3,008,707   $406,815 
Amortization of developed technology and the Maven Platform   1,324,970    349,512 
Hosting, bandwidth, and software licensing fees   180,089    61,087 
Printing, distribution and fulfillment costs   35,120    - 
Payroll, stock-based compensation, and related expenses for customer support, technology maintenance, and occupancy costs of related personnel   637,406    97,818 
Fees paid for data analytics and to other outside services providers   446,960    35,783 
Other   19,313    84,693 
   $5,652,565   $1,035,708 

 

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Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
Channel Partner guarantees and revenue share payments  $2,992,524   $462,790   $6,001,231   $869,605 
Amortization of developed technology and the Maven Platform   1,361,319    433,204    2,686,289    782,716 
Hosting, bandwidth, and software licensing fees   199,489    79,329    379,578    140,416 
Printing, distribution and fulfillment costs   30,510    -    65,630    - 
Payroll, stock-based compensation, and related expenses for customer support, technology maintenance, and occupancy costs of related personnel   576,908    3,828    1,214,314    101,646 
Fees paid for data analytics and to other outside services providers   303,266    35,783    750,226    71,566 
Other   23,156    87,879    42,469    172,572 
   $5,487,172   $1,102,813   $11,139,737   $2,138,521 

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2019   2018   2019   2018 
Channel Partner guarantees and revenue share payments  $3,465,010   $783,677   $9,466,241   $1,653,282 
Amortization of developed technology and the Maven Platform   1,623,783    629,888    4,310,072    1,412,604 
Hosting, bandwidth, and software licensing fees   307,566    78,820    687,144    219,236 
Printing, distribution and fulfillment costs   37,628    -    103,258    - 
Payroll, stock-based compensation, and related expenses for customer support, technology maintenance, and occupancy costs of related personnel   1,438,254    147,830    2,652,568    244,476 
Fees paid for data analytics and to other outside services providers   540,964    61,902    1,291,190    133,468 
Other   199,380    86,956    241,849    259,528 
   $7,612,585   $1,784,073   $18,752,322   $3,922,594 

 

During the three months ended March 31, 2019 and June 30, 2019, our cost of revenue increased over prior quarters as a result of the HubPages Merger and Say Media Merger in fiscal 2018. During the three months ended September 30, 2019, our cost of revenue increased over the prior quarters as a result of TheStreet Merger in fiscal 2019 and the HubPages Merger and the Say Media Merger in fiscal 2018.

 

The following tables set forth operating expenses (selling and marketing and general and administrative) incurred based on primary expenses:

 

Selling and Marketing

 

  

Three Months Ended

March 31,

 
   2019   2018 
Payroll and employee benefits of selling and marketing account management support teams  $877,020   $43,637 
Professional marketing services   175,471    82,928 
Office and occupancy costs   88,782    14,196 
Advertising and other related fulfillment costs   -    12,744 
Other   8,019    - 
   $1,149,292   $153,505 

 

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Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
Payroll and employee benefits of selling and marketing account management support teams  $993,075   $14,215   $1,870,095   $57,852 
Professional marketing services   145,991    64,340    321,462    147,268 
Office and occupancy costs   301,846    598,634    390,628    612,830 
Advertising and other related fulfillment costs   395    83,946    395    96,690 
Other   9,794    -    17,813    - 
   $1,451,101   $761,135   $2,600,393   $914,640 

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2019   2018   2019   2018 
Payroll and employee benefits of selling and marketing account management support teams  $1,112,981   $341,907   $2,983,076   $399,759 
Professional marketing services   199,049    73,052    520,511    220,320 
Office and occupancy costs   96,815    6,164    487,443    618,994 
Advertising and other related fulfillment costs   279,305    4,188    279,700    100,878 
Other   371,670    15    389,483    15 
   $2,059,820   $425,326   $4,660,213   $1,339,966 

 

During the three months ended March 31, 2019 and June 30, 2019, our selling and marketing expenses increased over the prior quarters as a result of the HubPages Merger and Say Media Merger in fiscal 2018. During the three months ended September 30, 2019, our selling and marketing expenses increased over the prior quarters as a result of TheStreet Merger in fiscal 2019 and HubPages Merger and Say Media Merger in fiscal 2018.

 

General and Administrative

 

  

Three Months Ended

March 31,

 
   2019   2018 
Payroll, stock-based compensation and related expenses for executive, sales and administrative personnel  $3,035,158   $1,744,068 
Professional services, including accounting, legal and insurance   782,340    498,075 
Facilities costs   173,733    17,151 
Conferences   135,634    92,443 
Other general corporate expenses   98,388    112,034 
   $4,225,253   $2,463,771 

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
Payroll, stock-based compensation and related expenses for executive, sales and administrative personnel  $3,978,465   $1,484,260   $7,013,623   $3,228,328 
Professional services, including accounting, legal and insurance   1,430,245    410,817    2,212,585    908,892 
Facilities costs   182,525    109,436    356,258    126,587 
Conferences   112,628    96,554    248,262    188,997 
Other general corporate expenses   167,152    121,120    265,540    233,154 
   $5,871,015   $2,222,187   $10,096,268   $4,685,958 

 

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Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2019   2018   2019   2018 
Payroll, stock-based compensation and related expenses for executive, sales and administrative personnel  $5,069,924   $1,676,364   $12,083,547   $4,904,693 
Professional services, including accounting, legal and insurance   1,119,232    152,103    3,331,817    1,060,995 
Facilities costs   479,692    145,481    835,950    272,068 
Conferences   194,115    71,060    442,377    260,057 
Other general corporate expenses   399,533    501,361    665,073    734,515 
   $7,262,496   $2,546,369   $17,358,764   $7,232,328 

 

During the three months ended March 31, 2019 and June 30, 2019, our general and administrative expenses increased over the prior quarters as a result of the HubPages Merger and Say Media Merger in fiscal 2018. During the three months ended September 30, 2019, our general and administrative expenses increased over the prior quarters as a result of TheStreet Merger in fiscal 2019 and HubPages Merger and Say Media Merger in fiscal 2018.

 

Stock-based compensation

 

The following tables set forth stock-based compensation expense included within the line items presented, including any stock-based compensation that has been capitalized:

 

  

Three Months Ended

March 31,

 
   2019   2018 
Cost of revenue  $69,071   $- 
Selling and marketing   108,284    12,387 
General and administrative   1,142,272    1,201,918 
    1,319,627    1,214,305 
Capitalized as part of the Maven Platform   167,948    907,979 
   $1,487,575   $2,122,284 

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
Cost of revenue  $171,258   $155,078   $240,329   $155,078 
Selling and marketing   171,336    12,387    279,620    24,774 
General and administrative   2,297,704    809,363    3,439,976    2,011,281 
    2,640,298    976,828    3,959,925    2,191,133 
Capitalized as part of the Maven Platform   404,322    238,417    572,270    1,146,396 
   $3,046,620   $1,215,245   $4,532,195   $3,337,529 

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2019   2018   2019   2018 
Cost of revenue  $285,253   $341   $525,582   $155,419 
Selling and marketing   221,843    16,507    501,463    41,281 
General and administrative   2,484,053    1,208,131    5,924,029    3,219,412 
    2,991,149    1,224,979    6,951,074    3,416,112 
Capitalized as part of the Maven Platform   413,724    362,493    985,994    1,508,889 
   $3,404,873   $1,587,472   $7,937,068   $4,925,001 

 

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Other Expenses

 

The following tables set forth other expenses incurred based on primary expenses for any material amount presented:

 

  

Three Months Ended

March 31,

 
   2019   2018 
Change in valuation of embedded derivative liabilities  $2,383,000   $- 
Interest expense   1,301,208    - 
   $3,684,208   $- 

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
Change in valuation of embedded derivative liabilities  $1,396,000   $128,544   $3,779,000   $128,544 
Interest expense   1,876,054    123,543    3,177,262    123,543 
   $3,272,054   $252,087   $6,956,262   $252,087 

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2019   2018   2019   2018 
Change in valuation of embedded derivative liabilities  $5,621,000   $459,472   $9,400,000   $588,016 
Interest expense   3,701,310    1,428,464    6,878,572    1,552,007 
   $9,322,310   $1,887,936   $16,278,572   $2,140,023 

 

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Comparison of Fiscal 2019 to Fiscal 2018

 

   Years Ended December 31,   2019 versus 2018 
   2019   2018   $ Change   % Change 
Revenue  $53,343,310   $5,700,199   $47,643,111    835.8%
Cost of revenue   47,301,175    7,641,684    39,659,491    519.0%
Gross profit (loss)   6,042,135    (1,941,485)   7,983,620    (411.2)%
Operating expenses                    
Selling and marketing   12,789,056    1,720,714    11,068,342    643.2%
General and administrative   29,511,204    10,286,997    19,224,207    186.9%
Depreciation and amortization   4,551,372    64,676    4,486,696    6,937.2%
Total operating expenses   46,851,632    12,072,387    34,779,245    288.1%
Loss from operations   (40,809,497)   (14,013,872)   (26,795,625)   191.2%
Total other (expense) income   (17,232,999)   (12,145,644)   (5,087,355)   41.9%
Loss before income taxes   (58,042,496)   (26,159,516)   (31,882,980)   121.9%
Benefit for income taxes   19,541,127    91,633    19,449,494    21,225.4%
Net loss   (38,501,369)   (26,067,883)   (12,433,486)   47.7%
Deemed dividend on Series H convertible preferred stock   -    (18,045,496)   18,045,496    (100.0)%
Basic and diluted net loss per common share  $(38,501,369)  $(44,113,379)  $5,612,010    (12.7)%
Basic and diluted net loss per common share  $(1.04)  $(1.69)  $0.65    (38.5)%
Weighted average number of shares outstanding – basic and diluted   37,080,784    26,128,796    10,951,988    41.9%

 

 

For the year ended December 31, 2019, the total net loss was approximately $38.5 million. The total net loss increased by approximately $12.4 million from approximately $26.1 million for the year ended December 31, 2018. The primary reason for the increase in the total net loss is due to the continued rapid expansion of our operations during fiscal 2019 as they did in fiscal 2018, resulting in total operating costs of approximately $48.2 million for fiscal 2019, as compared to approximately $12.4 million for fiscal 2018. In particular, in fiscal 2019, we completed TheStreet Merger and entered into the Sports Illustrated Licensing Agreement to license the Sports Illustrated Brands. In fiscal 2018, we completed the HubPages Merger and the Say Media Merger. The basic and diluted net loss per common share for the year ended December 31, 2019 of $1.04 decreased from $1.69 for the year ended December 31, 2018, primarily because the weighted average basic and diluted shares increased as the net loss attributable to common stockholders increased. In fiscal 2018, the primary reasons for the increase in the net loss attributable to common stockholders was the deemed dividend on the Series H Preferred Stock of approximately $18.0 million, other expenses of approximately $17.2 million, and the calculation of the daily weighted average shares outstanding increased to 37,080,784 shares from 26,128,796 shares.

 

Our growth strategy is principally focused on adding new publisher partners to our technology platform. In addition, if the right opportunity exists, we may also acquire related online media, publishing, and technology businesses. This combined growth strategy has expanded the scale of unique users interacting on our technology platform with increased revenues during 2019. We expect revenues increases in subsequent years will come from organic growth in operations, addition of more publisher partners, and mergers and acquisitions.

 

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Revenue

 

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

 

   Years Ended December 31,   2019 versus 2018 
   2019   2018   Change   % Change 
   (percentage reflect cost of revenue as a percentage of total revenue)         
Revenue  $53,343,310    100.0%  $5,700,199    100.0%  $47,643.11    835.8%
Cost of revenue   47,301,175    88.7%   7,641,684    134.1%   39,659,491    519.0%
Gross profit (loss)  $6,042,135    11.3%  $(1,941,485)   (34.1)%  $7,983,620    (411.2)%

 

The following table sets forth revenue by product line and the corresponding percent of total revenue:

 

   Years Ended December 31,   2019 versus 2018 
   2019   2018   Change   % Change 
   (percentages reflect product line as a percentage of total revenue)         
Advertising  $35,918,370    67.3%  $5,614,953    98.5%  $30,303,417    531.6%
Digital subscriptions   6,855,038    12.9%   85,246    1.5%   6,769,792    118.8%
Magazine circulation   9,046,473    17.0%   -    0.0%   9,046,473    158.7%
Other   1,523,429    2.9%   -    0.0%   1,523,429    26.7%
Total revenue  $53,343,310    100.0%  $5,700,199    100.0%  $47,643,111    835.8%

 

For the year ended December 31, 2019, we had revenue of approximately $53.3 million as compared to revenue of approximately $5.7 million in 2018. During fiscal 2019, the primary sources of revenue were as follows: (i) approximately $35.9 million from advertising, due to $2.1 million generated by TheStreet, $11.2 million generated by Sports Illustrated, $6.7 million generated by HubPages, $14.7 million generated by Say Media, and $1.3 million generated by our legacy business; (ii) approximately $6.9 million from digital subscriptions, due to $5.5 million generated by TheStreet, $1.1 million generated by Sports Illustrated, $0.2 million generated by Say Media, and $0.1 million generated by our legacy business; (iii) approximately $9.0 million from magazine circulation, entirely generated by Sports Illustrated; and (iv) approximately $1.5 million from other revenue, due to $0.3 million generated by the TheStreet, $0.8 million generated by Sports Illustrated, $0.2 million generated by HubPages, $0.1 million generated by Say Media, and $0.2 million generated by our legacy business. During fiscal 2019, we generated revenue from our legacy business primarily from operations of on-line media channels from the Channel Partners generating advertising and membership subscriptions and, to a lesser extent, from the operations of TheStreet and Sports Illustrated. During fiscal 2018, we generated revenue from our legacy business primarily from operations of online media channels from the Channel Partners generating advertising and membership subscriptions and, to a lesser extent from the operation of HubPages and Say Media.

 

Cost of Revenue

 

For the years ended December 31, 2019 and 2018, we recognized cost of revenue of approximately $47.3 million and approximately $7.6 million, respectively. The increase of approximately $39.7 million in cost of revenue is primarily from our Channel Partner guarantees and revenue share payments of approximately $10.9 million; payroll and related expenses for customer support, technology maintenance and occupancy costs of related personnel of approximately $8.3 million; amortization of our Maven Platform of approximately $3.8 million (which includes our Maven Platform spending and amortization related to acquired developed technology from our acquisitions); royalty fees of $3.8 million; hosting, bandwidth, and software licensing fees of approximately $0.9 million; printing, distribution, and fulfillment costs of approximately $7.7 million; fees paid for data analytics and to other outside services providers of approximately $2.3 million; stock-based compensation of approximately $0.8 million; and other costs of revenue of approximately $1.1 million.

 

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During the year ended December 31, 2019, we capitalized costs related to the Maven Platform of approximately $3.8 million, as compared to approximately $4.0 million in the year ended December 31, 2018 when our technology operations were primarily in the application and development phase. In fiscal 2019, the capitalization of the Maven Platform development consisted of approximately $2.5 million in payroll and related expenses, including taxes and benefits, approximately $1.3 million in stock-based compensation for related personnel, and amortization of approximately $2.7 million. In fiscal 2018, costs of revenues consisted of approximately $2.2 million in payroll and related expenses, including taxes and benefits, approximately $1.9 million in stock-based compensation for related personnel, and amortization of approximately $1.8 million.

 

Operating Expenses

 

The following table sets forth operating expenses and the corresponding percentage of total revenue:

 

   Years Ended December 31,   2019 versus 2018 
   2019   2018   Change   % Change 
   (percentages reflect expense as a percentage of total revenue)         
Selling and marketing  $12,789,056    24.0%  $1,720,714    30.2%  $11,068,342    643.2%
General and administrative   29,511,204    55.3%   10,286,997    180.5%   19,224,207    186.9%
Depreciation and amortization   4,551,372    8.5%   64,676    1.1%   4,486,696    6,937.2%
Total operating expenses  $46,851,632        $12,072,387        $34,779,245    288.1%

 

Selling and Marketing. For the year ended December 31, 2019, we incurred selling and marketing costs of approximately $12.8 million, as compared to approximately $1.7 million in 2018. The increase in selling and marketing costs of approximately $11.1 million in fiscal 2019 is primarily due to payroll of selling and marketing account management support teams, along with the related benefits and stock-based compensation of approximately $5.9 million; professional marketing professionals of approximately $0.7 million; office, travel, conferences, and occupancy costs of approximately $0.3 million; circulation costs of approximately $0.5 million; advertising and other related fulfillment costs of approximately $1.9 million; and other selling and marketing related costs of approximately $1.8 million.

 

General and Administrative. For the year ended December 31, 2019, we incurred general and administrative costs of approximately $29.5 million from payroll and related expenses, professional services, occupancy costs, stock-based compensation of related personnel, depreciation and amortization and other corporate expense, as compared to approximately $10.3 million for the year ended December 31, 2018. The increase in general and administrative expenses of approximately $19.2 million is primarily due to our increase in headcount from 87 to 170 employees, along with the related benefits and stock compensation of approximately $12.3 million; professional services, including accounting, legal and insurance of approximately $5.4 million and facilities costs of approximately $0.8 million.

 

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Other (Expenses) Income

 

The following table sets forth other (expense) income:

 

   Years Ended December 31,   2019 versus 2018 
   2019   2018   Change   % Change 
  

(percentages reflect other expense (income)

as a percentage of the total)

         
Change in valuation of warrant derivative liabilities  $(1,015,151)   5.9%  $964,124    -7.9%  $(1,979,275)   16.3%
Change in valuation of embedded derivative liabilities   (5,040,000)   29.2%   (2,971,694)   24.5%   (2,068,306)   17.0%
True-up termination fee   -    0.0%   (1,344,648)   11.1%   1,344,648    -11.1%
Settlement of promissory notes receivable   -    0.0%   (3,366,031)   27.7%   3,366,031    -27.7%
Interest expense   (10,463,570)   60.7%   (2,508,874)   20.7%   (7,954,696)   65.5%
Interest income   13,976    -0.1%   22,262    -0.2%   (8,286)   0.1%
Liquidated damages   (728,516)   4.2%   (2,940,654)   24.2%   2,212,138    -18.2%
Other income   262    0.0%   (129)   0.0%   391    0.0%
Total other (expense)  $(17,232,999)   100.0%  $(12,145,644)   100.0%  $(5,087,355)   41.9%

 

Change in Valuation of Warrant Derivative Liabilities. The change in valuation of warrant derivative liabilities was the result of the loss recognized from the change in the fair value of the warrant derivative liabilities as of December 31, 2019 as compared to December 31, 2018.

 

Change in Valuation of Embedded Derivative Liabilities. The change in valuation of embedded derivative liabilities was the result of the loss recognized from the change in the fair value of the embedded derivative liabilities as of December 31, 2019 as compared to December 31, 2018.

 

True-Up Termination Fee. On June 15, 2018, we entered into a securities purchase agreement with four investors to sell approximately $4.8 million principal amount of 10% senior convertible debentures. Strome Mezzanine Fund LP (“Strome”) purchased $3.0 million of such principal amount and two of our senior executives and another investment fund purchased the remaining $1.8 million. On June 15, 2018, we also modified two previous securities purchase agreements dated January 4, 2018 and March 30, 2018 with Strome to eliminate the true-up provision under which we were committed to issue up to 1,700,000 shares of our common stock in certain circumstances. As consideration for such modification, we issued a warrant to Strome to purchase 1,500,000 shares of our common stock, exercisable at an initial price of $1.19 per share for a five-year period. The estimated fair value of this warrant on the June 15, 2018 issuance date of approximately $1.3 million, calculated pursuant to the Black-Scholes option-pricing model, was charged to operations as true-up termination fee during the year ended December 31, 2018. The true-up termination fee was the result of a modification two previous securities purchase agreements dated January 4, 2018 and March 30, 2018 with Strome during the year ended December 31, 2018.

 

Settlement of Promissory Notes Receivable. On December 12, 2018, pursuant to the merger agreement with Say Media entered into on October 12, 2018, as amended on October 17, 2018, we settled the promissory notes receivable by effectively forgiving approximately $3.4 million of the balance due as of December 31, 2018.

 

Interest Expense. We incurred interest expense of approximately $10.5 million during the year ended December 31, 2019, as compared to approximately $2.5 million for the year ended December 31, 2018, primarily consisting of approximately $4.5 million of amortization of accretion of original issue discount and debt discount on notes payable; approximately $3.1 million of accrued interest; and approximately $2.9 million of cash paid for other interest. In fiscal 2018, interest expense primarily consisted of approximately $0.7 million of amortization of accretion of original issue discount and debt discount on notes payable; approximately $2.6 million of debt extinguishment; approximately $0.2 million of accrued interest; and approximately $0.1 million of other interest, less approximately $1.1 million gain on extinguishment of embedded derivatives liabilities upon extinguishment of host instrument.

 

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Liquidated Damages. We recorded approximately $0.7 million of liquidating damages during the year ended December 31, 2019 primarily from issuance of the Series H, Series I, and Series J Preferred Stock, and 12% convertible debentures in fiscal 2019 since we determined that: (1) the registration statement covering the shares of common stock issuable upon conversion of the Series H, Series I, and Series J Preferred Stock and conversation of the 12% convertible debentures would not be declared effective within the requisite time frame; and (2) that we would not be able to maintain its periodic filings in the requisite time frame with the SEC in order to satisfy the public information requirements under the applicable securities purchase agreements. We recorded liquidated damages of approximately $2.9 million during the year ended December 31, 2018 primarily from issuance of the Series H Preferred Stock and 12% convertible debentures in fiscal 2018.

 

Deemed Dividend on Series H Preferred Stock. We recorded a beneficial conversion feature in the amount of approximately $18.0 million for the underlying common shares related to the 19,400 Series H Preferred Stock issuance since the nondetachable conversion feature was in-the-money (the conversion price of $0.33 was lower than our common stock trading price of $0.86) at the issuance date during the year ended December 31, 2018.

 

Recent Disruptions to Our Operations

 

Our normal business operations have recently been disrupted after the date our accompanying consolidated financial statements were issued for the year ended December 31, 2019 by a series of events surrounding the COVID-19 pandemic and related measures to control it. See “Item 1A, Risk Factors – Because of the effects of COVID-19 pandemic and the uncertainty about their persistence, we may not be able to continue operations as a going concern.”

 

Seasonality

 

We expect to experience typical media company advertising and membership sales seasonality, which is strong in the fiscal fourth quarter and slower in the fiscal first quarter.

 

Effects of Inflation

 

To date inflation has not had a material impact on our business or operating results.

 

Our Future Business

 

In 2020, we completed the following acquisition:

 

Asset Acquisition of LiftIgniter

 

On March 9, 2020, we entered into an asset purchase agreement with LiftIgniter and Maven Coalition, whereby Maven Coalition purchased substantially all the assets of LiftIgniter’s machine learning platform, which personalizes content and product recommendations in real-time. The purchased assets included LiftIgniter’s intellectual property and excluded certain accounts receivable. Maven Coalition also assumed certain of LiftIgniter’s liabilities. The purchase price consisted of: (i) a cash payment of approximately $184,000 on February 19, 2020, in connection with the repayment of certain of its outstanding indebtedness; (ii) a cash payment at closing of approximately $131,200; (ii) collections of certain accounts receivable; (iv) on the first anniversary date of the closing issuance of restricted stock units for an aggregate of up to 312,500 shares of our common stock; and (v) on the second anniversary date of the closing issuance of restricted stock units for an aggregate of up to 312,500 shares of our common stock.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, platform development, impairment of long-lived assets, and stock-based compensation. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2, Summary of Significant Accounting Policies, in our accompanying consolidated financial statements.

 

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Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements included elsewhere in this Report, which have been prepared in accordance with GAAP. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

 

Revenue

 

In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We generate all of its revenue from contracts with customers. We account for revenue on a gross basis, as compared to a net basis, in its statement of operations. We made this determination based on it taking the credit risk in its revenue-generating transactions and it also being the primary obligor responsible for providing the services to the customer. Cost of revenues is presented as a separate line item in the statement of operations.

 

The following is a description of the principal activities from which we generate revenue:

 

Advertising Revenue

 

Digital Advertising. We recognize revenue from digital advertisements at the point when each ad is viewed. The quantity of advertisements, the impression bid prices, and revenue are reported on a real-time basis. We enter into contracts with advertising networks to serve display or video advertisements on the digital media pages associated with its various channels. Although reported advertising transactions are subject to adjustment by the advertising network partners, any such adjustments are known within a few days of month end. We owe our independent publisher Channel Partners a revenue share of the advertising revenue earned, which is recorded as service costs in the same period in which the associated advertising revenue is recognized.

 

Advertising revenue that is comprised of fees charged for the placement of advertising on the websites that we own and operate, is recognized as the advertising or sponsorship is displayed, provided that collection of the resulting receivable is reasonably assured.

 

Print Advertising. Advertising related revenues for print advertisements are recognized when advertisements are published (defined as an issue’s on-sale date), net of provisions for estimated rebates, rate adjustments, and discounts.

 

Subscription Revenue

 

Digital Subscriptions. We enter into contracts with internet users that subscribe to premium content on the digital media channels. These contracts provide internet users with a membership subscription to access the premium content. For subscription revenue generated by our independent publisher Channel Partners’ content, we owe our Channel Partners a revenue share of the membership subscription revenue earned, which is initially deferred and recorded as deferred contract costs. We recognize deferred contract costs over the membership subscription term in the same pattern that the associated membership subscription revenue is recognized.

 

Digital subscription revenue generated from our websites that we own and operate are charged to customers’ credit cards or are directly billed to corporate subscribers, and are generally billed in advance on a monthly, quarterly or annual basis. We calculate net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the subscription periods. Deferred revenue relates to payments for subscription fees for which revenue has not been recognized because services have not yet been provided.

 

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Circulation Revenue

 

Circulation revenues include magazine subscriptions and single copy sales at newsstands.

 

Print Subscriptions. Revenue from magazine subscriptions are deferred and recognized proportionately as products are distributed to subscribers.

 

Newsstand. Single copy revenue is recognized on the publication’s on-sale date, net of provisions for estimated returns. We base our estimates for returns on historical experience and current marketplace conditions.

 

Licensing Revenue

 

Content licensing-based revenues are accrued generally monthly or quarterly based on the specific mechanisms of each contract. Generally, revenues are accrued based on estimated sales and adjusted as actual sales are reported by partners. These adjustments are typically recorded within three months of the initial estimates and have not been material. Any minimum guarantees are typically earned evenly over the fiscal year.

 

Cost of Revenue

 

Our cost of revenue represents the cost of providing our digital media network channels and advertising and membership services. The cost of revenue that we have incurred in the periods presented primarily include:

 

  Channel Partner guarantees and revenue share payments;
     
  amortization of developed technology and platform development;
     
  royalty fees;
     
  hosting, bandwidth and software license fees;
     
  printing, distribution, and fulfillment costs;
     
  payroll and related expenses for customer support, technology maintenance, and occupancy costs of related personnel;
     
  fees paid for data analytics and to other outside service providers; and
     
  stock-based compensation of related personnel.

 

Platform Development

 

For the years presented, substantially all of our technology expenses are development costs for the Maven Platform that were capitalized as intangible costs. Technology costs are expensed as incurred or capitalized into property and equipment in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other. This ASC requires that costs incurred in the preliminary project and post-implementation stages of an internal use software project be expensed as incurred and that certain costs incurred in the application development stage of a project be capitalized.

 

We capitalize internal labor costs, including compensation, benefits and payroll taxes, incurred for certain capitalized platform development projects. Our policy with respect to capitalized internal labor stipulates that labor costs for employees working on eligible internal use capital projects are capitalized as part of the historical cost of the project when the impact, as compared to expensing such labor costs, is material. Maven Platform development capitalized during the application development stage of a project include:

 

  payroll and related expenses for personnel; and
     
  stock-based compensation of related personnel.

 

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Selling and Marketing

 

Selling and marketing consist primarily of expenses incurred in selling and marketing our products. Our selling and marketing expenses include:

 

  payroll and employee benefits of selling and marketing account management support teams;
     
  professional marketing services;
     
  office and occupancy costs;
     
  circulation costs;
     
  advertising costs; and
     
  stock-based compensation of related personnel.

 

General and Administrative

 

General and administrative expenses consist primarily of:

 

  payroll and employee benefits for executive and administrative personnel;
     
  professional services, including accounting, legal and insurance;
     
  office and occupancy costs;
     
  conferences;
     
  other general corporate expenses; and
     
  stock-based compensation of related personnel.

 

Leases

 

We have various lease arrangements for certain equipment and its offices. Leases are recorded as an operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets. At inception, we determine whether an arrangement that provides control over the use of an asset is a lease. When it is reasonably certain that we will exercise the renewal period, we include the impact of the renewal in the lease term for purposes of determining total future lease payments. Rent expense is recognized on a straight-line basis over the lease term.

 

In February 2016, FASB issued Accounting Standards Update (“ASU”) ASU 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior GAAP. We adopted ASU 2016-02 on January 1, 2019 which resulted in the recognition of right-of-use assets of approximately $1.7 million, lease liabilities for operating leases of approximately $1.8 million, with no cumulative effect adjustment on retained earnings on our consolidated balance sheets, with no material impact to our consolidated statements of operations (as further described in our accompanying consolidated financial statements in Note 7, Leases).

 

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Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets of businesses acquired in a business combination. Goodwill is not amortized but rather is tested for impairment at least annually on December 31, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. We have elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis of determining whether it is necessary to perform the quantitative goodwill impairment test. If we determine that it is more likely than not that its fair value is less than its carrying amount, then the quantitative goodwill impairment test will be performed. The quantitative goodwill impairment test identifies goodwill impairment and measures the amount of goodwill impairment loss to be recognized by comparing the fair value of a reporting unit with its carrying amount. If the fair value exceeds the carrying amount, no further analysis is required; otherwise, any excess of the goodwill carrying amount over the implied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value.

 

Stock Based Compensation

 

We provide stock-based compensation in the form of (a) stock awards to employees and directors, comprised of restricted stock awards and restricted stock units, (b) stock option grants to employees, directors and consultants, (c) common stock warrants to Channel Partners (as further described in Note 21, Stock Based Compensation, in our accompanying consolidated financial statements), and (d) common stock warrants to ABG (as further described in Note 21, Stock Based Compensation, in our accompanying consolidated financial statements).

 

We account for stock awards and stock option grants to employees, directors, and consultants by measuring the cost of services received in exchange for the stock-based payments as compensation expense in our consolidated financial statements. Stock awards and stock option grants to employees which are time-vested are measured at fair value on the grant date, and charged to operations ratably over the vesting period. Stock awards and stock option grants to employees which are performance-vested are measured at fair value on the grant date and charged to operations when the performance condition is satisfied.

 

Prior to the adoption of ASU 2018-07 (as further described in our accompanying consolidated financial statement in Note 21, Stock Based Compensation), we accounted for stock-based payments to certain directors and consultants, and Channel Partners (collectively the “non-employee awards”) by determining the value of the stock compensation based upon the measurement date at either (a) the date at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments is complete, resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards. After adoption of ASU 2018-07, the measurement date for non-employee awards is the later of the adoption date of ASU 2018-07, or the date of grant, without change in the fair value of the award. There was no cumulative effect of adoption of ASU 2018-07 on January 1, 2019. For stock-based awards granted to non-employees subject to graded vesting that only contain service conditions, we have elected to recognize stock-based compensation expense using the straight-line recognition method.

 

The fair value measurement of equity awards and grants used for stock-based compensation is as follows: (1) restricted stock awards which are time-vested are determined using the quoted market price of the Company’s common stock at the grant date; (2) restricted stock units and stock option grants which are time-vested and performance-vested are determined utilizing the Black-Scholes option-pricing model at the grant date; (3) restricted stock awards which provide for performance-vesting and a true-up provision are determined through consultants with our independent valuation firm using the binomial pricing model at the grant date; (4) stock option grants which provide for market-based vesting with a time-vesting overlay are determined through consultants with our independent valuation firm using the Monte Carlo model at the grant date; (5) Channel Partner warrants are determined utilizing the Black-Scholes option-pricing model; and (6) AGB Warrants are determined utilizing the Monte Carlo model (as further described in our accompanying consolidated financial statements in Note 21, Stock Based Compensation).

 

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Fair value determined under the Black-Scholes option-pricing model and Monte Carlo model is affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option or warrants, as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award. Estimated volatility is based on the historical volatility of our common stock and is evaluated based upon market comparisons. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of our common stock.

 

The fair value of the restricted stock units and stock options granted were probability weighted during the year ended December 31, 2019 under the Black-Scholes option-pricing model or Monte Carlo model as determined through consultants with our independent valuation firm since the value of the units or options, among other things, depend on the volatility of the underlying shares of our common stock, under the following two scenarios: (1) scenario one assumes that our common stock will be up-listed on a national stock exchange (the “Exchange”) on a certain listing date (the “Up-list Date”); and (2) scenario two assumes that our common stock is not up-listed on the Exchange prior to units’ final vesting date (the “No Up-list”), collectively referred to as the “Probability Weighted Scenarios”.

 

We classify stock-based compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s cash compensation costs are classified.

 

Income Taxes

 

We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in results of operations in the period that includes the enactment date.

 

Impairment of Long-Lived Assets

 

We periodically evaluate the carrying value of long-lived assets to be held and used when events or circumstances warrant such a review. The carrying value of a long-lived asset to be held and used is considered impaired when the anticipated separately identifiable undiscounted cash flows from such an asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily by reference to the anticipated cash flows discounted at a rate commensurate with the risk involved.

 

Recently Issued Accounting Pronouncements

 

Note 2, Summary of Significant Accounting Policies, in our accompanying consolidated financial statements appearing elsewhere in this Annual Report includes Recently Issued Accounting Pronouncements.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019, the following transactions, obligations or relationships represent our off-balance sheet arrangements:

 

Warrant Derivative Liabilities

 

Strome Warrants. On June 15, 2018, we modified the two securities purchase agreements dated January 4, 2018 and March 30, 2018 with Strome to eliminate the true-up provision under which we were committed to issue up to 1,700,000 shares of our common stock in certain circumstances (as further described in Note 20, Stockholders’ Equity, in our accompanying consolidated financial statements). As consideration for such modification, we issued warrants to Strome (the “Strome Warrants”) to purchase up to 1,500,000 shares of our common stock, at an initial exercise price of $1.19 per share for a period of five years, subject to a reset provision and customary anti-dilution provisions. Strome was also granted observer rights on our Board. On August 3, 2018, as a result of the warrant exercise price being reduced to the floor exercise price and the triggering of the reset provision, the warrants no longer contained any reset provisions and will continue to be carried on our consolidated balance sheets as a derivative liability at fair value, as adjusted at each period-end since, among other criteria, delivery of unregistered shares is precluded upon exercise. Warrants exercisable for up to 1,500,000 shares of our common stock were outstanding as of December 31, 2019, with a derivative liability fair value of $760,042. In the event Strome decided to exercise these warrants, since shares of our common stock were available to settle the instrument, there would be no impact to our cash resources.

 

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B. Riley Warrants. On October 18, 2018, we issued warrants to the investors to purchase up to 875,000 shares of our common stock in connection with the 10% OID convertible debentures, with an exercise price of $1.00 per share (as further described in Note 20, Stockholders’ Equity, in our accompanying consolidated financial statements). The warrant instrument provides that upon the consummation of a subsequent financing, the $1.00 exercise price shall be adjusted under certain conditions. We determined that the aforementioned $1.00 exercise price adjustment provisions were inconsequential since we did not anticipate a consumption of a subsequent financing that would trigger a subsequent financing condition, therefore, we will carry the warrants on our consolidated balance sheets as a derivative liability at fair value, as adjusted at each period-end since, among other criteria, delivery of unregistered shares is precluded upon exercise. The warrants are exercisable for a period of seven years, subject to customary anti-dilution adjustments, and may, if at any time after the six-month anniversary of the issuance of the warrants there is no effective registration statement covering the re-sale of the shares of common stock underlying the warrants, be exercised on a cashless basis. Warrants exercisable for up to 875,000 shares of our common stock were outstanding as of December 31, 2019, with a derivative liability fair value of $607,513. In the event B. Riley decided to exercise these warrants (which are subject to certain contractual exercise limitations), since shares of our common stock were available to settle the instrument after considering the contractual exercise limitations, there would be no impact to our cash resources.

 

Embedded Derivative Liabilities

 

12% Convertible Debentures. On December 12, 2018, we entered into a securities purchase agreement with three accredited investors, pursuant to which we issued to the investors 12% convertible debentures in the aggregate principal amount of $13,091,528, which included (i) the roll-over of an aggregate of $3,551,528 in principal and interest of the 10% OID convertible debentures issued to two of the investors on October 18, 2018 (as further described in Note 17, Convertible Debt, in our accompanying consolidated financial statements), and (ii) a placement fee of $540,000 to the placement agent, B. Riley FBR, in the offering. After payment of legal fees and expenses of the investors, we received net proceeds of approximately $9.0 million. On March 18, 2019, we entered into a securities purchase agreement with two accredited investors, including John Fichthorn, our Executive Chairman of our Board, pursuant to which we issued 12% convertible debentures in the aggregate principal amount of $1,696,000, which included a placement fee of $96,000 paid to B. Riley FBR in the form of a 12% convertible debenture, for acting as the Company's placement agent in the offering. We received net proceeds of $1,600,000 and paid legal fees and expenses of $10,000 in cash.  On March 27, 2019, we entered into a securities purchase agreement with an accredited investor pursuant to which we issued 12% convertible debentures in the aggregate principal amount of $318,000, which included a placement fee of $18,000 paid to B. Riley FBR in the form of a 12% convertible debenture for acting as our placement agent in the offering. We received net proceeds of $300,000. On April 8, 2019, we entered into a securities purchase agreement with an accredited investor, Todd D. Sims, a member of our Board, pursuant to which we issued a 12% convertible debenture in the aggregate principal amount of $100,000 and received $100,000 from the proceeds.

 

The 12% convertible debentures issued on December 12, 2018 were convertible into shares of our common stock at the option of the investor at any time prior to December 31, 2020, at a conversion price of $0.33 per share, subject to adjustment for stock splits, stock dividends, and similar transactions, and beneficial ownership blocker provisions. The 12% convertible debentures issued on March 18, 2019, March 27, 2019, and April 8, 2019 were convertible into shares of our common stock at the option of the respective investor at any time prior to December 31, 2020, at a conversion price of $0.40 per share, subject to adjustment for stock splits, stock dividends, and similar transactions, and beneficial ownership blocker provisions. The investors ability to convert the 12% convertible debentures was subject to us receiving stockholder approval to increase our authorized number of shares of our common stock. Interest accrued at the rate of 12% per annum, payable on the earlier of conversion or December 31, 2020. Our obligations under the 12% convertible debentures were secured pursuant to the security agreement we entered into with each investor.

 

Upon issuance of the 12% convertible debentures, we recognized a conversion option, buy-in feature, and default remedy feature as embedded derivatives that were bifurcated from the note instruments; therefore, we will carry the embedded derivative liabilities on our consolidated balance sheets at fair value, as adjusted at each period-end since, among other criteria, delivery of unregistered shares is precluded upon conversion. As of December 31, 2019, the fair value of the embedded derivative liabilities was approximately $13.5 million. If the investors decided to exercise their conversion rights under the debentures, since shares of our common stock were available to settle the instruments after considering the contractual conversion limitations, there would be no impact to our cash resources. Subsequent to December 31, 2019, the 12% convertible debentures are no longer outstanding and approximately $18.1 million and $1.1 million of the then outstanding principal and interest of were fully converted and repaid in cash, respectively.

 

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Contractual Obligations

 

The following table sets forth our principal cash operating obligations and commitments as of December 31, 2019, aggregating to approximately $13.9 million.

 

       Payments due by Year * 
   Total   2020   2021   2022   2023 
Operating leases  $4,820,761   $2,579,924   $730,688   $747,993   $762,156 
Employment contracts   2,175,000    900,000    825,000    450,000    - 
Consulting agreement   6,881,722    4,923,722    1,958,000    -    - 
Total  $13,877,483   $8,403,646   $3,513,688   $1,197,993   $762,156 

 

* Subsequent to December 31, 2019, we entered into to several operating lease obligations, which are not reflected in the above table. Please refer to Note 28, Subsequent Events, in our accompanying consolidated financial statements for additional information.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

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

 

Item 8. Financial Statements and Supplementary Data