UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| 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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
|
||
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
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 ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☐
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 (as defined in Rule 12b-2 of the Exchange Act).
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ or
As of August 13, 2021, the Registrant had shares of common stock outstanding.
| 2 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Quarterly Report”) of theMaven, Inc. (the “Company,” “we,” “our,” and “us”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning our business strategy, future revenues, market growth, capital requirements, product introductions, and expansion plans and the adequacy of our funding. Other statements contained in this Quarterly Report that are not historical facts are also forward-looking statements. We have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and other comparable terminology.
We caution investors that any forward-looking statements presented in this Quarterly Report, or that we may make orally or in writing from time to time, are based on 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. Other risks are detailed by us in our public filings with the Securities and Exchange Commission (the “SEC”), including in Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2020. The discussion in this Quarterly Report should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2020.
This Quarterly Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.
| 3 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
THEMAVEN, INC. AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements
| 4 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2021 (unaudited) | December 31, 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Subscription acquisition costs, current portion | ||||||||
| Royalty fees, current portion | ||||||||
| Prepayments and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Platform development, net | ||||||||
| Royalty fees, net of current portion | ||||||||
| Subscription acquisition costs, net of current portion | ||||||||
| Acquired and other intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, mezzanine equity and stockholders’ deficiency | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other | ||||||||
| Line of credit | ||||||||
| Unearned revenue | ||||||||
| Subscription refund liability | ||||||||
| Operating lease liabilities | ||||||||
| Liquidated damages payable | ||||||||
| Warrant derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Unearned revenue, net of current portion | ||||||||
| Restricted stock liabilities, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Long-term debt | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Mezzanine equity: | ||||||||
| Series G redeemable and convertible preferred stock, $ par value, $ per share liquidation value and shares designated; aggregate liquidation value: $ | ||||||||
| Series H convertible preferred stock, $ par value, $ per share liquidation value and shares designated; aggregate liquidation value: $ | ||||||||
| Total mezzanine equity | ||||||||
| Stockholders’ deficiency: | ||||||||
| Common stock, $ par value, authorized shares; issued and outstanding: and shares at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficiency | ( | ) | ( | ) | ||||
| Total liabilities, mezzanine equity and stockholders’ deficiency | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
| 5 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue (includes amortization of developed technology and platform development for six months ended 2021 and 2020 of $ | ||||||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income | ||||||||||||||||
| Change in valuation of warrant derivative liabilities | ( | ) | ||||||||||||||
| Change in valuation of embedded derivative liabilities | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Liquidated damages | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain upon debt extinguishment | ||||||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common stock outstanding – basic and diluted | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Six Months Ended June 30, 2021
| Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of restricted stock awards to the board of directors | ( | ) | ||||||||||||||||||||||||||
| Repurchase restricted stock classified as liabilities | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock for restricted stock units in connection with the acquisition of LiftIgniter | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock in connection with professional services | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of restricted stock in connection with the acquisition of The Spun | ( | ) | ||||||||||||||||||||||||||
| Issuance of restricted stock awards to the board of directors | ( | ) | ||||||||||||||||||||||||||
| Cashless exercise of common stock | ( | ) | ||||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Repurchase of restricted stock classified as liabilities | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock in connection with private placement | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 7 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Six Months Ended June 30, 2020
| Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’
| ||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of restricted stock units in connection with the acquisition of LiftIgniter | ||||||||||||||||||||||||||||
| Issuance of restricted stock awards to the board of directors | ( | ) | ||||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock in connection with the acquisition of Say Media | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 8 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of platform development and intangible assets | ||||||||
| Gain upon debt extinguishment | ( | ) | ||||||
| Amortization of debt discounts | ||||||||
| Change in valuation of warrant derivative liabilities | ( | ) | ||||||
| Change in valuation of embedded derivative liabilities | ( | ) | ||||||
| Accrued interest | ||||||||
| Liquidated damages | ||||||||
| Stock-based compensation | ||||||||
| Other | ( | ) | ( | ) | ||||
| Change in operating assets and liabilities net of effect of business combination: | ||||||||
| Accounts receivable | ||||||||
| Subscription acquisition costs | ( | ) | ( | ) | ||||
| Royalty fees | ||||||||
| Prepayments and other current assets | ( | ) | ( | ) | ||||
| Other long-term assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other | ( | ) | ||||||
| Unearned revenue | ||||||||
| Subscription refund liability | ||||||||
| Operating lease liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Capitalized platform development | ( | ) | ( | ) | ||||
| Payments for acquisition of business, net of cash acquired | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from long-term debt | ||||||||
| Borrowings (repayments) under line of credit | ( | ) | ||||||
| Proceeds from common stock private placement | ||||||||
| Payments of issuance costs from common stock private placement | ( | ) | ||||||
| Payment for taxes related to repurchase of restricted common stock | ( | ) | ( | ) | ||||
| Payment of restricted stock liabilities | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents, and restricted cash – beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash – end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| Noncash investing and financing activities | ||||||||
| Reclassification of stock-based compensation to platform development | $ | $ | ||||||
| Issuance of common stock in connection with professional services | ||||||||
| Deferred cash payments in connection with acquisition of The Spun | ||||||||
| Assumption of liabilities in connection with acquisition of The Spun | ||||||||
| Debt discount on delayed draw term note | ||||||||
| Restricted stock units issued in connection with acquisition of LiftIgniter | ||||||||
| Assumption of liabilities in connection with acquisition of LiftIgniter | ||||||||
See accompanying notes to condensed consolidated financial statements.
| 9 |
THEMAVEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of TheMaven, Inc. and its wholly owned subsidiaries (“Maven” or the “Company”), after eliminating all significant intercompany balances and transactions. The Company does not have any off-balance sheet arrangements.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in Maven’s Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2020, filed with the SEC on August 16, 2021.
The condensed consolidated financial statements as of December 31, 2020, and for the three months ended June 30, 2021 and 2020, are unaudited but, in management’s opinion, include all adjustments necessary for a fair presentation of the results of interim periods. All such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet as of December 31, 2020, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. The Company’s impact during the first quarter of 2021 by the novel coronavirus (“COVID-19”) pandemic has been to a lesser extent than in 2020. Beginning in 2021, restrictions on non-essential work activity have begun to lift and sporting and other events have begun to be held, with attendance closer to pre-pandemic levels, which has resulted in an increase in traffic and advertising revenue. The Company expects a continued modest growth in advertising revenue back toward pre-pandemic levels, however, such growth depends on future developments, including the duration and spread of the COVID-19 pandemic, whether related group gathering and sports event advisories and restrictions will be put in place again, and the extent and effectiveness of containment and other actions taken, including the percentage of the population that receives COVID-19 vaccinations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the fiscal 2020 presentation.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the allowance for credit losses, fair values of financial instruments, capitalization of platform development, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, fair value of assets acquired and liabilities assumed in the business acquisitions, determination of the fair value of stock-based compensation and valuation of derivatives liabilities and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
| 10 |
Contract Modifications
The Company occasionally enters into amendments to previously executed contracts that constitute contract modifications. The Company assesses each of these contract modifications to determine:
| ● | if the additional services and goods are distinct from the services and goods in the original arrangement; and | |
| ● | if the amount of consideration expected for the added services or goods reflects the stand-alone selling price of those services and goods. |
A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either a prospective basis as a termination of the existing contract and the creation of a new contract, or a cumulative catch-up basis (see Note 3 and Note 12).
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. On January 1, 2021, the Company adopted ASU 2019-12 with no material impact to its condensed consolidated financial position, results of operations or cash flows.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which updates various codification topics to simplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and amends the diluted EPS computation for these instruments. On January 1, 2021, the Company adopted ASU 2020-06 with no material impact to its condensed consolidated financial statements.
In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20 – Receivables – Nonrefundable Fees and Other Costs, which clarifies that a reporting entity should assess whether a callable debt security purchased at a premium is within the scope of ASC 310-20-35-33 each reporting period, which impacts the amortization period for nonrefundable fees and other costs. On January 1, 2021, the Company adopted ASU 2020-08 with no material impact to its condensed consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. On January 1, 2021, the Company adopted ASU 2020-10 with no material impact to its condensed consolidated financial statements.
| 11 |
Basic loss per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of common stock equivalent shares, such as stock options, restricted stock, and warrants. All restricted stock awards are considered outstanding but is included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. All restricted stock units are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. Contingently issuable shares are included in basic loss per common share only when there are no circumstances under which those shares would not be issued. Diluted loss per common share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.
| As of June 30, | ||||||||
| 2021 | 2020 | |||||||
| Series G convertible preferred stock | ||||||||
| Series H Preferred Stock | ||||||||
| Series I Preferred Stock | ||||||||
| Series J Preferred Stock | ||||||||
| Indemnity shares of common stock | ||||||||
| Restricted Stock Awards | ||||||||
| Financing Warrants | ||||||||
| ABG Warrants | ||||||||
| AllHipHop warrants | ||||||||
| Publisher Partner Warrants | ||||||||
| Restricted Stock Units | ||||||||
| Common Stock Awards | ||||||||
| Common Equity Awards | ||||||||
| Outside Options | ||||||||
| Total | ||||||||
2. Acquisitions
College
Spun Media Incorporated – On June 4, 2021, the Company acquired all of the issued and outstanding shares of capital stock of
College Spun Media Incorporated, a New Jersey corporation (“The Spun”), for an aggregate of $
The composition of the preliminary purchase price is as follows:
| Cash | $ | |||
| Deferred cash payments | ||||
| Total purchase consideration | $ |
| 12 |
The
Company incurred $
The preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the closing date of the acquisition based upon their respective fair values as summarized below:
| Cash | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Goodwill | ||||
| Accrued expenses | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Net assets acquired | $ |
The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill from the acquisition. Goodwill is recorded as a non-current asset that is not amortized but is subject to an annual review for impairment. No portion of the goodwill will be deductible for tax purposes.
Petametrics
Inc. – On March 9, 2020, the Company entered into an asset purchase agreement with Petametrics Inc., dba LiftIgniter, a Delaware
corporation (“LiftIgniter”), where it purchased substantially all the assets, including the intellectual property and excluding
certain accounts receivable, and assumed certain liabilities. The purchase price consisted of: (1) a cash payment of $
The composition of the purchase price is as follows:
| Cash | $ | |||
| Indemnity restricted stock units for shares of common stock | ||||
| Total purchase consideration | $ |
The purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the closing date of the acquisition based upon their respective fair values as summarized below:
| Accounts receivable | $ | |||
| Developed technology | ||||
| Accounts payable | ( | ) | ||
| Unearned revenue | ( | ) | ||
| Net assets acquired | $ |
The
useful life for the developed technology is three years (
| 13 |
3. Balance Sheet Components
The components of certain balance sheet amounts are as follows:
Accounts
Receivable – Accounts receivable are presented net of allowance for doubtful accounts. The allowance for doubtful accounts
as of June 30, 2021 and December 31, 2020 was $
Subscription
Acquisition Costs – Subscription acquisition costs include the incremental costs of obtaining a contract with a customer, paid
to external parties, if it expects to recover those costs. The current portion of the subscription acquisition costs as of June 30, 2021
and December 31, 2020 was $
Certain contract amendments resulted in a modification to the subscription acquisition costs that will be recognized on a prospective basis in the same proportion as the revenue that has not yet been recognized (further details are provided under the heading Contract Balances in Note 12).
Property and Equipment – Property and equipment are summarized as follows:
| As of | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Office equipment and computers | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
Depreciation
and amortization expense for the three months ended June 30, 2021 and 2020 was $
Platform Development – Platform development costs are summarized as follows:
| As of | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Platform development | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net platform development | $ | $ | ||||||
A summary of platform development activity for the six months ended June 30, 2021 and year ended December 31, 2020 is as follows:
| As of | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Platform development beginning of period | $ | $ | ||||||
| Payroll-based costs capitalized during the period | ||||||||
| Total capitalized costs | ||||||||
| Stock-based compensation | ||||||||
| Dispositions | - | ( | ) | |||||
| Platform development end of period | $ | $ | ||||||
| 14 |
Amortization
expense for the three months ended June 30, 2021 and 2020, was $
Intangible Assets – Intangible assets subject to amortization consisted of the following:
| As of June 30, 2021 | As of December 31, 2020 | |||||||||||||||||||||||
| Carrying Amount | Accumulated Amortization | Net Carrying Amount | Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
| Developed technology | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Noncompete agreement | ( | ) | ( | ) | ||||||||||||||||||||
| Trade name | ( | ) | ( | ) | ||||||||||||||||||||
| Subscriber relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Advertiser relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Database | ( | ) | ( | ) | ||||||||||||||||||||
| Subtotal amortizable intangible assets | ( | ) | ( | ) | ||||||||||||||||||||
| Website domain name | ||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Amortization
expense for the three months ended June 30, 2021 and 2020 was $
4. Leases
The
Company’s leases are primarily comprised of real estate leases for the use of office space, with certain lease arrangements that
contain equipment. The Company determines whether an arrangement contains a lease at inception. Lease assets and liabilities are recognized
upon commencement of the lease based on the present value of the future minimum lease payments over the lease term. The lease term includes
options to extend the lease when it is reasonably certain that the Company will exercise that option. Substantially all of the leases
are long-term operating leases for facilities with fixed payment terms between
The table below presents supplemental information related to operating leases:
| Six Months Ended June 30, 2021 | ||||
| Operating cash flows for operating leases | $ | |||
| Noncash lease liabilities arising from obtaining operating leased assets during the period | $ | |||
| Weighted-average remaining lease term | ||||
| Weighted-average discount rate | % | |||
The Company generally utilizes its incremental borrowing rate based on information available at the commencement of the lease in determining the present value of future payments since the implicit rate for most of the Company’s leases is not readily determinable.
Variable lease expense includes rental increases that are not fixed, such as those based on amounts paid to the lessor based on cost or consumption, such as maintenance and utilities.
Operating
lease costs recognized for the three months ended June 30, 2021 and 2020 were $
| 15 |
Maturities of operating lease liabilities as of June 30, 2021 are summarized as follows:
| Years Ending December 31, | ||||
| 2021 (remaining six months of the year) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Minimum lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ | |||
| Current portion of operating lease liabilities | $ | |||
| Long-term portion of operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
5. Line of Credit
FastPay
Credit Facility – On February 27, 2020, the Company entered into a financing and security agreement with FPP Finance LLC (“FastPay”),
pursuant to which FastPay extended a $
6. Restricted Stock Liabilities
On December 15, 2020, the Company entered into an amendment for certain restricted stock awards and units that were previously issued to certain employees in connection with a previous merger. Pursuant to the amendment, the Company committed to repurchase vested restricted stock awards as of December 31, 2020 at a price of $ per share in 24 equal monthly installments on the second business day of each calendar month beginning January 4, 2021, subject to certain conditions.
| 16 |
The following table presents the components of the restricted stock liabilities as of June 30, 2021 and December 31, 2020:
| As of | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Restricted stock liabilities recorded upon modification of the restricted stock awards and units ( restricted stock to be purchased at $ per share) | $ | $ | ||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Present value of restricted stock liabilities | ||||||||
| Less payments (excluding imputed interest) | ( | ) | ( | ) | ||||
| Restricted stock liabilities | $ | $ | ||||||
| Current portion of restricted stock liabilities | $ | $ | ||||||
| Long-term portion of restricted stock liabilities | ||||||||
| Total restricted stock liabilities | $ | $ | ||||||
7. Fair Value Measurements
The Company estimates the fair value of financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts the Company would realize upon disposition.
The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
| ● | Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
| ● | Level 2 Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and | |
| ● | Level 3 Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates. |
The Company accounts for certain warrants (as described under the heading Common Stock Warrants in Note 10) as derivative liabilities, which requires the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. The Company accounted for the embedded conversion features of the 12% senior convertible debentures (the “12% Convertible Debentures”) as derivative liabilities, which required the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. As of December 31, 2020, there was no longer any principal or accrued but unpaid interest outstanding under the 12% Convertible Debentures since certain holders converted the debt into shares of the Company’s common stock and certain holders were paid in cash.
These warrants and the embedded conversion features are classified as Level 3 within the fair-value hierarchy. Inputs to the valuation model include the Company’s publicly quoted stock price, the stock volatility, the risk-free interest rate, the remaining life of the warrants, notes and debentures, the exercise price or conversion price, and the dividend rate. The Company uses the closing stock price of its common stock over an appropriate period of time to compute stock volatility.
| 17 |
Warrant Derivative Liabilities
The following table presents the assumptions used for the warrant derivative liabilities under the Black-Scholes option-pricing model:
| As of June 30, 2021 | As of December 31, 2020 | |||||||||||||||
| Strome Warrants | B. Riley Warrants | Strome Warrants | B. Riley Warrants | |||||||||||||
| Expected life | ||||||||||||||||
| Risk-free interest rate | % | % | % | % | ||||||||||||
| Volatility factor | % | % | % | % | ||||||||||||
| Dividend rate | % | % | % | % | ||||||||||||
| Transaction date closing market price | $ | $ | $ | $ | ||||||||||||
| Exercise price | $ | $ | $ | $ | ||||||||||||
The following table represents the carrying amounts and change in valuation for the Company’s warrants accounted for as a derivative liability and classified within Level 3 of the fair-value hierarchy:
As of and for the Six Months Ended June 30, 2021 | As of and for the Six Months Ended June 30, 2020 | |||||||||||||||||||||||
| Carry Amount at Beginning of Period | Change in Valuation | Carrying Amount at End of Period | Carry Amount at Beginning of Period | Change in Valuation | Carrying Amount at End of Period | |||||||||||||||||||
| Strome Warrants | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| B. Riley Warrants | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
For
the three months ended June 30, 2021 and 2020, the change in valuation of warrant derivative liabilities recognized as other income on
the condensed consolidated statement of operations, was $
Embedded Derivative Liabilities
For
the three months ended June 30, 2020, the change in valuation of embedded derivative liabilities recognized as other income on the condensed
consolidated statements of operations was $
8. Long-term Debt
12% Second Amended Senior Secured Notes
Below
is a summary of the various amended and restated notes, as well as various amendments thereto, to the
| ● | Amended
and restated note issued on June 14, 2019, where the Company received gross proceeds of $ | |
| ● | First
amendment to the amended and restated note issued on August 27, 2019, where the Company received gross proceeds of $ | |
| ● | Second
amendment to the amended and restated note issued on February 27, 2020, where the Company issued a $ |
| 18 |
| ● | Second
amended and restated note issued on March 24, 2020, where the Company was permitted to enter into a | |
| ● | First amendment to second amended and restated note issued on March 24, 2020 was entered into on October 23, 2020 (“Amendment 1”), where the maturity date was changed to December 31, 2022, subject to certain acceleration conditions and interest payable on the 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 convertible preferred stock (the “Series K Preferred Stock”); however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, such interest amounts can be converted into shares of the Company’s common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock, subject to certain adjustments. | |
| ● | Second
amendment to the second amended and restated note issued March 24, 2020 was entered into on May 19, 2021 (“Amendment 2”),
with BRF Finance Co., LLC, an affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for
the purchasers and as purchaser, pursuant to which: (i) the interest rate on the |
Collectively the amended and restated notes and amendments thereto and the second amended and restated notes and Amendment 1 and Amendment 2 thereto are referred to as the “12% Second Amended Senior Secured Notes,” with all borrowings collateralized by substantially all assets of the Company.
Delayed Draw Term Note
On March 24, 2020, the Company entered into a 15% delayed draw term note (the “Delayed Draw Term Note”) pursuant to the second amended and restated note purchase agreement, in the aggregate principal amount of $12,000,000.
On
March 24, 2020, the Company drew down $
On October 23, 2020, pursuant to the terms of Amendment 1, the maturity date of the Delayed Draw Term Note was changed from March 31, 2021 to March 31, 2022. Amendment 1 also provided that the 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 a certain conversion portion of the Delayed Draw 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 the Company’s common stock, the holder may elect, in lieu of receipt of cash for such amounts, shares of the Company’s common stock at the price the Company last sold shares of the Company’s common stock.
On
May 19, 2021, pursuant to Amendment 2, the interest rate on the Delayed Draw Term Note decreased from a rate of
| 19 |
Paycheck Protection Program Loan
On
April 6, 2020, the Company entered into a note agreement with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”) under the recently
enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration
(“SBA”) (the “Paycheck Protection Program Loan”). The Company received total proceeds of $
On
June 22, 2021, the SBA authorized full forgiveness of $
Further details as of the date these condensed consolidated financial statements were issued or were available to be issued are provided under the heading Long-term Debt in Note 14.
| 20 |
The following table summarizes the long-term debt:
| As of June 30, 2021 | As of December 31, 2020 | |||||||||||||||||||||||
| Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | |||||||||||||||||||
| 12% Second Amended Senior Secured Note, as amended, due on December 31, 2022 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Delayed Draw Term Note, as amended, due on March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Paycheck Protection Program Loan, scheduled to mature April 6, 2022, however, fully forgiven on June 22, 2021 | ||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
9. Preferred Stock
On
May 4, 2021, a special committee of the Board declared a dividend of one preferred stock purchase right to be paid to the stockholders
of record at the close of business on May 14, 2021 for (i) each outstanding share of the Company’s common stock and (ii) each share
of the Company’s common stock issuable upon conversion of each share of the Company’s Series H convertible preferred stock
(the “Series H Preferred Stock”). Each preferred stock purchase right entitles the registered holder to purchase,
subject to a rights agreement, from the Company one one-thousandth of a share of the Company’s newly created Series L Junior Participating
Preferred Stock, par value per share (the “Series L Preferred Stock”),
at a price of ,
subject to certain adjustments. The Series L Preferred Stock will be entitled, when, as and if declared, to a preferential per share
quarterly dividend payment equal to the greater of (i) $1.00 per share or (ii)
| 21 |
10. Stockholders’ Equity
Common Stock
The Company has the authority to issue shares of common stock, par value per share.
Common Stock Private Placement
On
May 20, 2021 and May 25, 2021, the Company entered into securities purchase agreements with several accredited investors, pursuant to
which the Company sold an aggregate of shares of its common stock, at a per share price of for aggregate gross proceeds
of $
Pursuant to the registration rights agreements entered into in connection with the securities purchase agreements, the Company agreed to register the shares of the Company’s common stock issued in the private placements. The Company committed to file the registration statement on the earlier of: (i) in the event the Company does not obtain a waiver from the holders of the shares of the Company’s common stock that were issued upon the conversion of the Series K Preferred Stock (the “Waiver”), within ten (10) calendar days following the date the Company’s registration statement(s) on Form S-1, registering for resale shares of the Company’s common stock that were issued in connection with offerings prior to the date of the registration rights agreement (the “Prior Registration Statements”), is declared effective by the SEC; and (ii) in the event the Company does obtain the Waiver, the earliest practicable date on which the Company is permitted by the SEC guidance to file the initial registration statement following the filing of the Prior Registration Statements (the “Filing Date”). The Company also committed to cause the registration statement to become effective by no later than 90 days after the Filing Date (or, in the event of a full review by the staff of the SEC, 120 days following the Filing Date). The registration rights agreement provides for Registration Rights Damages upon the occurrence of certain events up to a maximum amount of 6% of the aggregate amount invested pursuant to the securities purchase agreements.
The securities purchase agreements included a provision that requires the Company to maintain its periodic filings with the SEC in order to satisfy the public information requirements under Rule 144(c) of the Securities Act. If the Company fails for any reason to satisfy the current public information requirement at any time during the period commencing from the twelve (12) month anniversary of the date the Company becomes current in its filing obligations and ending at such time that all of the common stock may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144(i)(1)(i) or becomes an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “Public Information Failure”) then, in addition to such purchaser’s other available remedies, the Company shall pay to a purchaser, in cash, as partial liquidated damages and not as a penalty, an amount in cash equal to one percent (1.0%) of the aggregate subscription amount of the purchaser’s shares then held by the purchaser on the day of a Public Information Failure and on every thirtieth (30th) day (pro-rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured up to a maximum of five (5) 30-day periods and (b) such time that such public information is no longer required for the purchasers to transfer the shares pursuant to Rule 144. Public Information Failure Damages shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Damages are incurred and (ii) the third (3rd) business day after the event or failure giving rise to the Public Information Failure Damages is cured. In the event the Company fails to make Public Information Failure Damages in a timely manner, such Public Information Failure Damages shall bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full.
| 22 |
Common Stock Warrants
The Company issued warrants to purchase shares of the Company’s common stock to MDB Capital Group, LLC (the “MDB Warrants”), L2 Capital, LLC (the “L2 Warrants”), Strome Mezzanine Fund LP (the “Strome Warrants”), and B. Riley Financial, Inc. (the “B. Riley Warrants”) in connection with various financing transactions (collectively, the “Financing Warrants”).
The Financing Warrants outstanding and exercisable as of June 30, 2021 are summarized as follows:
| Outstanding | ||||||||||||||||||
| Classified as | Classified within | |||||||||||||||||
| Derivative | Stockholders’ | Total | ||||||||||||||||
| Exercise | Expiration | Liabilities | Equity | Exercisable | ||||||||||||||
| Price | Date | (Shares) | (Shares) | (Shares) | ||||||||||||||
| MDB Warrants | $ | |||||||||||||||||
| Strome Warrants | ||||||||||||||||||
| B. Riley Warrants | ||||||||||||||||||
| MDB Warrants | ||||||||||||||||||
| MDB Warrants | ||||||||||||||||||
| Total outstanding and exercisable | ||||||||||||||||||
The intrinsic value of exercisable but unexercised in-the-money stock warrants as of June 30, 2021 was $, based on a fair market value of the Company’s common stock of $ per share on June 30, 2021.
The Company provides stock-based compensation in the form of (a) stock awards to employees and directors, comprised of restricted stock awards and restricted stock units (collectively referred to as the “Restricted Stock Awards”), (b) stock option grants to employees, directors and consultants (referred to as the “Common Stock Awards”) (c) stock option awards, restricted stock awards, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants (collectively the “Common Equity Awards”), (d) stock option awards outside of the 2016 Stock Incentive Plan and 2019 Equity Incentive Plan to certain officers, directors and employees (referred to as the “Outside Options”), (e) common stock warrants to the Company’s publisher partners (referred to as the “Publisher Partner Warrants”), and (f) common stock warrants to ABG-SI, LLC (referred to as the “ABG Warrants”).
| 23 |
| Restricted | Common | Common | Publisher | |||||||||||||||||||||||||
| Stock | Stock | Equity | Outside | Partner | ABG | |||||||||||||||||||||||
| Awards | Awards | Awards | Options | Warrants | Warrants | Totals | ||||||||||||||||||||||
| During the Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Selling and marketing | ||||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||||
| Total costs charged to operations | ||||||||||||||||||||||||||||
| Capitalized platform development | ||||||||||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| During the Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Selling and marketing | ||||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||||
| Total costs charged to operations | ||||||||||||||||||||||||||||
| Capitalized platform development | ||||||||||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| 24 |
| Restricted | Common | Common | Publisher | |||||||||||||||||||||||||
| Stock | Stock | Equity | Outside | Partner | ABG | |||||||||||||||||||||||
| Awards | Awards | Awards | Options | Warrants | Warrants | Totals | ||||||||||||||||||||||
| During the Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Selling and marketing | ||||||||||||||||||||||||||||
| General and administrative |
| |||||||||||||||||||||||||||
| Total costs charged to operations | ||||||||||||||||||||||||||||
| Capitalized platform development | ||||||||||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| During the Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Selling and marketing | ||||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||||
| Total costs charged to operations | ||||||||||||||||||||||||||||
| Capitalized platform development | ||||||||||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Unrecognized compensation expense and expected weighted-average period to be recognized related to the stock-based compensation awards and equity-based awards as of June 30, 2021 was as follows:
| Restricted | Common | Common | Publisher | |||||||||||||||||||||||||
| Stock | Stock | Equity | Outside | Partner | ABG | |||||||||||||||||||||||
| Awards | Awards | Awards | Options | Warrants | Warrants | Totals | ||||||||||||||||||||||
| Unrecognized compensation expense | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Expected weighted-average period expected to be recognized (in years) | - | |||||||||||||||||||||||||||
Pursuant to an amendment
with ABG-SI, LLC on June 4, 2021, the exercise price of
Further details as of the date these condensed consolidated financial statements were issued or were available to be issued are provided under the heading Compensation Plans in Note 14.
| 25 |
12. Revenue Recognition
Disaggregation of Revenue
The following table provides information about disaggregated revenue by product line, geographical market and timing of revenue recognition:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue by product line: | ||||||||||||||||
| Advertising | $ | |||||||||||||||