SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
the fiscal year ended
|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the transition period from __________ to __________
(formerly known as theMaven, Inc.)
(Exact name of registrant as specified in its charter)
or other jurisdiction of
incorporation or organization)
|(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|
Securities registered pursuant to Section 12(g) of the Act: Preferred Stock Purchase Rights
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer ☐||Accelerated filer ☐|
reporting 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. ☐
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.
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ or
of June 30, 2021, which was the last business day of the registrant’s most recently completed second fiscal quarter for fiscal
2021, the aggregate market value of the common stock held by non-affiliates was $
As of March 21, 2022, the Registrant had shares of common stock outstanding.
Table of Contents
|Item 1A.||Risk Factors||11|
|Item 1B.||Unresolved Staff Comments||23|
|Item 3.||Legal Proceedings||23|
|Item 4.||Mine Safety Disclosure||23|
|Item 5.||Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities||23|
|Item 6.||Selected Financial Data||26|
|Item 7.||Management’s Discussion and Analysis of Financial Condition and Results of Operations||26|
|Item 7A.||Quantitative and Qualitative Disclosures About Market Risk||41|
|Item 8.||Financial Statements and Supplementary Data||41|
|Item 9.||Changes in and Disagreements With Accountants on Accounting and Financial Disclosure||41|
|Item 9A.||Controls and Procedures||41|
|Item 9B.||Other Information||42|
|Item 10.||Directors, Executive Officers and Corporate Governance||42|
|Item 11.||Executive Compensation||42|
|Item 12.||Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters||43|
|Item 13.||Certain Relationships and Related Transactions, and Director Independence||43|
|Item 14.||Principal Accounting Fees and Services||43|
|Item 15.||Exhibits, Financial Statement Schedules||43|
|Item 16.||Form 10-K Summary||50|
All statements of shares and per-share information in this Annual Report on Form 10-K (this “Annual Report”) reflect a one-for-twenty-two (1-for-22) reverse stock split of our outstanding common stock, par value $0.01 per share (our “common stock”), effective at 8:00 p.m. Eastern Time on February 8, 2022, and implemented at the beginning of trading on the NYSE American on February 9, 2022 (the “Reverse Stock Split”).
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 Securities Exchange Act of 1934, as amended (“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 U.S. Securities and Exchange Commission (the “SEC” or “Commission”).
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.
Item 1. Business
The Arena Group Holdings, Inc. (the “Company,” “Arena Group,” “we,” “our,” or “us”), is a data-driven media company that focuses on building deep content verticals powered by a best-in-class digital media platform (the “Platform”) empowering premium publishers who impact, inform, educate, and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports and finance) and where we can leverage the strength of our core brands to grow our audience and increase monetization both within our core brands as well as our media publishers (each, a “Publisher Partner”). Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize audience reach, improve engagement and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our 35 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated (“Sports Illustrated”), own and operate TheStreet, Inc. (“TheStreet”) and College Spun Media Incorporated (“The Spun”), and power more than 200 independent Publisher Partners, including Biography, History, and the many sports team sites that comprise FanNation, among others. Each Publisher Partner joins the Platform by invitation-only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization (SEO), social media, subscription marketing and ad monetization, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While they benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management.
We were originally incorporated in Delaware as Integrated Surgical Systems, Inc. (“Integrated”) in 1990. On October 11, 2016, Integrated and TheMaven Network, Inc. (“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.
In 2018, we acquired HubPages, Inc., a Delaware corporation (“HubPages”), and Say Media, Inc., a Delaware corporation (“Say Media”). Say Media changed its name on January 6, 2020 to Maven Coalition, Inc. and then again on February 18, 2022 to The Arena Platform, Inc. (“Arena Platform”). In 2019, we acquired TheStreet. Also, in 2019, we entered into a licensing agreement, as amended by Amendment No. 1 dated September 1, 2019, Amendment No. 2 dated April 1, 2020, Amendment No. 3 dated July 28, 2020, Amendment No. 4 dated June 4, 2021, and side letter dated June 4, 2021 (collectively, the “Sports Illustrated Licensing Agreement”) with ABG-SI LLC (“ABG”), 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 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.
In 2020, we acquired substantially all the assets of Petametrics Inc., doing business as LiftIgniter, a Delaware corporation (“LiftIgniter”). In 2021, we acquired all of the issued and outstanding shares of capital stock of The Spun.
On September 20, 2021, we re-branded to “The Arena Group.” Effective at 8:00 p.m. Eastern Time on February 8, 2022, we changed our formal corporate name to The Arena Group Holdings, Inc. in conjunction with our filing a Certificate of Amendment and Certificate of Corrections with the State of Delaware and obtaining approval from the Financial Industry Regulatory Authority (“FINRA”). On February 9, 2022, our common stock began trading on the NYSE American.
We developed the Platform, a proprietary online publishing platform that provides our owned and operated media businesses, Publisher Partners, who are third parties producing and publishing content on their own domains, and individual creators contributing content to our owned and operated sites (“Expert Contributors”), the ability to produce and manage editorially focused content through tools and services provided by us. We have also developed proprietary advertising technology, techniques and relationships that allow us, our Publisher Partners and Expert Contributors to monetize online, editorially focused content through various display and video advertisements and tools and services for driving a subscription or membership based business and other monetization services (the “Monetization Solutions” and, together with the Platform, the “Platform Services”). Our Platform offers audiences bespoke content with optimized design and page construction.
The Platform comprises state-of-the-art publishing tools, video platforms, social distribution channels, newsletter technology, machine learning content recommendations, notifications, and other technology that deliver a complete set of features to drive a digital media business in an entirely cloud-based suite of services. Our software engineering and product development teams are experienced at delivering these services at scale. We continue to develop the 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 Platform Services include:
|●||Content management, machine learning driven content recommendations, traffic redistribution, hosting and bandwidth;|
|●||Video publishing, hosting, and player solution via an integrated set of third-party providers;|
|●||Dashboards for our Publisher Partners as well as integration with leading analytics services like Google Analytics;|
|●||Digital subscriptions and membership with paywalls, exclusive member access, and metering, credit card processing and reporting;|
|●||User account management;|
|●||User account migration to platform, including emails and membership data;|
|●||Technical support team to train and support our Publisher Partners and staff (if applicable) on the Platform;|
|●||Advertising serving, trafficking/insertion orders, yield management, and reporting and collection;|
|●||Dedicated customer service and sales center to assist our Publisher Partners with customer support, sign-ups, cancellations, and “saves;”|
|●||Services for maintaining evergreen content to Expert Contributors;|
|●||Various syndication integrations (e.g., Apple News, Facebook Instant Articles, Google AMP, Google news and RSS feeds);|
|●||Structured data objects (i.e., structured elements such as recipes or products); and|
|●||Other features, as they may be added to the Platform from time to time.|
Our Platform partners use the Platform Services to produce, manage, host and monetize their content in accordance with the terms and conditions of partner agreements between each of our Publisher Partners and us (the “Partner Agreements”). Our Publisher Partners incur the costs with respect to creating their content; thus, not requiring capital expenditures by us. Pursuant to the Partner Agreements, we and our Publisher Partners split revenue generated from the Platform Services used in connection with the Publisher Partner’s content based on certain metrics such as whether the revenue was from direct sales, was generated by our Publisher Partner or us, was generated in connection with a subscription or a membership, was based on standalone or bundled subscriptions or whether the revenue was derived from affiliate links.
Subject to the terms and conditions of each Partner Agreement and in exchange for the Platform Services, our Publisher Partners grant us, for so long as our Publisher Partner’s assets are hosted on the Platform, (i) exclusive control of ads.txt with respect to our Publisher Partner’s domains and (ii) the exclusive right to include our Publisher Partner’s website domains and related URLs in our coalition in a consolidated listing assembled by third party measurement companies such as comScore, Nielsen or other similar measuring services selected by us. As such, the Platform serves as the primary digital media and social platform with respect to each of our Publisher Partners’ website domains during the applicable term of each Partner Agreement.
Our Brands and Growth Strategy
Our business model is to grow our Platform audience while striving to diversify revenue and drive gross margin through traditional media brands as well as new digital-first brands. We believe our vertical model allows us and our partners to leverage audience growth, technological efficiencies and cost savings across all of our brands. Our vertical model consists of (i) acquiring or partnering with powerful brands that can offer our audience bespoke content and domain authority, (ii) forming key strategic partnerships with like-minded partners of high-quality content, (iii) partnering with entrepreneurial publishers to drive local content at variable cost tied to performance, and (iv) growing our Publisher Partners on our network to expand our content offerings and add scale to the ecosystem. In late 2021, both Sports Illustrated and TheStreet increased its focus on producing data-driven breaking and trending news packaged specifically for Facebook News.
Our growth strategy is to continue to expand the coalition by adding new Publisher Partners in key verticals that management believes will expand the scale of unique users interacting on the 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 Publisher Partners or acquiring publishers that have premium branded content and can broaden the reach and impact of the Platform. As our digital revenue and gross margin grows, we believe we can further accelerate our growth. Specifically, our 2022 growth initiatives include: (i) increasing syndication of the content on our Platform through the re-publishing the content on third-party websites, (ii) offering of podcasts and e-commerce through our Platform, (iii) growing Sports Illustrated sportsbook (“SI Sportsbook”), (iv) acquiring or developing new verticals for our users, and (v) continuing to identify and partner with new Publisher Partners.
The Arena Group
We operate a best-in-class digital media platform empowering premium publishers who impact, inform, educate, and entertain. We operate the media businesses for Sports Illustrated and TheStreet, and power more than 200 independent brands, including Biography, History, and the many team sports sites that comprise FanNation, among others. These brands range from niche media businesses to world-leading independent publishers, operating on the Platform, a shared digital publishing, monetization, and distribution platform.
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. 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.
SI Sportsbook was launched in 2021 in Colorado. We provide the content for SI Sportsbook and our partner, 888 Holdings PLC, one of the world’s leading online betting and gaming companies, provides the gambling engine. The SI Sportsbook covers the NFL, CFB, NCAAMB, MLB, NBA, NHA, PGA, Horse Racing, UCF, Boxing. The content we provide includes: (i) Sports Illustrated winners club newsletter, live NFL pre-game show and twitter spaces, (ii) NFL and CFB game betting previews and player props, (iii) five new betting articles series, and (iv) four new video on-demand betting series. SI Sportsbook intends to expand into additional markets by the end of 2023.
With respect to Sports Illustrated Swim (“SI Swim”), we have continued to transition it to a female-focused lifestyle brand, with the annual content release in July 2021. With respect to our fan-facing event to celebrate our annual content release and ongoing digital sponsorships, we partnered with Hard Rock, Diageo, and Vita Coco.
In addition, we partnered with iHeartMedia, Inc. to co-produce original podcasts. The iHeartPodcast Network will distribute the podcasts as well as distribute Sports Illustrated’s existing podcasts across iHeartRadio and everywhere podcasts are heard.
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. 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. As we previously disclosed, our agreement with Jim Cramer expired in September 2021 and we have refocused our efforts to broaden our targeted user base to a more diverse demographic profile.
We acquired HubPages to enhance the user’s experience by increasing content, including from individual creators contributing content to our owned and operated sites. HubPages operates a network of 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.
We acquired Arena Platform to enhance the user’s experience by increasing content. Now fully integrated into the Platform, Arena Platform’s technology provides 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. Arena Platform operates in the United States.
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.
The Spun (thespun.com), founded in September 2012, is an online independent sports publication that brings readers the most interesting athletic stories of the day. The Spun focuses on the social media aspect of the industry. The former Chief Executive Officer of The Spun is now serving as our Vice President of Growth for Sports, a role we believe will continue to assist us in growing our sports vertical business.
Other Publisher Partners
We have multiple team specific and niche sports sites under the brand FanNation. Additionally, Fadeaway World which is a sports-oriented Publisher Partner, joined our Platform in May 2021, and is a fast-growing online basketball media brand focused on breaking news and commentary.
We have seven patent registrations in the United States in connection with our technology. The patents expire at various times through 2033. All of our patent registrations are owned by our wholly-owned subsidiary, Arena Platform.
Maven and Key Design
We currently have trademark registrations directed to our key design logo and the MAVEN name in the United States, Australia, China, the European Union (the “EU”), the United Kingdom, India, Japan, and New Zealand, as well as international Madrid Protocol registrations. We have a trademark application directed to our key design logo pending in Canada, and a trademark registration for the MAVEN name in Canada.
Moreover, we have a United States trademark registration for the word mark MAVEN COALITION, trademark registrations in the EU and the United Kingdom for the word mark THEMAVEN, and a United States trademark registration for the word mark A MAVEN CHANNEL. We have trademark registrations for the work mark A MAVEN CHANNEL in Australia, New Zealand, the EU, and the United Kingdom, and applications for the word mark A MAVEN CHANNEL pending in Canada and Mexico, as well as an international Madrid Protocol registration.
The above trademark registrations are subject to renewals at various times through 2031.
We have trademark registrations for the word marks ACTION ALERTS PLUS, ALPHA RISING, BANKING MY WAY, BULL MARKET FANTASY, INCOME SEEKER, LIFTIGNITOR, MAIN ST. (logo), REAL MONEY, REALMONEY, STREETLIGHTNING, THE SPUN, TEMPEST, THESTREET, THESTREET.COM, and THE STREET (logo) in the United States and a pending application for the word mark THESTREET SMARTS in the United States. We also have trademark applications for the marks ACTION ALERTS PLUS, BULL MARKET FANTASY, REAL MONEY, and THESTREET pending in Canada.
We have trademark applications for the marks THE ARENA, THE ARENA GROUP, and THE ARENA GROUP (logo) pending in the United States. We also have Madrid Protocol applications pending for the word mark THE ARENA GROUP and for THE ARENA GROUP logo mark, each seeking registration of the marks in Australia, Canada, China, EU, Mexico, New Zealand, and the United Kingdom.
We have a United States trademark registration for the word mark HUBPAGES, and trademark registrations for the HUBPAGES mark in Argentina, Australia, Brazil, Canada, China, Colombia, the EU, Hong Kong, India, Indonesia, Japan, Mexico, New Zealand, Peru, Philippines, South Korea, South Africa, and the United Kingdom, 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.
The above trademark registrations are subject to renewals at various times through 2032.
Our Publisher Partners and Licensing
In connection with our Partner Agreements and any other applicable agreements between us and our Publisher Partners, (i) we and our affiliates own and retain (a) all right, title, and interest in and to the Platform, other monetization services (“Monetization 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 Platform and Monetization Solutions, and (ii) each Publisher Partner owns and retains (a) all right, title, and interest in and to the Publisher Partner’s assets, content, and data collected by Publisher Partner and (b) each Publisher Partner’s trademarks and branding.
We experience typical media company advertising and membership sales seasonality, which is strong in the fiscal fourth quarter and slower in the fiscal first quarter.
Currently, we believe that there are many 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 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.|
In addition, even though do not compete in the same market, we view Nexstar Media Group, Inc. and Ziff Davis as peer companies for purposes of comparing our performance.
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.
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.
Several 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 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 adjusted 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.
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 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 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 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 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 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.
Concentration of Customer Risk
In fiscal 2021, we had sales to one customer that comprised approximately 11.3% of our total revenue. In fiscal 2020, we did not have any customers that comprised a significant portion of our revenue.
Our total number of employees as of December 31, 2021, was 364, of which 333 were full-time employees and 21 were part-time employees. Roughly 26% of our workforce, or 96 employees, is represented by a union named The NewsGuild of New York, CWA Local 31003 (the “Guild”) pursuant to a binding Memorandum of Agreement executed by and between the Guild and The Arena Media Brands, LLC (“Arena Media”) on December 31, 2021 (the “MOA”), which covers Sports Illustrated editorial staff. The MOA is intended to be finalized in the form of a collective bargaining agreement in the second quarter of fiscal 2022. The MOA comprehensively addresses the terms of employment for covered employees and non-employees regarding, among other things, wages, raises, bonuses, severances, benefits, discipline and the like. We have incorporated the terms of the MOA into our fiscal 2022 employment practices.
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, 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 Statement Regarding Forward-Looking Statements.”
RISKS RELATED TO OUR BUSINESS AND OUR FINANCIAL CONDITION
Our business operations may be materially and adversely affected by the coronavirus (“COVID-19”) pandemic. The COVID-19 pandemic has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures in response. Such measures have included restrictions on travel and business operations, temporary closures of businesses, quarantine and shelter-in-place orders, and postponement or cancellation of in-person events, including sporting events. The COVID-19 pandemic has, at times, significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets. The COVID-19 pandemic has had less of an impact during fiscal year 2021 on our business and results of operations than the prior fiscal year due to sporting events and society generally being less restricted and impacted by the pandemic. That does not, however, provide assurance that future variants of COVID-19, or other diseases, will not emerge. If that happens, it is possible that the sporting events will again be postponed or canceled. Given that Sports Illustrated, which relies on sporting events to generate content for the Sports Illustrated media business, comprises a material portion of our revenues, our cash flows and results of operations are susceptible to a widespread cancellation of sporting events or a general limitation of societal activity akin to what is widely known to have occurred in the Unites States and elsewhere during the 2020 calendar year. Future widespread shutdowns of in-person economic activity could have a materially detrimental impact on our business. We continue to monitor the situation and take appropriate actions in accordance with the recommendations and requirements of relevant authorities.
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 a history of losses. In fiscal 2021, we had net loss of approximately $89.9 million, compared to approximately $89.2 million in fiscal 2020. Our accumulated deficit as of December 31, 2021 was approximately $252.2 million. We may continue to incur losses in the future if we do not achieve sufficient revenue to achieve and maintain profitability. There is no assurance that our operations will generate sufficient cash flows to support our continued operations in the future without needing to seek additional capital funding or borrowings. We can provide no assurance that if we need to seek such additional outside capital that it will be available on favorable terms or at all. Any failure to achieve and maintain profitability could have a materially adverse effect on our ability to implement our business plan, our results and operations, and our financial condition.
If we fail to comply with the reporting obligations of the Exchange Act and Section 404 of the Sarbanes-Oxley Act (“Sarbanes”), or if we fail to maintain adequate internal control over financial reporting, our business, financial condition, and results of operations, and investors’ confidence in us, could be materially and adversely affected. As a public company, we are required to comply with the periodic reporting obligations of the Exchange Act, including preparing annual reports, quarterly reports, and current reports. Our failure to prepare and disclose this information in a timely manner and meet our reporting obligations in their entirety could subject us to penalties under federal securities laws and regulations of the NYSE American, expose us to lawsuits, and restrict our ability to access financing on favorable terms, or at all. In addition, pursuant to Section 404 of Sarbanes, we are required to evaluate and provide a management report of our systems of internal control over financial reporting. During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to certify that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
If we fail to retain current users or add new users, or if our users decrease their level of engagement with the 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;|
|●||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 Publisher 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 Publisher 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 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 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, publisher 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.
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 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 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 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 Publisher 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.
We are dependent on the continued services and on the performance of key third party content contributors, the loss of which could adversely affect our business. We rely on content contributed by third party providers, which has in turn attracted users that drive advertising and subscription revenue. The loss of the services of any of such key contributors could have a material adverse effect on our business, operating results, and financial condition. Although we have service agreements with some of our key contributors, many are short term in nature or have cancelation clauses in the agreements. We also depend on our ability to identify, attract, and retain, other highly skilled third-party content contributors. Competition for such contributors is intense, and there can be no assurance that we will be able to successfully attract, assimilate, or retain them. The loss or limitation of the services of any of our key third party contributors, or the inability to attract and retain additional qualified key contributors, could have a material adverse effect on our business, financial condition, or results of operations.
Our revenues could decrease if the Platform does not continue to operate as intended. The 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.
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 Publisher Partners to access the Platform at any time and within an acceptable amount of time. We believe that the 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 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 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 or improve our performance, especially during peak usage times and as the Platform becomes more complex and our user traffic increases. If the 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 Partner Agreements with our Publisher Partners include service level standards that obligate us to provide credits or termination rights in the event of a significant disruption in the 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 Publisher 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 Platform could adversely affect our operating results and growth prospects. Because the 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 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 Platform and anticipate that certain of these errors, failures, vulnerabilities, and bugs will only be discovered and remediated after deployment to our Publisher 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 Platform, loss of competitive position, or claims by our Publisher 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 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.
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 Platform’s features and functionality, or to use information that we consider proprietary or confidential. There can be no assurance that the 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 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.
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.|
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 Publisher 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.
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 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 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.
Our ability to utilize our net operating loss carryforwards may be limited. As of December 31, 2021, we had federal net operating loss carryforwards, or NOLs, due to prior period losses of approximately $155.9 million, and the NOLs could expire before we generate sufficient taxable income to make use of our NOLs. Subject to certain limitations, NOLs can be used to offset taxable income for U.S. federal income tax purposes. However, Section 382 of the Internal Revenue Code of 1986, as amended, may limit the NOLs we may use in any year for U.S. federal income tax purposes in the event of certain changes in ownership of our Company. If an “ownership change” occurs, Section 382 would impose an annual limit on the amount of pre-ownership change NOLs and other tax attributes we can use to reduce our taxable income, potentially increasing and accelerating our liability for income taxes, and also potentially causing those tax attributes to expire unused. In addition, our ability to use our net operating losses is dependent on our ability to generate taxable income, and the net operating losses could expire before we generate sufficient taxable income to make use of our net operating losses.
A significant portion of our revenues are derived from a single customer. If we were to lose this customer, our revenues could decrease significantly. In fiscal 2021, we had revenues from one customer that comprised approximately 11.3% of our annual revenue. Therefore, we are highly dependent on a single customer to generate a material percentage of our annual revenue. The loss of this customer, or a significant reduction in sales to such customer, could adversely affect our financial condition and operating results. We attempt to diversify our business in order to minimize any revenue concentration risk.
RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES
We may have contingent liability arising out of a possible violation of the Securities Act, in connection with a PowerPoint we furnished as Exhibit 99.2 to our Current Report on Form 8-K, and the Current Report on Form 8-K/A, filed with the SEC on January 31, 2022, and February 1, 2022, respectively (the “Original PowerPoint”). On January 31, 2022, and February 1, 2022, we furnished, as Exhibit 99.2 to a Current Report on Form 8-K, and a Form 8-K/A, respectively, a copy of the Original PowerPoint. The furnishing of the Original PowerPoint publicly may have constituted the communication of an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the Original PowerPoint may be deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act.
If the Original PowerPoint is proven to be a violation of Section 5 of the Securities Act because it is deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, we could have a contingent liability arising out of such violation. Any liability would depend upon the number of shares purchased by the “recipients” of the Original PowerPoint that may have constituted a violation of Section 5 of the Securities Act. If a claim were brought by any such recipients of the Original PowerPoint and a court were to conclude that the public dissemination of such Original PowerPoint constituted a violation of Section 5 of the Securities Act, we could be required to repurchase the shares sold to investors who reviewed such Original PowerPoint, at the original purchase price, plus statutory interest from the date of purchase, for claims brought during a period of one year from the date of their purchase of our common stock. We could also incur considerable expense in contesting any such claims. Further, if our use of the Original PowerPoint is deemed to be a violation of Section 5 of the Securities Act, the Commission or relevant state regulators could impose monetary fines or other sanctions under relevant federal and state securities laws. Such payments, expenses and fines, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, or force us to raise additional funding, which funding may not be available on favorable terms, if at all. Additionally, the value of our securities will likely decline in value in the event we are deemed to have liability, or are required to make payments, pay expenses or face sanctions in connection with the potential claim described above.
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, 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. 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.
There is no assurance that we will be able to maintain compliance with the NYSE American’s continued listing standards. Our common stock is listed on NYSE American. There is no assurance that we will be able to maintain our listing. In order to maintain such listing, we must satisfy minimum financial and other continued listing standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with such applicable continued listing standards. Failure to remain in compliance may occur due to our acts or omissions, as well as due to circumstances or events that are not within our control. Our failure to meet the NYSE American’s continue listing requirements may result in our common stock being delisted from the NYSE American, or another national securities exchange.
The Reverse Stock Split may decrease the liquidity of the shares of our common stock. The liquidity of the shares of our common stock may be affected adversely by the Reverse Stock Split given the reduced number of shares that are outstanding following the Reverse Stock Split. In addition, the Reverse Stock Split may increase the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.
Our Board is authorized to issue additional shares of our common stock that would dilute existing stockholders. Our Board has the power to issue any or all authorized but unissued shares of our common stock at any price and, in respect of our Preferred Stock (defined below), at any price and with any attributes our Board considers sufficient, without stockholder approval. The issuance of additional shares of our common stock in the future will reduce the proportionate ownership and voting power of current stockholders and may negatively impact the market price of our common stock. We are authorized to issue up to 1,000,000,000 shares of our common stock and 1,000,000 shares of preferred stock, par value $0.01 per share (our “Preferred Stock”) of which 17,417,490 shares of our common stock and 15,234 shares of our Preferred Stock, consisting of 15,066 shares of Series H convertible preferred stock (“Series H Preferred Stock”) and approximately 168 shares of Series G convertible preferred stock (“Series G Preferred Stock”) are issued and outstanding as of March 21, 2022. The number of shares of our common stock issued and outstanding as of March 21, 2022 excludes 5,572,077 shares of our common stock issuable upon exercise of outstanding option awards, 1,870,868 shares of our common stock either (i) that are vested and to be issued or (ii) issuable upon vesting of restricted stock units, 1,148,251 shares of our common stock issuable upon exercise of outstanding warrants, 2,075,200 shares of our common stock issuable upon conversion of Series H Preferred Stock, 8,582 shares of our common stock issuable upon conversion of Series G Preferred Stock, 151,714 shares of our common stock reserved for issuance under the 2016 Stock Incentive Plan (the “2016 Plan”), 1,281,948 shares of our common stock reserved for issuance under the 2019 Equity Incentive Plan (the “2019 Plan”), and 49,134 shares of our common stock held in reserve to be issued pursuant to completion of documentation related to transactions from 2018. We expect to seek additional financing in order to provide working capital to our business in the future.
We may issue additional securities with rights superior to those of our common stock, which could materially limit the ownership rights of our stockholders. We may offer additional debt or equity securities in private or public offerings in order to raise working capital or to refinance our debt. Our Board has the right to determine the terms and rights of any debt securities and Preferred Stock without obtaining the approval of our stockholders. It is possible that any debt securities or Preferred Stock that we sell would have terms and rights superior to those of our common stock and may be convertible into shares of our common stock. Any sale of securities could adversely affect the interests or voting rights of the holders of our common stock, result in substantial dilution to existing stockholders, or adversely affect the market price of our common stock.
The elimination of monetary liability against our directors, officers, and employees under Delaware law and the existence of indemnification rights for our obligations to our directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees. Our Amended and Restated Certificate of Incorporation, as amended (our “Certificate of Incorporation”), and our Second Amended and Restated Bylaws (our “Bylaws”) contain provisions permitting us to eliminate the personal liability of our directors and officers to us and our stockholders for damages for the breach of a fiduciary duty as a director or officer to the extent provided by Delaware law. We may also have contractual indemnification obligations under any future employment agreements with our officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even through such actions, if successful, might otherwise benefit us and our stockholders.
Because we are a “smaller reporting company,” we will not be required to comply with certain disclosure requirements that are applicable to other public companies and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors. We are a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. As a smaller reporting company, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not smaller reporting companies, including, but not limited to:
|●||reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements;|
|●||not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002; and|
|●||reduced disclosure obligations for our annual and quarterly reports, proxy statements, and registration statements.|
We will remain a smaller reporting company until the end of the fiscal year in which (1) we have a public common equity float of more than $250 million, or (2) we have annual revenues for the most recently completed fiscal year of more than $100 million plus we have any public common equity float or public float of more than $700 million. We also would not be eligible for status as smaller reporting company if we become an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company.
Sales by our stockholders of a substantial number of shares of our common stock in the public market could adversely affect the market price of our common stock. A substantial portion of the total outstanding shares of our common stock may be sold into the market at any time. Some of these shares are owned by our executive officers and directors, and we believe that such holders have no current intention to sell a significant number of shares of our stock. If all of the major stockholders were to decide to sell large amounts of stock over a short period of time, such sales could cause the market price of our common stock to drop significantly, even if our businesses were doing well.
Provisions in our Certificate of Incorporation and Bylaws and Delaware law may discourage a takeover attempt even if a takeover might be beneficial to our stockholders. Provisions contained in our Certificate of Incorporation and Bylaws could make it more difficult for a third party to acquire us. Provisions in our Certificate of Incorporation and Bylaws impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. For example, our Certificate of Incorporation authorizes our Board to determine the rights, preferences, privileges, and restrictions of unissued series of our Preferred Stock without any vote or action by our stockholders. Thus, our Board can authorize and issue shares of our Preferred Stock with voting or conversion rights that could dilute the voting power of holders of other series of our capital stock. These rights may have the effect of delaying or deterring a change of control of us. Additionally, our Certificate of Incorporation or Bylaws establish limitations on the removal of directors and include advance notice requirements for nominations for election to our Board and for proposing matters that can be acted upon at stockholder meetings.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”), which prohibits an “interested stockholder” owning in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which such stockholder acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.
The terms of our Rights Agreement, dated May 4, 2021 (the “Rights Agreement”) and Series L Junior Participating Preferred Stock may discourage a takeover attempt even if a takeover might be beneficial to our stockholders. Features of our Rights Agreement will make it difficult for a party to acquire control of our Company in a transaction not approved by our Board. On May 4, 2021, we adopted a Rights Agreement, which provided for a dividend distribution of a right to purchase from us one-thousandth of a share of our Series L Junior Participating Preferred Stock for: (i) each outstanding share of our common stock and (ii) each share of our common stock issuable upon conversion of each share of our Series H Preferred Stock. The description of such rights is set forth in the Rights Agreement, between America Stock Transfer & Trust Company, LLC, as Rights Agent, and us. The Rights Agreement is set to expire on May 3, 2022; however, our Board elected to extend the termination date, which extension is subject to ratification by our stockholders. This Rights Agreement could limit the price that certain investors might be willing to pay in the future for shares of our common stock.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us. Our Certificate of Incorporation provides that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. In addition, Section 145 of the DGCL or our Certificate of Incorporation provides that:
|●||We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful.|
|●||We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.|
|●||We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.|
|●||The rights conferred in our Certificate of Incorporation are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees, and agents and to obtain insurance to indemnify such persons.|
|●||We may not retroactively amend our Certificate of Incorporation or indemnification agreement, if any, to reduce our indemnification obligations to directors, officers, employees, and agents.|
Item 1B. Unresolved Staff Comments
Item 2. Properties
During fiscal 2021, we begun to re-evaluate our property leases and, to the extent feasible and in our best interests, either surrendered leased properties to the landlord prior to the expiration of such leases, subleased the property, or decided to not renew certain leases. As of the end of fiscal 2021, we did not have any leases pursuant to which we occupied a physical property. Instead, we intend to encourage our work force to work remotely, provided, that it continues to be feasible to do so in the future. To the extent we need to lease physical properties in the future, we believe we would be able to find suitable properties at market rates.
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
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock began to be traded on the NYSE American on February 9, 2022 under the symbol “AREN.” Before then, from September 21, 2021 until February 8, 2022, our common stock was quoted on the OTCM’s OTCQX 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. Prices in the table below have been presented to reflect the Reverse Stock Split of our outstanding shares of common stock.
|First Quarter (1)||$||15.40||$||7.50|
|(1)||As of March 21, 2022.|
As of March 21, 2022, there were approximately 190 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, 17,417,490 shares of our common stock were issued and outstanding.
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
On December 15, 2020, we entered into the Fourth Amendment to the Agreement and Plan of Merger with HubPages (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 2,017 shares of our common stock at a price of $88.00 per share each month for a period of 24 months. The details of these repurchases are as follows:
Total number of shares (or units) purchased
Average price paid per share (or unit)
Total number of shares (or units) purchased as part of publicly announced plans or programs
Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
|December 30, 2020||2,017||$||88.00||-||46,372|
|January 29, 2021||2,017||$||88.00||-||44,355|
|March 1, 2021||2,017||$||88.00||-||42,338|
|June 1, 2021 (1)||6,051||$||88.00||-||36,287|
|July 1, 2021||2,017||$||88.00||-||34,270|
|July 30, 2021||2,017||$||88.00||-||32,253|
|September 2, 2021||2,017||$||88.00||-||30,236|
|October 1, 2021||2,017||$||88.00||-||28,219|
|November 1, 2021||2,017||$||88.00||-||26,202|
|January 7, 2022||2,017||$||88.00||-||24,185|
|February 4, 2022||2,017||$||88.00||-||22,168|
|February 17, 2022||2,017||$||88.00||-||20,151|
|March 1, 2022|
|(1)||Pursuant to the terms of the Fourth Amendment, we have the discretion to determine on a monthly basis whether to make a repurchase for such month. For the months of April and May 2021, we did not make any repurchases pursuant to the Fourth Amendment. Accordingly, in June 2021, we repurchased 6,051shares, comprised of the 2,017 shares for April 2021, 2,017 shares for May 2021, and 2,017 shares for June 2021.|
Recent Sales of Unregistered Securities
During fiscal 2021 (and the subsequent interim period) we have made sales of the unregistered securities described in this section.
Those sales of unregistered securities that were previously disclosed in either Current Reports on Form 8-K or Quarterly Reports on Form 10-Q are not included.
Between January 1, 2021 and December 21, 2021, we granted stock options exercisable for an aggregate of up to 2,330,818 shares of our common stock to participants under the 2019 Plan as payment for services. The exercise prices per share ranged from $7.92 to $21.34. The issuances were 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.
On January 11, 2021, we issued 14,205 shares to Whisper Advisors, LLC as payment for services provided pursuant to that certain Services Agreement dated December 22, 2020. The shares had an aggregate fair market value of approximately $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.
Between February 18, 2021 and September 20, 2021, we granted restricted stock units representing 1,677,680 shares of our common stock to participants under the 2019 Plan as payment for services. The fair values per share ranged from $10.34 to $19.80. The issuances were 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.
On August 17, 2021, we issued 6,888 shares of our common stock upon the conversion of Series H Preferred Stock. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.
On August 18, 2021, we issued 34,091 shares of our common stock in connection with a payment owed as additional consideration under an asset purchase agreement. The per share fair value on the issuance date was $14.74, and the aggregate fair value was approximately $500,000. 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.
On October 7, 2021, we issued 8,523 shares of our common stock as restricted stock awards to four directors subject to continued service with us. The one-third of the awards vests over a three-month period from the grant date. The per share fair value on the grant date was $8.80, and the aggregate value was approximately $75,000. 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.
Between November 22, 2021 and December 21, 2021, we issued 617,222 shares of our common stock upon the conversion of Series H Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.
On January 24, 2022, we entered into several Stock Purchase Agreements, pursuant to which we agreed to issue an aggregate of 505,671 shares at a price equal to $13.86 per share, or the volume-weighted average price of our common stock at the close of trading on the sixty (60) previous trading days, to such stockholders in lieu of an aggregate of approximately $9.87 million owed in liquidated damages, which includes accrued but unpaid interest, for our failure to meet certain covenants in prior Registration Rights Agreements and related Securities Purchase Agreements with such stockholders. We also granted registration rights to these stockholders with respect to the shares of our common stock issued in lieu of these liquidated damages. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as transactions not involving a public offering.
Between January 1, 2022 and January 26, 2022, we granted stock options exercisable for an aggregate of up to 79,760 shares of our common stock to participants under the 2019 Plan as payment for services. The exercise prices per share ranged from $14.08 to $14.96. The issuances were 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.
On January 1, 2022, we granted restricted stock units representing 68,182 shares of our common stock to a participant under the 2019 Plan as payment for services. The fair value per share was $14.08, and the aggregate value was approximately $960,000. The issuances were 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.
On January 12, 2022, we entered into a Stock Issuance Agreement with Borden Media Consulting, LLC, pursuant to which we agreed to issue an aggregate of 1,134 shares for services rendered. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as transactions not involving a public offering.
On or about January 26, 2022, we agreed to issue 13,483 shares for services rendered pursuant to a Services Agreement with Whisper Advisors, LLC. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as transactions not involving a public offering.
On March 4, 2022, we issued 155,211 shares of our common stock, upon vesting of previously granted restricted stock units to a participant under the 2019 Plan as payment for services. The fair value per share was $8.28, and the aggregate value was approximately $1.3 million. Of the shares issued, 67,023 shares were withheld by us to satisfy tax withholding obligations. 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.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
For an overview of the Company, see the information above presented under the section labeled “Item 1. Business,” which is a portion of this Annual Report’s “Part I.”
Liquidity and Capital Resources
Cash and Working Capital Facility
As of December 31, 2021, our principal sources of liquidity consisted of cash of approximately $9.3 million. In addition, as of December 31, 2021, we had the use of additional proceeds from our working capital facility with FPP Finance LLC (“FastPay”) in the amount of approximately $13.0 million, subject to eligible accounts receivable. As of December 31, 2021, the outstanding balance of the FastPay working capital facility was approximately $12.0 million. We also had accounts receivable, net of our advances from FastPay of approximately $9.7 million as of December 31, 2021. Our cash balance as of the issuance date of our accompanying consolidated financial statements is approximately $23.0 million.
Our accompanying 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 $189.1 million during fiscal 2021 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.
We continue to be focused on growing our existing operations and seeking accretive and complementary strategic acquisitions as part of our growth strategy. We believe, that with additional sources of liquidity and the ability to raise additional capital or incur additional indebtedness to supplement our internal projections, we will be able to execute our growth plan and finance our working capital requirements both in the short-term and long-term.
Management performed an annual reporting period going concern assessment. We are required to assess our ability to continue as a going concern. Our accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Our accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Historically, we have recorded recurring losses from operations and have operated with a net capital deficiency. We considered these factors to determine if the significance of those conditions or events would limit our ability to meet our obligations when due. Most recently, operating losses realized in prior years had been impacted by the COVID-19 pandemic and the related shut down of most professional and collegiate sports, which reduced user traffic and advertising revenue. As we entered fiscal 2021, and the impact of COVID-19 on our operations began to dissipate, we invested heavily in marketing, customer growth, and people and technology as we expanded our operations, specifically related to TheStreet and the Sports Illustrated media business.
As reflected in our accompanying consolidated financial statements, we recorded revenues of approximately $189.1 million and incurred a net loss attributable to common stockholders of approximately $89.9 million for the year ended December 31, 2021. We have historically financed our working capital requirements since inception through the issuance of debt and equity securities.
Management has evaluated whether relevant conditions or events, considered in the aggregate, raise substantial doubt about our ability to continue as a going concern. The factors considered include, but are not limited to, our financial condition, liquidity sources, obligations due within one year after the issuance date of our accompanying consolidated financial statements, and the funds necessary to maintain operations, including negative financial trends or other indicators of possible financial difficulty. 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, 2021 were issued. In particular, management evaluated our: (1) 2022 cash flow forecast, which considered the use of our working capital line with FastPay (as described below) to fund changes in working capital, under which we have available credit of approximately $17.7 million, subject to eligible account receivables, as of the issuance date of our accompanying consolidated financial statements for the year ended December 31, 2021, as well as the additional capital we raised in a firm commitment underwritten public offering of $31.5 million after fees and expenses, which was completed subsequent to December 31, 2021; and (2) our 2022 operating budget, which considers that (i) more than half of our total revenue is derived from recurring digital and print subscriptions, which are generally paid in advance, and (ii) overall digital revenue, representing 53.4% of our total revenue, grew approximately 49.1% in fiscal 2021, which we believe demonstrates the strength of our brands.
In addition, our firm commitment underwritten public offering, as described above, demonstrates our ability to access capital markets. Finally, management also considered our ability to implement additional measures, if required, related to potential revenue and earnings declines from continued COVID-19-related challenges.
Management’s assessment of our ability to meet our future obligations is inherently judgmental, subjective and susceptible to change. As a result of these considerations and as a part of the quantitative and qualitative factors that are known or reasonably knowable as of the date our accompanying consolidated financial statements for the year ended December 31, 2021 were issued, we 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.
In January 2022, we filed a registration statement on Form S-1 (File No. 333-262111), which the SEC declared effective on February 10, 2022. In February 2022, we closed a firm commitment underwritten public offering of our common stock and received total net proceeds of approximately $31.5 million, after deducting underwriting discounts and commissions and estimated offering expenses, which includes the underwriter’s overallotment option that was partially exercised in March 2022.
Debt Financings and Obligations
Net proceeds from our debt financings (see Note 14, Line of Credit, and Note 19, Long-term Debt, in our accompanying consolidated financial statements for additional information) consisted of the following:
FastPay Credit Facility. We are party to 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 our cash and accounts receivable and a second lien on all other assets. The line of credit was increased to $25.0 million during fiscal 2021. Borrowings under the facility bear interest at the LIBOR Rate plus 6.00% and have a final maturity of February 28, 2024. 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, 2021 was approximately $7.3 million.
Senior Secured Note. We are party to a second amended and restated note purchase agreement, as subsequently amended by Amendment No. 1, Amendment No. 2, Amendment No. 3, and Amendment No. 4 (collectively, the “Second A&R NPA”), with one accredited investor, BRF Finance Co., LLC (“BRF Finance”), an affiliated entity of B. Riley Financial, Inc. (“B. Riley”). The senior secured note bears interest at a rate of 10% per annum. Interest payments are payable at BRF Finance’s discretion either in cash quarterly in arrears on the last day of each quarter or by adding the interest to the outstanding principal amount. The senior secured note has a final maturity date of December 31, 2023, at which time the outstanding principal and all accrued but unpaid interest will be due. The balance outstanding under our senior secured note as of the issuance date of our consolidated financial statements for the year ended December 31, 2021 was approximately $64.3 million, which included outstanding principal of approximately $48.8 million, payment of in-kind interest of approximately $13.9 million that we were permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately $1.6 million.
Delayed Draw Term Note. Pursuant to the Second A&R NPA, we agreed to issue, at BRF Finance’s option, a delayed draw term note (the “Delayed Draw Term Note”), in the aggregate principal amount of $12.0 million to BRF Finance. On March 24, 2020, we drew down approximately $6.9 million under the Delayed Draw 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 Delayed Draw Term Note bears interest at a rate of 10% per annum. Interest payments are payable, at BRF Finance’s discretion, either in cash quarterly in arrears on the last day of each fiscal quarter or in kind in arrears on the last day of each fiscal quarter. The Delayed Draw Term Note has a final maturity date of December 31, 2023, at which time the outstanding principal and accrued but unpaid interest will be due. There is approximately $5.4 million of principal payment due on the Delayed Draw Term Note on December 31, 2022, with the remaining principal balance due on December 31, 2023. The aggregate principal amount outstanding under the Delayed Draw Term Note as of the issuance date of our consolidated financial statements for the year ended December 31, 2021 was approximately $10.2 million, which included outstanding principal of approximately $8.7 million, and payment of in-kind interest of approximately $1.2 million that the Company was permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately $0.3 million.
We entered into a non-binding letter of intent to acquire 100% of the issued and outstanding equity interests of Athlon Holdings, Inc. (“Athlon”) for an anticipated purchase price of $16.0 million, comprised of (i) a cash portion of $13.0 million, with $10.0 million to be paid at closing and $3.0 million to be paid post-closing and (ii) an equity portion of $3.0 million to be paid in shares of our common stock. The acquisition is subject to the preparation and negotiation of definitive documents, completion of due diligence, and the agreement of a certain number of key employees of Athlon to remain as employees post-closing, among other items.
Material Contractual Obligations
We have material contractual obligations that arise in the normal course of business primarily consisting of employment contracts, consulting agreements, leases, liquidated damages, debt and related interest payments. Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months. See Notes 7, 15 and 19 in our accompanying consolidated financial statements for amounts outstanding as of December 31, 2021, related to leases, liquidated damages and long-term debt.
With respect to leases, we subleased our office space in Santa Monica, California in November 2021 and remain responsible to the original lessor for approximately $1.3 million through September 2024. Pursuant to the sublease, the sublessee will pay us an aggregate of approximately $0.6 million through September 2024.
During 2021, we entered into a termination agreement of our sublease agreement for a property located in New York, New York and remain responsible for approximately $9.0 million in cash payments to the sublandlord through October 2024.
Finally, we may have a contingent liability arising out of possible violations of the Securities Act in connection with the Original PowerPoint, which we furnished as Exhibit 99.2 to our Current Report on Form 8-K and Current Report on Form 8-K/A filed on January 31, 2022 and February 1, 2022, respectively. Specifically, the furnishing of the Original PowerPoint publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the Original PowerPoint may be deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon such Original PowerPoint that may have constituted a potential violation of Section 5 of the Securities Act. If a claim were brought by any such ‘recipients’ of such Original PowerPoint and a court were to conclude that the public disclosure of such PowerPoint constituted a violation of Section 5 of the Securities Act, we could be required to repurchase the shares sold to the investors who reviewed such Original PowerPoint at the original purchase price, plus statutory interest. We could also incur considerable expense in contesting any such claims. As of the date of this Annual Report, no legal proceedings or claims have been made or threatened by any investors in our offering. Such payments and expenses, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, or force us to raise additional funding, which funding may not be available on favorable terms, if at all. See also the “Risk Factor” entitled “We may have contingent liability arising out of a possible violation of the Securities Act, in connection with the Original PowerPoint which we furnished as Exhibit 99.2 to our Current Report on Form 8-K, and the Current Report on Form 8-K/A, filed with the SEC on January 31, 2022, and February 1, 2022, respectively” herein.
Working Capital Deficit
We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of December 31, 2021 and 2020 was as follows:
|As of December 31,|
|Working capital deficit||(38,741,397||)||(33,716,360||)|
As of December 31, 2021, we had a working capital deficit of approximately $38.7 million, as compared to approximately $33.7 million as of December 31, 2020, consisting of approximately $77.7 million in total current assets and approximately $116.4 million in total current liabilities. Included in current assets as of December 31, 2021, was approximately $0.5 million of restricted cash, leaving a working capital deficit that requires cash payments of approximately $39.2 million. As of December 31, 2020, our working capital deficit consisted of approximately $73.8 million in total current assets and approximately $107.6 million in total current liabilities.
Our cash flows during the years ended December 31, 2021 and 2020 consisted of the following:
|Years Ended December 31,|
|Net cash used in operating activities||$||(14,729,389||)||$||(32,294,587||)|
|Net cash used in investing activities||(13,145,958||)||(4,927,833||)|
|Net cash provided by financing activities||28,191,466||37,284,011|
|Net (decrease) increase in cash, cash equivalents, and restricted cash||$||316,119||$||61,591|
|Cash, cash equivalents, and restricted cash, end of year||$||9,850,800||$||9,534,681|
For the year ended December 31, 2021, net cash used in operating activities was approximately $14.7 million, consisting primarily of approximately $172.6 million of cash received from customers (including payments received in advance of performance obligations) less (a) approximately $185.9 million of cash paid (i) to employees, Publisher Partners, Expert Contributors, suppliers, and vendors, and (ii) for revenue share arrangements and professional services; and (b) approximately $1.4 million of cash paid for interest. For the year ended December 31, 2020, net cash used in operating activities was approximately $32.3 million, consisting primarily of: approximately $116.0 million of cash received from customers (including payments received in advance of performance obligations) less (a) approximately $148.3 million of cash paid (i) to employees, Publisher Partners, suppliers, and vendors, and (ii) for revenue share arrangements, advance of royalty fees and professional services; and (b) approximately $0.6 million of cash paid for interest.
For the year ended December 31, 2021, net cash used in investing activities was approximately $13.1 million, consisting primarily of: (i) approximately $8.0 million used to acquire a business; (ii) approximately $0.4 million for property and equipment; and (iii) approximately $4.8 million for capitalized costs for our Platform. For the year ended December 31, 2020, net cash used in investing activities was approximately $4.9 million consisting primarily of: (i) approximately $0.3 million used for the acquisition of a business; (ii) approximately $1.2 million for property and equipment; (iii) approximately $0.4 million from proceeds for the sale of intangible assets; and (iv) approximately $3.8 million for capitalized costs for our Platform.
For the year ended December 31, 2021, net cash used by financing activities was approximately $28.2 million, consisting primarily of: (i) approximately $19.8 million in net proceeds from the private placement issuance of common stock; (ii) approximately $5.1 million in net proceeds from the Delayed Draw Term Note; (iii) approximately $4.8 million from borrowing under our FastPay line of credit; less (iv) approximately $1.5 million in payments of restricted stock liabilities; and (v) approximately $0.1 million in payments for taxes relating to repurchase of restricted shares. For the year ended December 31, 2020, where net cash provided by financing activities was approximately $37.3 million, consisting primarily of: (i) approximately $20.8 million in net proceeds from the issuance of Series H Preferred Stock (the “Series H Preferred Stock”) and Series J Convertible Preferred Stock (the “Series J Preferred Stock”) and Series K Convertible Preferred Stock (“Series K Preferred Stock”); (ii) approximately $11.1 million in net proceeds from the Delayed Draw Term Note and the Payroll Protection Program Loan; and (iii) approximately $7.2 million in borrowings of our FastPay line of credit; less (iv) approximately $0.5 million in payments for taxes relating to the withholding of shares upon the repurchase of restricted shares of our common stock; and (v) approximately $1.1 million in repayments under the 12% senior secured subordinated convertible debentures (referred to herein as the “12% convertible debentures”).
Results of Operations
Comparison of Fiscal 2021 to Fiscal 2020
|Years Ended December 31,||2021 versus 2020|
|2021||2020||$ Change||% Change|
|Cost of revenue||110,977,736||103,063,445||7,914,291||7.7||%|
|Selling and marketing||82,691,061||43,589,239||39,101,822||89.7||%|
|General and administrative||54,400,720||36,007,238||18,393,482||51.1||%|
|Depreciation and amortization||16,347,274||16,280,475||66,799||0.4||%|
|Loss on disposition of assets||1,192,310||279,133||913,177||327.1||%|
|Loss on impairment of lease||466,356||-||466,356||100.0||%|
|Loss on termination of lease||7,344,655||-||7,344,655||100.0||%|
|Total operating expenses||162,442,376||96,156,085||66,286,291||68.9||%|
|Loss from operations||(84,279,778||)||(71,187,133||)||(13,092,645||)||18.4||%|
|Total other expenses||(7,334,309||)||(17,833,998||)||(10,499,689||)||-58.9||%|
|Loss before income taxes||(91,614,087||)||(89,021,131||)||(2,592,956||)||2.9||%|
|Income tax benefit (provision)||1,674,434||(210,832||)||1,885,266||-894.2||%|
|Deemed dividend on convertible preferred stock||-||(15,642,595||)||15,642,595||0.0||%|
|Net loss attributable to common stockholders||$||(89,939,653||)||$||(104,874,558||)||$||(14,934,905||)||-14.2||%|
|Basic and diluted net loss per common share||$||(7.87||)||$||(50.18||)||$||42.31||-84.3||%|
|Weighted average number of shares outstanding – basic and diluted||11,429,740||2,090,047||9,339,683||446.9||%|
For the year ended December 31, 2021, the net loss attributable to common stockholders was approximately $89.9 million, as compared to $104.9 million in the prior year which represents an improvement of $14.9 million. The primary reason for the improvement in net loss attributable to common stockholders is a result of a $61.1 million increase in revenue which was offset by a combined increase in cost of revenue and operating expenses of $71.2 million during the year ended December 31, 2021. Operating expenses included a charge of $7.8 million related to a lease termination and the loss on a lease impairment and an increase in stock-based compensation of approximately $15.9 million during the year ended December 31, 2021. The increase in revenues was attributable to management’s decision to make a strategic shift to focus on premium content providers and reduced reliance on Partner Publisher guarantees in September 2020 as well as the addition of the results of The Spun, which was acquired in June 2021.
The following table sets forth revenue, cost of revenue, and gross profit:
|Years Ended December 31,||2021 versus 2020|
|2021||2020||$ Change||% Change|
|Cost of revenue||110,977,736||103,063,445||7,914,291||7.7||%|
For the year ended December 31, 2021, we had gross profit of approximately $78.2 million, as compared to gross profit of approximately $25.0 million for year ended December 31, 2020.
The following table sets forth revenue by category:
|Years Ended December 31,||2021 versus 2020|
|2021||2020||$ Change||% Change|
|Total digital revenue||101,008,934||67,741,307||33,267,627||49.1||%|
|Total print revenue||88,131,400||60,291,090||27,840,310||46.2||%|
For the year ended December 31, 2021, the primary sources of revenue were as follows: (i) digital advertising of approximately $62.9 million; (ii) digital subscriptions of approximately $29.6 million; (iii) other digital revenue of approximately $8.5 million; (iv) print advertising of approximately $9.1 million and (iv) print subscriptions of approximately $79.1 million. Our digital advertising revenue increased by approximately $28.2 million, primarily due to additional revenue of approximately $14.1 million generated as a result of The Spun business, which was acquired during the second quarter of 2021, $9.9 million from Sports Illustrated due to an increase in advertising sponsorships, approximately $5.8 million generated from other business, all of which was partially offset by a $1.5 million decrease in revenue from TheStreet. Our digital subscriptions increased by approximately $1.1 million. Our other digital revenue, primarily consisting of licensing and e-commerce revenue, increased by approximately $3.9 million due to additional revenue for certain licensing agreements related to, SI Swim and other Sports Illustrated media businesses. Our print advertising decreased by approximately $0.7 million. Our print subscriptions increased by approximately $28.5 million reflecting a drive to increase subscribers in the fourth quarter of 2020 and the diminishing effect of acquisition accounting adjustments on the subscribers that existed when we began operating the Sports Illustrated media business.
Cost of Revenue
The following table sets forth cost of revenue by category:
|Years Ended December 31,||2021 versus 2020|
|2021||2020||$ Change||% Change|
|Publisher Partner revenue share payments||$||21,566,904||$||19,427,196||$||2,139,708||11.0||%|
|Hosting, bandwidth, and software licensing fees||2,163,417||2,419,143||(255,726||)||-10.6||%|
|Fees paid for data analytics and to other outside services providers||3,083,405||3,222,869||(139,464||)||-4.3||%|
|Content and editorial expenses||32,016,000||29,080,353||2,935,647||10.1||%|
|Printing, distribution and fulfillment costs||14,203,907||15,706,519||(1,502,612||)||-9.6||%|
|Amortization of developed technology and platform development||8,829,025||8,550,952||278,073||3.3||%|
|Other cost of revenue||6,637,173||5,316,497||1,320,676||24.8||%|
|Total cost of revenue||$||110,977,736||$||103,063,445||$||7,914,291||7.7||%|
For the year ended December 31, 2021, we recognized cost of revenue of approximately $111.0 million, which represented a 41.3% gross profit percentage, compared to approximately $103.1 million in the year ended December 31, 2020, representing a 19.5% gross profit percentage. The increase in the cost of revenue of approximately $7.9 million during the year ended December 31, 2021 is primarily from increases in: (i) stock-based compensation of approximately $3.1 million; (ii) content and editorial expense of approximately $2.9 million; (iii) our Publisher Partner revenue share payments of approximately $2.1 million; (iv) other costs of revenue related to SI Swim of approximately $1.3 million; less (v) printing, distribution, and fulfillment costs of approximately $1.5 million. The improvement in gross profit percentage was due to a decrease in Publisher Partner revenue shares from 56% of digital advertising revenue in fiscal 2020 to 34% in fiscal 2021 as a result of our strategic shift to eliminate most Publisher Partner guarantees near the end of fiscal 2020 and the high contribution margin of digital advertising.
For the year ended December 31, 2021, we capitalized costs related to our Platform of approximately $6.9 million, as compared to approximately $5.4 million for the year ended December 31, 2020. For the year ended December 31, 2020, the capitalization of our Platform consisted of: (i) approximately $4.8 million in payroll and related expenses, including taxes and benefits; and (ii) approximately $2.0 million in stock-based compensation for related personnel.
The following table sets forth operating expenses:
|Years Ended December 31,||2021 versus 2020|
|2021||2020||$ Change||% Change|
|Selling and marketing||$||82,691,061||$||43,589,239||$||39,101,822||89.7||%|
|General and administrative||54,400,720||36,007,238||18,393,482||51.1||%|
|Depreciation and amortization||16,347,274||16,280,475||66,799||0.4||%|
|Loss on disposition of assets||1,192,310||279,133||913,177||327.1||%|
|Loss on impairment of lease||466,356||-||466,356|
|Loss on termination of lease||7,344,655||-||7,344,655|
|Total operating expenses||$||162,442,376||$||96,156,085||$||66,286,291||68.9||%|
Selling and Marketing. For the year ended December 31, 2021, we incurred selling and marketing costs of approximately $82.7 million, as compared to approximately $43.6 million for the year ended December 31, 2020. The increase in selling and marketing costs of approximately $39.1 million is primarily from an increase in circulation costs of approximately $31.6 million; payroll of selling and marketing account management support teams, along with the related benefits and stock-based compensation of approximately $4.8 million; an increase in advertising costs of approximately $2.4 million; an increase in professional and marketing service costs of approximately $2.0 million; less a decrease in office, travel, conferences and occupancy costs of approximately $0.5 million and other selling and marketing related costs of approximately $1.2 million.
General and Administrative. For the year ended December 31, 2021, we incurred general and administrative costs of approximately $54.4 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 $36.0 million for the year ended December 31, 2020. The increase in general and administrative expenses of approximately $18.4 million is primarily from an increase in our payroll, along with the related benefits and stock-compensation of approximately $15.8 million; an increase in professional services, including accounting, legal and insurance of approximately $1.7 million; and an increase in other general corporate expenses of approximately $0.9 million.
Other (Expenses) Income
The following table sets forth other (expenses) income:
|Years Ended December 31,||2021 versus 2020|
|2021||2020||$ Change||% Change|
|Change in valuation of warrant derivative liabilities||$||34,492||$||496,305||$||(461,813||)||2.6||%|
|Change in valuation of embedded derivative liabilities||-||2,571,004||(2,571,004||)||14.4||%|
|Loss on conversion of convertible debentures||-||(3,297,539||)||3,297,539||-18.5||%|
|Gain upon debt extinguishment||5,716,697||-||5,716,697||-32.1||%|
|Total other expenses||$||(7,334,309||)||$||(17,833,998||)||$||10,499,689||-58.9||%|
Change in Valuation of Warrant Derivative Liabilities. The change in valuation of warrant derivative liabilities for the year ended December 31, 2021 was the result of the decrease in the fair value of the warrant derivative liabilities as of December 31, 2021, as compared to the change in the valuation for the year ended December 31, 2020. The change in the valuation is not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock.
Change in Valuation of Embedded Derivative Liabilities. The change in valuation of embedded derivative liabilities for the year ended December 31, 2021 was the result of the decrease in the fair value of the embedded derivative liabilities as of December 31, 2021, as compared to the change in the valuation for the year ended December 31, 2020.
Loss on Conversion of Convertible Debentures. We recognized a loss on conversion of approximately $3.3 million for the year ended December 31, 2020 as the result of the conversion of accrued interest due and payable under the 12% convertible debentures into shares of our common stock.
Interest Expense. We incurred interest expense of approximately $10.5 million for the year ended December 31, 2021, as compared to approximately $16.5 million for the year ended December 31, 2020. The decrease in interest expense of approximately $6.0 million is primarily due to an increase in cash paid interest of approximately $0.7 million offset by a $4.5 million decrease in amortization of debt discount on notes payable and a $2.3 million decrease in accrued interest.
Liquidated Damages. We recorded approximately $2.6 million of liquidated damages, including the accrued interest thereon, during the year ended December 31, 2021 primarily from the issuance of our 12% convertible debentures, Series H Preferred Stock, Series I Convertible Preferred Stock (“Series I Preferred Stock”), Series J Convertible Preferred Stock (“Series J Preferred Stock”) and Series K Convertible Preferred Stock (“Series K Preferred Stock”) in fiscal 2020 since we determined that: (i) the registration statements registering for resale the shares of our common stock issuable upon conversion of the 12% convertible debentures, Series I Preferred Stock, Series J Preferred Stock and Series K Preferred Stock would not be declared effective within the requisite time frame; and (ii) that we would not be able to become current in our periodic filing obligations with the SEC in order to satisfy the public information requirements under the applicable securities purchase agreements. We recorded liquidated damages, including the accrued interest thereon, of approximately $1.5 million in fiscal 2020 primarily from issuance of our 12% convertible debentures, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock, which liquidated damages were based upon the reasons set forth above.
Gain Upon Debt Extinguishment. We recorded a gain upon debt extinguishment (including accrued interest) of approximately $5.7 million for the year ended December 31, 2021 pursuant to the forgiveness of the Payroll Protection Program Loan.
Income Tax Benefit (Provision)
Income Tax Benefit (Provision). For the year ended December 31, 2021, the Company recorded a deferred income tax benefit of approximately $1.7 million primarily related to its acquired deferred tax liabilities from the acquisition of The Spun and change in valuation allowance as of year- end that was, in part, offset by the book to tax basis differences related to goodwill from certain prior year acquisitions. For the year ended December 31, 2020, the Company recorded a deferred income tax provision of approximately $0.2 million to account for the book to tax basis differences related to goodwill from certain prior year acquisitions.
For further details refer to Note 24, Income Taxes, in our accompanying consolidated financial statements.
Deemed Dividend on Convertible Preferred Stock
Series H Preferred Stock. During fiscal 2020, in connection with the issuance of 108 shares (issued on August 19, 2020) and 389 shares (issued on October 31, 2020) of our Series H Preferred Stock, we recorded a beneficial conversion feature of approximately $0.1 million and approximately $0.4 million, respectively (totaling approximately $0.7 million), for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the per-share conversion price of $7.26 was lower than our per-share common stock trading price of $18.92 and $16.94 at the issuance dates of August 19, 2020 and October 31, 2020, respectively). The beneficial conversion feature was recognized as a deemed dividend.
Series I Preferred Stock. On December 18, 2020, all of the shares of our Series I Preferred Stock converted automatically into shares of our common stock as a result of the increase in the number of authorized shares of our common stock. Upon conversion, we recognized a beneficial conversion feature for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the per-share conversion price of $11.00 was lower than our per-share common stock trading price of $13.42 at the conversion date). The beneficial conversion feature was recognized as a deemed dividend.
Series J Preferred Stock. On December 18, 2020, all of the shares of our Series J Preferred Stock converted automatically into shares of our common stock as a result of the increase in the number of authorized shares of our common stock. Upon conversion, we recognized a beneficial conversion feature for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the effective per-share conversion price of $8.80 for the issuance of our Series J Preferred Stock on September 4, 2020 (these shares were issued at a discount) was lower than our per-share common stock trading price of $13.42 at the conversion date). The beneficial conversion feature was recognized as a deemed dividend.
Series K Preferred Stock. On December 18, 2020, all of the shares of our Series K Preferred Stock converted automatically into shares of our common stock as a result of the increase in the number of authorized shares of our common stock. Upon conversion, we recognized a beneficial conversion feature for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the per-share conversion price of $8.80 was lower than our common stock trading price of $13.42 at the conversion date). The beneficial conversion feature was recognized as a deemed dividend.
Use of Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles in the United States of America (“GAAP”); however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We believe Adjusted EBITDA provides visibility to the underlying continuing operating performance by excluding the impact of certain items that are noncash in nature or not related to our core business operations. We calculate Adjusted EBITDA as net loss, adjusted for (i) interest expense (net), (ii) income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in derivative valuations, (vi) liquidated damages, (vii) loss on disposition of assets, (viii) loss on impairment of lease, (ix) loss on lease termination, (x) gain upon debt extinguishment, (xi) professional and vendor fees, and (xii) employee restructuring payments.
Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by other companies, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP Adjusted EBITDA as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations is that Adjusted EBITDA:
|●||does not reflect stock-based compensation and, therefore, does not include all of our compensation costs;|
|●||does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements;|
|●||does not reflect interest expense and financing fees, or the cash required to service our debt, which reduces cash available to us;|
|●||does not reflect deferred income tax benefit or provision, which is a noncash income or expense;|
|●||does not reflect the change in derivative valuations and, although this is a noncash income or expense, the change in the valuations each reporting period are not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock;|
|●||does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to);|
|●||does not reflect any losses from the disposition of assets, which is a noncash operating expense;|
|●||does not reflect any losses on impairment of leases, which is a noncash operating expense;|
|●||does not reflect any losses on termination of our leases, which is a noncash operating expense;|
|●||does not reflect any gains upon debt extinguishment, which we do not consider in our evaluation of our business operations;|
|●||does not reflect the professional and vendor fees incurred by us for services provided by consultants, accountants, lawyers, and other vendors, which services were related to certain types of events that are not reflective of our business operations; and|
|●||does not reflect payments related to employee restructuring changes in fiscal 2020 and 2021 related to COVID-19 workforce reductions, leadership changes, and settlement and severance payments, which were a significant cash expense but are not reflective of our business operations.|
The following table presents a reconciliation of Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, for the periods indicated:
|Years Ended December 31,|
|Interest expense, net (1)||10,448,134||16,116,191|
|Income tax (benefit) provision||(1,674,434||)||210,832|
|Depreciation and amortization (2)||25,176,299||24,831,427|
|Stock-based compensation (3)||30,493,521||14,641,181|
|Change in derivative valuations||(34,492||)||(3,067,309||)|
|Liquidated damages (4)||2,637,364||1,487,577|
|Loss on disposition of assets (5)||1,192,310||279,133|
|Loss on impairment of lease (6)||466,356||-|
|Loss on termination of lease (7)||7,344,655||-|
|Loss on conversion of convertible debt||-||3,297,539|
|Gain upon debt extinguishment (8)||(5,716,697||)||-|
|Professional and vendor fees (9)||6,900,778||5,704,606|
|Employee restructuring payments (10)||645,200||2,536,989|
|(1)||Represents interest expense of approximately $10.5 million and approximately $16.5 million, less interest income of none and approximately $0.3 million for the years ended December 31, 2021 and 2020, respectively. Interest expense is related to our capital structure. Interest expense varies over time due to a variety of financing transactions. Investors should note that interest expense will recur in future periods.|
|(2)||Represents depreciation and amortization related to our developed technology and Platform included within cost of revenues of approximately $8.9 million and approximately $8.6 million and depreciation and amortization included within operating expenses of approximately $16.3 million and approximately $16.3 million for the years ended December 31, 2021 and 2020, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods.|
|(3)||Represents noncash costs arising from the grant of stock-based awards to employees, consultants and directors. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future.|
|(4)||Represents damages we owe to certain of our investors in private placements offerings conducted in fiscal years 2018 through 2020, pursuant to which we agreed to certain covenants in the respective securities purchase agreements and registration rights agreements, including the filing of resale registration statements and becoming current in our reporting obligations, which we were not able to timely meet.|
|(5)||Represents our disposition of certain assets related to the decision to no longer lease office space and other related disposition of assets that no longer are useful.|
|(6)||Represents the net loss for our right-of-use asset related to our lease in Santa Monica and related sublease of the office space based on our decision to no longer lease office space.|
|(7)||Represents our loss related to the surrender and termination of our lease of office space located in New York based on our decision to no longer lease office space.|
|(8)||Represents a gain upon extinguishment of the Payroll Protection Program Loan.|
|(9)||Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers, and other vendors related to (i) the preparation of periodic reports in order for us to become current in our reporting obligations (“Delinquent Reporting Obligations Services”), (ii) up-list to a national securities exchange, (iii) contemplated and completed acquisitions, (iv) public and private offerings of our securities and other financings, and (v) stockholder disputes and the implementation of our Rights Agreement. With respect to the Delinquent Reporting Obligations Services, we incurred professional and vendor fees in fiscal 2021 and 2020 related to the preparation of (x) our annual reports for fiscal years 2018, 2019 (which contained the financial information for the quarterly periods during fiscal 2019), and 2020, (y) our quarterly reports for the third quarter in fiscal 2018, the quarters in fiscal 2020, and the first and second quarters in fiscal 2021, and (z) our current reports with respect to certain acquisitions, all of which reports were filed during fiscal 2020 and 2021. The amount of fees incurred in connection with the Delinquent Reporting Obligations Services is adjusted based on our best estimate of the amount we expect we would ordinarily incur to meet our reporting obligations pursuant to the Exchange Act.|
|(10)||Represents (i) severance payments paid in connection with COVID-19 workforce reductions in fiscal 2020 and (ii) severance and other settlement payments paid in connection with employee and leadership changes in fiscal 2020 and 2021.|
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with 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.
Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements included elsewhere in this Annual 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.
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:
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 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.
Digital Subscriptions. We enter into contracts with internet users that subscribe to premium content on our owned and operated media channels and facilitate such contracts between internet users and our Publisher Partners. These contracts provide internet users with a membership subscription to access the premium content. For subscription revenue generated by our independent Publisher Partners’ content, we owe our Publisher 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. Unearned revenue relates to payments for subscription fees for which revenue has not been recognized because services have not yet been provided.
Print revenue includes magazine subscriptions and single copy sales at newsstands.
Print Subscriptions. Revenue from magazine subscriptions is 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.
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.
We occasionally enter into amendments to previously executed contracts that constitute contract modifications. We assess 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.
For the years presented, substantially all of our technology expenses are development costs for our 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”) ASC Topic 350, Intangibles – Goodwill and Other. ASC Topic 350 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. Our Platform development capitalized during the application development stage of a project include: