UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2016
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________
to __________
Commission file number 1-12471
THEMAVEN, INC.
(Exact name of registrant as specified
in its charter)
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Delaware
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68-0232575
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(State or other jurisdiction of incorporation
or
organization)
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(I.R.S. Employer Identification No.)
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2125 Western Avenue, Suite 502
Seattle, WA
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98121
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(Address of principal executive offices)
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(Zip Code)
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(775) 600-2765
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section
12(b) of the Act:
None
Securities registered pursuant to Section
12(g) of the Act:
Common Stock $0.01 par value
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
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or No
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The aggregate market value of the Common
Stock held by non-affiliates of the registrant on June 30, 2016 was $887,147. This calculation is based upon the price
of the Common Stock of the Registrant (as quoted on the Pink Sheets) of $0.16 per share on that date.
As of May 5, 2017, the Registrant had
25,983,461 shares of common stock outstanding.
Form 10-K
For the fiscal year ended December 31,
2016
Table of Contents
Cautionary Statement Regarding Forward-Looking
Information
This report by theMaven, Inc. (“Parent”) and theMaven
Network, Inc. (“Subsidiary”) (collectively “theMaven,” “Company” or “we”) contains
“forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning
the Company’s business strategy, future revenues, market growth, capital requirements, product introductions and expansion
plans and the adequacy of the Company’s funding. Other statements contained in this Report that are not historical
facts are also forward-looking statements. The Company has 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.
The Company cautions investors that any forward-looking statements
presented in this report, or that the Company may make orally or in writing from time to time, are based on the beliefs of, assumptions
made by, and information currently available to, the Company. 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 the Company’s control
or ability to predict. Although the Company believes that its assumptions are reasonable, they are not guarantees of future performance,
and some will inevitably prove to be incorrect. As a result, the Company’s actual future results can be expected to differ
from its 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 Report and also from time to time in the Company’s other filings with the Securities and Exchange
Commission (the “SEC”).
This report and all subsequent written and oral forward-looking
statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. The Company does not undertake any obligation to release publicly
any revisions to its forward-looking statements to reflect events or circumstances after the date of this Report.
Part I
Item 1.
Business
The Company is developing an exclusive network of professionally-managed
online media channels, based on a Company developed technology platform. Each channel will be operated by an “invite only”
“Channel Partner” drawn from subject matter experts, reporters, group evangelists and social leaders. Channel Partners
will publish content and oversee an online community for their respective channels, leveraging the Company’s proprietary,
socially-driven, mobile-enabled, video-focused technology platform to engage niche audiences within a single network.
We operate a website at www.themaven.net. The information contained
on our official website and information about the Company on any other personal, viral, social network informational websites
or software applications, will not constitute part of this report or future reports or schedules filed with the Securities and
Exchange Commission (“SEC”) or other state securities regulatory bodies.
The shares of Common Stock are traded in the over-the-counter
market (OTCQB), under the trading symbol “MVEN.” Historically the frequency of trades and the volume of trading has
been low, and there can be no assurance that an active or sustained public market for our shares will develop.
Corporate History
Our Subsidiary, theMaven Network, Inc., was incorporated in
Nevada on July 22, 2016 (“Inception”), under the name “Amplify Media, Inc.” On July 27, 2016, the corporate
name was amended to “Amplify Media Network, Inc.” and on October 14, 2016, the corporate name was changed to “theMaven
Network, Inc.”
theMaven,
Inc., the parent company, was formerly known as Integrated Surgical Systems, Inc., a Delaware corporation
(“Integrated”). From June 2007 until November 4, 2016, Integrated was a non-active “shell company” as
defined by regulations of the SEC.
On August 11, 2016, Integrated entered into a loan to Subsidiary that provided
initial funding totaling $735,099 for the Subsidiary’s operations.
On October 14, 2016
Integrated entered into a Share Exchange Agreement (“Share Exchange Agreement”) with the Subsidiary and the
shareholders of the Subsidiary holding all of the issued and outstanding shares of the Subsidiary (collectively,
“Subsidiary Shareholders”). The Share Exchange Agreement was amended on November 4, 2016, to include certain
newly issued shares of the Subsidiary in the transaction and make related changes to the agreement and the Share Exchange was
consummated. The transaction resulted in the Company acquiring Subsidiary by the exchange of all of the outstanding shares of
Subsidiary for 12,517,152 newly issued shares of the common stock, $0.01 par value ( “Common Stock”) of Parent,
representing approximately 56.7% of the issued and outstanding shares of Common Stock immediately after the transaction. We
refer to this transaction as the “Recapitalization.” The Recapitalization was consummated on November 4, 2016, as
a result of which theMaven Network, Inc. became a wholly owned subsidiary of Integrated (“Closing”).
The
note payable between Integrated and Subsidiary was an interdependent transaction with the
Recapitalization and was ultimately cancelled upon closing
of the Recapitalization. On December 2, 2016, Integrated amended its Certificate of Incorporation to change its name from “Integrated Surgical Systems, Inc.” to “theMaven, Inc.”
The business office was located at 2425 Cedar Springs Road,
Dallas, Texas, 75201 until the closing of the Recapitalization when it was changed to 5048 Roosevelt Way NE, Seattle, WA 98105.
Our executive offices are located at 2125 Western Avenue, Suite 502, Seattle, WA 98121. At this location we also carry out the
software development and other operational activities of the Company. The current telephone number is (775) 600-2765.
Recapitalization Accounting
From June 2007 until the closing of the Recapitalization, Integrated
was a non-active “shell company” as defined by regulations of the SEC and, accordingly, the Recapitalization was accounted
for as a reverse recapitalization rather than a business combination. As the Subsidiary is deemed to be the purchaser for accounting
purposes under reverse recapitalization accounting, the Company’s financial statements are presented as a continuation of
Subsidiary, and the accounting for the Recapitalization is equivalent to the issuance of stock by Subsidiary for the net monetary
assets of Parent as of the Closing accompanied by a recapitalization.
theMaven Overview
theMaven Business
Prior to founding theMaven in 2016, its founding team worked
on a variety of digital media platforms, with the common thread of achieving economies of scale by assembling a network of publishers,
covering particular niche media interests, on a unified technology and business platform. One of the founders and the Chief Executive
Officer of theMaven, Mr. James C. Heckman, created the first version of this model in 1991, leveraging early digital technology
for NFL teams for “NFL Exclusive,” and later founded Rivals.com, which is still operated today by Yahoo!. theMaven’s
founders have worked together since 1999, building many different socially focused, single platform media models, including Scout.com,
Rivals.com, Rivals.net (Europe), Zazzle, and 5to1.com.
theMaven was founded as an entirely new enterprise to build
and operate an exclusive network of professionally managed media channels and interest groups, each operated by a group of experts,
reporters, group evangelists and social leaders as “Channel Partners.” These Channel Partners will be able to leverage
theMaven’s proprietary, socially-driven, mobile-enabled, video-focused technology platform to engage niche audiences within
a single network (“theMaven Platform”).
We believe that our media model will appeal to the users and
subscribers of theMaven Platform in a way similar to how the model has previously appealed to sports fans in our founders’
previous ventures. We intend theMaven Platform to appeal to professional publishers who currently struggle to monetize on their
existing platforms, or are operating with less-than-world-class features in one or more areas (mobile, video, community, etc.).
The consumer-facing product of theMaven Platform will be made available on the web and as iOS (Apple) and Android mobile applications.
Once launched, we believe that there will be two primary revenue
sources, one of which will be online advertising and sponsorships and one of which will be paid memberships (subscriptions). We
expect that advertising and sponsorships will be sold primarily by theMaven and/or major media partner(s) to companies to promote
their brands, products and services, amplify their visibility and to target an audience based on the professionally managed media
channels and interest groups on theMaven Platform. At this stage of the Company’s development, operations primarily consist
of software development, building a list of selective, invite-only Channel Partners, and reaching out to those Channel Partners
for discussion. The management team has extensive experience in the past building partner networks, but it will take time and
further development of the technology platform to begin securing these partners.
Currently, we do not have any customers as we are still in
the development stage of our business and establishing a customer base.
Technology and Intellectual Property
theMaven Platform, as currently being developed, incorporates
state-of-the-art mobile, video, communications, social, notifications and other technology into the theMaven Platform, including
modern DevOps processes with continuous integration/continuous deployment and an entirely cloud-based back-end. The software engineering
team is experienced at delivering service at extreme scale, including years of experience at GoogleTM, Yahoo!TM, and Microsoft
TM among other companies. We are developing theMaven Platform software by combining proprietary code with components from the
open-source community, plus select commercial services. To the extent it is able and given the limited financial resources at
its disposal, management is investing in core technical competencies to be able to do more product development.
We believe that innovation is one of the keys to its competitiveness
and will be necessary for future sustained growth. Currently, theMaven relies on the confidentiality of its operations, proprietary
know-how and business secrets. All theMaven employees have entered into confidentiality agreements and it considers its employees’
work to be proprietary and owned by theMaven. There can be no assurance that theMaven will be able to enforce its rights if its
intellectual property is improperly taken by theMaven’s employees or adopted by its competitors without the approval of
theMaven.
The competitive position of theMaven may be seriously damaged
if it cannot maintain and obtain patent protection for important differentiating aspects of its products or otherwise protect
its intellectual property rights in its technology. theMaven relies on a combination of contracts, patent and trade secret laws
to establish and protect its proprietary rights in its technology. However, it may not be able to prevent misappropriation of
its intellectual property, its competitors may be able to independently develop similar technology and the agreements it enters
into to protect its proprietary rights may not be enforceable.
In the future, when necessary and where practical, we will
take additional steps to protect our intellectual property interests under the laws of the United States and the jurisdictions
in which we operate. As the business develops, we plan to develop specific trademarks for our products and seek registration of
those marks with government authorities for their protection. We also plan to seek opportunities to obtain patent protection.
We do not currently hold any patents.
The Company has a federally registered trademark for the Company’s
name, “theMaven”; US TM App. No. 87/196,910, Filing Date: October 7, 2016 (serial number 87196910).
Seasonality
Once we are providing services to our customer base, we expect
to experience typical media company ad and sponsorship sales seasonality, which is strong in the fourth quarter and slower in
the first quarter.
Competition
Currently we believe that there are dozens of competitors delivering
niche media content on the web and on mobile devices. All those competitors use mobile alerts, invest heavily in video and leverage
social media. We believe that theMaven has developed distribution, production and technology tactics that are superior because
our tactics in the past have proven to be highly engaging and effective for our particular model, which organizes channels into
interest groups, led by its expert partners – the Channel Partners.
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 theMaven competing for audience and
ad and sponsorship 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 theMaven 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. Below is a list of possible competitors and categories:
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Vice – niche
content, leveraging social, mobile and video
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Buzzfeed – socially
enabled content
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Business Insider –
expert, niche content, leveraging social, mobile and video
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WordPress, YouTube,
Twitter, Facebook – open platform to all, also includes experts and professionals
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Reddit – community,
UBC focused, including delivery of niche content
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Affiliate “networks”
such as Liberty Alliance – publishing, advertising
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Fortune, CNN, Yahoo!,
Google, et al - all major media companies are investing in deep content for users and
leveraging social media in their own way, to reach and engage users more effectively.
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We anticipate that theMaven will compete on the basis of its
technology, ease of use, value delivered to both consumers and Channel Partners, and platform evolution through a continuing development
program. We believe that theMaven methods, technology and experience will enable it to compete for a material amount of market
share of media dollars and subscription revenue. We also believe theMaven will rapidly establish a reputation for its business,
distribution and technology methods within selected initial markets, which can be enhanced over time as theMaven gains customer
awareness and channel partner success. Concurrent with the growth of its customer base, we believe theMaven will develop brand
awareness, which translates to sponsorship support, and will obtain data from its users that will allow theMaven to expand our
content and advertising offerings.
Research and Development
We believe that innovation is one of the keys to our competitiveness,
and innovation will be necessary for future sustained growth. To the extent it is able, and given the limited financial resources
at our disposal, the Company is investing in core technical competencies to be able to do more product development. Furthermore,
we will file to protect our intellectual property in appropriate market segments.
In the period since
Inception on July 22, 2016 through December 31, 2016, the Company has spent $951,887, including $207,217 of stock-based
compensation, for research and development, of which $540,146 was capitalized as Website Development Costs and $411,741 was
expensed as Research and Development Costs. The Company expects that in future periods it will continue to use a substantial
amount of its financial resources for research and development of its platform and products.
Employees
As of March 31, 2017, the Company had nineteen full-time
employees, of which four were in senior executive positions, eight were in software development, testing, and operations, five
were in business and network development and two were in user experience and design. None of the employees are covered by any
collective bargaining agreement. In the future, theMaven expects to expand its management employees for financial compliance,
and add operational employees as the channel partner network expands. Its future success will depend in part on its ability to
continue to attract, retain and motivate highly qualified technical and management personnel.
Government Regulations
Our operations, once commenced in the public sphere will be
subject to a number of U.S. federal and state laws and regulations that involve privacy, rights of publicity, data protection,
content regulation, intellectual property, or other subjects. Many of these laws and regulations are still evolving and being
tested in courts and could be interpreted in ways that could harm our business. In addition, the application and interpretation
of these laws and regulations often are uncertain, particularly in the new and rapidly evolving industry in which we operate.
A number of government authorities, both in the United States
and abroad, and private parties are increasing their focus on privacy issues and the use of personal information. Most states
have enacted some form of data privacy legislation, including data breach notification laws, and laws penalizing the misuse of
personal information in violation of published privacy policies. 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 regulations and may require the adoption
of written information security policies that are consistent with state laws if businesses have personal information of residents
of their states. Data privacy and information security legislation also is being considered at the federal level, among other
statutes and regulations concerning privacy of individuals and use of internet and market information. In the United States the
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 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. We will have to review our privacy
policies and our overall operations on a regular basis to assure compliance with applicable U.S. federal and state laws, and to
the extent applicable, any foreign laws. Our business could be adversely affected if new regulations or decisions regarding the
storage, transmission, use and/or disclosure of personal information are implemented in such ways that impose new or additional
technology requirements on us, limit our ability to collect, transmit, store and use the information, or if government authorities
or private parties challenge our privacy practices that result in 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.
The United States Congress enacted the Controlling the Assault
of Non-Solicited Pornography and Marketing Act of 2003, or CAN-SPAM, regulating “commercial electronic mail messages”
(i.e., e-mail), the primary purpose of which is to promote a product or service. The FTC has promulgated various regulations applying
CAN-SPAM and has enforcement authority for violations of CAN-SPAM. Any entity that sends commercial e-mail messages for itself
and clients, and those who re-transmit such messages, must adhere to the CAN-SPAM requirements. Violations of its provisions may
result in civil money penalties and criminal liability. Compliance with these provisions may limit our ability to send certain
types of e-mails on our own behalf and on behalf of our advertising clients. While we intend to operate our businesses in a manner
that complies with the CAN-SPAM provisions, we may not be successful in so operating. If it turns out we have violated the provisions
of CAN-SPAM we may face enforcement actions by the FTC or FCC or face civil penalties, either of which could adversely affect
our business.
In addition to the federal CAN-SPAM regulations, many states
have comparable legislation. There have been a number of cases brought as class actions based on the federal and state statutes.
At the state level the courts have tended to decide in favor of the plaintiffs and awarded substantial damages. An award of damages,
at either the federal or state level could have a detrimental impact on our financial results.
Social networking websites are under increasing scrutiny. Legislation
has been introduced on the state and federal level that could regulate social networking websites. Some rules call for more stringent
age-verification techniques, attempt to mandate data retention or data destruction by Internet providers, and impose civil and/or
criminal penalties on owners or operators of social networking websites.
The FTC regularly considers issues relating to online behavioral
advertising and has issued reports containing a new set of “guidelines” for industry self-regulation. The FTC’s
reports and issue consideration may result in future regulation at the federal and state levels of the collection and use of online
consumer data, which could potentially place restrictions on our ability to utilize our database and other marketing data 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.
Governments of states or foreign countries might attempt to
regulate our transmissions or levy sales or other taxes relating to our activities even though we do not have a physical presence
and/or operate in those jurisdictions. As our platforms, products and advertisement activities are available over the Internet
anywhere in the world, multiple jurisdictions may claim that we are required to qualify to do business as a foreign corporation
in each of those jurisdictions and pay various taxes in those jurisdictions.
Property
theMaven currently subleases approximately 2,900 square feet
for its executive offices and operational facilities on a month-to-month basis at 2125 Western Avenue, Suite 502, Seattle, WA
98121. The annual lease payments aggregate to approximately $72,000. The Company believes that the rates it is paying under its
property lease are competitive in the Seattle real estate market, and it would be able to find comparable lease properties in
the event it changed locations.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Section 13 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), are available free of charge after we electronically file or furnish them
to the SEC. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F
Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330.
The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information
regarding issuers that file electronically. We assume no obligation to update or revise forward looking statements in this Current
Report on Form 8-K, whether as a result of new information, future events or otherwise, unless we are required to do so by law.
ITem 1A.
RISK FACTORS
Because we are an early growth company,
we face many obstacles as a new venture, and therefore we may never be able to fully execute our business plan.
To date,
our operations have focused on research and development and initial business development efforts. We have no revenues to date.
If we are not able to develop our revenues, obtain additional capital as needed from time to time, and achieve market acceptance
for our technology platform, we will have to reduce or curtail our business operations. In such case, investors will lose all
or a portion of their investment.
Because our business and marketing
plans may be unsuccessful, we may not be able to continue operations as a going concern.
Our ability to continue as a
going concern is dependent upon our generating cash flow that is sufficient to fund operations or finding adequate investment
or borrowed capital to support our operations. To date we have relied entirely on equity financing and loans from our shareholders
and related parties to fund our operations. Our platform and product development objectives and our business and marketing plans
may not be successful in achieving a sustainable business and generating revenues. We have no arrangements in place for sufficient
financing to be able to fully implement our business plan. If we are unable to continue as planned currently, we may have to curtail
some or all of our business plan and operations. In such case, investors will lose all or a portion of their investment.
We currently have been generating operating
losses, and we may never achieve profitability.
We have had and we expect to continue to have losses in the near term
and will rely on capital funding or borrowings to fund our operations. To date, capital funding has been limited in amount. We
cannot predict whether or not we will ever become profitable or be able to continue to find capital to support our development
and business plan.
We have a limited operating history,
which makes it difficult to forecast whether or not our business will be successful.
Since founding of theMaven in July
2016, the management team has focused entirely on the theMaven Platform development and product strategy, hiring technological
talent, and signing channel partners. Accordingly, we have only a limited operating history in the development stage and no market
oriented operations; this limited operating experience makes it difficult to forecast our future operating results. Our prospects
must be considered in light of the risks, expenses and difficulties frequently encountered by companies in an early stage of development
and product introduction, particularly companies engaged in rapidly evolving technology offerings and markets. There can be no
assurance that we will be successful in addressing these risks and keeping pace with developments, and the failure to do so could
have a material adverse effect on our business, operating results and financial condition.
Our operating results may be variable,
and therefore our future prospects may be difficult for investors and analysis to assess.
Our operating results are likely
to fluctuate significantly in the future due to a variety of factors. Due to the potential breadth of the markets in which we
plan to deploy our platform and seek market acceptance and our limited operating history, we believe it will be difficult to accurately
forecast our revenues and operating results in our market launch phases. Factors that may slow or harm our business or cause our
operating results to fluctuate include the following:
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The market acceptance
of, and demand for, our products;
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Our inability to attract
new Channel Partners and Internet unique visitors or maintain existing users satisfaction
at a reasonable cost;
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The revenue based on
our technology;
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Changes in alternative
technologies, industry standards and customer or end user preferences;
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The length of our advertising
and membership sales cycles;
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The timing of customer
payments and payment defaults by customers;
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Our inability to attract
and retain key personnel, including experienced software developers;
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A gain or loss of significant
customers and publishers or their confidence in our platform;
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Software design, development
and operational defects and other quality problems;
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Significant security
breaches, technical difficulties, or interruptions to our technology platform;
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Economic conditions
affecting our potential customers;
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Extraordinary expenses
such as litigation;
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The number, timing
and significance of product enhancements and new product introductions by competitors;
and
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Our failure to increase
sales and or penetrate new markets.
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Any change in one or more of these factors,
as well as others, could cause our annual or quarterly operating results to fluctuate. Any change in one or more of these factors
could reduce our gross margins in future periods.
The market in which we participate
is intensely competitive, and if we do not compete effectively, our operating results could be harmed.
There are many
players in the digital media market. The market offerings range from groups of similar media to some that are unique, but quickly
replicable. 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. With the introduction of new technologies, the evolution of
our platform, and new market entrants, we expect competition to intensify in the future. Some of our current and potential competitors
have substantially greater financial, technical, marketing, distribution and other resources than we do. As a result, they may
be able to respond more rapidly than we can to new or changing opportunities, technologies, standards or customer requirements.
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 our platform to achieve or maintain
more widespread market acceptance, any of which could adversely affect our revenues and operating results.
We are dependent upon the acceptance
of theMaven platform.
The market for our media platform is constantly evolving and is characterized by rapid change and
competitor entrants. Our future operating results depend on the development and growth of the market for our media platforms.
We intend to spend considerable resources educating potential channel partners and the ultimate users about our platforms. However,
we cannot provide assurance that such expenditures will enable our platform to achieve or maintain any significant degree of market
acceptance.
We may have difficulty managing our
growth.
As we approach the launch of our technology platform, we expect to add channel partner and end-user support capabilities,
to continue software development activities and to expand our administrative operations. This expansion is expected to place a
significant strain on our management, 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.
If our efforts to attract and retain
users are not successful, our business will be adversely affected.
We are currently developing our platforms and do not
yet have any users of our services. In the future, our ability to attract users will depend in part on our ability to provide
our users with unique and focused content choices. The relative service levels, content offerings, pricing and related features
of competitors to our service and products may adversely impact our ability to attract and retain users. If users do not perceive
our service offering to be of value, we may not be able to attract and retain users and may not be able to get any revenue from
paid membership. Furthermore, if we cannot build a meaningful membership base, we may not be able to engender interest from potential
advertisers and generate any revenue from advertising and sponsorship. Even if we can successfully attract users to subscribe
for our services, users will be able to cancel our service for many reasons. We must continually add new users both to replace
canceled memberships and to grow our business beyond the then current user base. If we are unable to successfully attract users,
our business will be adversely affected.
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 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. As we have not commenced substantive approaches to the Channel Partners, we cannot yet determine the terms
of use they will demand or their payment behavior. Any delay or loss in sales of online advertising could adversely affect our
operating results.
The sales cycle for paid memberships
may be longer than currently anticipated.
We anticipate selling the memberships directly to consumers via online methodologies.
It may take longer than we currently anticipate to start generating a significant volume of subscribers. We understand that we
will have to convince consumers to purchase memberships, which in turn will depend on their perception of the value provided by
our channel partners’ content and communities. Such value perception is subject to aspects that are beyond our control.
Sales will usually be through online credit card transactions; these types of transactions are subject to chargebacks and cancellations
that may reduce revenues. Any delay in generating membership sales or losses in sales of online memberships could adversely affect
our operating results.
We are dependent on the continued services
and on the performance of our senior management and other key personnel.
The loss of the services of any of our
executive officers, such as Messrs. Heckman, Sornsin and Joldersma or other key employees could have a material adverse effect
on our business, operating results and financial condition. Although we have employment contracts with 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 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 failure to attract and retain necessary skilled personnel could have a material adverse effect on our business,
operating results and financial condition.
Our revenues could decrease if our
platforms do not operate as intended.
Our platform technologies will perform complex functions and are 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, failure to achieve market acceptance, increased development costs, diversion of development resources and injury to our
reputation or damage to our efforts to build 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 channel partners to access our technology platform at any time and within
an acceptable amount of time. We believe that our 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 once theMaven platforms are up
and running, we 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 our platform
software simultaneously, denial of service attacks, or other security related incidents. Until we have operating experience, we
may not be able to identify the cause or causes of any performance problems within an acceptable period of time. It may be that
it will be difficult to maintain and/or improve our performance, especially during peak usage times and as our platform becomes
more complex and our user traffic increases. If our 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, we expect
our channel partner agreements to include service level standards that obligate us to provide credits or termination rights in
the event of a significant disruption in our 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 intend to operate our exclusive
network of professional-managed online media channels on third party cloud platforms and data center hosting facilities.
We will 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 channel partners to terminate
their contractual arrangements with us, and could adversely affect our ability to grow our audience of unique visitors, all of
which could reduce our ability to generate revenue. Our business would also be harmed if our customers and potential customers
believe our product and services offerings are unreliable.
Real or perceived errors, failures,
or bugs in our technology platforms could adversely affect our operating results and growth prospects.
Because our technology
platform will be 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 our technology platform until after they
are deployed to our customers. We expect from time to time to discover software errors, failures, vulnerabilities, and bugs in
our technology platforms and anticipate that certain of these errors, failures, vulnerabilities, and bugs will only be discovered
and remediated after deployment to channel partners and used by subscribers. Real or perceived errors, failures, or bugs in our
software could result in negative publicity, loss of or delay in market acceptance of our technology platforms, loss of competitive
position, or claims by channel partners or subscribers for losses sustained by them. In such an event, we may be required, or
may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem.
If we are unable to develop and maintain
successful relationships with channel partners and publishers, our business, operating results, and financial condition could
be adversely affected.
We believe that growth in our business is dependent upon identifying, developing, and maintaining
strong relationships with channel partners that can drive substantial revenue by delivering strong content and communities to
end users. If we fail to identify channel partners that provide the right content and foster the communities we need for growth
and branding, in a timely and cost-effective manner, or at all, or are unable to assist our channel partners in delivering great
content and communities that drive both advertising and membership and subscription revenue, our business, results of operations,
and financial condition could be adversely affected. If our channel partners do not effectively deliver great content and communities,
or fail to meet the needs of end users, our reputation and ability to grow our business may also be adversely affected.
If the protection of trademark, brands
and other proprietary rights is inadequate, we could lose our proprietary right, suffer a diminution of reputations and experience
a loss of revenues.
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. Despite these precautions, it may be possible for unauthorized third parties to copy portions
of our products or reverse engineer or obtain and use information that we regard as proprietary. There can be no assurance that
our platforms 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
IP rights, those proceedings could be expensive and time-consuming and could distract our management from our business operations.
The brand “TheMaven®”
and any related trademarks will be an important part of our sales effort.
We believe that establishing and maintaining
the “TheMaven®” brand name and any related trade and service marks will be important to our success and crucial
in gaining new users and new channel partners and publishers. The importance of brand recognition may increase as a result of
established and new competitors offering service and products similar to ours. To the extent we are able, with our limited funding
and personnel, we intend to increase our marketing and branding expenditures in an effort to increase awareness of “TheMaven®”
brand. If our brand-building strategy is unsuccessful, these expenses may never be recovered, we may be unable to obtain sponsorships
or generate any revenue, and our business could be harmed.
Intellectual property claims against
us can be costly and could impair our business.
We cannot predict whether third parties will assert claims of infringement
against us, or whether any future assertions or prosecutions will harm our business. Although we take significant steps to make
sure that our technologies do not infringe on the rights of others, as our employees have worked in our industry for many years,
there is always the possibility that another person or company may assert that we have built on their proprietary rights. If we
are forced to defend against any such claims, whether they are with or without merit or are determined in our favor, we may face
costly litigation, diversion of technical and management personnel, or product launch delays, any of which could adversely impact
our business. As a result of such a dispute, we may have to develop non-infringing technology or enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, if at all. If there
is a successful claim of intellectual property infringement against us and we are unable to develop non-infringing technology
or to license the infringed or similar technology on a timely basis, our business could be impaired.
We will be subject to a wide range
of privacy laws and other internet laws.
A number of government authorities, both in the United States and abroad, and
private parties are increasing their focus on privacy issues, the use of personal information, market collection data and activities
that might be considered spam. Enforcement may be by state attorney general offices and federal prosecutors acting under a wide
range of state and federal laws about privacy, data collection and use of the internet in certain ways, some of which laws may
be applicable to us through our users and clients, such as our advertisers, within our communities. Some laws require encryption
systems which may make our operations more costly to develop and monitor for continuing compliance. Overall, all of these laws
will require substantial compliance efforts, which will be at an economic cost to us. If we violate these laws, we may be subject
to monetary penalties and other civil fines. Some statutes may have criminal liability associated with violations. These laws
are under constant review and amendment or addition as issues are seen to develop as the internet continues to become a more active
part of the way we do business and interact. Our business could be adversely affected if there are new laws and regulations or
decisions that are restrictive or impose difficult or expensive operations processes regarding the storage, transmission, use
and/or disclosure of personal information and use of the social media aspects of our platforms and products or otherwise affect
our users, advertisers and media partners. We cannot currently indicate what new legislation or regulation that might be that
would impose new or additional technology requirements on us, limit our ability to collect, transmit, store and use the information,
or if government authorities or private parties challenge our privacy and business practices.
Prior employers of our employees may
assert violations of past employment arrangements.
Our employees are highly experienced, partly because they have 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 and highly disruptive to our work environment, and may result in a detrimental
effect on 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 will require additional capital
in the future, which may not be available on terms acceptable to us, or at all.
Our future liquidity and capital requirements
will depend upon numerous factors, including the success of our offerings and competing technological and market developments.
We will to 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.
Management has
the right to vote a substantial amount of the Common Stock, and will be able to influence the business of the Company.
Management, including the directors and officers of the Company, beneficially own about 13,606,662 shares of Common Stock, representing
about 50% of the Common Stock. As a result of this amount of ownership, management will be able to influence the election of directors
and will be able to influence the business plan and overall business direction of the Company.
There is not an active market for the
Common Stock.
We provide no assurances of any kind or nature whatsoever that an active market for the Common Stock will
ever develop. There has been no sustained activity in the market for the Common Stock. Investors should understand that there
may be no alternative exit strategy for them to recover or liquidate their investments in the Common Stock. Accordingly, investors
must be prepared to bear the entire economic risk of an investment in the Company for an indefinite period of time. If an active
market ever develops for the Common Stock, we anticipate that our then financial condition, platform and product offerings, and
our roll out strategy and implementation will greatly impact the market value of the Common Stock. The market value at any point
in time may not reflect the value of the business or our business prospects.
There may be no liquid market for our
Common Stock.
Even if a trading market develops over time, we cannot predict how liquid that market might become. The
trading price of the Common Stock is likely to be highly volatile and could be subject to wide fluctuations in price in response
to various factors, some of which are beyond our control.
These factors include:
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Quarterly variations
in our results of operations or those of our competitors;
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Announcements by us
or our competitors of acquisitions, new products and services, significant contracts,
commercial relationships or capital commitments;
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Disruption or substantive
changes to our operations;
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•
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Variations in our sales
and earnings from period to period;
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•
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Commencement of, or
our involvement in, litigation;
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•
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Any major change in
our board or management;
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Changes in governmental
regulations or in the status of our regulatory approvals; and
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General market conditions
and other factors, including factors unrelated to our own operating performance.
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In addition, the stock market in general
experiences price and volume fluctuations that often are unrelated or disproportionate to the operating performance of public
companies. These broad market and industry factors may seriously harm the market price of the Common Stock, regardless of our
actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price
of a company’s securities, securities class action litigation has often been instituted against these companies. This type
of litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention
and resources.
We are subject to the reporting requirements
of the United States securities laws, which will require expenditure of capital and other resources.
We are a public reporting
company subject to the information and reporting requirements of the Securities Exchange Act of 1934 and other federal securities
laws, including, without limitation, compliance with the Sarbanes-Oxley Act (“Sarbanes”). The costs of preparing and
filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders
will cause our expenses to be substantially higher than they would otherwise be if we were privately-held. It will be difficult,
costly, and time-consuming for us to develop and implement internal controls and reporting procedures required by Sarbanes, and
we will require additional staff and third-party assistance to develop and implement appropriate internal controls and procedures.
If we fail to or are unable to comply with Sarbanes, we will not be able to obtain independent accountant certifications that
the Sarbanes requires publicly-traded companies to obtain.
Investor confidence and market price
of our shares may be adversely impacted if we are unable to attest to the adequacy of the internal controls over our financial
reporting, as required by Section 404 of the U.S. Sarbanes-Oxley Act of 2002.
The SEC, as directed by Section 404 of Sarbanes,
adopted rules requiring public companies to include a report of management of their internal control structure and procedures
for financial reporting in their annual reports on Form 10-K that contains an assessment by management of the effectiveness of
their internal controls over financial reporting. We have reported in the Annual Report on Form 10-K, filed for the fiscal year
ended December 31, 2016, that management concluded there is a material weakness in our internal controls and procedures. The material
weakness relates to the lack of segregation of duties in our financial reporting process and our utilization of outside third
party consultants. We do not have a separately designated audit committee. These weaknesses are also due to our lack of additional
accounting and operational staff. To remedy this material weakness, we plan to engage an internal accounting staff to assist with
financial reporting.
We may not be able to attract the attention
of major brokerage firms or securities analysts in our efforts to raise capital.
In due course, we plan to seek to have
the Common Stock quoted on a national securities exchange in the United States. There can be no assurance that we will be able
to garner a quote for the Common Stock on an exchange. Even if we are successful in doing so, security analysts and major brokerage
houses may not provide coverage of us. We may also not be able to attract any brokerage houses to conduct secondary offerings
with respect to our securities.
Because we will be subject to the “Penny
Stock” rules as our shares are quoted on the over-the-counter bulletin board, the level of trading activity in our stock
may be reduced.
If a trading market does develop for our stock, it is likely that our stock will be subject to the regulations
applicable to "Penny Stock." The regulations of the SEC promulgated under the Exchange Act that require additional disclosure
relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The SEC regulations define
penny stocks to be any non-exchange equity security that has a market price of less than $5.00 per share, subject to certain exceptions.
Unless an exception is available, those regulations require the broker-dealer to deliver, prior to any transaction involving a
penny stock, a standardized risk disclosure schedule prepared by the SEC, to provide the customer with current bid and offer quotations
for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements
showing the market value of each penny stock held in the purchaser’s account, to make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a stock
that becomes subject to the penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers
to trade our securities. We believe that the penny stock rules discourage market investor interest in and limit the marketability
of the Common Stock.
In addition to the "penny stock"
rules promulgated by the Securities and Exchange Commission, the FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information.
Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend
that their customers buy the Common Stock, which may limit your ability to buy and sell our stock.
Because future sales by our stockholders
could cause the stock price to decline, our investors may lose money on their investment in our stock.
No predictions
can be made of the effect, if any, that market sales of shares of the Common Stock or the availability of such shares for sale
will have on the market price prevailing from time to time. Nevertheless, sales of significant amounts of the Common Stock could
adversely affect the prevailing market price of the common stock, as well as impair our ability to raise capital through the issuance
of additional equity securities.
Item 1B.
Unresolved Staff Comments
Not Applicable.
Item 2.
Properties
theMaven currently subleases approximately 2,900 square feet
for its executive offices and operational facilities on a month-to-month basis at 2125 Western Avenue, Suite 502, Seattle, WA
98121. The annual lease payments aggregate to approximately $72,000. The company believes that the rates it is paying under its
property lease are competitive in the Seattle real estate market, and it would be able to find comparable lease properties in
the event it changed locations.
Item 3.
Legal Proceedings
The Company is not currently a party to any legal proceedings
that it believes would reasonably be expected to have a material adverse effect on the Company’s business, financial condition
or results of operations.
Item 4.
Mine Safety Disclosure
Not applicable.
Part II.
Item 5.
Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
The Company’s common stock started trading on March 2,
2017 on the OTCQB, under the trading symbol “MVEN”. Between December 1, 2016 and March 1, 2017, the Company’s
common stock traded on the OTC “Pink Sheets” under the trading symbol “MVEN”. And prior to December 1,
2016, the Company’s common stock was traded on the OTC “Pink Sheets” under the trading symbol “ISSM”.
The following table sets forth the high and low bid prices for each quarterly period in the past two fiscal years, as reported
by the NASDAQ on-line web site www.otcmarkets.com for shares of the Company’s common stock for the periods indicated. Such
prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
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Common Stock
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(MVEN)
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High
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Low
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2016 (1)
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First Quarter
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$
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0.19
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$
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0.12
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Second Quarter
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$
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0.20
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$
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0.15
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Third Quarter
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$
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0.20
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$
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0.16
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Fourth Quarter
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$
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1.25
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$
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0.15
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2015 (1)
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First Quarter
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$
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0.17
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$
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0.09
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Second Quarter
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$
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0.20
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$
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0.14
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Third Quarter
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$
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0.19
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$
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0.10
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Fourth Quarter
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$
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0.20
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$
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0.11
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(1) The above table reflects prices pre-recapitalization through
November 3, 2016 for Integrated Surgical Systems, Inc., under the trading symbol “ISSM”. The post-recapitalization
Company’s stock traded under the symbol “ISSM” from November 4, 2016 through November 30, 2016. Beginning December
1, 2016, the Company has traded under the symbol “MVEN”.
Holders
As of May 5, 2017, there
were approximately 123 holders of record of the common stock. The Company believes that there are additional holders of the
common stock who have their stock in “street name” with their brokers. Currently, we cannot determine the
approximate number of those street name holders.
Dividends
The Company has never paid cash dividends on its common stock,
and its present policy is to retain any future earnings in the Company. See “Item 1, Business”.
Issuer Purchases of Equity Securities
None
Recent Sales of Unregistered Securities
On December 19, 2016, the Company’s
board of directors approved the ability of management to issue warrants to Channel Partners that would allow the warrant holders
to purchase up to a maximum of 5,000,000 warrants in the aggregate. The warrants will be issued to individual Channel Partners
with individualized vesting criteria under a program designed to encourage the Channel Partner to drive user traffic and generate
new Channel Partner participants on TheMaven Platform. The warrants have a composition of vesting that is time based and performance
based. The Company has granted since inception of the program an aggregate of 2,075,000 warrants through May 5, 2017 at exercise
prices ranging from $0.95 to $1.33 per share, with expiration periods ending from December 19, 2021 to May 5, 2022. These Channel
Partner warrants have no registration rights, and vest over three years. None of the Channel Partner warrants are yet vested.
On December 19, 2016, the Company’s
board of directors approved the 2016 Stock Incentive Plan. Under the plan, the Company has authorized a maximum of 1,670,867 shares
of common stock that may be subject to the award option. The Company has granted options for 1,224,137 shares through May 5, 2017,
at exercise prices ranging from $1.02 to $1.23 per share, with expiration periods ending from December 28, 2026 to May 5, 2027,
and vest over three years. None of these options are yet vested. The plan has not been approved by the shareholders of the Company
at this time.
The following table provides information as of December 31,
2016 with respect to the Company’s compensation plans (including individual compensation arrangements).
EQUITY COMPENSATION INFORMATION TABLE
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(a)
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(b)
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(c)
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Category
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Number of
securities to
be
issued upon
exercise of
outstanding
options,
warrants
and rights
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Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights
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Number of
securities
remaining
available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in column (a))
|
|
|
Equity compensation not approved by security holders
|
|
|
175,000
|
(1)
|
|
$
|
0.17
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation not approved by security holders (options)
|
|
|
100,137
|
|
|
|
1.02
|
|
|
|
1,570,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation not approved by security holders (warrants)
|
|
|
350,000
|
|
|
|
1.05
|
|
|
|
4,650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
625,137
|
|
|
$
|
0.80
|
|
|
|
6,220,730
|
|
|
|
(1)
|
Consists of: 175,000 stock options granted to directors and
officers, which are fully vested, expire in May 2019 and have an exercise price of $0.17 per share.
|
Recent transactions
On October 4, 2016, the Company issued
31,251 shares of common stock to one director, and 15,625 shares of common stock to a second director as compensation for the
three months ended September 30, 2016. These shares, totaling 46,876, were valued at a per share price of $0.20, or a total of
$9,375.
On January 18, 2017, the Company
issued 2,976 shares of common stock to one director, and 5,953 shares of common stock to a second director as compensation
for the three months ended December 31, 2016. These shares, totaling 8,929 were valued at a per share price of $1.05, or a
total of $9,375.
All of the shares issued as described
above were issued in reliance on the exemption under Section 4(2) of the Securities Act, as the issuance of these shares by the
Company did not involve a public offering. The issuance of shares was not done in a “public offering” as
defined in Section 4(2) because of the small number of persons involved in the issuance, the size of the issuance, the manner
of the issuance, the number of shares issued, and the recipients are officers and/or directors of the Company. In addition,
the directors had the necessary investment intent required by Section 4(2) since they agreed to receive share certificates bearing
legends stating that the shares are restricted shares.
Private Placement of Common Stock
On April 4, 2017, the Company
completed a private placement of its common stock, selling 3,765,000 shares at $1.00 per share, for total gross proceeds of
$3,765,000. In connection with the offering, the Company paid $188,250 and issued 162,000 shares of common stock to MDB
Capital Group LLC, which acted as placement agent. The approximate transaction costs of $424,000, including $201,000 of
non-cash expenses, have been recorded as a reduction in paid-in capital. The net cash proceeds were approximately $3.5
million. The shares issued through this offering have registration rights, and it is expected that registration will be
filed within approximately forty-five days of the offering completion date. The registration rights provide for liquidated
damages upon the occurrence of certain events, including the Company’s failure to file the registration statement or
cause it to become effective by the deadline.
Penny Stock
On March 31, 2017, there were 22,056,461
shares of the Company’s common stock outstanding, as quoted on the OTCQB at $1.24 a share, giving the Company a market capitalization
of approximately $27.35 million. The SEC defines securities such as our common stock that are traded at less than $5.00
and not traded on a national securities exchange “penny stocks”. SEC rules require brokers to provide specified
information to purchasers of penny stocks, and these disclosure requirements and the requirement that brokers must make a special
written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction in advance may have the effect of reducing trading activity in the Company’s common stock and
making it more difficult for investors to sell the shares of the Company’s stock.
Item 6.
Selected Financial Data
Not applicable.
Item 7.
Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion and analysis
should be read in conjunction with the Company’s financial statements, including the notes thereto, appearing elsewhere
in this report. This discussion may contain certain forward-looking statements based on current expectations that involve
risks and uncertainties. Actual results and timing of certain events may differ significantly from those projected
in such forward-looking statements due to a number of factors, including those set forth elsewhere in this Report.
Overview
The Company was incorporated under the
name of Integrated Surgical Systems, Inc. in Delaware in 1990. It was founded to design, manufacture, sell and service image-directed,
computer-controlled robotic software and hardware products for use in orthopedic surgical procedures. On June 28, 2007, Integrated
completed the sale of substantially all of its operating assets. After completion of the sale, the Integrated no longer engaged
in any business activities and then sought to locate a suitable acquisition target to complete a business combination. From June
2007 until the closing of the Recapitalization on November 4, 2016, the Integrated was a non-active “shell company”
as defined by regulations of the SEC. As a result of the Recapitalization, on a going forward basis, the Company will continue
to file its public reports with the SEC on an operating company basis. On December 2, 2016, the corporate name was changed from
“Integrated Surgical Systems, Inc.” to “theMaven, Inc.”
theMaven Network, Inc. was incorporated
in Nevada on July 22, 2016, under the name “Amplify Media, Inc.” On July 27, 2016, the corporate name was amended
to “Amplify Media Network, Inc.” and on October 14, 2016, the corporate name was changed to “theMaven Network,
Inc.” theMaven Network, Inc. is a 100% owned subsidiary of the theMaven, Inc.
Going Concern
The Company’s consolidated financial
statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company’s activities are subject to significant risks and uncertainties,
including the need for additional capital, as described below.
The Company has not generated any
operating revenues since July 22, 2016 (Inception) and has financed its operations through (a) The Recapitalization
transaction with Parent, (b) a loan from Parent that was cancelled upon closing of the Recapitalization and (c) a private
placement of common stock in April 2017. The Company has incurred operating losses and negative operating cash flows since
July 22, 2016 (Inception), and it expects to continue to incur operating losses and negative operating cash flows for at
least the next few years. As a result, management has concluded that there is substantial doubt about the Company’s
ability to continue as a going concern, and the Company’s independent registered public accounting firm, in its report
on the Company’s consolidated financial statements, has raised substantial doubt about the Company’s ability to
continue as a going concern.
In April 2017, the Company completed a
private placement of its common stock, raising proceeds of $3,765,000 in gross proceeds. The Company believes that it does not
have sufficient funds to support its operations through the end of the first quarter of 2018. In order to continue business operations
past that point, the Company currently anticipates that it will need to raise additional debt and/or equity capital. There can
be no assurances that the Company will be able to secure any additional financing on acceptable terms and conditions, or at all.
If cash resources become insufficient to satisfy the Company's ongoing cash requirements, the Company would be required to scale
back or discontinue its technology development programs, or obtain funds, if available (although there can be no certainty), or
to discontinue its operations entirely.
Results of Operations for 2016
For the period from July 22, 2016 (Inception)
to December 31, 2016, total net loss was approximately $2,187,758, or $0.65 loss per basic and diluted share.
Operations
Results of Operations for the Company for period from
July 22, 2016 (Inception) to December 31, 2016
|
Research and development expenses
|
|
$
|
411,741
|
|
|
General and administrative expenses
|
|
$
|
1,772,169
|
|
|
Loss from operations
|
|
$
|
(2,183,910
|
)
|
Research and development expenses
In the period since its inception
on July 22, 2016 through December 31, 2016, the Company spent $951,887 including 207,217 of stock-based compensation of
which $540,146 was capitalized as Website Development Costs incurred during the application development stage and $411,741
was expensed as Research and Development Costs incurred during the preliminary project stage.
General and administrative expenses
General and administrative expenses
for the period July 22, 2016 (Inception) to December 31, 2016 were $1,772,169 including of stock based compensation of $1,037,927. Our
expenses are due to our general administrative expenses of carrying on a business, including administrative
compensation, office space lease expense, and legal and accounting expenses.
Liquidity
Working Capital
|
|
|
As of
December 31, 2016
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
719,881
|
|
|
Current Liabilities
|
|
$
|
(346,327
|
)
|
|
Working Capital
|
|
$
|
373,554
|
|
As of December 31, 2016, the Company had
working capital $373,554, $719,881 in total current assets, and $346,327 in total current liabilities.
|
|
|
Period from
Inception
July 22, 2016 to
December 31, 2016
|
|
|
Net Cash Used in Operating Activities
|
|
$
|
(1,137,913
|
)
|
|
Net Cash Provided by Investing Activities
|
|
|
518,532
|
|
|
Net Cash Provided by Financing Activities
|
|
$
|
1,217,675
|
|
|
Increase in Cash during the Period
|
|
$
|
598,294
|
|
|
|
|
|
|
|
|
Cash, End of Period
|
|
$
|
598,294
|
|
From inception on July 22, 2016 to December
31, 2016, net cash used in operating activities was $1,137,913.
We anticipate needing a substantial amount
of additional capital to sustain our current operations and implement the current business plan of the Company as now budgeted.
We do not believe that the proceeds of the private placement of common stock completed on April 4, 2017, will be sufficient to
allow us to implement our business plan to the point where our revenues will cover our operating costs and the expansion of our
offerings. Without additional funding, we will have to modify our longer-term business plan. The funds that we will need may be
raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership
of our shares. We anticipate thereafter that we will need additional capital as we expand our operations, and do not anticipate
that our income will cover our full operating expenses for the foreseeable future. We have no contracts or arrangements for any
additional funding at this time. There can be no assurance that we will be able to raise any funding or will be able to meet our
accrued obligations. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our
operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced
to scale down or perhaps even cease our operations. These estimates may change significantly depending on the nature of our business
activities and our ability to raise capital from our shareholders or other sources.
There are no assurances that we will be
able to obtain further funds required for our continued operations. We will pursue various financing alternatives to meet our
immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when
needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other
obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.
Contractual Obligations
As a “smaller reporting company”,
we are not required to provide tabular disclosure obligations.
Off-Balance Sheet Arrangements
The Company does not have any off-balance
sheet arrangements, including any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap
transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Seasonality
Once we are actively providing services
to our customer base, we expect to experience typical media company ad and sponsorship sales seasonality, which is strong in the
fourth quarter and slower in the first quarter.
Effects of Inflation
To date inflation has not had a material
impact on our business or operating results.
Significant Accounting Policies and
Estimates
The Company’s discussion and analysis
of the financial condition and results of operations is based upon the Company’s audited financial statements included elsewhere
in this Report, which have been prepared in accordance with generally accepted accounting principles in the United States of America
(“GAAP”). The Company believes the following critical accounting policies affect the Company’s 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.
Principles of Consolidation
The accompanying consolidated financial statements include
the financial position, results of operations and cash flows of Subsidiary for the period from July 22, 2016 (Inception) to December
31, 2016 and that of Integrated after the Closing (see Note 2). All intercompany transactions and balances have been eliminated
in consolidation.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses for the reporting period. Actual results could materially
differ from those estimates.
Fixed Assets
Fixed assets are recorded at cost. Major
improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from disposition
of property and equipment are included in income and expense when realized. Depreciation and amortization are provided using the
straight-line method over the following estimated useful lives:
|
Office equipment and computers
|
3-5 years
|
|
Furniture and fixtures
|
5-8 years
|
|
Website development costs
|
2-3 years
|
Intangible Assets
The intangible assets consist of the cost
of a purchased website domain name with an indefinite useful life.
Impairment of Long-Lived Assets
The long-lived assets, consisting of fixed
assets and intangible assets, held and used by the Company are reviewed for impairment no less frequently than annually or whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts
and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed.
Management has determined that there was no impairment in the value of long-lived assets during the period ended December 31,
2016.
Website Development Costs
In accordance with authoritative guidance,
the Company begins to capitalize website and software development costs for internal use when planning and design efforts are
successfully completed and development is ready to commence. Costs incurred during planning and design, together with costs incurred
for training and maintenance, are expensed as incurred and recorded in research and development expense within the consolidated
statement of comprehensive loss. The Company places capitalized website and software development assets into service and commences
depreciation/amortization when the applicable project or asset is substantially complete and ready for its intended use. Once
placed into service, the Company capitalizes qualifying costs of specified upgrades or enhancements to capitalized website and
software development assets when the upgrade or enhancement will result in new or additional functionality.
The Company capitalizes internal labor
costs, including compensation, benefits and payroll taxes, incurred for certain capitalized website and software development projects
related to the Company’s technology platform. The Company’s 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.
Research and Development
Research and development costs are
charged to operations in the period incurred and amounted to $411,741 for the period from July 22, 2016 (Inception) to
December 31, 2016.
Fair Value Measurements
Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 820
“Fair Value Measurements and Disclosures”
clarifies that fair value
is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions
that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, FASB ASC 820
establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
|
|
·
|
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for
identical assets or liabilities in active markets.
|
|
|
·
|
Level 2 - Include other inputs that are directly or indirectly
observable in the marketplace.
|
|
|
·
|
Level 3 - Unobservable inputs which are supported by little
or no market activity.
|
The fair value hierarchy also requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
In accordance with FASB ASC 820, the Company
measures its derivative liability at fair value. The Company’s derivative liability is classified within Level 3.
The carrying value of other current assets
and liabilities are considered to be representative of their respective fair values because of the short-term nature of those
instruments.
Concentrations of Credit Risk
Cash
The Company maintains cash at a bank where
amounts on deposit may exceed the Federal Deposit Insurance Corporation limit throughout the year. The Company has not experienced
losses in such accounts and believes it is not exposed to significant credit risk regarding its cash.
Stock-based Compensation
The Company provides stock-based compensation in the form of
(a) restricted stock awards to employees, (b) vested stock grants to directors, (c) stock option grants to employees, directors
and independent contractors, and (d) common stock warrants to Channel Partners and other independent contractors.
The Company applies FASB ASC 718, “Stock Compensation,”
when recording stock based compensation to employees and directors. The estimated fair value of stock based awards is recognized
as compensation expense over the vesting period of the award. We have adopted ASU 2016-09 in 2016 with early application and account
for actual forfeitures of awards as they occur.
The fair value of restricted stock awards by Subsidiary at Inception
was estimated on the date of the award using the exchange value used by Integrated and the Subsidiary to establish the relative
voting control ratio in the Recapitalization.
Restricted stock that was subject to
an escrow arrangement and/or a performance condition in conjunction with the Recapitalization was remeasured and fair value
was estimated using the quoted price of our common stock on the date of the Recapitalization. The Company uses a Monte Carlo
simulation model to determine the number of shares expected to be released from the performance condition escrow.
The fair value of fully vested stock awards is estimated using
the quoted price of our common stock on the date of the grant. The fair value of stock option awards is estimated at grant date
using the Black-Scholes option pricing model that requires various highly judgmental assumptions including expected volatility
and option life.
The Company accounts for stock issued to non-employees in accordance
with provisions of FASB ASC 505-50, “Equity Based Payments to Non-Employees.” FASB ASC 505 -50 states that equity instruments
that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliability measurable. The measurement date occurs as of
the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which
the performance necessary to earn the equity instruments is complete (that is, the vesting date). Equity grants with performance
conditions that do not have sufficiently large disincentive for non-performance may be measured at fair value that is not fixed
until performance is complete. The fair value of common stock warrants is estimated at grant date using the Black-Scholes option
pricing model that requires various highly judgmental assumptions including expected volatility and option life. The Company recognizes
expense for equity based payments to non-employees as the services are received. The Company has specific objective criteria, such
as the date of launch of a Channel on the Company’s platform, for determination of the period over which services are received
and expense is recognized.
The Company uses a Monte Carlo simulation model to determine
the number of shares expected to be earned by Channel Partners based on performance obligations to be satisfied over a defined
period which will commence at the launch of a Channel on the Company’s platform.
The Company issues common stock upon exercise of equity awards
and warrants.
Income Taxes
The Company recognizes the tax effects
of transactions in the year in which such transactions enter into the determination of net income regardless of when reported
for tax purposes. Deferred taxes are provided in the financial statements to give effect to the temporary differences which may
arise from differences in the bases of fixed assets, depreciation methods and allowances based on the income taxes expected to
be payable in future years. Deferred tax assets arising primarily as a result of net operating loss carry-forwards, and research
and development credit have been offset completely by a valuation allowance due to the uncertainty of their utilization in future
periods.
The Company recognizes interest accrued
relative to unrecognized tax benefits in interest expense and penalties in operating expense. During the period from July 22,
2016 (Inception) to December 31, 2016, the Company recognized no income tax related interest and penalties. The Company had no
accruals for income tax related interest and penalties at December 31, 2016.
Basic and Diluted Loss per Common Share
Basic income or loss per share is computed
using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common
stock equivalent shares, such as options, restricted stock, and warrants. Restricted stock is considered outstanding and included
in the computation of basic income or loss per share when underlying restrictions expire and the shares are no longer forfeitable.
Diluted income per share is computed using the weighted average number of common shares outstanding and common stock equivalent
shares outstanding during the period using the treasury stock method. Common stock equivalent shares are excluded from the computation
if their effect is anti-dilutive. Unvested but outstanding restricted stock (which are forfeitable) are included in the diluted
income per share calculation. In a period where there is a net loss, the diluted loss per share is computed using the basic share
count. At December 31, 2016, potentially dilutive shares outstanding amounted to 14,510,126.
Risks and Uncertainties
The Company has a limited operating history
and has not generated revenue to date. The Company's business and operations are sensitive to general business and economic conditions
in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and
equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond the Company's control
could cause fluctuations in these conditions. Adverse developments in these general business and economic conditions could have
a material adverse effect on the Company's financial condition and the results of its operations.
In addition, the Company will compete
with many companies that currently have extensive and well-funded projects, marketing and sales operations as well as extensive
human capital. The Company may be unable to compete successfully against these companies. The Company's industry is characterized
by rapid changes in technology and market demands. As a result, the Company's products, services, and/or expertise may become
obsolete and/or unmarketable. The Company's future success will depend on its ability to adapt to technological advances, anticipate
customer and market demands, and enhance its current technology under development.
Recently Adopted Standards
In August 2014, the FASB issued Accounting
Standards Update No. 2014-15 (ASU 2014-15), Presentation of Financial Statements — Going Concern (Subtopic 205-10). ASU
2014-15 provided guidance as to management’s responsibility to evaluate whether there is substantial doubt about an entity’s
ability to continue as a going concern and to provide related footnote disclosures. In connection with preparing these consolidated
financial statements management evaluated whether there are conditions or events, considered in the aggregate, that raise substantial
doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements
are issued. As fully described in Note 3 of the consolidated financial statements, the Company believes that it does not have
sufficient funds to support its operations through the end of first quarter of 2018.
In March 2016, the FASB issued ASU
2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
ASU 2016-09 changes how companies account for certain aspects of share-based payment awards to employees, including the
accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the
statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, including
interim periods within those annual periods. Management has adopted this standard early in 2016 and it did not have a
material effect on the financial statements and related disclosures.
Recent Issued Accounting Pronouncements
In November 2015, the FASB issued Accounting
Standards Update No. 2015-17 (ASU 2015-17), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU
2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.
ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim
periods within those annual periods. Earlier application is permitted as of the beginning of an interim or annual reporting period.
The adoption of ASU 2015-17 is not expected to have any impact on Company’s financial statement presentation or disclosures.
In February 2016, the FASB issued ASU
2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU 2016-02
is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding
lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or operating, with
classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted.
ASU 2016-02 is required to be applied with a modified retrospective approach to each prior reporting period presented with various
optional practical expedients. The Company is currently assessing the potential impact of adopting ASU 2016-02 on its financial
statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 refines how
companies classify certain aspects of the cash flow statement in regards to debt prepayment, settlement of debt instruments, contingent
consideration payments, proceeds from insurance claims and life insurance policies, distribution from equity method investees,
beneficial interests in securitization transactions and separately identifiable cash flows. ASU 2016-15 is effective for
annual periods beginning after December 15, 2017, and interim periods within those fiscal years. No early adoption is permitted.
Management is currently assessing the potential impact of adopting ASU 2016-15 on the financial statements and related disclosures.
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (ASC 606) - Revenue from
Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. This ASU will supersede
the revenue recognition requirements in Topic 605, and most industry specific guidance. The standard's core principle is that
revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity
should apply the following steps:
Step 1: Identify the contract(s) with
a customer
Step 2: Identify the performance obligations
in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price
to the performance obligations in the contract.
Step 5: Recognize revenue when (or as)
the entity satisfies a performance obligation.
The guidance in ASU 2014-09 also specifies
the accounting for some costs to obtain or fulfill a contract with a customer. ASC 606 requires the Company to make significant
judgments and estimates. ASC 606 also requires more extensive disclosures regarding the nature, amount, timing and uncertainty
of revenue and cash flows arising from contracts with customers.
The FASB has also issued several additional
ASUs which amend ASU 2014-09. The amendments do not change the core principle of the guidance in ASC 606.
Public business entities are required
to apply the guidance of ASC 606 to annual reporting periods beginning after December 15, 2017 (2018 for calendar year end reporting
companies), including interim reporting periods within that reporting period. Early adoption is permitted.
The Company has not yet estimated
the financial statement impact of the expected changes. The Company will continue to assess the impact of ASC 606 as it works
through the adoption in 2017.
Management believes
that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would not have a material
impact on the Company’s consolidated financial statement presentation or disclosures.
Item 7A.
Quantitative and Qualitative
Disclosures about Market Risk
Not required of smaller reporting companies.
Item 8.
Financial Statements
and Supplementary Data
The information that appears following
Item 15 of this Report is incorporated herein.
Item 9.
Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports filed or submitted under the Securities and Exchange Act of 1934, as amended
(“Exchange Act”) is recorded, processed, summarized and reported, within the time period specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer. We carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures as of December 31, 2016 (the “Evaluation Date”). Based upon the evaluation
of our disclosure controls and procedures as of the Evaluation Date, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were not effective because of the identification of material weaknesses in our internal
control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.
Management’s Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Our internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide
only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations.
Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Smaller reporting companies
tend to utilize general accounting software packages that lack a rigorous set of software controls.
Our management, with the participation of the Chief Executive
Officer and Chief Financial Officer evaluated the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2016. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Based on that
evaluation, our management concluded that, as of December 31, 2016, our internal controls over financial reporting were ineffective
because: (1) the Company lacks a functioning audit committee resulting in ineffective oversight in the establishment and monitoring
of required internal controls and procedures; (2) the Company has inadequate segregation of duties consistent with control objectives;
(3) the Company engages independent consultants for significant financial reporting activities and determinations, (4) the Company
does not engage persons with substantive GAAP experience or training and engages third party consultants for critical GAAP analysis
and valuation assessments in the preparation of its financial statements, and (5) the Company has ineffective controls over its
period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive
Officer and Chief Financial Officer in connection with the review of our financial statements as of December 31, 2016.
This Annual Report does not include an attestation report of
the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities
and Exchange Commission that permanently exempt smaller reporting companies from such requirement.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the fourth quarter of our fiscal year ended December 31, 2016, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information
None
Part III
Item 10.
Directors, Executive Officers and Corporate
Governance
Set forth below is information regarding the current directors
and executive officers of theMaven. Directors are to be elected each year by our stockholders at an annual meeting. Each director
holds his office until his successor is elected and qualified or resignation or removal. Executive officers are appointed by our
board of directors. Each executive officer holds his office until he resigns or is removed by the board of directors or his successor
is appointed and qualified.
|
Name
|
|
Age
|
|
Title
|
|
James C. Heckman
|
|
51
|
|
President, Chief Executive Officer and Director
|
|
Gary Schuman
|
|
49
|
|
Chief Financial Officer
|
|
William Sornsin
|
|
55
|
|
Chief Operating Officer and Secretary
|
|
Benjamin Joldersma
|
|
38
|
|
Chief Technology Officer
|
|
Ross Levinsohn
|
|
53
|
|
Director
|
|
Christopher Marlett
|
|
52
|
|
Director
|
|
Robert M. Levande
|
|
68
|
|
Director
|
|
Peter Mills
|
|
61
|
|
Director
|
Biographical Information on Officers and Directors
Each of the directors on our Board of Directors was elected
because he has demonstrated an ability to make meaningful contributions to our business and affairs, has a reputation for honesty
and ethical conduct, has strong communication and analytical skills, and has skills, experience and background that are complementary
to those of our other Board members. Messrs. Marlett and Levande have extensive financing and investment banking experience and
other managerial experience with development and early stage operating companies and helping those companies define their business
strategies and implementing business plans. Messrs. Heckman and Levinsohn have extensive experience in the media, internet media,
advertising and online communities, which are the business focuses of the Company. Mr. Mills has decades of experience in the
high-technology products businesses and involvement with early stage companies.
James C. Heckman
has been the
Chief Executive Officer and President and a director of the Company since November 2016, and was the Chief Executive Officer
and President and a director of theMaven from July 2016. Mr. Heckman has extensive experience in Internet media, advertising,
video and online communities. He was the CEO of North American Membership Group, Inc., including its subsidiary Scout Media,
Inc., from October 2013 to May 2016, and Chairman of the Board from May 2016 to July 2016. From April, 2011 to August, 2012,
Mr. Heckman served as Head of Global Media Strategy for Yahoo!, leading all significant transactions and revenue strategy
under Ross Levinsohn, where he architected the AOL/MSN/Yahoo! partnership. He was previously Founder and CEO of 5to1, an
advertising platform, from August, 2008 through its 2011 sale to Yahoo!; Chief Strategy Officer of Zazzle.com 2007-2008;
Chief Strategy Officer at FOX Interactive Media 2005 2007, where he architected the Myspace/Google ad alliance and was
instrumental in the formation of what is now Hulu; Founder/CEO of Scout.com, from April 2001 through to its sale to Fox in
September 2005; Founder/CEO of Rivals.com from 1997 to 2000; and President and Publisher of NFL Exclusive, official
publication for every NFL team, from 1991 to 1998. He holds a Bachelor of Arts in Communications from the University of
Washington.
Gary Schuman
has been the
Chief Financial Officer of the Company since November 2016, and was the Chief Financial Officer of Integrated from January
2010 through November 2016. Mr. Schuman has been the Chief Financial Officer and Chief Compliance Officer of MDB
Capital Group LLC since November 2009, and has been Chief Financial Officer of Imagen Biopharma, Inc. since January
2015. From November 2014 to November 2015, he was the Chief Financial Officer of Electroblate, Inc., now Pulse
Biosciences, Inc. From September 2003 to November 2009, he was the Chief Financial Officer and Chief Compliance Officer of
USBX Advisory Services, LLC, an investment banking firm focused on mergers and acquisitions, and Chief Financial Officer of
its parent company, USBX, Inc. Prior to 2003 he held supervisory positions at several securities broker-dealers in Los
Angeles. Mr. Schuman earned a Bachelor of Arts degree in Economics from UCLA and a Masters of Business Administration from
the Marshall School of Business at the University of Southern California.
William Sornsin
has been the
Chief Operating Officer of theMaven since July 2016 and became the Chief Operating Officer of Integrated at the
Recapitalization. Mr. Sornsin was CTO of North American Membership Group, Inc., including its subsidiary Scout Media, Inc.
from October, 2013 to January 2016, and COO from January 2016 to July 2016. Mr. Sornsin ran MSN's Core Technology team before
joining Heckman in 1999 as co-founder and CTO of Rivals.com. In 2001 he became co-founder and CTO and COO for the original
Scout.com, and served as VP Engineering and Operations at Fox Interactive Media after Scout's 2005 acquisition. Prior to
Rivals and Scout, Sornsin held a variety of product and program management roles at Microsoft. He holds a Bachelor of
Science in Electrical/Computer Engineering from the University of Iowa and a Masters of Business Administration from
UCLA.
Benjamin Joldersma
has
been the Chief Technology Officer of the Company since November 2016 and of theMaven since July 2016. Mr. Joldersma has
developed a deep expertise in large-scale systems, rapid development and online product innovation. He was CTO of North
American Membership Group, Inc., including its subsidiary Scout Media, Inc., from January, 2016 to July 2016, and Chief
Product Officer (responsible for product vision and all software engineering) from October 2013 to January 2016. Mr.
Joldersma was a Senior Software Engineer at Google from December 2012 to October 2013, working on imagery related products
under the Geo organization, and Principal Software Engineer at Yahoo! from June 2011 to December 2012, working on advertising
platform technology. He was System Architect at 5to1 from August 2008 through its June 2011 sale to Yahoo!. Earlier Mr.
Joldersma held software architecture and engineering positions at Skull Squadron from 2007to2009 (also its founder);
All-In-One Creations from 2004to2007 (co-founder); aQuantive in 2006 (contract position); Pacific Edge Software in 2005;
Scout.com from 2001 to2005; Rivals.com from 1999 to2001; and Microsoft from 1998 to1999 (contract position). He studied
Computer Science at the University of Puget Sound.
Ross Levinsohn
has been a
director of the Company since November 2016. Mr. Levinsohn also serves as a director of Tribune Media company, a diversified
media and entertainment business. Previously, Mr. Levinsohn served as chief executive officer at Guggenheim Digital Media, an
affiliate of Guggenheim Securities, from January 2013 to June 2014. Mr. Levinsohn served as interim chief executive officer
from May 2012 to August 2012 and executive vice president, head of global media at Yahoo! Inc., a multinational internet
company, from March 2012 to August 2012. Prior to that post he was executive vice president of the Americas region for Yahoo
from October 2010 until 2012. Mr. Levinsohn co-founded Fuse Capital, an investment and strategic equity management firm
focused on investing in and building digital media and communications companies. Prior to Fuse Capital, Mr. Levinsohn served
as President of Fox Interactive Media, a wholly owned unit of News Corporation. Prior to this post, he served as senior vice
president and general manager of Fox Sports Interactive Media. Mr. Levinsohn also held senior management positions with
AltaVista, CBS Sportsline and HBO. Mr. Levinsohn currently serves on the board of Zefr, Inc., which provides solutions for
professional content owners on YouTube, and the National Association of Television Program Executives (NATPE), and previously
held board positions with Freedom Communications, Inc., Napster, Inc., Generate, BBE Sound, Crowd Fusion and True/Slant. Mr.
Levinsohn received a Bachelor of Arts in Broadcast Communications from American University.
Christopher A. Marlett
has
been a director of the Company since April 2008, and was the Chief Executive Officer from April 2008 through November
2016. Mr. Marlett is, and has been since 1997, the co-founder, chairman and Chief Executive Officer of MDB Capital
Group LLC (“MDB”), an investment banking firm focused on equity financings and capital formation for
growth-oriented technology companies. Mr. Marlett has over twenty-seven years of investment banking experience,
including all phases of corporate finance, such as the completion of initial public offerings, secondary offerings, PIPEs and
strategic consulting. He holds a Bachelor of Science degree in Business Administration from the University of Southern
California.
Robert M. Levande
has been a
director of the Company since April 2008, and was the Secretary of the Company from July 2008 to November
2016. Mr. Levande was a Managing Director at MDB from June 2003 through 2010, and he has been a Senior Managing
Director since 2010. From April 2002 to April 2003, he was a Managing Director of Gilford Securities, Inc. an
investment firm. Previously, Mr. Levande founded and served as president of the Palantir Group, Inc., a private
consulting firm specializing in providing strategic advice to entrepreneurs in the medical technology
industry. From 1972 to 1998, he held various managerial positions with Pfizer, Inc., including Vice
President-Business Analysis & Development of its Medical Technology Group and Senior Vice President of a
subsidiary, Howmedica, Inc. Mr. Levande was a Director of Orthovita, Inc. from 2000 to 2007, co-founder and a
Director of VirnetX Inc., now VirnetX Holding Corp., from 2005 to 2007, and has been a Director of Pulse Biosciences, Inc., a
publicly traded company, since 2014, Chairman of the Board since July 2015, and an officer of Pulse Biosciences, Inc. from
May 2014 to September 2015. He received his Bachelor of Science degree from the Wharton School of Finance and Commerce of the
University of Pennsylvania and his Masters of Business Administration degree from Columbia University.
Peter B. Mills
has been
a director of the Company since September 2006. Mr. Mills is an entrepreneur in the San Francisco Bay Area. He was CEO
of Cimbal, Inc., a startup company developing a mobile payments system in Los Altos, CA, from June 2014 to December 2015.
From May 2004 until December 2012, he was Vice President of Sales at Speck Design, a leading product design firm with offices
in Palo Alto, California. From July 2007 to April 2008, Mr. Mills served as President, Chief Executive
Officer, and Chairman of the Board of Integrated. He has spent 15 years selling sophisticated industrial robotics
and automation systems with Adept Technology, the leading U.S. manufacturer of industrial robots, and Hewlett-Packard
Company. He has also served as the Vice President of Sales from October 2000 to September 2001 at Softchain, an enterprise
supply chain software company acquired by RiverOne, Inc. in 2001, which was later acquired by i2 Technologies, Inc.
in 2006. Mr. Mills has significant experience with respect to the design and manufacturing needs of a variety
of industries including medical devices, disk drives, consumer products, food packaging, printers, computers and networking,
and semiconductor equipment. He has extensive international business experience in Japan, Singapore, and Korea. Mr. Mills
earned a Masters of Business Administration from Harvard Business School and an A.B. in engineering, cum laude, from
Dartmouth College.
Section 16(a) Beneficial Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s
officers, directors, and persons who own more than ten percent of a class of the equity securities of the Company that is registered
pursuant to Section 12 of the Exchange Act within specified time periods to file certain reports of ownership and changes in ownership
with the SEC. Officers, directors and ten-percent stockholders are required by regulation to furnish the Company with copies of
all Section 16(a) forms they file. Based solely on a review of copies of the reports furnished to the Company and written representations
from persons concerning the necessity to file these reports, the Company is not aware of any failure to file reports or report
transactions in a timely manner including during the period from January 1, 2016 through December 31, 2016.
Board; Committees of the Board of Directors; Financial Expert;
and Independence
The board of directors is currently composed of five persons.
The Company does not have securities listed on a national securities exchange or in an inter-dealer quotation system that has
director independence or committee independence requirements. Accordingly, the Company is not required to comply with any director
independence requirements.
Notwithstanding the foregoing lack of applicable independence
requirements, the board of directors currently has three members that qualify as "independent" as the term is used in
Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and Rule 5605 of The Nasdaq Stock Market
Listing Rules. These persons are Mr. Ross Levinsohn, Mr. Robert Levande, and Mr. Peter B. Mills.
We are not required to have and we do not have currently an
Audit Committee. The Company's board of directors performs the same functions of an Audit Committee, including: recommending a
firm of independent certified public accountants to audit the financial statements; reviewing the auditors' independence, the
financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls.
The Company does not currently have a written audit committee charter or similar document.
Although we do not have and are not required to have an Audit
Committee, the directors have determined that Mr. Robert Levande and Mr. Peter Mills qualify as an “audit committee financial
expert.” This director has financial statement preparation and interpretation ability obtained over the years from past
business experience and education.
Our board of directors currently does not have nominating or
compensation committees nor does it have a written nominating or compensation committee charter. Our directors believe that it
is not necessary to have such committees, at this time, because the functions of such committees can be adequately performed by
the board of directors.
Code of Ethics
A Code of Ethics that applies to the executive officers and
the other employees of the Company, was approved and adopted by the Board of Directors on April 8, 2004. Copies of the Code of
Ethics may be obtained free of charge by written request to theMaven, Inc., attention Chief Financial Officer, 2125 Western Avenue,
Suite 502, Seattle, WA 98121.
Conflict of Interest
We have not adopted any policies or procedures
for the review, approval, or ratification of any transaction between the Company and any executive officer, director, nominee
to become a director, 10% shareholder, or family member of such persons, required to be reported under paragraph (a) of Item 404
of Regulation S-K promulgated by the SEC.
Limitation of Liability of Directors and Indemnification
of Directors and Officers
The Delaware General Corporation Law provides that corporations
may include a provision in their certificate of incorporation relieving directors of monetary liability for breach of their fiduciary
duty as directors, provided that such provision shall not eliminate or limit the liability of a director (i) for any breach of
the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for unlawful payment of a dividend or unlawful stock purchase
or redemption, or (iv) for any transaction from which the director derived an improper personal benefit. Our certificate of incorporation
provides that directors are not liable to us or our stockholders for monetary damages for breach of their fiduciary duty as directors
to the fullest extent permitted by Delaware law. In addition to the foregoing, our bylaws provide that we may indemnify directors,
officers, employees or agents to the fullest extent permitted by law and we have agreed to provide such indemnification to each
of our directors.
The above provisions in our certificate of incorporation and
bylaws and in the written indemnity agreements may have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their
fiduciary duty, even though such an action, if successful, might otherwise have benefited us and our stockholders. However, we
believe that the foregoing provisions are necessary to attract and retain qualified persons as directors.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
Item 11.
Executive Compensation
The following table sets forth, for the period from July 22,
2016 (Inception) through December 31, 2016, the compensation awarded to, earned by or paid to those persons who were the Company’s
Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and Chief Technology Officer in 2016 (collectively,
the “Named Executive Officers”). There were no other executive officers of the Company whose total salary
and bonus exceeded $100,000 for the period from July 22, 2016 (Inception) through December 31, 2016.
Summary Compensation Table
Name and
Principal Position
|
|
Year
|
|
Stock
Awards
(1), (2), (3) & (6)
|
|
|
Option
Awards
|
|
|
All Other
Compensation
|
|
|
Total
Compensation
(4)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James C. Heckman (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
2016
|
|
$
|
817,819
|
|
|
$
|
-
|
|
|
$
|
137,503
|
|
|
$
|
955,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary A. Schuman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
2016
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
5,700
|
|
|
$
|
5,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Sornsin (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Operating Officer
|
|
2016
|
|
|
359,345
|
|
|
$
|
-
|
|
|
$
|
114,584
|
|
|
$
|
473,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benjamin Joldersma (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Technology Officer
|
|
2016
|
|
|
408,910
|
|
|
$
|
-
|
|
|
$
|
114,584
|
|
|
$
|
523,494
|
|
|
|
(1)
|
Mr. Heckman, Chief Executive Officer, exchanged approximately $1,000 for 4,094,708 shares
at Inception
on August 1, 2016. These shares are subject to repurchase agreement entered
into at the time of the Recapitalization of November 4, 2016, providing that if he leaves
employment of the Company prior to three years. These shares vest over the three-year
service period with one-third vesting after the one year anniversary and the balance
ratably over the remaining 24 months.
|
|
|
(2)
|
Mr. Sornsin, Chief Operating Officer, exchanged approximately $400 for 1,799,191 shares at
Inception on August 1, 2016. These shares are subject to repurchase agreement entered
into in August 2016, providing that if he leaves employment of the Company prior to three
years. These shares vest over the three-year service period with one-third vesting after
the one year anniversary and the balance ratably over the remaining 24 months.
|
|
|
(3)
|
Mr. Joldersma, Chief Technology Officer, exchanged approximately $500 for 2,047,354 shares at
Inception on August 1, 2016. These shares are subject to repurchase agreement entered
into in August 2016, providing that if he leaves employment of the Company prior to three
years. These shares vest over the three-year service period with one-third vesting after
the one year anniversary and the balance ratably over the remaining 24 months.
|
|
|
(4)
|
The compensation set forth in the
above table is for the period from July 22, 2016 (Inception) through December 31, 2016.
|
|
|
(5)
|
Mr. Schuman’s compensation
is for the period from November 4, 2016 through December 31, 2016.
|
|
|
(6)
|
The fair value of the stock awards was estimated for financial reporting purposes under ASC
718 using the exchange value used by Integrated and the subsidiary to establish the relative voting control ratio in the
Recapitalization. See also Note 2, Note 8 and Note 9 in the Consolidated Financial Statements.
|
Employment Agreements
The Company entered into an employment agreement with Mr. James
C. Heckman with an expiration date in July 2019. The agreement provides that he will act as the Chief Executive Officer, President
and a director of the Company. Mr. Heckman will be paid a salary of $300,000 per annum and is entitled to the regular employee
benefits of the company and reimbursement of business expenses. He also may be awarded merit based performance increases. The
agreement provides for various termination events under which he is entitled to one year’s severance equal to his annual
salary amount. He is also subject to restrictive covenants on competitive employment for up to two years so long as he is paid
his annual salary amount and for up to one year for non-solicitation of employees, customers and vendors of the company.
The Company entered into an employment agreement with Mr. William
Sornsin with an expiration date in July 2019. The agreement provides that he will act as the Chief Operating Officer of the Company.
Mr. Sornsin will be paid a salary of $250,000 per annum and is entitled to the regular employee benefits of the company and reimbursement
of business expenses. He also may be awarded merit based performance increases. The agreement provides for various termination
events under which he is entitled to three month’s severance at a rate equal to his monthly salary amount. He is also subject
to restrictive covenants on competitive employment for up to two years so long as he is paid his annual salary amount and for
up to one year for non-solicitation of employees, customers and vendors of the company.
theMaven entered into an employment agreement with Mr. Benjamin
Joldersma with an expiration date in July 2019. The agreement provides that he will act as the Chief Technology Officer of theMaven
Network. Mr. Joldersma will be paid a salary of $250,000 per annum and is entitled to the regular employee benefits of the company
and reimbursement of business expenses. He also may be awarded merit based performance increases. The agreement provides for various
termination events under which he is entitled to three month’s severance at a rate equal to his monthly salary amount. He
is also subject to restrictive covenants on competitive employment for up to two years so long as he is paid his annual salary
amount and for up to one year for non-solicitation of employees, customers and vendors of the company.
All employees of the Company who were
employed by theMaven Network, Inc. prior to the Recapitalization and have shares in the Company as a result of the
Recapitalization have entered into stock agreements which permit the Company to repurchase some of their share of common
stock received in the Recapitalization if they leave employment prior to their third anniversary of employment. The
repurchase payment amount is nominal. The repurchase agreement permits the Company to buy back all the shares prior to
the one year anniversary of employment, and thereafter two thirds of the shares less 1/36th for each month of employment
after the one year anniversary. Each of these persons has also signed a one year lock up of any shares that they own in the
Company, which expires on the one year anniversary of the consummation of the Recapitalization. The repurchase agreements
also provide to the Company or its assignee a right of first refusal on the shares. All shares are held in escrow so as to be
able to allow enforcement of the foregoing repurchase right of the Company, and additionally, 35% of the shares are held in
escrow for the indemnification provisions of the Share Exchange Agreement and performance conditions of that agreement for a
one year period after the Recapitalization.
All employees of theMaven have entered into employment letters
which set forth their salary amounts and entitlement to benefits. Additionally, each person has also entered into an Employee
Confidentiality and Proprietary Rights Agreement. This latter agreement also provides that the person may not work for certain
designated competitors for a 12-month period after termination of employment. The provisions of the agreement also contain work
for hire provisions and assignment of inventions, but the latter are subject to Washington state law provisions that may limit
the Company right to inventions developed by the employee using its own resources on non-company time. The agreement also imposes
limitations on disparagement and publicity by the employee. Independent contractors have similar provisions for the protection
of the Company during the course and after their engagement by the company.
Director Compensation
We compensate our non-employee directors with cash fees and/or
equity awards. We do not plan at this time to provide additional compensation for any committee participation, if there are committees
of the board of directors. A director who is also one of our executives or employees, including employed through our subsidiary,
does not and will not receive any additional compensation for these services as a director while providing service as an executive
or employee. In those instances, directors that are also named executive officers of the Company will have their total compensation
reported in the summary compensation table that otherwise provided in our public reports.
Director Compensation Table
The table below reflects the compensation
paid to directors during the period from July 22, 2016 (Inception) through December 31, 2016.
|
Name of Director(1)
|
|
Fees
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter B. Mills
|
|
$
|
4,167
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert M. Levande (2)
|
|
$
|
2,084
|
|
|
$
|
2,083
|
|
|
$
|
-
|
|
|
$
|
4,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher A. Marlett (3)
|
|
$
|
-
|
|
|
$
|
4,167
|
|
|
|
-
|
|
|
$
|
4,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ross Levinsohn
|
|
$
|
12,500
|
|
|
$
|
49,252
|
|
|
$
|
-
|
|
|
$
|
61,752
|
|
|
|
(1)
|
Mr. Heckman is a Named Executive Officer, and in
accordance with SEC rules, his compensation as a director is included in the “Summary Compensation Table” above.
|
|
|
(2)
|
Mr. Levande has elected to
receive one half of his quarterly fee in the form of shares of common stock of the Company. The number of shares
issued was determined by dividing, for each quarter, the compensation earned by the closing price of the Company’s stock
as of the issue date.
|
|
|
(3)
|
Mr. Marlett has elected to
receive his quarterly fee in the form of shares of common stock of the Company. The number of shares issued was
determined by dividing, for each quarter, the compensation earned by the closing price of the Company’s stock as of
the issue date.
|
Equity Awards
The Company has adopted an equity award
plan for the company and its subsidiaries, which will be used to supplement the cash compensation of its directors, officers, employees
and consultants, so as to tie a portion of their compensation to the overall success of the Company. On December 19, 2016, the
Company’s Board of Directors approved the 2016 Stock Option Plan, which authorizes the issuance of up to a maximum of 1,670,867
shares of Common Stock. The Company has issued awards to its employees and consultants for up to 1,224,137 shares of common stock.
The awards vest over three years, have a per share exercise price ranging from $1.02 per share to $1.23 per share, and expire during
the period from December 28, 2026 to May 1, 2027. The shareholders have not yet approved this plan.
On December 19, 2016,
the Company’s Board of Directors approved a program to be administered by management that authorized the Company to
issue up to 5,000,000 shares of common stock pursuant to warrants to provide equity incentive to its Channel Partners in
order to motivate and reward them for their services to the Company and to align the interests of the Channel Partners with
those of the stockholders of the Company. The Company in late December 2016 issued awards has issued awards to six of the
Channel Partners for up to 350,000 shares of common stock with an average exercise price of. The awards vest over three
years, have a per share exercise price ranging from $0.95 to $1.09 with a weighted average of $1.05, and expire in five years
from issuance. From January 1, 2017 to May 5, 2017 the Company has issued warrants to Channel Partners for an additional
1,725,000 shares of common stock with an average exercise price of $1.14 and ranging from $1.00 to $1.33. In addition to the
three-year vesting condition, the warrants have performance conditions that determine how many warrants are earned. The
performance conditions are generally based on the average number of unique visitors on the Channel operated by the Channel
Partner or the revenue generated during the period from July 1, 2017 to December 31, 2017. These performance conditions do
not have sufficiently large disincentive for non-performance such that the fair value measure is not fixed until performance
is complete as of December 31, 2017.
The Company recognizes expense for equity based payments
to non-employees as the services are received. The Company has specific objective criteria, such as the date of launch
on the Company’s platform, for determination of the period over which services are received and expense is
recognized. This program has not been approved by the shareholders of the Company.
In addition to the equity awards under the foregoing 2016 plan
and Channel Partner program, the Company also has outstanding options not issued under any plan issued to directors to acquire
175,000 shares of common stock, which are fully vested, with an exercise price of $0.17 per share and expire on May 15, 2019.
Outstanding Equity Awards at 2016 Fiscal Year-End
The following table provides information concerning options
to purchase shares of the Company’s common stock held by the Named Executive Officers on December 31, 2016.
|
|
|
Option Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
|
|
|
Option Exercise
Price
($)
|
|
|
Option
Expiration Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary A. Schuman
|
|
|
100,000
|
|
|
$
|
0.17
|
|
|
5/15/2019
|
Item 12.
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The following table sets forth information regarding beneficial
ownership of the Common Stock as of the date of this report (i) by each person who is known by us to beneficially own more than
5% of the Common Stock; and (ii) by our current officers and directors and current “named executive officers”; and
(iii) by all of officers and directors and “named executive officers” as a group. The address of each of the persons
set forth below is 2125 Western Avenue, Suite 502, Seattle, WA 98121, unless otherwise indicated.
|
Name of Beneficial Owner
|
|
Director or Officer
|
|
Amount and Nature of
Beneficial Ownership
(1)
|
|
|
Percentage
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
James C. Heckman
|
|
Director, Chief Executive Officer, President
|
|
|
4,094,708
|
|
|
|
15.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary Schuman (3)(5)
|
|
Chief Financial Officer
|
|
|
139,948
|
|
|
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Sornsin
|
|
Chief Operating Officer
|
|
|
1,799,191
|
|
|
|
6.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benjamin Joldersma
|
|
Chief Technology Officer
|
|
|
2,047,354
|
|
|
|
7.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ross Levinsohn
|
|
Director
|
|
|
245,434
|
|
|
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher Marlett (4)(5)
|
|
Director
|
|
|
3,835,741
|
|
|
|
14.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Levande (5)(6)
|
|
Director
|
|
|
1,308,829
|
|
|
|
4.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Mills (5)(7)
|
|
Director
|
|
|
135,457
|
|
|
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors, officers and “named executive officers” as a group (8 persons) (8)
|
|
|
|
|
13,606,662
|
|
|
|
49.79
|
|
(1) Unless otherwise indicated, each person has sole investment
and voting power with respect to the shares indicated, subject to community property laws, where applicable. Includes any securities
that such person has the right to acquire within sixty (60) days of the date of this Current Report pursuant to options, warrants,
conversion privileges or other rights.
(2) Based on 25,983,461 shares of the Common Stock issued and
outstanding, plus the number of shares each person has the right to acquire within 60 days of the date of this report.
(3) Includes 100,000 shares
that may be acquired by Mr. Schuman under an employment option, and 35,088 shares that may be acquired under a warrant.
(4) Mr. Marlett holds 827,541
of these shares in the Christopher A. Marlett Living Trust, 1,027,541 of these shares in his IRA, 985,650 of these shares in a
joint account with Terri Marlett, his spouse and 20,162 in his name. Also includes (i) 25,000 shares that may be acquired under
an option, and (ii) a total of 842,117 shares that may be acquired under two warrants, of which 549,715 are held by MDB, a company
that Mr. Marlett is the principal owner, and 292,402 are held by Mr. Marlett individually.
(5) Address is c/o 2425 Cedar Springs Road, Dallas, TX 75201.
(6) Includes 25,000 shares that
may be acquired by Mr. Levande under an option grant and 292,402 shares that may be acquired under a warrant issued to him, and
964,697 shares held in his own name.
(7) Includes 25,000 shares that
may be acquired by Mr. Mills under an option grant and 110,457 shares held in his own name.
(8) Includes 1,344,607 shares that may be acquired
under options and warrants. See notes 3, 4, 6 and 7 above.
Securities Authorized for Issuance
Under Equity Incentive Plans
The following table summarizes our compensation plans under
which our equity securities are authorized for issuance as of December 31, 2016.
EQUITY COMPENSATION PLAN INFORMATION
|
|
|
Number of
Shares
to be Issued
Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
|
|
|
Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
|
|
|
Number
of
Shares
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plans
|
|
|
Equity compensation plans not approved by security holders
|
|
|
175,000
|
|
|
$
|
0.17
|
|
|
|
-
|
|
|
Equity compensation plans not approved by security holders (1)
|
|
|
100,137
|
|
|
$
|
1.02
|
|
|
|
1,570,730
|
|
|
Total
|
|
|
275,137
|
|
|
$
|
0.48
|
|
|
|
1,570,730
|
|
|
|
(1)
|
Represents shares reserved under the 2016 Stock Incentive
Plan. The Plan was initially adopted on December 19, 2016 by the board of directors, and the Company plans on seeking shareholder
approval for these plans during 2017.
|
Item 13.
Certain Relationships
and Related Transactions, and Director Independence
Related
Party Transactions
The Parent entered into an Investment
Banking Advisory Services agreement in November 2007 with MDB Capital Group LLC (“MDB”), and the parties extended
the agreement indefinitely in April 2009. The agreement terminated on completion of the Recapitalization. Under the agreement,
MDB acted as an advisor to the Parent in connection with the Recapitalization. At the closing of the Recapitalization, the Parent
paid MDB a cash fee of $54,299 (including $4,299 to reimburse MDB’s expenses in connection with the Recapitalization) and
issued to MDB and its designees, Mr. Christopher A. Marlett, Robert Levande, and Mr. Schuman, a 5-year warrants to purchase an
aggregate of 1,169,607 shares of Common Stock, with an exercise price of $0.20 per share, representing 5% of the number of shares
of the Parent on a fully diluted basis immediately after the Closing. The fair value of the warrants using Black Scholes Option
Pricing model was determined to be $744,105. These amounts were recorded in the financial statements of the Parent prior to the
Recapitalization
The Company entered into a registration
rights agreement with each of MDB and Messrs. Marlett, Levande, Mills and Schuman, to permit them to have their securities in
the Company as of the completion of the Recapitalization included in a registration statement for resale by the holder when filed
by Integrated on a piggyback basis and one demand registration right, which cannot be exercised until November 4, 2017. The registration
rights, however, will not apply to those securities that may be sold under Rule 144, without restriction. Integrated is responsible
for bearing the costs of any of these acts of registration of the securities.
On April 4, 2017, the Company completed
a private placement of its common stock, selling 3,765,000 shares at $1.00 per share, for total gross proceeds of $3,765,000.
In connection with the offering, the Company paid $188,250 and issued 162,000 shares of common stock to MDB Capital Group LLC,
which acted as placement agent.
Mr. Christopher Marlett, a director of
the Company, is also the Chief Executive Officer of MDB. Mr. Gary Schuman, who is the Chief Financial Officer of the Company,
is also the Chief Financial Officer and Chief Compliance Officer of MDB. The Company compensates Mr. Schuman for his services
at the rate of $3,000 per month. Mr. Robert Levande, who is director of the Company, is also a senior managing director of MDB,
Mr. Levande was compensated $6,250 in 2016 (from the date of the Recapitalization through December 31, 2016), which was paid in
a combination of cash and shares of Common Stock.
Prior to the closing of the Recapitalization,
the Parent provided a series of advances for an aggregated amount of approximately $735,000 to the Subsidiary under a promissory
note (the “Term Note”). The Term Note was personally guaranteed by Mr. Heckman and secured by a mortgage held by the
Parent on certain properties owned by Mr. Heckman located in the State of Washington and the Province of British Columbia (“Mortgage”).
A portion of the Term Note was secured by a corporate guarantee from MDB. At the Closing of the Recapitalization, the Term Note
was cancelled and the Personal Guarantee, the Mortgage and the MDB Guarantee were terminated.
Director Independence
See “Item 10, Committees of the
Board of Directors.”
Item 14.
Principal Accounting
Fees and Services
Audit Fees
All audit fees are approved by the Board
of Directors. The Board of Directors considers whether the provision of services, including non-audit services, by
its Independent Registered Public Accounting Firm, is compatible with maintaining the firm’s independence and has concluded
that it is.
The following table sets forth the aggregate
fees billed to both the Parent and the Subsidiary by its Independent Registered Public Accounting Firm for each of the last two
fiscal years for the categories of services indicated.
|
Category
|
|
2016
|
|
|
2015
|
|
|
Audit Fees
|
|
$
|
59,330
|
|
|
$
|
43,000
|
|
|
All Other Fees
|
|
|
13,980
|
|
|
|
-
|
|
|
Tax Fees
|
|
|
4,551
|
|
|
|
4,228
|
|
|
|
|
$
|
77,861
|
|
|
$
|
47,228
|
|
These consolidated financial statements
cover the period July 22, 2016 (Inception) for the Subsidiary and from November 4, 2016 (Recapitalization) for the Parent.
A total of $10,000 of audit fees is included
in these consolidated financial statements for the period July 22, 2016 (Inception) to December 31, 2016.
Audit Fees. “Audit Fees” are the aggregate fees
of Gumbiner Savett Inc. attributable to professional services rendered in 2016 and 2015 for the audit of our annual financial statements
and for review of financial statements included in our quarterly reports on Form 10-Q or for services that are normally provided
by Gumbiner Savett Inc. in connection with statutory and regulatory filings or engagements for those fiscal years.
Tax Fees. “Tax Fees” are the aggregate fees of Gumbiner
Savett Inc. billed for professional services rendered to us for tax compliance, tax advice, and tax planning.
All Other Fees. “All Other Fees” are the aggregate
fees of Gumbiner Savett Inc. attributable to customary agreed upon professional services in connection with our review of Form
8-K filed in November 2016.
Part IV
Item 15.
Exhibits, Financial
Statement Schedules
1. Financial Statements
Reference is made to the Financial Statements filed under Item
8, Part II of this Report.
2. Financial Statement Schedules
Reference is made to the Final Statements filed under Item
8, Part II of this Report.
3. Exhibits
|
Exhibit
|
|
Description
|
|
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of the Registrant, as amended. (5)
|
|
3.2
|
|
Amendment to Certificate of Incorporation of the Registrant (Change of name – December 2016) (7)
|
|
3.3
|
|
By-laws of the Registrant, as amended. (1)
|
|
3.4
|
|
Certificate of Designations for Series G Convertible Preferred Stock. (3)
|
|
4.1
|
|
Specimen Common Stock Certificate. (2)
|
|
4.3*
|
|
Channel Partners Stock Program – Form of Warrants
|
|
4.4*
|
|
2016 Stock Incentive Plan
|
|
10.1
|
|
Securities Purchase Agreement (9)
|
|
10.2
|
|
Registration Rights Agreement (9)
|
|
10.3
|
|
William Sornsin Employment Agreement (6) (8)
|
|
10.4
|
|
Benjamin Joldersma Employment Agreement (6) (8)
|
|
10.5
|
|
Share Exchange Agreement, dated October 14, 2016 (8)
|
|
10.6
|
|
Amendment to the Share Exchange Agreement, dated November 4, 2016 (8)
|
|
10.7
|
|
Form of MDB Warrant issued in connection with the Share Exchange Agreement (8)
|
|
10.8
|
|
Form of Indemnification Escrow Agreement dated November 4, 2016 (8)
|
|
10.9
|
|
Form of Employee Confidentiality and Proprietary Rights Agreement (8)
|
|
10.10
|
|
Form of Lock Up Agreement (8)
|
|
10.11
|
|
Form of Registration Rights Agreement for the shares of pre-merger shareholders (8)
|
|
10.12
|
|
Preferred Stock Purchase Agreement for Series G Convertible Preferred Stock. (3)
|
|
10.13
|
|
James C. Heckman Employment Agreement (6) (8)
|
|
14.1
|
|
Code of Ethics (5)
|
|
21.1*
|
|
Subsidiaries
|
|
31.1*
|
|
Certification Pursuant to Exchange Act Rule 13a-14(a) of James C. Heckman, Jr.
|
|
31.2*
|
|
Certification Pursuant to Exchange Act Rule 13a-14(a) of Gary A. Schuman
|
|
32.1*
|
|
Certification Pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Christopher A. Marlett
|
|
32.2*
|
|
Certification Pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Gary A. Schuman
|
|
101*
|
|
The following material from theMaven, Inc.’s Form 10-K Report for the year ended December 31, 2016, formatted in XBRL: (i) Balance Sheets, (ii) Statements of Comprehensive Income, (iii) Statement of Changes in Shareholders’ Equity, (iv) Statements of Cash Flows, and (v) the Notes to Financial Statements.
|
|
|
(1)
|
Incorporated by reference to the Registrant’s
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002.
|
|
|
(2)
|
Incorporated by reference to the Registrant’s
Registration Statement on Form SB-2 (Registration No. 333-48040) declared effective on
October 31, 2000.
|
|
|
(3)
|
Incorporated by reference to the Registrant’s
Registration Statement on Form S-3 (Registration No. 333-40710), declared effective on
July 28, 2000.
|
|
|
(4)
|
Incorporated by reference to the Registrant’s
Annual Report on Form 10- KSB for the fiscal year ended December 31, 1997.
|
|
|
(5)
|
Incorporated by reference to the Registrant’s
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007.
|
|
|
(6)
|
Management employment agreement.
|
|
|
(7)
|
Incorporated by reference to the Registrant’s
Current Report on Form 8-K, filed on December 18, 2016.
|
|
|
(8)
|
Incorporated by reference to the Registrant’s
Current Report on Form 8-K, filed on November 7, 2016.
|
|
|
(9)
|
Incorporated by reference to Registrant’s Current
Report on Form 8-K, filed on April 10, 2017.
|
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
theMaven, Inc.
|
|
|
|
|
|
By:
|
/s/ James C. Heckman,
Jr.
|
|
|
|
James C. Heckman, Jr.
Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
Dated: May 10, 2017
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities
indicated and on the dates indicated.
|
Signature
|
|
Title
|
|
|
|
|
|
/s/
JAMES C. HECKMAN
|
|
Chief Executive
Officer and Director
|
|
James C. Heckman
|
|
(Principal Executive
Officer)
|
|
Date: May
10, 2017
|
|
|
|
|
|
|
|
/s/
GARY A. SCHUMAN
|
|
Chief Financial
Officer
|
|
Gary A. Schuman
|
|
(Principal Financial
and Accounting Officer)
|
|
Date: May
10, 2017
|
|
|
|
|
|
|
|
/s/
CHRISTOPHER A. MARLETT
|
|
Director
|
|
Christopher A.
Marlett
|
|
|
|
Date: May
10, 2017
|
|
|
|
|
|
|
|
/s/
ROBERT M. LEVANDE
|
|
Director
|
|
Robert M. Levande
|
|
|
|
Date: May
10, 2017
|
|
|
|
|
|
|
|
/s/
PETER B. MILLS
|
|
Director
|
|
Peter B. Mills
|
|
|
|
Date: May
10, 2017
|
|
|
|
|
|
|
|
/s/
ROSS LEVINSOHN
|
|
Director
|
|
Ross Levinsohn
|
|
|
|
Date: May
10, 2017
|
|
|
theMaven, Inc. and Subsidiary
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
theMaven, Inc. and Subsidiary
We have audited the accompanying consolidated
balance sheet of theMaven, Inc. (formerly Integrated Surgical Systems, Inc.) and Subsidiary (the “Company”) as of
December 31, 2016, and the related consolidated statement of comprehensive loss, stockholders’ equity, and cash flows for
the period from July 22, 2016 (Inception) through December 31, 2016. The Company’s management is responsible for these consolidated
financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2016, and the results of its operations and its cash flows for the period from July 22, 2016 (Inception) through December 31,
2016 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 3 to
the consolidated financial statements, the Company is subject to the risks and uncertainties associated with a new business and
has incurred losses from operations since Inception. The Company’s operations are dependent upon it raising additional funds
through an equity offering or debt financing. The Company has no committed sources of capital and is not certain whether additional
financing will be available when needed on terms that are acceptable, if at all. These conditions raise substantial doubt about
the Company’s ability to continue as a going concern. Management’s plans regarding these matters are described in
Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Gumbiner Savett Inc.
Santa Monica, California
May
10, 2017
theMaven, Inc. and Subsidiary
Consolidated Balance Sheet
|
|
|
As at
December 31,
|
|
|
|
|
2016
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash
|
|
$
|
598,294
|
|
|
Prepayments and other current assets
|
|
|
121,587
|
|
|
Total current assets
|
|
|
719,881
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
547,804
|
|
|
Intangible assets
|
|
|
20,000
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,287,685
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
154,361
|
|
|
Accrued expenses
|
|
|
54,789
|
|
|
Conversion feature liability
|
|
|
137,177
|
|
|
Total current liabilities
|
|
|
346,327
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock, $0.01 par value, 1,000,000 shares authorized; 168 shares issued and outstanding ($168,496 aggregate liquidation value)
|
|
|
168,496
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Common stock, $0.01 par value, 100,000,000 shares authorized; 22,047,531 shares issued and outstanding at December 31, 2016
|
|
|
220,475
|
|
|
Common stock to be issued
|
|
|
9,375
|
|
|
Additional paid-in capital
|
|
|
2,730,770
|
|
|
Accumulated deficit
|
|
|
(2,187,758
|
)
|
|
Total stockholders’ equity
|
|
|
772,862
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,287,685
|
|
See accompanying notes to consolidated financial statements.
theMaven, Inc. and Subsidiary
Consolidated Statement of Comprehensive
Loss
|
|
|
Period from July
22, 2016 (Inception)
to December 31,
2016
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
411,741
|
|
|
General and administrative
|
|
|
1,772,169
|
|
|
Total operating expenses
|
|
|
2,183,910
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,183,910
|
)
|
|
|
|
|
|
|
|
Other income (loss):
|
|
|
|
|
|
Interest and dividend income, net
|
|
|
11,173
|
|
|
Change in fair value of conversion feature
|
|
|
1,385
|
|
|
Realized loss on available-for-sale securities
|
|
|
(16,406
|
)
|
|
Total other loss
|
|
|
(3,848
|
)
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,187,758
|
)
|
|
|
|
|
|
|
|
Other Comprehensive Loss
|
|
|
|
|
|
Unrealized loss on available-for-sale securities before reclassification, net of tax
|
|
|
16,406
|
|
|
Reclassification adjustment for loss, net of tax
|
|
|
(16,406
|
)
|
|
Other Comprehensive Loss
|
|
|
-
|
|
|
Comprehensive Loss
|
|
$
|
(2,187,758
|
)
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – basic and diluted
|
|
|
3,353,282
|
|
See accompanying notes to consolidated financial statements
.
theMaven, Inc. and Subsidiary
Consolidated Statement of Stockholders’
Equity
Period from July 22, 2016 (Inception) to
December 31, 2016
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
To Be Issued
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 22, 2016 (Inception)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Issuance of common stock of Subsidiary for
cash
|
|
|
12,517,152
|
|
|
|
125,171
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(122,219
|
)
|
|
|
-
|
|
|
|
2,952
|
|
|
Reverse recapitalization for net assets of Parent
|
|
|
9,530,379
|
|
|
|
95,304
|
|
|
|
2,976
|
|
|
|
3,125
|
|
|
|
878,997
|
|
|
|
—
|
|
|
|
977,426
|
|
|
Conversion of notes payable to Parent
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
735,099
|
|
|
|
-
|
|
|
|
735,099
|
|
|
Stock based compensation -stock to be issued
|
|
|
-
|
|
|
|
-
|
|
|
|
5,953
|
|
|
|
6,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,250
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,238,893
|
|
|
|
-
|
|
|
|
1,238,893
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,187,758
|
)
|
|
|
(2,187,758
|
)
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,187,758
|
)
|
|
|
(2,187,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
22,047,531
|
|
|
$
|
220,475
|
|
|
|
8,929
|
|
|
$
|
9,375
|
|
|
$
|
2,730,770
|
|
|
$
|
(2,187,758
|
)
|
|
$
|
772,862
|
|
See accompanying notes to consolidated
financial statements
theMaven, Inc. and Subsidiary
Consolidated Statement of Cash Flows
|
|
|
For the
Period from
July 22, 2016
(Inception) to
December 31,
2016
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(2,187,758
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Change in fair value of conversion feature
|
|
|
(1,385
|
)
|
|
Stock based compensation
|
|
|
1,105,769
|
|
|
Realized loss on available-for-sale securities
|
|
|
16,406
|
|
|
Depreciation
|
|
|
390
|
|
|
Changes in operating assets and liabilities, net of effects of reverse recapitalization:
|
|
|
|
|
|
Prepayments and other current assets
|
|
|
(117,830
|
)
|
|
Accounts payable
|
|
|
116,171
|
|
|
Accrued expenses
|
|
|
(69,676
|
)
|
|
Net cash used in operating activities
|
|
|
(1,137,913
|
)
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Proceeds received from sales of available-for-sale securities
|
|
|
947,351
|
|
|
Website development costs and other fixed assets
|
|
|
(408,819
|
)
|
|
Purchases of intangible assets
|
|
|
(20,000
|
)
|
|
Net cash provided by investing activities
|
|
|
518,532
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from issuances of common stock of Subsidiary
|
|
|
2,952
|
|
|
Cash acquired upon reverse recapitalization
|
|
|
479,624
|
|
|
Cash received from Parent prior to reverse recapitalization
|
|
|
735,099
|
|
|
Proceeds from shareholder loan
|
|
|
35,000
|
|
|
Repayment of shareholder loan
|
|
|
(35,000
|
)
|
|
Net cash provided by financing activities
|
|
|
1,217,675
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
598,294
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
-
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
598,294
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash investing and financing activities:
|
|
|
|
|
|
Reclassification of stock-based compensation to website development costs
|
|
$
|
139,375
|
|
See accompanying notes to consolidated financial statements
theMaven,
Inc.
and Subsidiary
Notes to Consolidated Financial Statements
Period from July 22, 2016 (Inception)
to December 31, 2016
1. Nature of Operations
theMaven, Inc. (“Parent”)
and theMaven Network, Inc. (“Subsidiary”) (collectively “theMaven” or the “Company”) are developing
an exclusive network of professionally managed online media channels, with an underlying technology platform. Each channel will
be operated by a “invite only” “Channel Partner” drawn from subject matter experts, reporters, group evangelists
and social leaders. Channel Partners will publish content and oversee an online community for their respective channels, leveraging
a proprietary, socially-driven, mobile-enabled, video-focused technology platform to engage niche audiences within a single network.
2. Basis of Presentation
theMaven Network, Inc. was incorporated
in Nevada on July 22, 2016, under the name “Amplify Media, Inc.” On July 27, 2016, the corporate name was amended
to “Amplify Media Network, Inc.” and on October 14, 2016, the corporate name was changed to “theMaven Network,
Inc.”.
theMaven, Inc. was formerly known as Integrated Surgical Systems, Inc., a Delaware
corporation (“
Integrated
”). From June 2007 until November 4, 2016, Integrated was a non-active
“shell company” as defined by regulations of the Securities and Exchange Commission (SEC). On August 11, 2016,
Integrated entered into a loan to Subsidiary that provided initial funding totalling $735,099 for the Subsidiary’s
operations. On October 14, 2016 Integrated entered into a Share Exchange Agreement (the “
Share Exchange
Agreement
”) with Subsidiary and the shareholders of Subsidiary, holding all of the issued and outstanding shares of
Subsidiary (collectively, “
Subsidiary Shareholders
”). The Share Exchange Agreement was amended on November
4, 2016 to include certain newly issued shares of Subsidiary in the transaction and make related changes to the agreement and
the Share Exchange was consummated. The transaction resulted in Parent acquiring Subsidiary by the exchange of all of the
outstanding shares of Subsidiary for 12,517,152 newly issued shares of the common stock, $0.01 par value (the
“
Common Stock
”) of Parent, representing approximately 56.7% of the issued and outstanding shares of Common
Stock immediately after the transaction. The transaction is referred to as the “Recapitalization.” The
Recapitalization was consummated on November 4, 2016, as a result of which theMaven Network, Inc. became a wholly owned
subsidiary of Integrated (the “
Closing
”). The note payable between Integrated and Subsidiary was an
interdependent transaction with the
Recapitalization and was ultimately cancelled upon closing of the Recapitalization. On December 2, 2016, Integrated
amended its Certificate of Incorporation to change its name from “Integrated Surgical Systems, Inc.” to
“theMaven, Inc.”
From June
2007 until the closing of the Recapitalization, Integrated was a non-active “shell company” as defined by regulations
of the SEC and, accordingly, the Recapitalization was accounted for as a reverse recapitalization rather than a business combination.
As the Subsidiary is deemed to be the purchaser for accounting purposes under reverse recapitalization accounting, the Company’s
financial statements are presented as a continuation of Subsidiary, and the accounting for the Recapitalization is
equivalent
to the issuance of stock by Subsidiary for the net monetary assets of Parent as of the Closing accompanied by a recapitalization.
See Note 9 for summary of the assets acquired, transaction costs and the consideration exchanged in the Recapitalization.
3. Going Concern
The Company’s consolidated financial
statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company’s activities are subject to significant risks and uncertainties,
including the need for additional capital, as described below.
The Company has not generated any
operating revenues since July 22, 2016 (Inception) and has financed its operations through (a) the Recapitalization
transaction with Parent, (b) a loan from Parent that was cancelled upon closing of the Recapitalization and (c) a private
placement of common stock in April 2017. The Company has incurred operating losses and negative operating cash flows, and it
expects to continue to incur operating losses and negative operating cash flows for at least the next few years. As a result,
management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern,
and the Company’s independent registered public accounting firm, in its report on the Company’s consolidated
financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.
As fully described in Note 13, in April 2017, the Company completed
a private placement of its common stock, raising proceeds of $3.5 million net of cash offering costs. The Company believes that
it does not have sufficient funds to support its operations through the end of the first quarter of 2018. In order to continue
business operations past that point, the Company currently anticipates that it will need to raise additional debt and/or equity
capital. However, there can be no assurances that the Company will be able to secure any such additional financing on acceptable
terms and conditions, or at all. If cash resources become insufficient to satisfy the Company's ongoing cash requirements, the
Company will be required to scale back or discontinue its technology development programs, or obtain funds, if available (although
there can be no certainty), or to discontinue its operations entirely.
4. Significant Accounting Policies
and Estimates
Principles of Consolidation
The accompanying consolidated financial
statements include the financial position, results of operations and cash flows of Subsidiary for the period from July 22, 2016
(Inception) to December 31, 2016 and that of Integrated after the Closing (see Note 2). All intercompany transactions and balances
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses for the reporting period. Actual results could materially
differ from those estimates.
Fixed Assets
Fixed assets are recorded at cost. Major
improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from disposition
of property and equipment are included in income and expense when realized. Depreciation and amortization are provided using the
straight-line method over the following estimated useful lives:
|
Office equipment and computers
|
3-5 years
|
|
Furniture and fixtures
|
5-8 years
|
|
Website development costs
|
2-3 years
|
Intangible Assets
The intangible assets consist of the cost
of a purchase website domain name with an indefinite useful life.
Impairment of Long-Lived Assets
The long-lived assets, consisting of fixed
assets and intangible assets, held and used by the Company are reviewed for impairment no less frequently than annually or whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts
and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed.
Management has determined that there was no impairment in the value of long-lived assets during the period ended December 31,
2016.
Website Development Costs
In accordance with authoritative guidance,
the Company begins to capitalize website and software development costs for internal use when planning and design efforts are
successfully completed and development is ready to commence. Costs incurred during planning and design, together with costs incurred
for training and maintenance, are expensed as incurred and recorded in research and development expense within the consolidated
statement of comprehensive loss. The Company places capitalized website and software development assets into service and commences
depreciation/amortization when the applicable project or asset is substantially complete and ready for its intended use. Once
placed into service, the Company capitalizes qualifying costs of specified upgrades or enhancements to capitalized website and
software development assets when the upgrade or enhancement will result in new or additional functionality.
The Company capitalizes internal labor
costs, including compensation, benefits and payroll taxes, incurred for certain capitalized website and software development projects
related to the Company’s technology platform. The Company’s 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.
Research and Development
Research and development costs are
charged to operations in the period incurred and amounted to $411,741 for the period from July 22, 2016 (Inception) to
December 31, 2016.
Fair Value Measurements
Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 820
“Fair Value Measurements and Disclosures”
clarifies that fair value
is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions
that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, FASB ASC 820
establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
|
|
·
|
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for
identical assets or liabilities in active markets.
|
|
|
·
|
Level 2 - Include other inputs that are directly or indirectly
observable in the marketplace.
|
|
|
·
|
Level 3 - Unobservable inputs which are supported by little
or no market activity.
|
The fair value hierarchy also requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
In accordance with FASB ASC 820, the Company
measures its derivative liability at fair value. The Company’s derivative liability is classified within Level 3.
The carrying value of other current assets
and liabilities are considered to be representative of their respective fair values because of the short-term nature of those
instruments.
Concentrations of Credit Risk
Cash
The Company maintains cash at a bank where
amounts on deposit may exceed the Federal Deposit Insurance Corporation limit throughout the year. The Company has not experienced
losses in such accounts and believes it is not exposed to significant credit risk regarding its cash.
Stock-based Compensation
The Company provides stock-based compensation in the form of
(a) restricted stock awards to employees, (b) vested stock grants to directors, (c) stock option grants to employees, directors
and independent contractors, and (d) common stock warrants to Channel Partners and other independent contractors.
The Company applies FASB ASC 718, “Stock Compensation,”
when recording stock based compensation to employees and directors. The estimated fair value of stock based awards is recognized
as compensation expense over the vesting period of the award. We have adopted ASU 2016-09 in 2016 with early application and account
for actual forfeitures of awards as they occur.
The fair value of restricted stock awards by Subsidiary at Inception
was estimated on the date of the award using the exchange value used by Integrated and the Subsidiary to establish the relative
voting control ratio in the Recapitalization.
Restricted stock that was subject to
an escrow arrangement and/or a performance condition in conjunction with the Recapitalization was remeasured and fair value
was estimated using the quoted price of our common stock on the date of the Recapitalization. The Company uses a Monte Carlo
simulation model to determine the number of shares expected to be released from the performance condition escrow.
The fair value of fully vested stock awards is estimated using
the quoted price of our common stock on the date of the grant. The fair value of stock option awards is estimated at grant date
using the Black-Scholes option pricing model that requires various highly judgmental assumptions including expected volatility
and option life.
The Company accounts for stock issued to non-employees in accordance
with provisions of FASB ASC 505-50, “Equity Based Payments to Non-Employees.” FASB ASC 505 -50 states that equity instruments
that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliability measurable. The measurement date occurs as of
the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which
the performance necessary to earn the equity instruments is complete (that is, the vesting date). Equity grants with performance
conditions that do not have sufficiently large disincentive for non-performance may be measured at fair value that is not fixed
until performance is complete. The fair value of common stock warrants is estimated at grant date using the Black-Scholes option
pricing model that requires various highly judgmental assumptions including expected volatility and option life. The Company recognizes
expense for equity based payments to non-employees as the services are received. The Company has specific objective criteria, such
as the date of launch of a Channel on the Company’s platform, for determination of the period over which services are received
and expense is recognized.
The Company uses a Monte Carlo simulation model to determine
the number of shares expected to be earned by Channel Partners based on performance obligations to be satisfied over a defined
period which will commence at the launch of a Channel on the Company’s platform.
The Company issues common stock upon exercise of equity awards
and warrants.
Income Taxes
The Company recognizes the tax effects
of transactions in the year in which such transactions enter into the determination of net income regardless of when reported
for tax purposes. Deferred taxes are provided in the financial statements to give effect to the temporary differences which may
arise from differences in the bases of fixed assets, depreciation methods and allowances based on the income taxes expected to
be payable in future years. Deferred tax assets arising primarily as a result of net operating loss carry-forwards, and research
and development credit have been offset completely by a valuation allowance due to the uncertainty of their utilization in future
periods.
The Company recognizes interest accrued
relative to unrecognized tax benefits in interest expense and penalties in operating expense. During the period from July 22,
2016 (Inception) to December 31, 2016, the Company recognized no income tax related interest and penalties. The Company had no
accruals for income tax related interest and penalties at December 31, 2016.
Basic and Diluted Loss per Common Share
Basic income or loss per share is computed
using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common
stock equivalent shares, such as options, restricted stock, and warrants. Restricted stock is considered outstanding and included
in the computation of basic income or loss per share when underlying restrictions expire and the shares are no longer forfeitable.
Diluted income per share is computed using the weighted average number of common shares outstanding and common stock equivalent
shares outstanding during the period using the treasury stock method. Common stock equivalent shares are excluded from the computation
if their effect is anti-dilutive. Unvested but outstanding restricted stock (which are forfeitable) are included in the diluted
income per share calculation. In a period where there is a net loss, the diluted loss per share is computed using the basic share
count. At December 31, 2016, potentially dilutive shares outstanding amounted to 14,510,126.
Risks and Uncertainties
The Company has a limited operating history
and has not generated revenue to date. The Company's business and operations are sensitive to general business and economic conditions
in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and
equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond the Company's control
could cause fluctuations in these conditions. Adverse developments in these general business and economic conditions could have
a material adverse effect on the Company's financial condition and the results of its operations.
In addition, the Company will compete
with many companies that currently have extensive and well-funded projects, marketing and sales operations as well as extensive
human capital. The Company may be unable to compete successfully against these companies. The Company's industry is characterized
by rapid changes in technology and market demands. As a result, the Company's products, services, and/or expertise may become
obsolete and/or unmarketable. The Company's future success will depend on its ability to adapt to technological advances, anticipate
customer and market demands, and enhance its current technology under development.
Recently Adopted Standards
In August 2014, the FASB issued Accounting
Standards Update No. 2014-15 (ASU 2014-15), Presentation of Financial Statements — Going Concern (Subtopic 205-10). ASU
2014-15 provided guidance as to management’s responsibility to evaluate whether there is substantial doubt about an entity’s
ability to continue as a going concern and to provide related footnote disclosures. In connection with preparing these consolidated
financial statements management evaluated whether there are conditions or events, considered in the aggregate, that raise substantial
doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements
are issued. As fully described in Note 3, the Company believes that it does not have sufficient funds to support its operations
through the end of first quarter of 2018.
In March 2016, the FASB issued
ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
ASU 2016-09 changes how companies account for certain aspects of share-based payment awards to employees, including the accounting
for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows.
ASU 2016-09 is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods.
Management has adopted this standard early in 2016 and it did not have a material effect on the financial statements and related
disclosures.
Recent Issued Accounting Pronouncements
In November 2015, the FASB issued Accounting
Standards Update No. 2015-17 (ASU 2015-17), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU
2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.
ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim
periods within those annual periods. Earlier application is permitted as of the beginning of an interim or annual reporting period.
The adoption of ASU 2015-17 is not expected to have any impact on Company’s financial statement presentation or disclosures.
In February 2016, the FASB issued
ASU 2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU
2016-02 is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and
corresponding lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or
operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
Early adoption is permitted. ASU 2016-02 is required to be applied with a modified retrospective approach to each prior
reporting period presented with various optional practical expedients. The Company is currently assessing the potential
impact of adopting ASU 2016-02 on its financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 refines how
companies classify certain aspects of the cash flow statement in regards to debt prepayment, settlement of debt instruments, contingent
consideration payments, proceeds from insurance claims and life insurance policies, distribution from equity method investees,
beneficial interests in securitization transactions and separately identifiable cash flows. ASU 2016-15 is effective for
annual periods beginning after December 15, 2017, and interim periods within those fiscal years. No early adoption is permitted.
Management is currently assessing the potential impact of adopting ASU 2016-15 on the financial statements and related disclosures.
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (ASC 606) - Revenue from
Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. This ASU will supersede
the revenue recognition requirements in Topic 605, and most industry specific guidance. The standard's core principle is that
revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity
should apply the following steps:
Step 1: Identify the contract(s) with
a customer
Step 2: Identify the performance obligations
in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price
to the performance obligations in the contract.
Step 5: Recognize revenue when (or as)
the entity satisfies a performance obligation.
The guidance in ASU 2014-09 also specifies
the accounting for some costs to obtain or fulfill a contract with a customer. ASC 606 requires the Company to make significant
judgments and estimates. ASC 606 also requires more extensive disclosures regarding the nature, amount, timing and uncertainty
of revenue and cash flows arising from contracts with customers.
The FASB has also issued several additional
ASUs which amend ASU 2014-09. The amendments do not change the core principle of the guidance in ASC 606.
Public business entities are required
to apply the guidance of ASC 606 to annual reporting periods beginning after December 15, 2017 (2018 for calendar year end reporting
companies), including interim reporting periods within that reporting period. Early adoption is permitted.
The Company has not yet estimated
the financial statement impact of the expected changes. The Company will continue to assess the impact of ASC 606 as it works
through the adoption in 2017.
Management believes
that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would not have a material
impact on the Company’s consolidated financial statement presentation or disclosures.
5. Fixed Assets
At December 31, 2016, fixed assets, net
consisted of the following:
|
Office equipment and computers
|
|
$
|
8,048
|
|
|
Website development costs
|
|
|
540,146
|
|
|
|
|
|
548,194
|
|
|
Accumulated depreciation and amortization
|
|
|
(390
|
)
|
|
Fixed assets, net
|
|
$
|
547,804
|
|
At December 31, 2016, the Company has
not yet launched its website and accordingly no amortization of capitalized website development cost was recorded during the
period from July 22, 2016 (Inception) to December 31, 2016.
6. Investments in Available-for-Sale
Securities
The Company maintained an investment portfolio
consisting of available-for-sale-securities during the period ended December 31, 2016, which it had acquired through the Recapitalization.
All available-for-sale-securities either matured or were liquidated prior to December 31, 2016.
7. Redeemable Convertible Preferred Stock
The Company’s Certificate of Incorporation
authorized 1,000,000 shares of undesignated, serial preferred stock. Preferred stock may be issued from time to time in one or
more series. The Board of Directors is authorized to determine the rights, preferences, privileges, and restrictions granted to
and imposed upon any wholly unissued series of preferred stock and designation of any such series without any further vote or
action by the Company’s stockholders.
As of December 31, 2016, the Company’s
only outstanding series of convertible preferred stock is the Series G Convertible Preferred Stock (“Series G”).
The Series G stock has a stated value
of $1,000 per share, and is convertible into common stock at a conversion price equal to 85% of the lowest sale price of the common
stock on its listed market over the five trading days preceding the date of conversion ("Beneficial Conversion Feature"),
subject to a maximum conversion price. The number of shares of common stock that may be converted is determined by dividing the
stated value of the number of shares of Series G to be converted by the conversion price. The Company may elect to pay the Series
G holder in cash at the current market price multiplied by the number of shares of common stock issuable upon conversion.
For the period ended December 31, 2016,
no shares of Series G were converted into shares of common stock. At December 31, 2016, the outstanding Series G shares
were convertible into a minimum of 198,231 shares of common stock.
Upon a change in control, sale of or similar
transaction, as defined in the Certificate of Designation for the Series G, each holder of the Series G has the option to deem
such transaction as a liquidation and may redeem his or her shares at the liquidation value of $1,000, per share, for an aggregate
amount of $168,496. The sale of all the assets on June 28, 2007 triggered the preferred stockholders’ redemption
option. As such redemption is not in the control of the Company, the Series G stock has been accounted for as if it
was redeemable preferred stock and is classified on the balance sheet between liabilities and stockholders’ equity.
The conversion feature of the preferred
stock is considered a derivative according to ASC 815 “Derivatives and Hedging”, therefore, the fair value of the
derivative is reflected in the financial statements as a liability, which was determined to be $137,177 as of December 31, 2016,
and has been included as “conversion feature liability” on the accompanying balance sheets. As of the Closing, the
fair value of the derivative was determined to be $137,177.
The fair value of the conversion feature
liability is calculated under a Black-Scholes Model, using the market price of the Company’s common stock on each of the
balance sheet dates presented, the expected dividend yield, the expected life of the redemption and the expected volatility of
the Company’s common stock.
The Company’s assessment of the
significance of a particular input to the fair value measurement requires judgment and considering factors specific to the conversion
feature liability. Since some of the assumptions used by the Company are unobservable, the conversion feature liability is classified
within the level 3 hierarchy in the fair value measurement.
The expected volatility of the conversion
feature liability was based on the historical volatility of the Company’s common stock. The expected life assumption was
based on the expected remaining life of the underlying preferred stock redemption. The risk-free interest rate for the expected
term of the conversion feature liability was based on the average market rate on U.S. treasury securities in effect during the
applicable quarter. The dividend yield reflected historical experience as well as future expectations over the expected term of
the underlying preferred stock redemption. Therefore, the fair value of the conversion feature liability is sensitive to changes
in above assumptions and changes of the Company’s common stock price.
The table below shows the quantitative
information about the significant unobservable inputs used in the fair value measurement of level 3 conversion feature liability
at December 31, 2016:
|
Expected life of the redemption in years
|
|
|
1.0
|
|
|
Risk free interest rate
|
|
|
0.85
|
%
|
|
Expected annual volatility
|
|
|
174.84
|
%
|
|
Annual rate of dividends
|
|
|
0
|
%
|
The changes in the fair value of the derivative
are as follows:
|
Beginning as of November 4, 2016 (Closing)
|
|
$
|
138,562
|
|
|
Decrease in fair value
|
|
|
(1,385
|
)
|
|
|
|
|
|
|
|
Ending balance as of December 31, 2016
|
|
$
|
137,177
|
|
8. Recapitalization
As described in Note 2, the Company has accounted for the Recapitalization,
which closed on November 4, 2016, as a reverse recapitalization. Because Integrated was a non-operating public shell corporation
the transaction is considered to be a capital transaction in substance rather than a business combination. The transaction is equivalent
to the issuance of stock by the Subsidiary for the net monetary assets of the Parent accompanied by a recapitalization.
Prior to the Recapitalization, Integrated
had 9,530,379 issued and outstanding shares of common stock. In the Recapitalization, holders of Subsidiary’s common stock
received 4.13607 shares of Parent common stock for each Subsidiary share, totaling 12,517,152 shares. After the Recapitalization
a total of 22,047,531 shares of Parent common stock are outstanding as of December 31, 2016.
Integrated and Subsidiary agreed to
the terms of Recapitalization to reflect the arms-length negotiated fair value of the Subsidiary as $2.5 million relative to the
fair value of Integrated’s cash and available for sale investment securities. This resulted in the former shareholders of
Subsidiary obtaining 56.7% voting control of the Company’s issued and outstanding common stock. The intent of the Recapitalization
was to provide funding for Subsidiary’s operations initially under a loan that was canceled upon closing of the Recapitalization.
The following table summarizes the
calculation of the relative voting control:
|
|
|
Shares
|
|
|
Per Share
|
|
|
Fair Value
|
|
|
Voting %
|
|
|
Integrated shareholders pre-Recapitalization
|
|
|
9,530,379
|
|
|
$
|
0.20
|
|
|
|
1,903,464
|
|
|
|
43.3
|
%
|
|
Integrated options pre-Recapitalization
|
|
|
175,000
|
|
|
|
|
|
|
|
-
|
|
|
|
0.0
|
%
|
|
Warrant issued to MDB Capital Group
|
|
|
1,169,607
|
|
|
|
|
|
|
|
-
|
|
|
|
0.0
|
%
|
|
TheMaven Network, Inc. shareholders
|
|
|
12,517,152
|
|
|
$
|
0.20
|
|
|
|
2,500,000
|
|
|
|
56.7
|
%
|
|
Total fully diluted shares
|
|
|
23,392,138
|
|
|
|
|
|
|
|
4,403,464
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding
|
|
|
22,047,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the Investment
Banking Advisory Agreement more fully described in Note 11, Integrated issued warrants to MDB Capital Group, LLC to purchase
1,169,607 shares of Parent common stock. The warrants have an exercise price of $0.20 per share and expire on November 4,
2021. Integrated incurred transaction costs of $921,698 consisting of $744,105 for the fair value of warrants issued to MDB
and $177,593 in cash for legal and related transaction costs. The costs incurred by Integrated were recorded in financial
statements of the Parent prior to Recapitalization and reduced the net monetary assets acquired. The aggregate intrinsic
value of the warrants at December 31, 2016 is $994,000.
The transaction resulted in the acquisition of gross assets
of $1,447,000 consisting primarily of cash and available for sale investment securities and the assumption of $470,000 of liabilities.
Included in the total liabilities assumed was 168 shares of Class G Preferred Stock, which is reported as a liability at aggregated
liquidation value of $168,496 because it is a redeemable instrument at the option of the holder (see Note 7).
Prior to the closing of the Recapitalization, the Subsidiary
had received $735,099 in multiple borrowings from Integrated on a note payable beginning on August 11, 2016 and ending on November 4, 2016. The note payable was cancelled as part of the Recapitalization and the proceeds from the borrowing from Integrated is
considered as cash received due to the Recapitalization in addition to the net assets acquired. Legal and transaction costs incurred
by Subsidiary of $50,000 related to the capital transaction were expensed and charged to General and Administrative expense.
9. Stockholders’ Equity
The Company has authorized 100,000,000 shares of common stock,
$0.01 par value, of which 22,047,531 shares were issued and outstanding as of December 31, 2016.
Restricted Stock Awards
On August 11, 2016, management
and employees of Subsidiary in conjunction with the incorporation on July 22, 2016 received 12,209,677 shares of common stock
as adjusted for the Recapitalization exchange ratio of 4.13607. These shares are subject to a Company option to buy back
the shares at the original cash consideration paid, which totaled $2,952 or approximately $0.0002 per share. A total
of 7,966,070 shares were subject to the Company buy back right as of August 1, 2016 and 4,094,708 were made subject to
the Company buy back right on November 4, 2016 in conjunction with the Recapitalization. The employees vest their ownership
in these shares over a three-year period beginning August 1, 2016 with one-third vesting on August 1, 2017 and the
balance monthly over the remaining two years. The fair value of these shares of Subsidiary stock was estimated on the date of
the award using the exchange value used by Integrated and the Subsidiary to establish the relative voting control ratio in
the Recapitalization (See Note 8). Because these shares require continued service to the Company the estimated fair value is
recognized as compensation expense over the vesting period of the award.
On October 13, 2016, Subsidiary granted
62,041 shares of common stock to an employee. On October 16, 2016 an additional 245,434 shares of Subsidiary common stock were
granted to a director. The fair value of these shares of Subsidiary stock was estimated on the date of the awards based on the
quoted closing stock price on November 4, 2016 since the Recapitalization was pending. These shares are subject to a Company option
to buy back the shares at the original cash consideration paid.
As a condition of the Recapitalization, a total of 4,094,708
shares were required to be placed into an escrow arrangement for purposes of enforcement of the Company option to buy back shares
for the balance of the three-year service period. A total of 4,381,003 shares, which includes 35% of the 4,094,708 shares added
to the buy back option, are escrowed and subject to a performance condition requiring the Company to achieve certain operating
metrics regarding monthly unique users by December 31, 2017. Pursuant to a negotiated schedule the performance condition can be
satisfied in partial increments up to the full number of shares escrowed. The Company uses a Monte Carlo simulation model to determine
the number of shares expected to be released from the performance condition escrow. At December 31, 2016 it was estimated that
72.5% of the shares subject to the performance condition will be released. Pursuant to FASB ASC 718, escrowed share arrangements
in a capital raising transaction are considered to be compensatory, as such, the shares subject to these escrow provisions were
remeasured as of November 4, 2016, the date of the Recapitalization. The estimated fair value of these shares was determined based
on the quoted closing stock price on November 4, 2016. Because these shares require continued service to the Company the estimated
fair value is recognized as compensation expense over the vesting period of the award.
Restricted stock award activity for the
period from July 22, 2016 (Inception) to December 31, 2016 was as follows:
|
|
|
Shares
|
|
|
Shares
Remeasured
|
|
|
Weighted-
Average
Price
|
|
|
Stock awards granted at Inception
|
|
|
12,209,677
|
|
|
|
|
|
|
|
0.20
|
|
|
Granted October 13, 2016
|
|
|
62,041
|
|
|
|
|
|
|
|
0.70
|
|
|
Granted October 16, 2016
|
|
|
245,434
|
|
|
|
|
|
|
|
0.70
|
|
|
Remeasurement at November 4, 2016
|
|
|
-
|
|
|
|
5,837,788
|
*
|
|
|
0.43
|
|
|
Vested
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2016
|
|
|
12,517,152
|
|
|
|
|
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest after December 31, 2016
|
|
|
12,517,152
|
|
|
|
|
|
|
|
0
|
|
|
|
*
|
The number of shares Remeasured as of November 4, 2016
reflect the effect of the Monte Carlo simulation determination of the estimated number of shares expected to be released from
the performance condition escrow. This estimate will be reevaluated at each quarter end until the final outcome of the performance
condition is satisfied on December 31, 2017.
|
At December 31, 2016, total compensation cost related to restricted
stock awards but not yet recognized was $3,953,000. This cost will be amortized on a straight-line method over a period of approximately
2.6 years.
Stock Options
On December 19, 2016, the Company’s Board of Directors
approved the 2016 Stock Incentive Plan (“Plan”) and reserved 1,670,867 shares of common stock for issuance under the
Plan, including options and restricted performance stock awards. The Plan is administered by the Board of Directors and there were
no grants prior to the formation of the Plan. Shares of common stock that are issued under the Plan or subject to outstanding incentive
awards will be applied to reduce the maximum number of shares of common stock remaining available for issuance under the Plan,
provided, however, that that shares subject to an incentive award that expire will automatically become available for issuance.
Options issued under the Plan may have a term of up to ten years and may have variable vesting provisions.
The estimated fair value of stock-based awards is recognized
as compensation expense over the vesting period of the award. The fair value of restricted stock awards is determined based on
the number of shares granted and the quoted price of the Company’s common stock on the date of grant. The fair value of stock
option awards are estimated at the grant date as calculated using the Black-Scholes option-pricing model. The Black-Scholes model
requires various highly judgmental assumptions including expected volatility and option life. The fair values of our stock option
grants were estimated with the following average assumptions:
The fair value of stock options granted during 2016 were estimated
with the following assumptions:
|
|
|
2016
|
|
|
Expected life
|
|
|
6.0 years
|
|
|
Risk-free interest rate
|
|
|
2.17
|
%
|
|
Expected annual volatility
|
|
|
113.79
|
%
|
|
Dividend yield
|
|
|
0.00
|
%
|
For the period from July 22, 2016 (Inception) to December 31,
2016 option activity was as follows:
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
|
|
Average
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 22, 2016 (Inception)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Assumed through Recapitalization
|
|
|
175,000
|
|
|
|
0.17
|
|
|
|
2.38
|
|
|
|
|
|
|
Granted
|
|
|
100,137
|
|
|
|
1.02
|
|
|
|
9.99
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
275,137
|
|
|
|
0.48
|
|
|
|
5.15
|
|
|
|
157,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2016
|
|
|
275,137
|
|
|
|
0.48
|
|
|
|
5.15
|
|
|
|
157,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
175,000
|
|
|
|
0.17
|
|
|
|
2.38
|
|
|
|
154,000
|
|
The Company has granted 100,137
options under the Plan at an exercise price of $1.02 per share, with an expiration of December 28, 2026, and vests over three
years. None of these options are yet vested. In 2016, the Company recorded stock-based compensation of $5,542 related to this
grant. At December 31, 2016, total compensation cost related to stock option granted under the Plan but not yet recognized
was $82,816. This cost will be amortized on a straight-line method over a period of approximately 2.8 years. The aggregate
intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our
common stock for the number of options that were in-the-money at year end.
In addition, the Company assumed 175,000 fully-vested options
in connection with the Recapitalization with an exercise price of $0.17 per share which expire on May 15, 2019.
The following table summarizes certain information about stock
options:
|
|
|
2016
|
|
|
|
|
|
|
|
Weighted average grant-date fair value for options granted during the year
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
Vested options in-the-money at December 31, 2016
|
|
|
175,000
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of options exercised during the year
|
|
$
|
-
|
|
The following table summarizes the common shares reserved for
future issuance under the Plan:
|
Stock options outstanding
|
|
|
100,137
|
|
|
Stock options available for future grant
|
|
|
1,570,730
|
|
|
|
|
|
1,670,867
|
|
Common Stock Warrants – Channel Partner Program
On December 19, 2016, the Company’s Board of Directors
approved a program to be administered by management that authorized the Company to issue up to 5,000,000 common stock warrants
to provide equity incentive to its Channel Partners to motivate and reward them for their services to the Company and to align
the interests of the Channel Partners with those of stockholders of the Company.
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
|
|
Average
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 22, 2016 (Inception)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Granted
|
|
|
350,000
|
|
|
|
1.05
|
|
|
|
4.98
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
350,000
|
|
|
|
1.05
|
|
|
|
4.98
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2016
|
|
|
239,000
|
|
|
|
1.05
|
|
|
|
4.98
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
In December 2016, the Company issued 350,000 common stock warrants
to six of the Channel Partners. The warrants have a performance condition and vest over three years and expire in five years from
issuance. The exercise prices range from $0.95 to $1.09 with a weighted average of $1.05. The performance conditions are generally
based on the average number of unique visitors on the Channel operated by the Channel Partner generated during the period from
July 1, 2017 to December 31, 2017 or the revenue generated during the period from issuance date through June 30, 2019. Equity grants
with performance conditions that do not have sufficiently large disincentive for non-performance may be measures at fair value
that is not fixed until performance is complete. The Company recognizes expense for equity based payments to non-employees as the
services are received. The Company has specific objective criteria, such as the date of launch of a Channel on the Company’s
platform, for determination of the period over which services are received and expense is recognized.
The Company uses a Monte
Carlo simulation model to determine the number of shares expected to be earned by Channel Partners based on performance
obligations to be satisfied over a defined period which will commence at the launch of a Channel on the Company’s
platform. As of December 31, 2016, the Monte Carlo simulation determined that an estimated 239,000 shares will be earned. The
estimate will be reevaluated each quarter end until the final outcome of the performance condition is satisfied on December
31, 2017. The Company did not record compensation related to Channel Partner warrants in 2016.
In accordance with the Investment Banking Advisory Agreement
more fully described in Note 11, Integrated issued warrants to MDB Capital Group, LLC to purchase 1,169,607 shares of Parent common
stock. The warrants have an exercise price of $0.20 per share and expire on November 4, 2021. The aggregate intrinsic value of
the warrants at December 31, 2016 is $994,000.
Common Stock to be Issued
The Company agreed to compensate its
four non-management directors by issuing common stock in addition to cash for services rendered in 2016. Two of these
directors are affiliated with the advisory service s firm that provided investment banking services to the Company. The
number of shares issued to each director was determined based upon the equivalent cash compensation accrued divided by the
quoted closing price of the Company’s common stock on the date the compensation is fully earned each quarter, which is
the last day of such quarter. The Company recorded stock-based compensation of $6,250 for the period subsequent to the
Recapitalization, which is recorded as common stock to be issued.
Stock-based Compensation
The impact on our results of operations of recording stock-based
compensation expense was as follows:
|
|
|
Restricted
Stock at
Inception
|
|
|
Stock
Options
|
|
|
Channel
Partner
Warrants
|
|
|
Common
Stock to
be Issued
|
|
|
Total
|
|
|
Research and development
|
|
|
67,842
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,842
|
|
|
General and administrative
|
|
|
1,026,135
|
|
|
|
5,542
|
|
|
|
-
|
|
|
|
6,250
|
|
|
|
1,037,927
|
|
|
|
|
|
1,093,977
|
|
|
|
5,542
|
|
|
|
-
|
|
|
|
6,250
|
|
|
|
1,105,769
|
|
In addition, during 2016 stock-based compensation totaling $139,375
during the application and development stage was capitalized for website development.
|
|
|
Restricted
Stock
|
|
|
|
|
|
|
|
Capitalized website development costs
|
|
|
139,375
|
|
10. Income Taxes
The Company accounts for income taxes
under FASB ASC 740 “Accounting for Income Taxes.” Deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported amounts of assets and liabilities in the Company’s
financial statements and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that all or some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Parent’s net operating loss
carryforwards (NOL) and credit carryforwards are subject to limitations on the use of the NOLs by the Company in consolidated
tax returns after the Reverse Recapitalization. Where there is a “change in ownership” within the meaning of Section
382 of the Internal Revenue Code, the Parent’s net operating loss carryforwards and credit carryforwards are subject to
an annual limitation. The Company believes that such an ownership change occurred because the shareholders of the Subsidiary acquired
56.7 percent of the Parent’s stock. Because the Parent’s value at the date of recapitalization was attributable solely
to non-business assets, the utilization of the carryforwards is limited such that the majority of the carryforwards will never
be available. Accordingly, the Company has not recorded those NOL carryforwards and credit carryforwards in its deferred tax assets.
The Parent is no longer subject to U.S.
federal and state income tax examinations by tax authorities for years before 2012. The Company currently is not under examination
by any tax authority.
As of December 31, 2016, the Company had
deferred tax assets primarily consisting of its current year net operating losses and accrued liabilities not currently deductible.
However, because of the current loss since Inception, the Company has recorded a full valuation allowance such that its net deferred
tax asset is zero.
Deferred tax assets consist of the following
components:
|
|
|
2016
|
|
|
Deferred tax assets:
|
|
|
|
|
|
Accrued liabilities not currently deductible
|
|
$
|
64,210
|
|
|
Net operating loss and capital loss carryforwards
|
|
|
506,259
|
|
|
Gross deferred tax assets
|
|
|
570,469
|
|
|
Valuation allowance
|
|
|
(417,581
|
)
|
|
Gross deferred tax assets net of valuation allowance
|
|
|
152,888
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
Stock-based compensation
|
|
|
16,625
|
|
|
Website development costs and fixed assets
|
|
|
136,263
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
The Company must make judgments as to
whether the deferred tax assets will be recovered from future taxable income. To the extent that the Company believes that recovery
is not likely, it must establish a valuation allowance. A valuation allowance has been established for deferred tax
assets which the Company does not believe meet the “more likely than not” criteria. The Company’s
judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws, tax planning strategies
or other factors. If the Company’s assumptions and consequently its estimates change in the future, the valuation
allowances it has established may be increased or decreased, resulting in a respective increase or decrease in income tax expense.
At December 31, 2016, the Company had
net operating loss carryforwards of approximately $1.5 million for federal income tax purposes. The NOL carryforward
may be used to reduce taxable income, if any, in future years through their expiration in 2036.
The provision for income taxes on the
statement of comprehensive loss differs from the amount computed by applying the statutory Federal income tax rate to income before
the provision for income taxes, as follows:
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal expense expected at statutory rate
|
|
$
|
(743,838
|
)
|
|
|
34.0
|
%
|
|
Permanent differences
|
|
|
373,367
|
|
|
|
-17.1
|
%
|
|
Change in valuation allowance
|
|
|
370,470
|
|
|
|
-16.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit and effective tax rate
|
|
$
|
-
|
|
|
|
|
|
The Company recognizes tax benefits from
an uncertain position only if it is “more likely than not” that the position is sustainable, based on its technical
merits. The Company’s policy is to include interest and penalties in general and administrative expenses. There
were no interest and penalties recorded for the period from July 22, 2016 (Inception) to December 31, 2016. The Company
has evaluated and concluded that there are no uncertain tax positions requiring recognition in the Company’s financial statements
for the period ended December 31, 2016.
11. Related Party Transactions
The Parent entered into an Investment
Banking Advisory Services agreement in November 2007 with MDB Capital Group LLC (“MDB”), and the parties extended
the agreement indefinitely in April 2009. The agreement terminated on completion of the Recapitalization. Under the agreement,
MDB acted as an advisor to the Parent in connection with the Recapitalization. At the closing of the Recapitalization, the Parent
paid MDB a cash fee of $54,299 (including $4,299 to reimburse MDB’s expenses in connection with the Recapitalization) and
issued to MDB and its designees, Mr. Christopher A. Marlett, Robert Levande, and Mr. Schuman, a 5-year warrants to purchase an
aggregate of 1,169,607 shares of Common Stock, with an exercise price of $0.20 per share, representing 5% of the number of shares
of the Parent on a fully diluted basis immediately after the Closing. The fair value of the warrants using Black Scholes Option
Pricing model was determined to be $744,105. These amounts were recorded in the financial statements of the Parent prior to the
Recapitalization.
On April 4, 2017, the Company completed
a private placement of its common stock, selling 3,765,000 shares at $1.00 per share, for total gross proceeds of $3,765,000.
In connection with the offering, the Company paid $188,250 and issued 162,000 shares of common stock to MDB Capital Group LLC,
which acted as placement agent.
Mr. Christopher Marlett, a director of
the Company, is also the Chief Executive Officer of MDB. Mr. Gary Schuman, who is the Chief Financial Officer of the Company,
is also the Chief Financial Officer and Chief Compliance Officer of MDB. The Company compensates Mr. Schuman for his services
at the rate of $3,000 per month. Mr. Robert Levande, who is director of the Company, is also a senior managing director of MDB,
Mr. Levande was compensated $6,250 in 2016 (from the date of the Recapitalization through December 31, 2016), which was paid in
a combination of cash and shares of Common Stock.
Prior to and interdependent upon
the closing of the Recapitalization, the Parent provided a series of advances for an aggregated amount of approximately
$735,000 to the Subsidiary under a promissory note (the “Term Note”). The Term Note was guaranteed by
MDB in the amount of $150,000 and Mr. Heckman in the amount of $350,000 and secured by a mortgage held by the Parent
on certain properties owned by Mr. Heckman located in the State of Washington and the Province of British Columbia
(“Mortgage”). At the Closing of the Recapitalization, the Term Note was cancelled and the Personal Guarantee,
the Mortgage and the MDB Guarantee were terminated.
On August 17, 2016 the Subsidiary
borrowed $35,000 from a shareholder on demand. This loan was non-interest bearing and repaid on September 16, 2016 with
proceeds from a loan from Integrated.
12. Commitments and Contingencies
From time to time, the Company may be
subject to claims and litigation arising in the ordinary course of business. The Company is not currently a party to
any legal proceedings that it believes would reasonably be expected to have a material adverse effect on the Company’s business,
financial condition or results of operations.
The Company may have a liability for additional
state franchise taxes payable in the amount of approximately $44,000, plus interest at 18% per annum, for the years 2008-2014.
Because of state statutory provisions, the underpaid amount will only be due once assessed and demanded by the state. The
tax liability and associated interest has not been included as an accrued liability because management has determined that the
likelihood of the state making the assessment is low. Depending on circumstances, management may change its estimate of
the probability of an assessment and establish either an accrual or record a payment for the tax liability if assessed.
13. Subsequent Events
On January 18, 2017, the Company
issued 2,976 shares of common stock to one director, and 5,953 shares of common stock to a second director as compensation
for the three months ended December 31, 2016. These shares, totaling 8,929 were valued at a per share price of $1.05, or a
total of $9,375.
On April 4, 2017, the Company
completed a private placement of its common stock, selling 3,765,000 shares at $1.00 per share, for total gross proceeds of
$3,765,000. In connection with the offering, the Company paid $188,250 and issued 162,000 shares of common stock to MDB
Capital Group LLC, which acted as placement agent. The approximate transaction costs of $424,000, including $201,000 of
non-cash expenses, have been recorded as a reduction in paid-in capital. The net cash proceeds were approximately $3.5
million. The shares issued through this offering have registration rights, and it is expected that registration will be
filled within forty-five days of the offering completion date. The registration rights provide for liquidated damages upon
the occurrence of certain events, including the Company’s failure to file the registration statement or cause it to
become effective by the deadline.
From January 1, 2017 to May 5, 2017,
the Company has issued warrants to thirty-six of the Channel Partners for up to 1,725,000 shares of common stock with
an average exercise price of $1.14, and ranging from $1.00 to $1.33. The warrants vest over three years and expire in five
years from issuance. In addition to the three-year vesting condition, the warrants have performance conditions that determine
how many warrants are earned. The performance conditions are generally based on the average number of unique visitors on
the Channel operated by the Channel Partner during the period from July 1, 2017 to December 31, 2017 or the revenue generated
in any consecutive 12-month period during the period from issuance date to June 30, 2019. These performance conditions do
not have sufficiently large disincentive for non-performance such that the fair value measure is not fixed until
performance is complete.
The Company recognizes expense for equity based payments to
non-employees as the services are received. The Company has specific objective criteria, such as the date of launch on
the Company’s platform, for determination of the period over which services are received and expense
is recognized.
From January 1, 2017 to May 5, 2017,
the Company has granted options under
the Stock Incentive Plan to nine employees for up to 1,124,000 shares with exercise prices ranging from $1.15 to $1.23
per share. The plan has not been approved by the shareholders of the Company at this time.