TheMaven, Inc. (“Parent”) and
Maven Coalition, 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.
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.”. On March 5, 2018 the corporate name was changed to Maven Coalition, 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 totaling $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 Maven Coalition,
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.
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.
As of December 31, 2017, the Company has
generated less than $100,000 in revenue 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) two private placements of common stock
in April and October 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 year. 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 11, in April
2017, the Company completed a private placement of its common stock, raising proceeds of $3.5 million net of cash offering costs.
In October 2017, the Company completed a private placement of its common stock, raising proceeds of $2.7 million, net of cash offering
costs. As fully described in Note 13, in January 2018 and March 2018, the Company raised pursuant to a private placement $3,000,000
and $1,250,000, respectively. The $3 million was received prior to December 31, 2017 and was classified as Restricted Cash in the
December 31, 2017 balance sheet and then subsequently reclassified to Cash in January 2018 upon completion of the private placement.
In addition, the investment was classified as Investor Demand Payable in the December 31, 2017 balance sheet and then subsequently
reclassified to equity in January 2018 upon completion of the private placement. The Company believes that it does not have sufficient
funds to support its operations through the end of the first quarter of 2019. 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.
From January 1, 2018 to April 30, 2018,
the Company has continued to incur operating losses and negative cash flow from operating and investing activities. The Company
has been able to raise $1,250,000 in gross proceeds pursuant to a private placement of its common stock. However, the Company’s
cash balance at April 30, 2018 is approximately $257,000.
In order to fully fund operations through the end of May 2018,
the Company will need to raise approximately $850,000. There can be no assurance that Maven will be able to obtain the necessary
funds on terms acceptable to it or at all. Additional funds for working capital will be required to fund operations past May 31,
2018. 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.
The accompanying consolidated financial
statements include the financial position, results of operations and cash flows of Subsidiary for the year ended December 31,
2017 and 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.
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.
The Company operates a coalition of online
media channels and will provide digital media (text, audio and video) over the Internet that users may access on demand. As a broadcaster
that transmits third party content owned by our channel partners via digital media, the Company applies ASC 920, “Entertainment
– Broadcasters”. The channel partners generally receive variable amounts of consideration that are dependent upon the
calculation of revenue earned by the channel in a given month, referred to as a “revenue share”, that are payable in
arrears. In certain circumstances, there is a monthly fixed fee minimum or a fixed yield (“revenue per 1000 impressions”)
based on the volume of advertising impressions served. We disclose fixed dollar commitments for channel content licenses in Note
12 Commitments and Contingencies. Channel partner agreements that include fixed yield based on the volume of impressions served
are not included in Note 12 because they cannot be quantified but are expected to be significant. The expense related to channel
partner agreements are reported in “Service Costs” in the Statements of Comprehensive Loss. The cash payments related
to channel partner agreements are classified within “Net cash used in operating activities” on the Statements of Cash
Flows.
During the third quarter of 2017, the Company
adopted ASC 606, “Revenue from Contracts with Customers” as the accounting standard for revenue recognition. Since
the Company had not previously generated revenue from customers the Company did not have to transition its accounting method from
ASC 605, “Revenue Recognition”.
Revenues are recognized when control of
the promised goods or services are transferred to our customers, in an amount that reflects the consideration that the Company
expects to receive in exchange for those goods or services. The Company generates all of its revenue from contracts with customers.
The following is a description of the principal activities from which the Company generates revenue:
The Company enters into contracts with
advertising networks to serve display or video advertisements on the digital media pages associated with our various channels.
In accordance with ASC 606 the Company recognizes revenue from advertisements at the point in time when each ad is viewed as reported
by our advertising network partners. The quantity of advertisements, the impression bid prices and revenue are reported on a real-time
basis. Although reported advertising transactions are subject to adjustment by the advertising network partners, any such adjustments
are known within a few days of month end. The Company owes our independent publisher channel partners a revenue share of the advertising
revenue earned and this is recorded as service costs in the same period in which the associated advertising revenue is recognized.
The Company enters into contracts with Internet users that subscribe
to premium content on the digital media channels. These contracts provide Internet users with a subscription to access the premium
content for a given period of time, which is generally one year. In accordance with ASC 606 the Company recognizes revenue from
each membership subscription over time based on a daily calculation of revenue during the reporting period. Subscribers make payment
for a subscription by credit card and the amount of the subscription collected in cash is initially recorded as deferred revenue
on the balance sheet. As the Company provides access to the premium content over the subscription term the Company recognizes revenue
and proportionately reduces the deferred revenue balance. The Company owes our independent publisher channel partners a revenue
share of the membership revenue earned and this is initially deferred as deferred contract costs. The Company recognizes deferred
contract costs over the subscription term in the same pattern that the associated membership revenue is recognized.
Disaggregation of Revenue
The following table provides information
about disaggregated revenue by product line, geographical market and timing of revenue recognition:
|
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
Advertising
|
Membership
|
Total
|
By Product Lines:
|
|
|
|
|
$62,777
|
$14,218
|
$76,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
Other
|
Total
|
By Geographical Markets:
|
|
|
|
|
$76,995
|
$-
|
$76,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At a Point in Time
|
Over Time
|
Total
|
By Timing of Revenue Recognition:
|
|
|
|
|
$62,777
|
$14,218
|
$76,995
|
Contract Balances
The following table provides information about contract balances
as of December 31, 2017:
|
Advertising
|
Membership
|
Total
|
|
|
|
|
Accounts receivable
|
$52,348
|
$854
|
$53,202
|
|
|
|
|
Short-term contract assets (deferred contract costs)
|
-
|
$14,147
|
$14,147
|
|
|
|
|
Short-term contract liabilities (deferred revenue)
|
-
|
$31,437
|
$31,437
|
|
|
|
|
The Company receives payments from advertising
customers based upon contractual payment terms; accounts receivable are recorded when the right to consideration becomes unconditional
and are generally collected within 90 days. The Company generally receives payments from membership customers at the time of sign
up for each subscription; accounts receivable from merchant credit card processors are recorded when the right to consideration
becomes unconditional and are generally collected weekly. Contract assets include contract fulfillment costs related to revenue
shares owed to channel partners, which are amortized to expense over the same period with the associated revenue. Contract liabilities
include payments received in advance of performance under the contract and are recognized as revenue over time. The Company had
no asset impairment charges related to contract assets in the period.
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 and intangible assets held and used by the Company are reviewed for impairment 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, 2017
and the period from July 22, 2016 (Inception) to 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
statements 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 $114,873 and $411,741 for the year ended December 31, 2017
and for the period from July 22, 2016 (Inception) to December 31, 2016, respectively.
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.
The Company measures its derivative liability
at fair value. The Company’s derivative liability is classified within Level 3 and are disclosed in Note 7.
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 and Restricted Cash
The Company maintains cash and restricted
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. The following
table reconciles Total cash and restricted cash at December 31:
|
|
2017
|
|
|
2016
|
|
Cash
|
|
$
|
619,249
|
|
|
$
|
598,294
|
|
Restricted cash
|
|
|
3,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total cash and restricted cash
|
|
$
|
3,619,249
|
|
|
$
|
598,294
|
|
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 used a Monte Carlo simulation model
to determine the number of shares expected to be released from the performance condition escrow up to the expiration of the performance
condition, which was December 31, 2017.
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.” Equity instruments
that are issued to non-employees in exchange for the receipt of goods or services are 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. 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 used a Monte Carlo simulation
model to determine the number of shares expected to be earned by certain 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 up to the expiration
of the performance condition, which was December 31, 2017.
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
credits 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 year ended December 31,
2017 and 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, 2017.
On December 22, 2017, the Tax Cuts and
Jobs Act of 2017 (the “2017 Tax Act”) was signed into law making significant changes to the U.S. federal corporate
income tax law which included a decrease in the U.S. federal corporate rate from 34% to 21%. See Note 10 Income Taxes for
further discussion.
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, 2017, potentially dilutive shares outstanding amounted to 11,865,936.
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 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 supersedes
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.
The Company adopted ASC 606 in the quarter
ended September 30, 2017 and began recognition of revenue from contracts with customers as a result of the launch of its network
operations. Since the Company had not previously generated revenue from customers the Company did not have to transition its accounting
method from ASC 605, “Revenue Recognition”.
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. The adoption of ASU 2015-17 in 2017 did not have any impact on Company’s
financial statement presentation or disclosures.
In March 2018, the FASB issued Accounting
Standards Update No. 2018-05 (ASU 2018-05),
Income Taxes (Topic 740,
Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update).
ASU 2018-05 provided
guidance regarding the income tax accounting implications of the Tax Cuts and Jobs Act enacted on December 22, 2017. Management
has adopted this standard in 2017 and it did not have a material effect on the financial statements and related disclosures.
Recently Issued Accounting Pronouncements
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 2017, the FASB issued
ASU 2017-09,
Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.
This ASU provides clarity and reduces
both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718 to a change in terms or conditions
of a share-based payment award. The amendments in this ASU are effective for public entities for fiscal years and interim periods
beginning after December 15, 2017, with early adoption permitted. The ASU should be applied prospectively on and after the effective
date. The Company is evaluating the impact of this ASU.
5. Fixed Assets
At December 31, 2017 and December 31, 2016,
fixed assets, net consisted of the following:
|
|
2017
|
|
|
2016
|
|
Office equipment and computers
|
|
$
|
46,309
|
|
|
$
|
8,048
|
|
Furniture and fixtures
|
|
|
21,220
|
|
|
|
-
|
|
Website development costs
|
|
|
3,145,308
|
|
|
|
540,146
|
|
|
|
|
3,212,837
|
|
|
|
548,194
|
|
Accumulated depreciation and amortization
|
|
|
(525,110
|
)
|
|
|
(390
|
)
|
Fixed assets, net
|
|
$
|
2,687,727
|
|
|
$
|
547,804
|
|
In May 2017, the Company launched its website
and began amortization of capitalized website development cost. The Company recorded amortization expense of $512,252 in 2017 and
none in 2016. The Company recorded depreciation expense of $12,469 and $390 in 2017 and 2016, respectively.
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, 2017, 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, 2017, no
shares of Series G were converted into shares of common stock. At December 31, 2017, the outstanding Series G shares
were convertible into a minimum of 98,698 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, the 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 consolidated balance sheets between liabilities and stockholders’ equity. The Company does
not know the legal holder of these shares and does not know if these shares will be redeemed.
The conversion feature of the preferred stock is considered a derivative according to ASC 815 “Derivatives
and Hedging”, and the fair value of the derivative is reflected in the financial statements as a liability, which was determined
to be $72,563 and $137,177 as of December 31, 2017 and December 31, 2016, respectively, and has been included as “conversion
feature liability” on the accompanying consolidated balance sheets.
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 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, 2017:
Expected life of the redemption in years
|
|
|
1.0
|
|
Risk free interest rate
|
|
|
1.75
|
%
|
Expected annual volatility
|
|
|
93.95
|
%
|
Annual rate of dividends
|
|
|
0
|
%
|
The changes in the fair value of the derivative
are as follows:
Beginning as of January 1, 2017
|
|
$
|
137,177
|
|
Decrease in fair value
|
|
|
(64,614
|
)
|
|
|
|
|
|
Ending balance as of December 31, 2017
|
|
$
|
72,563
|
|
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
|
|
|
.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 January 1, 2016
|
|
$
|
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. Immediately after
the Recapitalization a total of 22,047,531 shares of Parent common stock were 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
|
%
|
Maven Coalition, 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 as of November 4, 2016
|
|
|
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,
2017 is $583,000.
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 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 28,516,009 and 22,047,531 shares were issued and outstanding as
of December 31, 2017 and December 31, 2016, respectively.
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, were escrowed and subject to a performance condition requiring the Company to achieve certain
operating metrics regarding monthly unique users by December 31, 2017 (“Unique User Performance Condition”). Pursuant
to a negotiated schedule the performance condition could be satisfied in partial increments up to the full number of shares escrowed.
The Company, used a Monte Carlo simulation model to determine the number of shares expected to be released from the performance
condition escrow up to the expiration date of the performance condition, which was December 31, 2017. At December 31, 2016 it
was estimated that 72.5% of the shares subject to the performance condition would 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
|
|
|
*
|
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.
|
Restricted stock award activity for the year ended December 31,
2017 was as follows:
|
|
Shares
|
|
|
|
|
|
Weighted-
Average
Price
|
|
Unvested at December 31, 2016
|
|
|
12,517,152
|
|
|
|
|
|
|
$
|
0.41
|
|
Vested
|
|
|
(5,537,556
|
)
|
|
|
|
|
|
|
0.41
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Unvested at December 31, 2017
|
|
|
6,979,596
|
|
|
|
|
|
|
|
0.41
|
|
Vested at December 31, 2017
|
|
|
5,537,556
|
|
|
|
|
|
|
$
|
0.41
|
|
As of December 31, 2017, the Unique User
Performance Condition was determined based on 4,977,144 unique users accessing Maven channels in November 2017. Based on this
level of unique users 56% of the of the shares subject to the performance condition will be released and 1,927,641 of the escrow
shares were subject to the Company’s buy-back right. The Company’s Board of Directors made a determination on March
12, 2018 to waive the buy-back right. This waiver of the buy-back right related to 1,927,641 shares is a modification of the terms
of the restricted stock awards and will result in incremental compensation cost of approximately $3.5 million that will be recognized
over a period of approximately 1.6 years, with a total of $2.8 million recognized in 2018.
At December 31, 2017, total compensation
cost, including the effect of the waiver of the buy-back right, related to restricted stock awards but not yet recognized was $5.6
million. This cost will be recognized over a period of approximately 1.6 years with a total of $4.1 million recognized in 2018.
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. On June 28, 2017, the Board of Directors approved
an increase in the total number of shares reserved from 1,670,867 to 3,000,000. 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 2017 and
2016 were estimated with the following assumptions:
|
|
2017
|
|
|
2016
|
|
Expected life
|
|
|
5.7 years
|
|
|
|
6.0 years
|
|
Risk-free interest rate
|
|
|
2.01
|
%
|
|
|
2.17
|
%
|
Expected annual volatility
|
|
|
115.13
|
%
|
|
|
113.79
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
For the year ended December 31, 2017 and 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)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,101,500
|
|
|
|
1.36
|
|
|
|
9.75
|
|
|
|
|
|
Exercised
|
|
|
(25,000
|
)
|
|
|
0.17
|
|
|
|
2.5
|
|
|
|
|
|
Forfeited
|
|
|
(175,000
|
)
|
|
|
1.53
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
2,176,637
|
|
|
$
|
1.25
|
|
|
|
9.25
|
|
|
$
|
1,573,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2017
|
|
|
2,176,637
|
|
|
$
|
1.25
|
|
|
|
9.25
|
|
|
$
|
1,573,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2017
|
|
|
267,500
|
|
|
$
|
0.76
|
|
|
|
8.0
|
|
|
$
|
305,000
|
|
During 2016 the Company 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 vested in 2016.
During 2017 the Company granted 2,101,500
options under the Plan at an average exercise price of $1.36 per share, with expiration dates in 2027, and that generally vest
over three years In 2017, the Company recorded stock-based compensation of $618,761 related to these grants. At December 31, 2017,
total compensation cost related to stock option granted under the Plan but not yet recognized was $1,169,000 . This cost will
be amortized on a straight-line method over a period of approximately 1.5 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, 25,000 were exercised in 2017 and 150,000 are still outstanding, 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:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair value for options granted during the year
|
|
$
|
1.34
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
Vested options in-the-money at December 31
|
|
|
300,879
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of options exercised during the year
|
|
$
|
27,750
|
|
|
$
|
-
|
|
The following table summarizes the common
shares reserved for future issuance under the Plan as of December 31, 2017 with the increase in the authorized number of shares
on March 28, 2018:
Stock options outstanding
|
|
|
|
|
|
|
2,176,637
|
|
Stock options available for future grant
|
|
|
|
|
|
|
2,823,363
|
|
|
|
|
|
|
|
|
5,000,000
|
|
The
Plan was initially adopted on December 19, 2016 by the board of directors and approved by the shareholders on December 13, 2017. The
number of shares under the Plan was increased on March 28, 2018 to 5,000,000.
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. The warrants associated with the
Channel Partner Program are equity classified awards.
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
|
|
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
|
|
|
$
|
-
|
|
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 measured
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 and are classified in stockholders’
equity.
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
350,000
|
|
|
$
|
1.05
|
|
|
|
4.98
|
|
|
$
|
-
|
|
Granted
|
|
|
3,650,500
|
|
|
|
1.36
|
|
|
|
5.0
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
2,696,668
|
|
|
|
1.29
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
1,303,832
|
|
|
$
|
1.48
|
|
|
|
4.35
|
|
|
$
|
583,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2017
|
|
|
1,303,832
|
|
|
$
|
1.48
|
|
|
|
4.35
|
|
|
$
|
583,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2017
|
|
|
679,255
|
|
|
$
|
1.60
|
|
|
|
4.35
|
|
|
$
|
233,000
|
|
During 2017, the Company issued 3,650,500
common stock warrants to 73 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 $2.20 with a weighted average of $1.36. 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 during the first six months from the Channel Partners launch on our platform
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 measured 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 reevaluated Channel Partner
performance each quarter end during 2017 and determined the final outcome of the performance conditions for certain Channel Partners
on December 31, 2017. The Company recorded approximately $230,000 of compensation related to Channel Partner warrants in 2017 and
zero in 2016.
In accordance with the Investment Banking
Advisory Agreement more fully described in Note 11, on November 4, 2016 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, 2017 is $1,988,000.
In accordance with the Investment Banking
Advisory Agreement more fully described in Note 11, on October 19, 2017 Maven issued warrants to MDB Capital Group, LLC to purchase
119,565 shares of Parent common stock. The warrants have an exercise price of $1.15 per share and expire on October 19, 2022. The
aggregate intrinsic value of the warrants at December 31, 2017 is $90,000.
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 services 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 was recorded as
common stock to be issued as of December 31, 2016.
Common Stock – 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 transaction costs of $446,000, including $201,000 of non-cash expenses, have been recorded
as a reduction in paid-in capital. The shares issued through this offering have registration rights, and a registration statement
was filed within approximately forty-five days of the offering completion date.
On October 19, 2017, the Company completed a private placement
of its common stock, selling 2,391,304 shares at $1.15 per share, for total gross proceeds of $2,734,205. In connection with
the offering, the Company issued 119,565 shares of common stock and 119,565 common stock warrants to MDB Capital Group LLC, which
acted as placement agent. The approximate transaction costs of $296,000, including $282,000 of non-cash expenses, have been
recorded as a reduction in paid-in capital. The net cash proceeds were approximately $2.7 million. The shares issued
through this offering have registration rights, and a registration statement was filed within approximately forty-five days of
the offering completion date.
Stock-based Compensation
The impact on our results of operations of
recording stock-based compensation expense was as follows:
|
|
For the Period from July 22, 2016 (Inception) to December
31, 2016
|
|
|
|
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.
|
|
For the Year Ended December 31, 2017
|
|
|
|
Restricted
Stock at
Inception
|
|
|
Stock
Options
|
|
|
Channel
Partner
Warrants
|
|
|
Common
Stock to
be Issued
|
|
|
Total
|
|
Research and development
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
General and administrative
|
|
|
777,206
|
|
|
|
618,761
|
|
|
|
229,720
|
|
|
|
-
|
|
|
|
1,625,687
|
|
|
|
$
|
777,206
|
|
|
$
|
618,761
|
|
|
$
|
229,720
|
|
|
|
|
|
|
$
|
1,625,687
|
|
In addition, during 2017 stock-based compensation totaling $614,573 during the application and development
stage was capitalized for website development.
10. 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 2013. The Company currently is not under examination
by any tax authority.
On December 22, 2017, the Tax Cuts and
Jobs Act of 2017 (the “2017 Tax Act”) was signed into law making significant changes to U.S. federal corporate income
tax law. Changes include, but are not limited to, a U.S. federal corporate tax rate decrease from 34% to 21% for years beginning
after December 31, 2017 and limitation on the utilization of NOLs arising after December 31, 2017. The reduction in the U.S. federal
corporate tax rate decreased the Company’s net deferred tax asset balances by $838,000 which was fully offset by a corresponding
decrease to its deferred tax valuation allowance. The Company recorded its provision for income taxes in accordance with the 2017
Tax Act and guidance available as of the date of this filing.
Deferred tax assets consist of the following
components:
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued liabilities not currently deductible
|
|
$
|
38,328
|
|
|
$
|
64,210
|
|
Deferred Revenue net of deferred costs
|
|
|
3,631
|
|
|
|
-
|
|
Stock based compensation
|
|
|
130,075
|
|
|
|
-
|
|
Net operating loss and capital loss carryforwards
|
|
|
1,544,591
|
|
|
|
506,259
|
|
Gross deferred tax assets
|
|
|
1,716,625
|
|
|
|
570,469
|
|
Valuation allowance
|
|
|
(1,353,207
|
)
|
|
|
(417,581
|
)
|
Gross deferred tax assets net of valuation allowance
|
|
|
363,418
|
|
|
|
152,888
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
10,268
|
|
|
|
16,625
|
|
Website development costs and fixed assets
|
|
|
353,150
|
|
|
|
136,263
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2017 and December 31,
2016, the Company had deferred tax assets primarily consisting of its net operating losses and accrued liabilities not currently
deductible. Utilization of net operating loss and tax credit carryforwards may be subject to substantial annual limitation due
to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue
Code Section 382, as well as similar state provisions. 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. The change in the valuation allowance was $920,356 and
$370,470 in the year ended December 31, 2017 and the period from July 22, 2016 (Inception) through December 31, 2016, respectively.
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, 2017, the Company had
net operating loss carryforwards of approximately $7.3 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 2037.
The benefit for income taxes on the statement of comprehensive loss differs from the amount computed by
applying the statutory Federal income tax rate to loss before the benefit for income taxes, as follows:
|
|
2017
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal benefit expected at statutory rate
|
|
$
|
(2,136,666
|
)
|
|
|
34
|
%
|
|
$
|
(743,838
|
)
|
|
|
34.0
|
%
|
Permanent differences
|
|
|
378,611
|
|
|
|
(6.0
|
%
|
)
|
|
373,368
|
|
|
|
(17.1
|
)%
|
Impact of tax rate change
|
|
|
837,699
|
|
|
|
(13.3
|
%
|
)
|
|
-
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
920,356
|
|
|
|
(14.7
|
%
|
)
|
|
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 year ended December 31, 2017 or 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, 2017.
11. Related Party Transactions
The Parent entered into an Investment Banking
Advisory Services agreement in November 2007 with MDB Capital Group LLC (“MDB”) and is a related party because Mr.
Christopher Marlett is the CEO of MDB and was a director of the Company until February 1, 2018, 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, 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.
On October 19, 2017, the Company completed
a private placement of its common stock, selling 2,391,304 shares at $1.15 per share, for total gross proceeds of $2,750,000.
In connection with the offering, the Company issued 119,565 shares of common stock and 119,565 common stock warrants to MDB Capital
Group LLC, which acted as placement agent.
Mr. Christopher Marlett was a director
of the Company until February 1, 2018. Mr. Marlett is the Chief Executive Officer of MDB. Mr. Gary Schuman, who was the Chief
Financial Officer of the Company until May 15, 2017 is the Chief Financial Officer and Chief Compliance Officer of MDB. The Company
compensated Mr. Schuman for his services at the rate of $3,000 per month until his resignation. Mr. Robert Levande was a director
of the Company until July 5, 2017. Mr. Levande is a senior managing director of MDB.
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,
the Company’s Chief Executive Officer, 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.
Ms. Rinku Sen became a director of the
Company in November 2017 and has provided consulting services and operates a channel on our platform. During the year ended December
31, 2017, Ms. Sen was paid $15,000 for these services.
Effective on September 20, 2017, the Company
entered into a six-month contract, with automatic renewals unless cancelled, with a company located in Nicaragua that is owned
by Mr. Christopher Marlett, a director of the Company, to provide content conversion services. The estimated monthly costs are
expected to be less than $5,000 per month.
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’s offices are
leased with a term that expired April 30, 2018, with approximately $25,000 commitment, subject to renewal with 30 days
advance notice.
In April 2018, Maven entered into an office
sublease agreement to sublease of 7,457 rentable square feet at 1500 Fourth Avenue, Suite 200, Seattle, Washington 98101. The sublease
has a term of 41 months, commencing on June 1, 2018, with base rent at a rate of $25.95 per square foot per annum in months 1 through
12, rising to $37 per square foot in months 37 to 41. Upon execution of the sublease in April 2018, the Company paid $60,249 as
prepaid rent and a security deposit of $22,992. The following table shows the aggregate commitment by year:
|
|
Commitment
|
|
2018
|
|
$
|
113,000
|
|
2019
|
|
|
233,000
|
|
2020
|
|
|
265,000
|
|
2021
|
|
|
227,000
|
|
|
|
$
|
838,000
|
|
On a select basis, the Company has provided
revenue share guarantees to certain independent publishers that transition their publishing operations from another platform to
theMaven.net or maven.io. These arrangements generally guarantee the publisher a monthly amount of income for a period of 12 to
24 months from inception of the publisher contract that is the greater of (a) fixed monthly minimum, or (b) the calculated earned
revenue share. During 2017, the Company paid a total of $560,000 in Channel Partner guarantees. To the extent that the fixed monthly
minimum paid exceeds the earned revenue share (defined as an Over Advance) in any month during the first 12 to 24 months (“the
Guarantee Period”), then the Company may recoup the aggregate Over Advance that was expensed in the Guarantee Period during
the 12 months following the Guarantee Period of the publisher contract to the extent that the earned revenue share exceeds the
monthly minimum in those future months. As of December 31, 2017, the aggregate commitment is $734,000 and the Over Advance contingent
amount that the Company may recoup is approximately $500,000. The following table shows the aggregate commitment by year:
|
|
Commitment
|
|
2018
|
|
$
|
592,000
|
|
2019
|
|
|
142,000
|
|
|
|
$
|
734,000
|
|
13. Subsequent Events
On January 4, 2018, the Company, pursuant
to a private placement of its common stock, sold 1,200,000 shares at $2.50 per share for total gross proceeds of $3 million. This
investment was wired to the Company on December 29, 2017. Because this stock purchase was not executed prior to December 31, 2017,
the invested funds are recorded as Restricted Cash and as Investor Demand Payable. In 2018, upon execution of the stock purchase
agreement this investment was reclassified to Common Stock and Additional Paid in Capital. As of January 4, 2018, the cash which
was recorded as Restricted Cash as of December 31, 2017 was reclassified to Cash and was available for use to fund operations.
On
March 13, 2018, the Company and HubPages, Inc. (“HubPages”), together with HP Acquisition Co., Inc. (“HPAC”)
that is a wholly-owned subsidiary of the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”),
pursuant to which HPAC will merge with and into HubPages, with HubPages continuing as the surviving corporation in the merger and
as a wholly-owned subsidiary of the Company (the “Merger”).
The Merger Agreement provides that all issued and
outstanding common stock and preferred stock of HubPages, along with all outstanding vested stock options issued by HubPages will
be exchanged for an aggregate of $10 million in cash (the “Merger Consideration”). The aggregate Merger Consideration
to be issued at closing shall be reduced by (i) $1.5 million to be held in escrow to satisfy any indemnification obligations due
under the Merger Agreement and (ii) to the extent that a seller-side representation and warranty insurance policy is obtained and
bound at closing, 50% of the total premium, underwriting costs, brokerage commissions and other fees and expenses of such policy.
In addition, the Merger Agreement provides that all outstanding unvested stock options issued by HubPages will be cancelled for
no additional consideration and that at closing certain Key Personnel (as that term is defined in the Merger Agreement) will receive
an aggregate of 2.4 million shares of the Company’s common stock, subject to cut-back and vesting as set forth in the Merger
Agreement. Subject to the satisfaction or waiver of all closing conditions, and obtaining the necessary financing, the Company
expects to consummate the Merger by June 1, 2018. Should the Company not be able to consummate the Merger by June 1, 2018 due to
its inability to obtain the funds necessary to pay the Merger Consideration, the Company shall be obligate to pay HubPages a termination
fee of $1 million.
On March 19, 2018,
the Company entered into a non-binding letter of intent to acquire Say Media Inc. (“Say Media”), a media and publishing
technology company (the “Letter of Intent”). Pursuant to the terms of the non-binding Letter of Intent, the aggregate
consideration proposed to be payable in connection with the acquisition of Say Media is $20 million, comprised of (A) $7.5 million
in cash, consisting of (i) a $1 million Note (as described below), and (ii) $6.5 million in cash; (B) $9.6 million of Maven common
stock and options to purchase shares of Maven common stock (valued at a price of $2.50 per share), consisting of (i) 2,088,900
shares of common stock to be issued at closing to the stockholders of Say Media, and (ii) 1,751,100 options to purchase shares
of common stock to be issued to certain employees of Say Media who accept offers of continued employment with Say Media as the
surviving company; and (C) $2.9 million in cash and common stock consisting of (i) a $2.5 million short-term, secured promissory
note due 90 days after closing, (the “Maven Note”), to be secured by all of the assets, tangible and intangible, of
Maven and its subsidiaries (including HubPages, Inc. and/or Say Media, assuming the consummation of those respective acquisitions),
and (ii) 160,000 shares of common stock, to be issued to an affiliated entity of Say Media’s chief executive officer (the
“Say Lender”), in satisfaction of certain senior promissory notes issued by Say Media. All of the foregoing acquisition
consideration is subject to adjustment if the average monthly unique users across Say Media’s content management system and
publishing platform (the “Say Media Platform”) for the 60 days prior to closing is less than 40 million; provided that
the 160,000 shares of common stock to be issued to the Say Lender is subject to adjustment if the average credited monthly unique
users on the Say Media Platform for the 60 days prior to the maturity date of the Maven Note is less than 70 million. The Letter
of Intent contemplates that at closing, $1.5 million will be placed into an indemnity escrow for 24 months, with $750,000 to be
released after 12 months. In addition, 15% of shares of Maven common stock to be issued to the stockholders of Say Media and 15%
of the shares of Maven common stock to be issued to the Say Lender will be locked-up to satisfy any indemnification claims, with
100% of those shares to be lock-up for a period of 12 months and 50% of those shares to be lock-up for a period of 24 months. Maven
has committed to issuing up to a maximum of 4 million additional shares of common stock if the recipients of the equity consideration,
if and when they sell their equity after vesting during the 36 months after closing if the sales price achieved is less than $2.50.
In connection with the Letter of Intent,
on March 26, 2018, Maven loaned $1,000,000 to Say Media and was issued a secured promissory note in the principal amount of $1,000,000
from Say Media (the “Note”). The Note bears interest at the rate of 5% per annum and is secured against all of the
assets of Say Media. The Note is due and payable on the six-month anniversary of the earlier of (i) the termination of the Letter
of Intent or (ii) if Maven and Say Media should execute a definitive agreement with respect to the proposed acquisition, the termination
of the definitive agreement. The acquisition will be subject to negotiation and execution of definitive documentation and various
conditions precedent. In connection with the Letter of Intent on March 26, 2018 Maven loaned $1 million to Say Media and was issued
a secured promissory note in the principal amount of $1 million from Say Media.
On March 30, 2018 the Company, pursuant
to a private placement of its common stock, sold 500,000 shares at $2.50 per share for total gross proceeds of $1,250,000.
On April 25, 2018, Maven entered into an
office sublease agreement to sublease of 7,457 rentable square feet at 1500 Fourth Avenue, Seattle, Washington 98101. The sublease
has a term of 41 months, commencing on June 1, 2018, with base rent at a rate of $25.95 per square foot per annum in months 1 through
12, rising to $37 per square foot in months 37 to 41. Upon execution of the sublease in April 2018, the Company paid $60,249, as
prepaid rent and a security deposit of $22,992.
On April 30, 2018, a holder of 842,117
warrants with an exercise price of $0.20 per share exercised those warrants and received upon cashless exercise a total of 736,852
common shares.
On April 30, 2018, a holder of 25,000 with
an exercise price of $0.17 per share exercised those warrants and received upon cashless exercise a total of 22.344 common shares.
From January 1, 2018 to April 30, 2018,
the Company has continued to incur operating losses and negative cash flow from operating and investing activities. The Company
has been able to raise $1,250,000 in gross proceeds pursuant to a private placement of its common stock. However, the Company’s
cash balance at April 30, 2018 is approximately $257,000.
In order to fully fund operations through the end of May 2018,
the Company will need to raise approximately $850,000. There can be no assurance that Maven will be able to obtain the necessary
funds on terms acceptable to it or at all. Additional funds for working capital will be required to fund operations past May 31,
2018. 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.