NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
Summary of Significant Accounting Policies
Basis
of Presentation
The
condensed consolidated financial statements include the accounts of TheMaven, Inc. and its wholly owned subsidiaries (“Maven”
or the “Company”), after eliminating all significant intercompany balances and transactions. The Company does not
have any off-balance sheet arrangements.
The
condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. These
condensed consolidated financial statements have been prepared in accordance with the United States generally accepted accounting
principles (“US GAAP”) for interim financial information, the instructions to Form 10-Q and Regulation S-X. Accordingly,
they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should
be read in conjunction with the Company’s audited consolidated financial statements, which are included in Maven’s
Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2019, filed with the SEC on April
9, 2021.
The
condensed consolidated financial statements as of June 30, 2020, and for the three and six months ended June 30, 2020 and
2019, are unaudited but, in management’s opinion, include all adjustments necessary for a fair presentation of the results
of interim periods. All such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet as
of December 31, 2019, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.
The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal
year.
Liquidity
The Company performed an annual reporting
period going concern assessment. Management is required to assess its ability to continue as a going concern. The condensed consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization
of assets and the liquidation of liabilities in the normal course of business. These condensed consolidated financial statements
do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company has a history of recurring losses. The
Company’s recurring losses from operations and net capital deficiency have been evaluated by management to determine if the significance
of those conditions or events would limit its ability to meet its obligations when due. The operating loss realized for the six
months ended June 30, 2020 was primarily a result of a marketing investment in customer growth, together with investments in people
and technology as the Company continued to expand its operations. The operating loss realized in fiscal 2019 was primarily a result of
investments in people, infrastructure for the Company’s technology platform, and operations expanding during fiscal 2019 with the
acquisition of TheStreet, Inc. (“TheStreet”) and the licensing agreement for certain Sports Illustrated brands, along
with continued costs based on the strategic growth plans in other verticals.
As reflected in these condensed consolidated
financial statements, the Company had revenues of $53,503,793 for the six months ended June 30, 2020, and
experienced recurring net losses from operations, negative working capital, and negative operating cash flows. During the six
months ended June 30, 2020, the Company incurred a net loss of $45,937,953, utilized cash in operating activities
of $17,420,685, and as of June 30, 2020, had an accumulated deficit of $118,979,276. The Company has financed
its working capital requirements since inception through the issuance of debt and equity securities.
Additionally, as a result of the novel
coronavirus (“COVID-19”) pandemic, the Company experienced a decline in traffic and advertising revenue in the first
and second quarters of 2020. The Company implemented cost reduction measures in an effort to offset these declines. Since May
2020, there has been a steady recovery in the advertising market in both pricing and volume, which coupled with the return of
professional and college sports yielded steady growth in revenues through the balance of 2020 and start of 2021. The Company expects
a continued growth in advertising revenue back toward pre-pandemic levels, however, such growth depends on future developments,
including the duration of COVID-19, future sport event advisories and restrictions, and the extent and effectiveness of containment
actions taken.
Management has evaluated whether relevant
conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a
going concern. Substantial doubt exists when conditions and events, considered in the aggregate, indicate it is probable that
a company will not be able to meet its obligations as they become due within one year after the issuance date of its financial
statements. Management’s assessment is based on the relevant conditions that are known or reasonably knowable as of the
date these condensed consolidated financial statements were issued or were available to be issued.
Management’s assessment of the Company’s
ability to meet its future obligations is inherently judgmental, subjective, and susceptible to change. The factors that the Company
considered important in its going concern analysis, include, but are not limited to, its fiscal 2021 cash flow forecast and its
fiscal 2021 operating budget. Management also considered the Company’s ability to repay its obligations
through future equity and the implementation of cost reduction measures in effect to offset revenue and earnings declines from
COVID-19. These factors consider information including, but not limited to, the Company’s financial condition, liquidity
sources, obligations due within one year after the issuance date of these condensed consolidated financial statements, the funds
necessary to maintain operations and financial conditions, including negative financial trends or other indicators of possible
financial difficulty.
In particular, the Company’s plan for
the: (1) 2021 cash flow forecast, considered the use of its working capital line with FastPay (as described in Note 5)
to fund changes in working capital, where the Company has available credit of approximately $10.1 million as of the issuance date
of these condensed consolidated financial statements for the six months ended June 30, 2020, and that the Company
does not anticipate the need for any further borrowings that are subject to the holders approval, from its Delayed Draw Term Note
(as described in Note 8) where the Company may be permitted to borrow up to an additional $5,000,000; and (2) 2021 operating budget,
considered that approximately sixty-five percent of the Company’s revenue is from recurring subscriptions, generally paid
in advance, and that digital subscription revenue, that accounts for approximately thirty percent of subscription revenue, grew
approximately thirty percent during 2020 demonstrating the strength of its premium brand, and the plan to continue to grow its
subscription revenue from its acquisition of TheStreet and the launch of premium digital subscriptions from its Sports Illustrated
licensed brands.
The Company has considered both quantitative
and qualitative factors as part of the assessment that are known or reasonably knowable as of the date these condensed consolidated
financial statements were issued or were available to be issued and concluded that conditions and events considered in the aggregate,
do not raise substantial doubt about the Company’s ability to continue as a going concern for a one-year period following
the financial statement issuance date.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the fiscal 2020 presentation with no impact to previously reported
earnings.
Use
of Estimates
Preparation
of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ
materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the allowance
for credit losses, fair values of financial instruments, capitalization of platform development, intangible assets and goodwill,
useful lives of intangible assets and property and equipment, income taxes, fair value of assets acquired and liabilities assumed
in the business acquisitions, determination of the fair value of stock-based compensation and valuation of derivatives liabilities
and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking,
that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets
and liabilities.
Contract
Modifications
The
Company occasionally enters into amendments to previously executed contracts that constitute contract modifications. The Company
assesses each of these contract modifications to determine:
|
●
|
if
the additional services and goods are distinct from the services and goods in the original arrangement; and
|
|
|
|
|
●
|
if
the amount of consideration expected for the added services or goods reflects the stand-alone selling price of those services
and goods.
|
A
contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both
criteria is considered a change to the original contract and is accounted for on either a prospective basis as a termination of
the existing contract and the creation of a new contract, or a cumulative catch-up basis (see Note 3 and Note 11).
Recently
Adopted Accounting Standards
In
June 2016, the FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces a new model
for recognizing credit losses for certain financial instruments, including loans, accounts receivable and debt securities. The
new model requires an estimate of expected credit losses over the life of exposure to be recorded through the establishment of
an allowance account, which is presented as an offset to the related financial asset. The expected credit loss is recorded upon
the initial recognition of the financial asset. On January 1, 2020, the Company adopted ASU 2016-13 using the modified
retrospective approach with no material impact to its condensed consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which simplifies how an entity is required to test goodwill for impairment. The amendments require goodwill
impairment to be measured using the difference between the carrying amount and the fair value of the reporting unit and require
the loss recognized to not exceed the total amount of goodwill allocated to that reporting unit. On January 1, 2020, the Company
adopted ASU 2017-04 on a prospective basis with no material impact to its condensed consolidated financial position, results of
operations or cash flows.
Loss
per Common Share
Basic
loss per share is computed using the loss available to common stockholders over the weighted average number of common shares
outstanding during the period and excludes any dilutive effects of common stock equivalent shares, such as stock options, restricted
stock, and warrants. All restricted stock awards are considered outstanding but is included in the computation of basic loss per
common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. All restricted
stock units are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares
are no longer forfeitable, and are thus vested. Contingently issuable shares are included in basic loss per common share only
when there are no circumstance under which those shares would not be issued. Diluted loss per common share is computed using the
weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the
treasury stock method. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.
The
Company excluded the outstanding securities summarized below (capitalized terms are described herein), which entitle the holders
thereof to acquire shares of the Company’s common stock, from its calculation of net income loss per common share, as their
effect would have been anti-dilutive.
|
|
As of June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Series G Preferred Stock
|
|
|
188,791
|
|
|
|
188,791
|
|
Series H Preferred Stock
|
|
|
58,787,879
|
|
|
|
58,787,879
|
|
Series I Preferred Stock
|
|
|
46,200,000
|
|
|
|
46,200,000
|
|
Series J Preferred Stock
|
|
|
28,571,428
|
|
|
|
-
|
|
Indemnity shares of common stock
|
|
|
412,500
|
|
|
|
825,000
|
|
Restricted Stock Awards
|
|
|
1,433,332
|
|
|
|
3,574,997
|
|
Financing Warrants
|
|
|
2,882,055
|
|
|
|
3,949,018
|
|
ABG Warrants
|
|
|
21,989,844
|
|
|
|
-
|
|
Channel Partner Warrants
|
|
|
789,541
|
|
|
|
939,540
|
|
Restricted Stock Units
|
|
|
2,399,997
|
|
|
|
2,399,997
|
|
Common Stock Awards
|
|
|
8,033,936
|
|
|
|
9,047,892
|
|
Common Equity Awards
|
|
|
82,744,480
|
|
|
|
48,154,840
|
|
Outside Options
|
|
|
2,986,000
|
|
|
|
3,732,667
|
|
Total
|
|
|
257,419,783
|
|
|
|
177,800,621
|
|
2.
Acquisitions
On
March 9, 2020, the Company entered into an asset purchase agreement with Petametrics Inc., dba LiftIgniter, a Delaware corporation
(“LiftIgniter”), where it purchased substantially all the assets, including the intellectual property and excluding
certain accounts receivable, and assumed certain liabilities. The purchase price consisted of: (1) cash payment of $184,087 on
February 19, 2020, in connection with the repayment of all outstanding indebtedness, (2) at closing a cash payment of $131,202,
(3) collections of certain accounts receivable, (4) on the first anniversary date of the closing issuance of restricted stock
units for an aggregate of up to 312,500 shares of the Company’s common stock, and (5) on the second anniversary date of
the closing issuance of restricted stock units for an aggregate of up to 312,500 shares of the Company’s common stock.
The
composition of the preliminary purchase price is as follows:
Cash
|
|
$
|
315,289
|
|
Indemnity restricted stock units for shares of common stock
|
|
|
500,000
|
|
Total purchase consideration
|
|
$
|
815,289
|
|
The
preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities
assumed at the closing date of the acquisition based upon their respective fair values as summarized below:
Accounts receivable
|
|
$
|
37,908
|
|
Developed technology
|
|
|
917,762
|
|
Accounts payable
|
|
|
(53,494
|
)
|
Unearned revenue
|
|
|
(86,887
|
)
|
Net assets acquired
|
|
$
|
815,289
|
|
The
useful life for the developed technology is five years (5.0 years).
3.
Balance Sheet Components
The
components of certain balance sheet amounts are as follows:
Accounts
Receivable – Accounts receivable are presented net of allowance for doubtful accounts. The allowance for doubtful accounts
as of June 30, 2020 and December 31, 2019 was $445,317 and $304,129, respectively.
Subscription
Acquisition Costs – Subscription acquisition costs include the incremental costs of obtaining a contract with a customer,
paid to external parties, if it expects to recover those costs. The current portion of the subscription acquisition costs as of
June 30, 2020 and December 31, 2019 was $8,750,230 and $3,142,580, respectively. The noncurrent portion of the subscription acquisition
costs as of June 30, 2020 and December 31, 2019 was $7,785,479 and $3,417,478, respectively.
Certain
contract amendments resulted in a modification to the subscription acquisition costs that will be recognized on a prospective
basis in the same proportion as the revenue that has not yet been recognized (further details are provided in Note 11).
Platform
Development – Platform development costs are summarized as follows:
|
|
As of
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Platform development
|
|
$
|
13,609,436
|
|
|
$
|
10,678,692
|
|
Less accumulated amortization
|
|
|
(6,744,631
|
)
|
|
|
(4,785,973
|
)
|
Net platform development
|
|
$
|
6,864,805
|
|
|
$
|
5,892,719
|
|
A
summary of platform development activity for the six months ended June 30, 2020 and year ended December 31, 2019 is as follows:
|
|
As of
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Platform development beginning of period
|
|
$
|
10,678,692
|
|
|
$
|
6,833,900
|
|
Payroll-based costs capitalized during the period
|
|
|
2,061,081
|
|
|
|
2,537,402
|
|
Total capitalized costs
|
|
|
12,739,773
|
|
|
|
9,371,302
|
|
Stock-based compensation
|
|
|
869,663
|
|
|
|
1,307,390
|
|
Platform development end of period
|
|
$
|
13,609,436
|
|
|
$
|
10,678,692
|
|
Amortization
expense for the three months ended June 30, 2020 and 2019 was $1,037,834 and $623,819, respectively.
Amortization expense for the six months
ended June 30, 2020 and 2019 was $1,958,658 and $1,211,289, respectively.
Intangible
Assets – Intangible assets subject to amortization consisted of the following:
|
|
As of June 30, 2020
|
|
|
As of December 31, 2019
|
|
|
|
Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
|
Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Developed technology
|
|
$
|
20,055,866
|
|
|
$
|
(6,391,034
|
)
|
|
$
|
13,664,832
|
|
|
$
|
19,138,104
|
|
|
$
|
(4,090,359
|
)
|
|
$
|
15,047,745
|
|
Noncompete agreement
|
|
|
480,000
|
|
|
|
(372,000
|
)
|
|
|
108,000
|
|
|
|
480,000
|
|
|
|
(252,000
|
)
|
|
|
228,000
|
|
Trade name
|
|
|
3,328,000
|
|
|
|
(364,042
|
)
|
|
|
2,963,958
|
|
|
|
3,328,000
|
|
|
|
(224,745
|
)
|
|
|
3,103,255
|
|
Subscriber relationships
|
|
|
73,458,799
|
|
|
|
(10,846,438
|
)
|
|
|
62,612,361
|
|
|
|
73,458,799
|
|
|
|
(3,587,837
|
)
|
|
|
69,870,962
|
|
Advertiser relationships
|
|
|
2,240,000
|
|
|
|
(213,577
|
)
|
|
|
2,026,423
|
|
|
|
2,240,000
|
|
|
|
(94,635
|
)
|
|
|
2,145,365
|
|
Database
|
|
|
1,140,000
|
|
|
|
(341,183
|
)
|
|
|
798,817
|
|
|
|
1,140,000
|
|
|
|
(151,183
|
)
|
|
|
988,817
|
|
Subtotal amortizable intangible assets
|
|
|
100,702,665
|
|
|
|
(18,528,274
|
)
|
|
|
82,174,391
|
|
|
|
99,784,903
|
|
|
|
(8,400,759
|
)
|
|
|
91,384,144
|
|
Website domain name
|
|
|
20,000
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
20,000
|
|
Total intangible assets
|
|
$
|
100,722,665
|
|
|
$
|
(18,528,274
|
)
|
|
$
|
82,194,391
|
|
|
$
|
99,804,903
|
|
|
$
|
(8,400,759
|
)
|
|
$
|
91,404,144
|
|
Amortization
expense for the three months ended June 30, 2020 and 2019 was $5,094,791 and $834,900, respectively. Amortization expense for the six
months ended June 30, 2020 and 2019 was $10,127,515 and $1,669,800. No impairment charges have been recorded during the six months
ended June 30, 2020 and 2019.
4.
Leases
The
Company’s leases are primarily comprised of real estate leases for the use of office space, with certain lease arrangements
that contain equipment. The Company determines whether an arrangement contains a lease at inception. Lease assets and liabilities
are recognized upon commencement of the lease based on the present value of the future minimum lease payments over the lease term.
The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option.
Substantially all of the leases are long-term operating leases for facilities with fixed payment terms between 1.5 and 12.8 years.
The
table below presents supplemental information related to operating leases:
Six Months Ended June 30, 2020
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
1,349,213
|
|
Noncash lease liabilities arising from obtaining operating leased assets
during the period
|
|
$
|
16,617,790
|
|
Weighted-average remaining lease term
|
|
|
11.13 years
|
|
Weighted-average discount rate
|
|
|
13.46
|
%
|
The
Company generally utilizes its incremental borrowing rate based on information available at the commencement of the lease in determining
the present value of future payments since the implicit rate for most of the Company’s leases is not readily determinable.
Variable
lease expense includes rental increases that are not fixed, such as those based on amounts paid to the lessor based on cost or
consumption, such as maintenance and utilities.
Operating
lease costs recognized for the three months ended June 30, 2020 and 2019 were $1,062,181 and $130,951, respectively.
Operating lease costs for the six months ended June 30, 2020 and 2019 were $2,100,085 and $261,903,
respectively.
Maturities
of operating lease liabilities as of June 30, 2020 are summarized as follows:
Years Ending December 31,
|
|
|
|
2020 (remaining six months of the year)
|
|
$
|
1,839,773
|
|
2021
|
|
|
3,804,853
|
|
2022
|
|
|
3,525,158
|
|
2023
|
|
|
3,528,696
|
|
2024
|
|
|
3,526,406
|
|
Thereafter
|
|
|
27,563,572
|
|
Minimum lease payments
|
|
|
43,788,458
|
|
Less imputed interest
|
|
|
(22,362,451
|
)
|
Present value of operating lease liabilities
|
|
$
|
21,426,007
|
|
Current portion of operating lease liabilities
|
|
$
|
1,506,992
|
|
Long-term portion of operating lease liabilities
|
|
|
19,919,015
|
|
Total operating lease liabilities
|
|
$
|
21,426,007
|
|
Future
minimum lease payments under operating leases as of December 31, 2019, were as follows:
|
|
|
|
|
Payments due by Year
|
|
|
|
Total
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
Operating leases
|
|
$
|
6,132,252
|
|
|
$
|
2,579,924
|
|
|
$
|
685,111
|
|
|
$
|
472,084
|
|
|
$
|
486,247
|
|
|
$
|
500,834
|
|
|
$
|
1,408,052
|
|
Further
details as of the date these condensed consolidated financial statements were issued or were available to be issued are provided
under the heading Leases in Note 13).
5.
Line of Credit
FastPay
Credit Facility – On February 27, 2020, the Company entered into a financing and security agreement with FPP Finance
LLC (“FastPay”), pursuant to which FastPay extended a $15,000,000 line of credit for working capital purposes
secured by a first lien on all of the Company’s cash and accounts receivable and a second lien on all other assets. Borrowings
under the facility bear interest at the LIBOR Rate plus 8.50% and have a final maturity of February 6, 2022. The balance outstanding
as of June 30, 2020 was $3,243,882. As of the date these condensed consolidated financial statements were
issued or were available to be issued the balance outstanding was approximately $4.9 million.
SallyPort
Credit Facility – During November 2018, the Company entered into a factoring note agreement with Sallyport Commercial
Finance, LLC (“Sallyport”) to increase working capital through accounts receivable factoring. As of December 31, 2019,
Sallyport collected accounts receivable in excess of the balance outstanding under the note, therefore, the Company was due $626,532
from Sallyport which was reflected within accounts receivable on the condensed consolidated balance sheet. Effective January
30, 2020, the Company’s factoring facility with Sallyport was closed and funds were no longer available for advance.
6.
Fair Value Measurements
The
Company estimates the fair value of financial instruments using available market information and valuation methodologies the Company
believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing
these estimates and, accordingly, they are not necessarily indicative of amounts the Company would realize upon disposition.
The
fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
|
●
|
Level
1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
●
|
Level
2 Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
|
|
●
|
Level
3 Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and
which result in the use of management estimates.
|
The
Company accounts for certain warrants (as described under the heading Common Stock Warrants in Note 9) and the embedded
conversion features of the 12% senior convertible debentures (the “12% Convertible Debentures”) as derivative liabilities,
which required the Company to carry such amounts on its condensed consolidated balance sheets as a liability at
fair value, as adjusted at each reporting period-end.
These
warrants and the embedded conversion features are classified as Level 3 within the fair-value hierarchy. Inputs to the valuation
model include the Company’s publicly quoted stock price, the stock volatility, the risk-free interest rate, the remaining
life of the warrants, notes and debentures, the exercise price or conversion price, and the dividend rate. The Company uses the
closing stock price of its common stock over an appropriate period of time to compute stock volatility.
Warrant
Derivative Liabilities
The
following table presents the assumptions used for the warrant derivative liabilities under the Black-Scholes option-pricing model:
|
|
As of June 30, 2020
|
|
|
As of December 31, 2019
|
|
|
|
Strome Warrants
|
|
|
B. Riley Warrants
|
|
|
Strome Warrants
|
|
|
B. Riley Warrants
|
|
Expected life
|
|
|
2.96
|
|
|
|
5.30
|
|
|
|
3.45
|
|
|
|
5.80
|
|
Risk-free interest rate
|
|
|
0.18
|
%
|
|
|
0.29
|
%
|
|
|
1.62
|
%
|
|
|
1.76
|
%
|
Volatility factor
|
|
|
138.50
|
%
|
|
|
135.13
|
%
|
|
|
144.54
|
%
|
|
|
127.63
|
%
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Transaction date closing market price
|
|
$
|
0.65
|
|
|
$
|
0.65
|
|
|
$
|
0.80
|
|
|
$
|
0.80
|
|
Exercise price
|
|
$
|
0.50
|
|
|
$
|
1.00
|
|
|
$
|
0.50
|
|
|
$
|
1.00
|
|
The
following table represents the carrying amounts and change in valuation for the Company’s
warrants accounted for as a derivative liability and classified within Level 3 of the fair-value hierarchy:
|
|
As
of and for the Six Months Ended
June 30, 2020
|
|
|
As
of and for the Six Months Ended
June 30, 2019
|
|
|
|
Carry Amount at Beginning of Period
|
|
|
Change in Valuation
|
|
|
Carrying Amount at End of Period
|
|
|
Carry Amount at Beginning of Period
|
|
|
Change in Valuation
|
|
|
Carrying Amount at End of Period
|
|
L2 Warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
418,214
|
|
|
$
|
173,181
|
|
|
$
|
591,395
|
|
Strome Warrants
|
|
|
1,036,687
|
|
|
|
(260,345
|
)
|
|
|
776,342
|
|
|
|
587,971
|
|
|
|
243,464
|
|
|
|
831,435
|
|
B. Riley Warrants
|
|
|
607,513
|
|
|
|
(122,150
|
)
|
|
|
485,363
|
|
|
|
358,050
|
|
|
|
125,125
|
|
|
|
483,175
|
|
Total
|
|
$
|
1,644,200
|
|
|
$
|
(382,495
|
)
|
|
$
|
1,261,705
|
|
|
$
|
1,364,235
|
|
|
$
|
541,770
|
|
|
$
|
1,906,005
|
|
For
the three months ended June 30, 2020 and 2019, the change in valuation of warrant derivative liabilities recognized as other income
(expense) on the condensed consolidated statements of operations was $243,276 and ($166,075), respectively. For the six
months ended June 30, 2020 and 2019, the change in valuation of warrant derivative liabilities recognized as other income (expense)
on the condensed consolidated statements of operations, as described in the above table, was $382,495 and ($541,770), respectively.
Embedded
Derivative Liabilities
The
carrying amount for the conversion option features, buy-in features, and default remedy features under the 12% Convertible Debentures
accounted for as embedded derivative liabilities and classified within Level 3 of the fair-value hierarchy were $8,958,000 and
$13,501,000 as of June 30, 2020 and December 31, 2019, respectively.
For
the three months ended June 30, 2020 and 2019, the change in valuation of embedded derivative liabilities recognized
as other income (expense) on the condensed consolidated statements of operations was $2,922,000 and ($1,396,000), respectively.
For the six months ended June 30, 2020 and 2019, the change in valuation
of embedded derivative liabilities recognized as other income (expense) on the condensed consolidated statements of operations
was $4,543,000 and ($3,779,000), respectively.
7.
Convertible Debt
12%
Convertible Debentures
During
2018 and 2019, the Company had various financings through
the issuance of the 12% Convertible Debentures which were due and payable on December 31, 2020. Interest accrued
at the rate of 12% per annum, payable on the earlier of conversion or December 31, 2020. The Company’s obligations under
the 12% Convertible Debentures are secured by a security agreement, dated as of October 18, 2018, by and among the Company and
each investor thereto. The 12% Convertible Debentures were subject to the Company receiving stockholder approval
to increase its authorized shares of common stock before conversion. Principal on the 12% Convertible Debentures were
convertible into shares of the Company’s common stock, at the option of the investor at any time prior to December
31, 2020, at either a per share conversion price of $0.33 (with respect to the 12% Convertible Debentures
issued in 2018) or $0.40 (with respect to the 12% Convertible Debentures issued in 2019), subject to adjustment
for stock splits, stock dividends and similar transactions, and certain beneficial ownership blocker provisions.
The
12% Convertible Debentures were issued and convertible into shares of the Company’s common stock as follows: (1) gross proceeds
of $13,091,528 on December 12, 2018, convertible into 39,671,297 shares; (2) gross proceeds of $1,696,000 on March 18, 2019, convertible
into 4,240,000 shares; (3) gross proceeds of $318,000 on March 27, 2019, convertible into 795,000 shares; and (4) gross proceeds
of $100,000 on April 8, 2019, convertible into 250,000 shares. Upon issuance of the various financings, the Company accounted
for the embedded conversion option feature, buy-in feature, and default remedy feature as embedded derivative liabilities, which
required the Company to carry such amount on its condensed consolidated balance sheets as a liability at
fair value, as adjusted at each period-end (see Note 6). The Company also incurred additional debt issuance cost. The embedded
derivative liabilities and debt issuance cost were treated as a debt discount and amortized over the term of the debt.
The
following table summarizes the convertible debt:
|
|
As of June 30, 2020
|
|
|
As of December 31, 2019
|
|
|
|
Principal Balance (including accrued interest)
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Carrying Value
|
|
|
Principal Balance (including accrued interest)
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Carrying Value
|
|
12% Convertible Debentures, due on December 31, 2020
|
|
$
|
18,146,745
|
|
|
$
|
(1,996,821
|
)
|
|
$
|
16,149,924
|
|
|
$
|
17,119,571
|
|
|
$
|
(3,880,609
|
)
|
|
$
|
13,238,962
|
|
As
of December 31, 2020, there was no longer any principal or accrued but unpaid interest outstanding under the 12% Convertible Debentures.
Certain holders converted the debt into shares of the Company’s common stock and certain holders were paid in cash
(further details are provided under the heading 12% Convertible Debentures in Note 13).
8.
Long-term Debt
12%
Second Amended Senior Secured Note
Below
is a summary of the various amended and restated notes, as well as various amendments thereto, to the 12% senior secured note
that was originally issued on June 10, 2019, for gross proceeds of $20,000,000, due July 31, 2019. The transactions leading
up to the 12% second amended and restated note that is outstanding as of June 30, 2020 consisted of:
|
●
|
Amended
and restated note issued on June 14, 2019, where the Company received gross proceeds of $48,000,000, together with the $20,000,000
gross proceeds received on June 10, 2019 for total gross proceeds of $68,000,000, due June 14, 2022;
|
|
|
|
|
●
|
First
amendment to the amended and restated note issued on August 27, 2019, where the Company received gross proceeds of $3,000,000;
|
|
●
|
Second
amendment to the amended and restated note issued on February 27, 2020, where the Company issued a $3,000,000 letter of credit
to the Company’s landlord for leased premises; and
|
|
|
|
|
●
|
Second
amended and restated note issued on March 24, 2020, where the Company was permitted to enter into a 15.0% delayed draw term
note, in the aggregate principal amount of $12,000,000.
|
Collectively
the amended and restated notes and amendments thereto are referred to as the 12% Second Amended Senior Secured Note, with all
borrowings collateralized by substantially all assets of the Company. Pursuant to the 12% Second Amended Senior Secured Note,
interest on amounts outstanding with respect to (i) interest that was payable on March 31, 2020 and June 30, 2020, and (ii)
at the Company’s option, with the consent of requisite purchasers, interest that was payable on September 30, 2020 and December
31, 2020, in lieu of the payment in cash of all or any portion of the interest due on such dates, would be payable in-kind in
arrears on the last day of such applicable fiscal quarter (further details as of the date these condensed consolidated
financial statements were issued or were available to be issued are provided under the heading 12% Second Amended Senior Secured
Note in Note 13).
Delayed
Draw Term Note
On
March 24, 2020, the Company entered into a 15% delayed draw term note (the “Delayed Draw Term Note”) pursuant
to the second amended and restated note purchase agreement, in the aggregate principal amount of $12,000,000.
On
March 24, 2020, the Company drew down $6,913,865 under the Delayed Draw Term Note, and after payment of commitment and funding
fees paid of $793,109, and other of its legal fees and expenses that were incurred, the Company received net proceeds of $6,000,000.
The net proceeds were used for working capital and general corporate purposes. Additional borrowings under the Delayed Draw
Term Note requested by the Company may be made at the option of the purchasers, subject to certain conditions. Up to $8,000,000
in principal amount under the note was originally due on March 31, 2021. Interest on amounts outstanding under the note was payable
in-kind in arrears on the last day of each fiscal quarter (further details as of the date these condensed consolidated
financial statements were issued or were available to be issued are provided under the heading Delayed Draw Term Note
in Note 13).
Payroll
Protection Program Loan
On
April 6, 2020, the Company entered into a note agreement with JPMorgan Chase Bank, N.A. under the recently enacted Coronavirus
Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (“SBA”)
in the principal amount of $5,702,725 pursuant to Title 1 of the CARES Act (the “PPP Loan”).
The
PPP Loan proceeds were used to pay for payroll costs, including salaries, commissions, and similar compensation, group health
care benefits, and paid leaves; rent; utilities; and interest on certain other outstanding debt. The amount that will be forgiven
will be calculated in part with reference to the Company’s full time headcount during the 24 week period following the funding
of the PPP Loan.
The
note is scheduled to mature on April 6, 2022. The interest rate on the note is a fixed rate of 0.98% per annum. To the extent
that the amounts owed under the PPP Loan, or a portion of them, are not forgiven, the Company will be required to make principal
and interest payments in monthly installments.
The
following table summarizes the long-term debt:
|
|
As of June 30, 2020
|
|
|
As of December 31, 2019
|
|
|
|
Principal Balance (including accrued interest)
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Carrying Value
|
|
|
Principal Balance (including accrued interest)
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Carrying Value
|
|
12% Second Amended Senior Secured Note, as amended, due on December 31, 2022
|
|
$
|
52,995,840
|
|
|
$
|
(4,718,958
|
)
|
|
$
|
48,276,882
|
|
|
$
|
49,921,345
|
|
|
$
|
(5,911,600
|
)
|
|
$
|
44,009,745
|
|
Delayed Draw Term Note, as amended, due on March 31, 2022
|
|
|
7,193,956
|
|
|
|
(783,313
|
)
|
|
|
6,410,643
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Payroll Protection Program Loan, scheduled to mature on April 6,
2022
|
|
|
5,702,725
|
|
|
|
-
|
|
|
|
5,702,725
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
65,892,521
|
|
|
$
|
(5,502,271
|
)
|
|
$
|
60,390,250
|
|
|
$
|
49,921,345
|
|
|
$
|
(5,911,600
|
)
|
|
$
|
44,009,745
|
|
9.
Stockholders’ Equity
Common
Stock
The
Company has the authority to issue 1,000,000,000 shares of common stock, $0.01 par value per share (further details as of
the date these condensed consolidated financial statements were issued or were available to be issued are provided under
the heading Amendment to Certificate of Incorporation in Note 13).
Common
Stock Warrants
The
Company issued warrants to purchase shares of the Company’s common stock to MDB Capital Group, LLC (the “MDB Warrants”),
L2 Capital, LLC (the “L2 Warrants”), Strome Mezzanine Fund LP (the “Strome Warrants”), and B. Riley Financial,
Inc. (the “B. Riley Warrants”) in connection with various financing transactions (collectively, the “Financing
Warrants”).
The
Financing Warrants outstanding and exercisable as of June 30, 2020 are summarized as follows:
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
Exercise Price
|
|
|
Expiration Date
|
|
|
Classified as
Derivative
Liabilities
(Shares)
|
|
|
Classified
within Stockholders’ Equity
(Shares)
|
|
|
Total Exercisable (Shares)
|
|
MDB Warrants
|
|
$
|
0.20
|
|
|
November 4, 2021
|
|
|
|
-
|
|
|
|
327,490
|
|
|
|
327,490
|
|
Strome Warrants
|
|
|
0.50
|
|
|
June 15, 2023
|
|
|
|
1,500,000
|
|
|
|
-
|
|
|
|
1,500,000
|
|
B. Riley Warrants
|
|
|
1.00
|
|
|
October 18, 2025
|
|
|
|
875,000
|
|
|
|
-
|
|
|
|
875,000
|
|
MDB Warrants
|
|
|
1.15
|
|
|
October 19, 2022
|
|
|
|
-
|
|
|
|
119,565
|
|
|
|
119,565
|
|
MDB Warrants
|
|
|
2.50
|
|
|
October 19, 2022
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
60,000
|
|
Total outstanding and exercisable
|
|
|
|
|
|
|
|
|
|
2,375,000
|
|
|
|
507,055
|
|
|
|
2,882,055
|
|
The
intrinsic value of exercisable but unexercised in-the-money stock warrants as of June 30, 2020 was $372,371, based
on a fair market value of the Company’s common stock of $0.65 per share on June 30, 2020.
10.
Compensation Plans
The
Company provides stock-based compensation in the form of (a) stock awards to employees and directors, comprised of restricted
stock awards and restricted stock units (collectively referred to as the “Restricted Stock Awards”), (b) stock option
grants to employees directors and consultants (referred to as the “Common Stock Awards”) (c) stock option awards,
restricted stock awards, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants (collectively
the “Common Equity Awards”), (d) stock option awards outside the 2016 Stock Incentive Plan and 2019 Equity Incentive
Plan to certain officers, directors and employees (referred to as the “Outside Options”), (e) common stock warrants
to the Company’s channel partners (referred to as the “Channel Partner Warrants”), and (f) common stock warrants
to ABG-SI, LLC (referred to as the “ABG Warrants”).
Stock-based
compensation and equity-based expense charged to operations or capitalized during the three months and six months ended June 30,
2020 and 2019 are summarized as follows:
|
|
Restricted
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
Channel
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Equity
|
|
|
Outside
|
|
|
Partner
|
|
|
ABG
|
|
|
|
|
|
|
Awards
|
|
|
Awards
|
|
|
Awards
|
|
|
Options
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Totals
|
|
During the Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
35,750
|
|
|
$
|
27,970
|
|
|
$
|
1,073,674
|
|
|
$
|
1,967
|
|
|
$
|
27,623
|
|
|
$
|
-
|
|
|
$
|
1,166,984
|
|
Selling and marketing
|
|
|
298,187
|
|
|
|
23,783
|
|
|
|
701,925
|
|
|
|
43,489
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,067,384
|
|
General and administrative
|
|
|
135,332
|
|
|
|
138,156
|
|
|
|
819,916
|
|
|
|
95,394
|
|
|
|
-
|
|
|
|
360,289
|
|
|
|
1,549,087
|
|
Total costs charged to operations
|
|
|
469,269
|
|
|
|
189,909
|
|
|
|
2,595,515
|
|
|
|
140,850
|
|
|
|
27,623
|
|
|
|
360,289
|
|
|
|
3,783,455
|
|
Capitalized platform development
|
|
|
75,709
|
|
|
|
80,608
|
|
|
|
341,642
|
|
|
|
1,652
|
|
|
|
-
|
|
|
|
-
|
|
|
|
499,611
|
|
Total stock-based compensation
|
|
$
|
544,978
|
|
|
$
|
270,517
|
|
|
$
|
2,937,157
|
|
|
$
|
142,502
|
|
|
$
|
27,623
|
|
|
$
|
360,289
|
|
|
$
|
4,283,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
26,526
|
|
|
$
|
6,965
|
|
|
$
|
131,057
|
|
|
$
|
149
|
|
|
$
|
6,561
|
|
|
$
|
-
|
|
|
$
|
171,258
|
|
Selling and marketing
|
|
|
-
|
|
|
|
25,995
|
|
|
|
120,036
|
|
|
|
25,305
|
|
|
|
-
|
|
|
|
-
|
|
|
|
171,336
|
|
General and administrative
|
|
|
859,222
|
|
|
|
395,087
|
|
|
|
931,393
|
|
|
|
44,695
|
|
|
|
-
|
|
|
|
67,307
|
|
|
|
2,297,704
|
|
Total costs charged to operations
|
|
|
885,748
|
|
|
|
428,047
|
|
|
|
1,182,486
|
|
|
|
70,149
|
|
|
|
6,561
|
|
|
|
67,307
|
|
|
|
2,640,298
|
|
Capitalized platform development
|
|
|
194,353
|
|
|
|
42,793
|
|
|
|
165,030
|
|
|
|
2,146
|
|
|
|
-
|
|
|
|
-
|
|
|
|
404,322
|
|
Total stock-based compensation
|
|
$
|
1,080,101
|
|
|
|
470,840
|
|
|
$
|
1,347,516
|
|
|
$
|
72,295
|
|
|
$
|
6,561
|
|
|
$
|
67,307
|
|
|
$
|
3,044,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
73,326
|
|
|
$
|
97,766
|
|
|
$
|
2,083,266
|
|
|
$
|
3,173
|
|
|
$
|
35,662
|
|
|
$
|
-
|
|
|
$
|
2,293,193
|
|
Selling and marketing
|
|
|
597,402
|
|
|
|
59,511
|
|
|
|
1,380,204
|
|
|
|
98,867
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,135,984
|
|
General and administrative
|
|
|
158,252
|
|
|
|
309,828
|
|
|
|
1,575,163
|
|
|
|
150,577
|
|
|
|
-
|
|
|
|
720,578
|
|
|
|
2,914,398
|
|
Total costs charged to operations
|
|
|
828,980
|
|
|
|
467,105
|
|
|
|
5,038,633
|
|
|
|
252,617
|
|
|
|
35,662
|
|
|
|
720,578
|
|
|
|
7,343,575
|
|
Capitalized platform development
|
|
|
145,992
|
|
|
|
121,765
|
|
|
|
597,643
|
|
|
|
4,263
|
|
|
|
-
|
|
|
|
-
|
|
|
|
869,663
|
|
Total stock-based compensation
|
|
$
|
974,972
|
|
|
$
|
588,870
|
|
|
$
|
5,636,276
|
|
|
$
|
256,880
|
|
|
$
|
35,662
|
|
|
$
|
720,578
|
|
|
$
|
8,213,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
61,901
|
|
|
$
|
27,184
|
|
|
$
|
131,057
|
|
|
$
|
1,278
|
|
|
$
|
18,909
|
|
|
$
|
-
|
|
|
$
|
240,329
|
|
Selling and marketing
|
|
|
34,393
|
|
|
|
47,940
|
|
|
|
120,036
|
|
|
|
77,251
|
|
|
|
-
|
|
|
|
-
|
|
|
|
279,620
|
|
General and administrative
|
|
|
1,574,859
|
|
|
|
799,517
|
|
|
|
932,285
|
|
|
|
66,008
|
|
|
|
-
|
|
|
|
67,307
|
|
|
|
3,439,976
|
|
Total costs charged to operations
|
|
|
1,671,153
|
|
|
|
874,641
|
|
|
|
1,183,378
|
|
|
|
144,537
|
|
|
|
18,909
|
|
|
|
67,307
|
|
|
|
3,959,925
|
|
Capitalized platform development
|
|
|
332,309
|
|
|
|
72,785
|
|
|
|
165,030
|
|
|
|
2,146
|
|
|
|
-
|
|
|
|
-
|
|
|
|
572,270
|
|
Total stock-based compensation
|
|
$
|
2,003,462
|
|
|
|
947,426
|
|
|
$
|
1,348,408
|
|
|
$
|
146,683
|
|
|
$
|
18,909
|
|
|
$
|
67,307
|
|
|
$
|
4,532,195
|
|
Unrecognized
compensation expense related to the stock-based compensation awards and equity-based awards as of June 30, 2020 was as follows:
|
|
Restricted Stock Awards
|
|
|
Common Stock Awards
|
|
|
Common Equity Awards
|
|
|
Outside Options
|
|
|
Channel Partner Warrants
|
|
|
ABG Warrants
|
|
|
Totals
|
|
Unrecognized compensation expense
|
|
$
|
902,489
|
|
|
$
|
1,230,827
|
|
|
$
|
26,166,996
|
|
|
$
|
464,309
|
|
|
$
|
1,011
|
|
|
$
|
3,942,598
|
|
|
$
|
32,708,230
|
|
Weighted average period expected to be recognized (in years)
|
|
|
0.69
|
|
|
|
0.87
|
|
|
|
2.27
|
|
|
|
1.68
|
|
|
|
0.25
|
|
|
|
2.88
|
|
|
|
2.24
|
|
11.
Revenue Recognition
Disaggregation
of Revenue
The
following table provides information about disaggregated revenue by product line, geographical market and timing of revenue recognition:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue by product line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
7,541,616
|
|
|
$
|
5,670,712
|
|
|
$
|
19,379,600
|
|
|
$
|
11,808,066
|
|
Digital subscriptions
|
|
|
6,089,450
|
|
|
|
56,021
|
|
|
|
11,626,697
|
|
|
|
107,934
|
|
Magazine circulation
|
|
|
8,629,166
|
|
|
|
-
|
|
|
|
21,166,698
|
|
|
|
-
|
|
Other
|
|
|
830,708
|
|
|
|
43,550
|
|
|
|
1,330,798
|
|
|
|
128,246
|
|
Total
|
|
$
|
23,090,940
|
|
|
$
|
5,770,283
|
|
|
$
|
53,503,793
|
|
|
$
|
12,044,246
|
|
Revenue by geographical market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
22,049,636
|
|
|
$
|
5,770,283
|
|
|
$
|
51,331,766
|
|
|
$
|
12,044,246
|
|
Other
|
|
|
1,041,304
|
|
|
|
-
|
|
|
|
2,172,027
|
|
|
|
-
|
|
Total
|
|
$
|
23,090,940
|
|
|
$
|
5,770,283
|
|
|
$
|
53,503,793
|
|
|
$
|
12,044,246
|
|
Revenue by timing of recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At point in time
|
|
$
|
17,001,490
|
|
|
$
|
5,714,262
|
|
|
$
|
41,877,096
|
|
|
$
|
11,936,312
|
|
Over time
|
|
|
6,089,450
|
|
|
|
56,021
|
|
|
|
11,626,697
|
|
|
|
107,934
|
|
Total
|
|
$
|
23,090,940
|
|
|
$
|
5,770,283
|
|
|
$
|
53,503,793
|
|
|
$
|
12,044,246
|
|
Contract
Balances
The
timing of the Company’s performance under its various contracts often differs from the timing of the customer’s payment,
which results in the recognition of a contract asset or a contract liability. A contract asset is recognized when a good or service
is transferred to a customer and the Company does not have the contractual right to bill for the related performance obligations. A contract liability
is recognized when consideration is received from the customer prior to the transfer of goods or services.
The
following table provides information about contract balances:
|
|
As of
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Unearned revenue (short-term contract liabilities):
|
|
|
|
|
|
|
|
|
Digital subscriptions
|
|
|
12,688,136
|
|
|
|
8,634,939
|
|
Magazine circulation
|
|
|
42,731,290
|
|
|
|
23,528,148
|
|
|
|
$
|
55,419,426
|
|
|
$
|
32,163,087
|
|
Unearned revenue (long-term contract liabilities):
|
|
|
|
|
|
|
|
|
Digital subscriptions
|
|
$
|
1,473,758
|
|
|
$
|
478,557
|
|
Magazine circulation
|
|
|
13,135,330
|
|
|
|
30,478,154
|
|
Other
|
|
|
207,500
|
|
|
|
222,500
|
|
|
|
$
|
14,816,588
|
|
|
$
|
31,179,211
|
|
Unearned
Revenue – Unearned revenue, also referred to as contract liabilities, include payments received in advance
of performance under the contracts and are recognized as revenue over time. The Company records contract liabilities as unearned
revenue on the consolidated balance sheets. Digital subscription and magazine circulation revenue of $17,211,363 was recognized
during the six months ended June 30, 2020 from unearned revenue at the beginning of the year.
During January and February of 2020, the
Company modified certain digital and magazine subscription contracts that prospectively changed the frequency of the related issues
required to be delivered on a yearly basis. The Company determined that the remaining digital content and magazines to be delivered
are distinct from the digital content or magazines already provided under the original contract. As a result, the Company in effect
established a new contract that included only the remaining digital content or magazines. Accordingly, the Company allocated the
remaining performance obligations in the contracts as consideration from the original contract that has not yet been recognized
as revenue.
12.
Commitments and Contingencies
Revenue
Guarantees
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) a fixed monthly
minimum, or (b) the calculated earned revenue share. For the three months ended June 30, 2020 and 2019, the Company
recognized Channel Partner guarantees of $2,628,477 and $1,115,640, respectively. For the six months ended
June 30, 2020 and 2019, the Company recognized Channel Partner guarantees of $5,002,564 and $2,370,632, respectively.
Claims
and Litigation
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 pending or threatened legal proceedings that it believes would reasonably be expected to have a material
adverse effect on the Company’s business, financial condition, results of operations or cash flows.
Liquidated
Damages
The
following table summarizes the contingent obligations with respect to the Series J Preferred Stock liquidated damages as of the
date these condensed consolidated financial statements were issued or were available to be issued:
Registration rights damages
|
|
$
|
120,000
|
|
Public information failure damages
|
|
|
180,000
|
|
Accrued interest
|
|
|
19,903
|
|
|
|
$
|
319,903
|
|
13.
Subsequent Events
The
Company performed an evaluation of subsequent events through the date of filing of these condensed consolidated financial statements
with the SEC. Other than the below described subsequent events, there were no material subsequent events which affected, or could
affect, the amounts or disclosures on the condensed consolidated financial statements.
Compensation
Plans
On
December 15, 2020, the Company entered into an amendment for certain restricted stock awards and restricted stock units. Pursuant
to the amendment:
|
●
|
the
restricted stock awards would cease to vest and all unvested shares would be deemed unvested and forfeited,
leaving an aggregate of 1,064,549 shares vested;
|
|
|
|
|
●
|
the
restricted stock units were modified to vest on December 31, 2020 and as of the close of business on December 31, 2020,
each restricted stock unit was terminated and deemed forfeited, with no shares vesting thereunder; and
|
|
|
|
|
●
|
subject
to certain conditions, the Company agreed to purchase from certain key personnel the vested restricted stock awards, at a price of $4.00 per share in 24 equal monthly installments
on the second business day of each calendar month beginning on January 4, 2021.
|
On
January 8, 2021, the board of directors (the “Board”) approved an amendment to certain option awards granted under
the 2019 Equity Incentive Plan (the “2019 Plan”) to remove certain vesting conditions for the performance-based awards.
In general, pursuant to the amendment:
|
●
|
the
common stock options would vest with respect to one-third of the grant when the option holder completes one year of
continuous service beginning on the grant date; and
|
|
|
|
|
●
|
the
remaining common stock options would vest monthly over twenty-four months when the option holder completes each month
of continuous service thereafter.
|
On
February 18, 2021, the Board approved an amendment to the Company’s 2019 Plan to increase the number of shares of the Company’s
common stock, available for issuance under the 2019 Plan from 85,000,000 shares to 185,000,000 shares.
On
February 18, 2021, the Board approved up to an aggregate amount of 26,200,000 stock options to be made on or before March 18,
2021 for shares of the Company’s common stock to certain executive officers of the Company under the 2019 Plan. A total
of 11,158,049 stock options were granted and designated as a non-qualified stock options, subject to certain terms and conditions.
On
February 18, 2021, the Board approved the issuance of restricted stock units to certain executive officers of the Company under
the 2019 Plan. A total of 26,048,781 restricted stock units were granted, subject to certain terms and conditions.
From July 2020
through the date these condensed consolidated financial statements were issued or were available to be issued, the Company granted
common stock options, restricted stock units and restricted stock awards totaling 77,157,799 (includes 11,158,049 stock options
and 26,048,781 restricted stock units issued on February 28, 2021 as described above), of which 77,157,799 remain outstanding.
12%
Convertible Debentures
On
December 31, 2020, certain holders converted the 12% Convertible Debentures representing an aggregate of $18,104,949 of the then-outstanding
principal and accrued but unpaid interest into 53,887,470 shares of the Company’s common stock at effective conversion per-share
prices ranging from $0.33 to $0.40. Further, the Company repaid an aggregate of $1,130,903 of the 12% Convertible Debentures,
including the then-outstanding principal and accrued interest in cash. As of December 31, 2020, there was no longer any principal
or accrued but unpaid interest outstanding under the 12% Convertible Debentures. As a result of the conversion of certain
12% Convertible Debentures into shares of the Company’s common stock, the Company will no longer have an embedded derivative
liability related to the conversion option features, buy-in features, and default remedy features and will recognize the
fair value of such amount upon conversion as additional paid-in capital. Further, with respect to the conversion of the
accrued interest into shares of the Company’s common stock, the Company will recognize a loss on conversion,
as deemed appropriate, at the time of conversion.
12%
Second Amended Senior Secured Note
On
October 23, 2020, the Company entered into Amendment No. 1 to the second amended and restated note purchase agreement (“Amendment
1”), pursuant to which the maturity date of the 12% Second Amended Senior Secured Notes was changed to December 31, 2022,
subject to certain acceleration conditions. Pursuant to Amendment 1, interest payable on the 12% Second Amended Senior Secured
Notes on September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 will
be payable in-kind in arrears on the last day of such fiscal quarter. Alternatively, at the option of the holder, such interest
amounts originally could have been paid in shares of “Series K Convertible Preferred Stock” (“Series K Preferred
Stock”); however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s
common stock, all such interest amounts can be paid in shares of the Company’s common stock based upon the conversion rate
specified for the Series K Preferred Stock (or $0.40).
The
balance outstanding under the 12% Second Amended Senior Secured Note as of the date these condensed consolidated financial
statements were issued or were available to be issued was approximately $56.3 million, which
included outstanding principal of approximately $48.8 million, payment of in-kind interest of approximately $4.2 million that
the Company was permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately
$3.3 million.
Delayed
Draw Term Note
On
October 23, 2020, pursuant to the terms of Amendment 1, the maturity date of the Delayed Draw Term Note was changed from
March 31, 2021 to March 31, 2022. Amendment 1 also provided that the holder, could originally elect, in lieu of receipt of cash
for payment of all or any portion of the interest due or cash payments up to a certain conversion portion (as further described
in Amendment 1) of the Delayed Draw Term Note, to receive shares of Series K Preferred Stock; however, after December 18, 2020,
the date the Series K Preferred Stock converted into shares of the Company’s common stock, the holder may elect, in lieu
of receipt of cash for such amounts, shares of the Company’s common stock based upon the conversion rate specified for the
Series K Preferred Stock (or $0.40).
As
of the date these condensed consolidated financial statements were issued or were available to be issued, $3,367,000, including
$3,295,505 of principal amount of the Delayed Draw Term Note and $71,495 of accrued interest, had been converted into shares of
our Series K Preferred Stock. The aggregate principal amount outstanding under the Delayed Draw Term Note as of the date these
condensed consolidated financial statements were issued or were available to be issued was approximately $4.3 million (including
payment of in-kind interest of approximately $0.7 million, which was added to the outstanding Delayed Draw Term Note balance).
Preferred Stock
Series
H Preferred Stock – Between August 14, 2020 and August 20, 2020, the Company entered into additional securities purchase
agreements for the sale of “Series H Convertible Preferred Stock” (“Series H Preferred Stock”) with accredited
investors, pursuant to which the Company issued 108 shares (after it rescinded the issuance of 2,145 shares that were deemed null
and void and the purchase price was repaid to certain holders on October 28, 2020), at a stated value of $1,000 per share,
which shares were initially convertible into 327,273 shares of the Company’s common stock at a conversion rate equal
to the stated value divided by the conversion price of $0.33 per share, for aggregate gross proceeds of $130,896. The proceeds
were used for working capital and general corporate purposes. The number of shares issuable upon conversion of the Series
H Preferred Stock will be adjusted in the event of stock splits, stock dividends, combinations of shares and similar transactions.
Each Series H Preferred Stock shall vote on an as-if-converted to common stock basis, subject to beneficial ownership blocker
provisions and other certain conditions.
On
September 21, 2020, an investor converted 300 shares of Series H Preferred Stock into 909,090 shares of the Company’s common
stock.
On
October 31, 2020, the Company issued 389 shares of Series H Preferred Stock to James Heckman at the stated value of $1,000, convertible
into 1,178,787 shares of the Company’s common stock, at the option of the holder subject to certain limitations at a conversion
rate equal to the stated value divided by the conversion price of $0.33 per share. The shares of Series H Preferred Stock were
issued in connection with the cancellation of promissory notes payable to Mr. Heckman in the aggregate outstanding principal amount
of $389,000.
The
shares of Series H Preferred Stock were subject to limitations on conversion into shares of the Company’s common
stock until the date an amendment to the Company’s Restated Certificate of Incorporation, as amended (the “Certificate
of Incorporation”), was filed and accepted with the State of Delaware that increases the number of authorized shares
of its common stock to at least a number permitting all the Series H Preferred Stock to be converted in full (further details
are provided under the heading Amendment to Certificate of Incorporation).
The
securities purchase agreements also included a provision that requires the Company to maintain its periodic filings with the SEC
in order to satisfy the public information requirements under Rule 144(c) of the Securities Act. If the Company fails for any
reason to satisfy the current public information requirement commencing from the six (6) month anniversary date of issuance of
the Series H Preferred Shares, then the Company will be obligated to pay Public Information Failure Damages (as further described
in Note 14 to the audited consolidated financial statements for the year ended December 31, 2019) to each holder, consisting
of a cash payment equal to 1% of the amount invested as partial liquidated damages, up to a maximum of six months, subject to
interest at the rate of 1% per month until paid in full.
Series
J Preferred Stock – On September 4, 2020, the Company closed on an additional “Series J Convertible Preferred
Stock” (“Series J Preferred Stock”) issuance with two accredited investors, pursuant to which we issued an aggregate
of 10,500 shares of Series J Preferred Stock at a stated value of $1,000 per share, initially convertible into 15,013,072
shares of our common stock at a conversion rate equal to the stated value divided by the conversion price of $0.70, for aggregate
gross proceeds of $6,000,000, which was used for working capital and general corporate purposes. The number of shares issuable
upon conversion of the Series J Preferred Stock will be adjusted in the event of stock splits, stock dividends, combinations of
shares and similar transactions. Each share of Series J Convertible Preferred Stock shall vote on an as-if-converted to common
stock basis, subject to certain conditions.
All
of the shares of the Series J Preferred Stock converted automatically into shares of the Company’s common stock on
December 18, 2020, the date the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate
of Incorporation, which Certificate of Amendment increased the number of authorized shares of the Company’s common stock
to at least a number that permitted all the Series J Preferred Stock, the “Series K Convertible Preferred Stock”
(the “Series K Preferred Stock”), the “Series I Convertible Preferred Stock” (“Series I Preferred
Stock”), and the Series H Preferred Stock, to be converted in full (further details are provided under the heading
Amendment to Certificate of Incorporation).
Pursuant
to a registration rights agreement entered into in connection with the securities purchase agreements, the Company agreed to register
the shares issuable upon conversion of the Series J Preferred Stock for resale by the investors. The Company committed to file
the registration statement by no later than the 30th calendar day following the date the Company files its (a) Annual Reports
on Form 10-K for the fiscal year ended December 31, 2018 and December 31, 2019, (b) all its required Quarterly Reports on Form
10-Q since the quarter ended September 30, 2018, through the quarter ended September 30, 2020, and (c) any Form 8-K Reports that
the Company is required to file with the SEC; but in no event later than April 30, 2021 (the “Series J Filing Date”).
The Company also committed to cause the registration statement to become effective by no later than 60 days after the Series
J Filing Date (or, in the event of a full review by the staff of the SEC, 120 days following the Series J Filing Date).
The registration rights agreement provides for Registration Rights Damages (as further described in Note 14 to the audited
consolidated financial statements for the year ended December 31, 2019) upon the occurrence of certain events up to a maximum
amount of 6% of the aggregate amount invested.
The
securities purchase agreements also included a provision that requires the Company to maintain its periodic filings with the SEC
in order to satisfy the public information requirements under Rule 144(c) of the Securities Act. If the Company fails for any
reason to satisfy the current public information commencing from the six (6) month anniversary date of issuance of the Series
J Preferred Shares, then the Company will be obligated to pay Public Information Failure Damages (as further described in Note
14 to the audited consolidated financial statements for the year ended December 31, 2019) to each holder, consisting of
a cash payment equal to 1% of the amount invested as partial liquidated damages, up to a maximum of six months, subject to interest
at the rate of 1% per month until paid in full.
Series
K Preferred Stock – On October 22, 2020, 20,000 authorized shares of the Company’s preferred stock were designated
the Series K Preferred Stock. Between October 23, 2020 and November 11, 2020, the Company closed on several securities
purchase agreements with accredited investors, pursuant to which the Company issued an aggregate of 18,042 shares of Series K
Preferred Stock at a stated value of $1,000, initially convertible into 45,105,000 shares of the Company’s common stock
at a conversion rate equal to the stated value divided by the conversion price of $0.40 per share, for aggregate gross proceeds
of $18,042,000. The number of shares issuable upon conversion of the Series K Preferred Stock will be adjusted in the event of
stock splits, stock dividends, combinations of shares and similar transactions. Each Series K Preferred Stock votes on an as-if-converted
to common stock basis, subject to certain conditions.
In
consideration for its services as placement agent, the Company paid B. Riley FBR, Inc. (“B. Riley FBR”) a cash fee
of $560,500. The Company used approximately $3.4 million of the net proceeds from the financing to partially repay the Delayed
Draw Term Note and used approximately $2.6 million for payment on a prior investment, with
the remainder of approximately $11.5 million for working capital and general corporate purposes.
All
of the shares of the Series K Preferred Stock converted automatically into shares of the Company’s common stock on
December 18, 2020, the date the Company filed a the Certificate of Amendment to the Certificate of Incorporation,
which Certificate of Amendment increased the number of authorized shares of the Company’s common stock to at least
a number that permitted all the Series J Preferred Stock, the Series K Preferred Stock, the Series I Preferred Stock,
and the Series H Preferred Stock, to be converted in full (further details are provided under the heading Amendment
to Certificate of Incorporation).
Pursuant
to a registration rights agreement entered into in connection with the securities purchase agreements, the Company agreed to register
the shares issuable upon conversion of the Series K Preferred Stock for resale by the investors. The Company committed to file
the registration statement by no later than the 30th calendar day following the date the Company files its (a) Annual Reports
on Form 10-K for the fiscal year ended December 31, 2018 and December 31, 2019, (b) all its required Quarterly Reports on Form
10-Q since the quarter ended September 30, 2018, through the quarter ended September 30, 2020, and (c) any Form 8-K Reports that
the Company is required to file with the SEC; provided, however, if such 30th calendar day is on or after February 12, 2021, then
such 30th calendar date shall be tolled until the 30th calendar day following the date that the Company files its Annual Report
on Form 10-K for the fiscal year ended December 31, 2020 (the “Series K Filing Date”). The Company also committed
to cause the registration statement to become effective by no later than 90 days after the Series K Filing Date (or, in
the event of a full review by the staff of the SEC, 120 days following the Series K Filing Date). The registration rights
agreement provides for Registration Rights Damages (as further described in Note 14 to the audited consolidated financial
statements for the year ended December 31, 2019) upon the occurrence of certain events up to a maximum amount of 6% of the aggregate
amount invested.
The
securities purchase agreements also included a provision that requires the Company to maintain its periodic filings with the SEC
in order to satisfy the public information requirements under Rule 144(c) of the Securities Act. If the Company fails for any
reason to satisfy the current public information requirement commencing from the six (6) month anniversary date of issuance of
the Series K Preferred Shares, then the Company will be obligated to pay Public Information Failure Damages (as further described
in Note 14 to the audited consolidated financial statements for the year ended December 31, 2019) to each holder, consisting of
a cash payment equal to 1% of the amount invested as partial liquidated damages, up to a maximum of six months, subject to interest
at the rate of 1% per month until paid in full.
Series
L Preferred Stock – On May 4, 2021, the Special Finance & Governance Committee (the “Special Committee”)
of the Board of the Company adopted a Rights Agreement (i) to ensure that all stockholders of the Company receive fair and equal
treatment in the event of a proposed takeover of the Company, (ii) to guard against two-tier or partial tender offers, open market
accumulations, creeping stock accumulation programs and other tactics designed to gain control of the Company without paying all
stockholders a fair and adequate price, including a sufficient premium for such controlling interest, (iii) to protect the Company
and its stockholders from efforts to capitalize on market volatility and macroeconomic conditions to obtain control of the Company
on terms that the Board determines are not in the best interests of the Company and its stockholders and (iv) to enhance the Board’s
ability to negotiate with a prospective acquirer.
Also
on May 4, 2021, the Special Committee declared a dividend of one preferred stock purchase right (each a “Right”) to
be paid to the stockholders of record at the close of business on May 14, 2021 for (i) each outstanding share of the Company’s
common stock and (ii) each share of the Company’s common stock issuable upon conversion of each share of the Company’s
Series H Preferred Stock. Each Right entitles the registered holder to purchase, subject to the Rights Agreement, from the Company
one one-thousandth of a share of the Company’s newly created Series L Junior Participating Preferred Stock, par value $0.01
per share (the “Series L Preferred Stock”), at a price of $4.00, subject to certain adjustments. The Series L Preferred
Stock will be entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the greater
of (i) $1.00 per share or (ii) 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other distributions paid to the holders of the Company’s
Common Stock. The Series L Preferred Stock will be entitled to 1,000 votes on all matters submitted to a vote of the stockholders
of the Company. In the event of any merger, consolidation or other transaction in which shares of the Company’s common stock
are converted or exchanged, the Series L Preferred Stock will be entitled to receive 1,000 times the amount received per one share
of the Company’s common stock.
Leases
On
October 30, 2020, the Company entered into a surrender agreement pursuant to which the Company effectively surrendered certain
property located in New York, New York back to the landlord. Pursuant to the surrender agreement, the security deposit of $500,000
held by the landlord and reflected within restricted cash on the condensed consolidated balance sheets was applied to the balance
in arrears. In addition, the Company agreed to pay $68,868 per month from January 1, 2021 through June 1, 2022 to satisfy the
remaining outstanding balance of $1,239,624 owed to the landlord. The landlord agreed not to charge any late fees, interest charges,
or other penalties relating to the surrender of the property.
Amendment
to Certificate of Incorporation
On
December 18, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation to increase
the number of authorized shares of its common stock from 100,000,000 shares to 1,000,000,000 shares. As a result, as of December
18, 2020, the Company has a sufficient number of authorized but unissued shares of its common stock available for issuance required
under all of its securities that are convertible into shares of its common stock.
As
a result of the increase in authorized and unissued shares of the Company’s common stock on December 18, 2020, all of the
Series I Preferred Stock, Series J Preferred Stock (including shares issued subsequent to June 30, 2020 as described above)
and Series K Preferred Stock (including shares issued subsequent to June 30, 2020 as described above), were converted into
shares of the Company’s common stock, accordingly, the Company will recognize a beneficial conversion feature, as deemed
appropriate, at the time of conversion.