0001493152-21-019977.txt : 20210816 0001493152-21-019977.hdr.sgml : 20210816 20210816104028 ACCESSION NUMBER: 0001493152-21-019977 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 83 CONFORMED PERIOD OF REPORT: 20210630 FILED AS OF DATE: 20210816 DATE AS OF CHANGE: 20210816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: theMaven, Inc. CENTRAL INDEX KEY: 0000894871 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 680232575 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12471 FILM NUMBER: 211175318 BUSINESS ADDRESS: STREET 1: 1500 FOURTH AVENUE, SUITE 200 CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 775-600-2765 MAIL ADDRESS: STREET 1: 1500 FOURTH AVENUE, SUITE 200 CITY: SEATTLE STATE: WA ZIP: 98101 FORMER COMPANY: FORMER CONFORMED NAME: THEMAVEN, INC. DATE OF NAME CHANGE: 20161209 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED SURGICAL SYSTEMS INC DATE OF NAME CHANGE: 19960725 10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number 1-12471

 

THEMAVEN, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   68-0232575

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

225 Liberty Street, 27th Floor

New York, New York

  10281
(Address of principal executive offices)   (Zip Code)

 

(212) 321-5002

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act).

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ or No

 

As of August 13, 2021, the Registrant had 263,441,879 shares of common stock outstanding.

 

 

 

   
 

 

 

Page

Number

   
PART I - FINANCIAL INFORMATION 4
   
Item 1. Condensed Consolidated Financial Statements 4
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
   
Item 4. Controls and Procedures 36
   
PART II - OTHER INFORMATION 37
   
Item 1. Legal Proceedings 37
   
Item 1A. Risk Factors 37
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
   
Item 3. Defaults Upon Senior Securities 37
   
Item 4. Mine Safety Disclosures 37
   
Item 5. Other Information 37
   
Item 6. Exhibits 38
   
SIGNATURES 39

 

2

 

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) of theMaven, Inc. (the “Company,” “we,” “our,” and “us”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning our business strategy, future revenues, market growth, capital requirements, product introductions, and expansion plans and the adequacy of our funding. Other statements contained in this Quarterly Report that are not historical facts are also forward-looking statements. We have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and other comparable terminology.

 

We caution investors that any forward-looking statements presented in this Quarterly Report, or that we may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information currently available to, us. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements, which are based only on known results and trends at the time they are made, to anticipate future results or trends. Other risks are detailed by us in our public filings with the Securities and Exchange Commission (the “SEC”), including in Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2020. The discussion in this Quarterly Report should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2020.

 

This Quarterly Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.

 

3

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL INFORMATION

 

THEMAVEN, INC. AND SUBSIDIARIES

 

Index to Condensed Consolidated Financial Statements

 

  PAGE
Condensed Consolidated Balance Sheets - June 30, 2021 (Unaudited) and December 31, 2020 5
Condensed Consolidated Statements of Operations (Unaudited) - Three Months and Six Months Ended June 30, 2021 and 2020 6
Condensed Consolidated Statements of Stockholders’ Deficiency (Unaudited) - Six Ended June 30, 2021 and 2020 7
Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2021 and 2020 9
Notes to Condensed Consolidated Financial Statements (Unaudited) 10

 

4

 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  

June 30, 2021

(unaudited)

   December 31, 2020 
Assets          
Current assets:          
Cash and cash equivalents  $6,722,864   $9,033,872 
Restricted cash   500,809    500,809 
Accounts receivable, net   14,715,524    16,497,626 
Subscription acquisition costs, current portion   36,606,560    28,146,895 
Royalty fees, current portion   15,000,000    15,000,000 
Prepayments and other current assets   8,856,607    4,667,263 
Total current assets   82,402,364    73,846,465 
Property and equipment, net   1,092,030    1,129,438 
Operating lease right-of-use assets   17,918,322    18,292,196 
Platform development, net   8,056,575    7,355,608 
Royalty fees, net of current portion   3,750,000    11,250,000 
Subscription acquisition costs, net of current portion   18,682,545    13,358,585 
Acquired and other intangible assets, net   61,599,855    71,501,835 
Other long-term assets   1,451,897    1,330,812 
Goodwill   23,595,779    16,139,377 
Total assets  $218,549,367   $214,204,316 
Liabilities, mezzanine equity and stockholders’ deficiency          
Current liabilities:          
Accounts payable  $8,232,790   $8,228,977 
Accrued expenses and other   17,745,191    14,718,193 
Line of credit   4,929,583    7,178,791 
Unearned revenue   71,898,175    61,625,676 
Subscription refund liability   4,772,991    4,035,531 
Operating lease liabilities   953,635    1,059,671 
Liquidated damages payable   10,932,094    9,568,091 
Warrant derivative liabilities   1,452,838    1,147,895 
Total current liabilities   120,917,297    107,562,825 
Unearned revenue, net of current portion   28,160,455    23,498,597 
Restricted stock liabilities, net of current portion   1,027,801    1,995,810 
Operating lease liabilities, net of current portion   19,496,691    19,886,083 
Other long-term liabilities   1,050,284    753,365 
Deferred tax liabilities   807,659    210,832 
Long-term debt   61,110,728    62,194,272 
Total liabilities   232,570,915    216,101,784 
Commitments and contingencies (Note 13)   -    - 
Mezzanine equity:          
Series G redeemable and convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 1,800 shares designated; aggregate liquidation value: $168,496; Series G shares issued and outstanding: 168,496; common shares issuable upon conversion: 188,791 at June 30, 2021 and December 31, 2020   168,496    168,496 
Series H convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 23,000 shares designated; aggregate liquidation value: $19,597,000; Series H shares issued and outstanding: 19,597; common shares issuable upon conversion: 59,384,849 at June 30, 2021 and December 31, 2020   18,247,496    18,247,496 
Total mezzanine equity   18,415,992    18,415,992 
Stockholders’ deficiency:          
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 263,175,743 and 229,085,167 shares at June 30, 2021 and December 31, 2020, respectively   2,631,757    2,290,851 
Common stock to be issued   10,809    10,809 
Additional paid-in capital   173,313,043    139,658,166 
Accumulated deficit   (208,393,149)   (162,273,286)
Total stockholders’ deficiency   (32,437,540)   (20,313,460)
Total liabilities, mezzanine equity and stockholders’ deficiency  $218,549,367   $214,204,316 

 

See accompanying notes to condensed consolidated financial statements

 

5

 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

                 
  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2021   2020   2021   2020 
Revenue  $34,746,512   $23,090,940   $68,361,993   $53,503,793 
Cost of revenue (includes amortization of developed technology and platform development for six months ended 2021 and 2020 of $4,324,357 and $4,259,333, respectively)   23,595,819    24,874,179    51,804,191    51,613,012 
Gross profit (loss)   11,150,693    (1,783,239)   16,557,802    1,890,781 
Operating expenses                    
Selling and marketing   14,881,455    8,409,343    32,410,164    17,769,281 
General and administrative   15,567,647    7,270,511    21,206,477    17,680,716 
Depreciation and amortization   3,963,332    4,127,126    7,926,566    8,223,806 
Total operating expenses   34,412,434    19,806,980    61,543,207    43,673,803 
Loss from operations   (23,261,741)   (21,590,219)   (44,985,405)   (41,783,022)
Other (expense) income                    
Change in valuation of warrant derivative liabilities   360,093    243,276    (304,943)   382,495 
Change in valuation of embedded derivative liabilities   -    2,922,000    -    4,543,000 
Interest expense   (2,362,709)   (4,116,407)   (5,182,680)   (7,916,135)
Interest income   471    1,640    471    3,383 
Liquidated damages   (1,109,369)   (621,619)   (1,364,003)   (1,167,674)
Gain upon debt extinguishment   5,716,697    -    5,716,697    - 
Total other expense   2,605,183    (1,571,110)   (1,134,458)   (4,154,931)
Loss before income taxes   (20,656,558)   (23,161,329)   (46,119,863)   (45,937,953)
Income taxes   -    -    -    - 
Net loss  $(20,656,558)  $(23,161,329)  $(46,119,863)  $(45,937,953)
Basic and diluted net loss per common stock  $(0.09)  $(0.59)  $(0.20)  $(1.17)
Weighted average number of common stock outstanding – basic and diluted   242,283,035    39,217,524    236,226,197    39,171,629 

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Six Months Ended June 30, 2021

 

                               
   Common Stock   Common Stock to be Issued  

Additional

     

Total

 
   Shares   Par Value   Shares   Par Value   Paid-in

Capital

   Accumulated

Deficit

  

Stockholders’

Deficiency

 
Balance at January 1, 2021   229,085,167   $2,290,851    1,080,930   $10,809   $139,658,166   $(162,273,286)  $(20,313,460)
Issuance of restricted stock awards to the board of directors   805,165    8,052    -    -    (8,052)   -    - 
Repurchase restricted stock classified as liabilities   (133,068)   (1,331)   -    -    1,331    -    - 
Issuance of common stock for restricted stock units in connection with the acquisition of LiftIgniter   256,661    2,567    -    -    (2,567)   -    - 
Issuance of common stock in connection with professional services   312,500    3,125    -    -    121,875    -    125,000 
Stock-based compensation   -    -    -    -    5,408,207    -    5,408,207 
Net loss   -    -    -    -    -    (25,463,305)   (25,463,305)
Balance at March 31, 2021   230,326,425    2,303,264    1,080,930    10,809    145,178,960    (187,736,591)   (40,243,558)
Issuance of restricted stock in connection with the acquisition of The Spun   4,285,714    42,857    -    -    (42,857)   -    - 
Issuance of restricted stock awards to the board of directors   82,158    822    -    -    (822)   -    - 
Cashless exercise of common stock   84,891    849    -    -    (849)   -    - 
Common stock withheld for taxes   (48,952)   (490)   -    -    (40,630)   -    (41,120)
Repurchase of restricted stock classified as liabilities   (133,068)   (1,331)   -    -    1,331    -    - 
Issuance of common stock in connection with private placement   28,578,575    285,786    -    -    19,551,971    -    19,837,757 
Stock-based compensation   -    -    -    -    8,665,939    -    8,665,939 
Net loss   -    -    -    -    -    (20,656,558)   (20,656,558)
Balance at June 30, 2021   263,175,743   $2,631,757    1,080,930   $10,809   $173,313,043   $(208,393,149)  $(32,437,540)

 

7

 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Six Months Ended June 30, 2020

 

   Common Stock   Common Stock to be Issued   Additional       Total 
   Shares   Par Value   Shares   Par Value  

Paid-in

Capital

  

Accumulated

Deficit

  

Stockholders’
Deficiency

 
Balance at January 1, 2020   37,119,117   $371,190    3,938,287   $39,383   $35,562,766   $(73,041,323)  $(37,067,984)
Issuance of restricted stock units in connection with the acquisition of LiftIgniter   -    -    -    -    500,000    -    500,000 
Issuance of restricted stock awards to the board of directors   562,500    5,625    -    -    (5,625)   -    - 
Common stock withheld for taxes   (206,881)   (2,069)   -    -    (167,412)   -    (169,481)
Stock-based compensation   -    -    -    -    3,930,172    -    3,930,172 
Net loss   -    -    -    -    -    (22,776,624)   (22,776,624)
Balance at March 31, 2020   37,474,736   $374,746    3,938,287    39,383   $39,819,901   $(95,817,947)  $(55,583,917)
Issuance of common stock in connection with the acquisition of Say Media   1,350,394    13,504    (1,350,394)   (13,504)   -    -    - 
Common stock withheld for taxes   (234,767)   (2,348)   -    -    (109,992)   -    (112,340)
Stock-based compensation   -    -    -    -    4,283,066    -    4,283,066 
Net loss   -    -    -    -    -    (23,161,329)   (23,161,329)
Balance June 30, 2020   38,590,363   $385,902    2,587,893    25,879   $43,992,975   $(118,979,276)  $(74,574,520)

 

See accompanying notes to condensed consolidated financial statements.

 

8

 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

           
   Six Months Ended June 30, 
   2021   2020 
Cash flows from operating activities          
Net loss  $(46,119,863)  $(45,937,953)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property and equipment   219,726    396,966 
Amortization of platform development and intangible assets   12,031,197    12,086,173 
Gain upon debt extinguishment   (5,716,697)   - 
Amortization of debt discounts   1,000,882    3,206,982 
Change in valuation of warrant derivative liabilities   304,943    (382,495)
Change in valuation of embedded derivative liabilities   -    (4,543,000)
Accrued interest   3,632,271    4,385,240 
Liquidated damages   1,364,003    1,167,674 
Stock-based compensation   13,215,394    7,343,575 
Other   (759,977)   (141,188)
Change in operating assets and liabilities net of effect of business combination:          
Accounts receivable   4,375,402    5,852,029 
Subscription acquisition costs   (13,783,625)   (9,975,651)
Royalty fees   7,500,000    7,500,000 
Prepayments and other current assets   (4,059,777)   (156,872)
Other long-term assets   (121,085)   (714,062)
Accounts payable   3,813    (1,167,051)
Accrued expenses and other   1,714,013    (4,279,568)
Unearned revenue   14,934,357    6,806,829 
Subscription refund liability   737,460    133,677 
Operating lease liabilities   (404,173)   998,010 
Net cash used in operating activities   (9,931,736)   (17,420,685)
Cash flows from investing activities          
Purchases of property and equipment   (182,318)   (1,065,223)
Capitalized platform development   (1,971,432)   (2,061,081)
Payments for acquisition of business, net of cash acquired   (7,056,949)   (315,289)
Net cash used in investing activities   (9,210,699)   (3,441,593)
Cash flows from financing activities          
Proceeds from long-term debt   -    11,702,725 
Borrowings (repayments) under line of credit   (2,249,208)   3,243,882 
Proceeds from common stock private placement   20,005,000    - 
Payments of issuance costs from common stock private placement   (167,243)   - 
Payment for taxes related to repurchase of restricted common stock   (41,120)   (281,821)
Payment of restricted stock liabilities   (716,002)   - 
Net cash provided by financing activities   16,831,427    14,664,786 
Net decrease in cash, cash equivalents, and restricted cash   (2,311,008)   (6,197,492)
Cash, cash equivalents, and restricted cash – beginning of period   9,534,681    9,473,090 
Cash, cash equivalents, and restricted cash – end of period  $7,223,673   $3,275,598 
Supplemental disclosure of cash flow information          
Cash paid for interest  $289,483   $323,913 
Cash paid for income taxes   -    - 
Noncash investing and financing activities          
Reclassification of stock-based compensation to platform development  $858,752   $869,663 
Issuance of common stock in connection with professional services   125,000    - 
Deferred cash payments in connection with acquisition of The Spun   1,639,016    - 
Assumption of liabilities in connection with acquisition of The Spun   1,500    - 
Debt discount on delayed draw term note   -    913,865 
Restricted stock units issued in connection with acquisition of LiftIgniter   -    500,000 
Assumption of liabilities in connection with acquisition of LiftIgniter   -    140,381 

 

See accompanying notes to condensed consolidated financial statements.

 

9

 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 1. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements include the accounts of TheMaven, Inc. and its wholly owned subsidiaries (“Maven” or the “Company”), after eliminating all significant intercompany balances and transactions. The Company does not have any off-balance sheet arrangements.

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in Maven’s Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2020, filed with the SEC on August 16, 2021.

 

The condensed consolidated financial statements as of December 31, 2020, and for the three months ended June 30, 2021 and 2020, are unaudited but, in management’s opinion, include all adjustments necessary for a fair presentation of the results of interim periods. All such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet as of December 31, 2020, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. The Company’s impact during the first quarter of 2021 by the novel coronavirus (“COVID-19”) pandemic has been to a lesser extent than in 2020. Beginning in 2021, restrictions on non-essential work activity have begun to lift and sporting and other events have begun to be held, with attendance closer to pre-pandemic levels, which has resulted in an increase in traffic and advertising revenue. The Company expects a continued modest growth in advertising revenue back toward pre-pandemic levels, however, such growth depends on future developments, including the duration and spread of the COVID-19 pandemic, whether related group gathering and sports event advisories and restrictions will be put in place again, and the extent and effectiveness of containment and other actions taken, including the percentage of the population that receives COVID-19 vaccinations.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the fiscal 2020 presentation.

 

Use of Estimates

 

Preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the allowance for credit losses, fair values of financial instruments, capitalization of platform development, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, fair value of assets acquired and liabilities assumed in the business acquisitions, determination of the fair value of stock-based compensation and valuation of derivatives liabilities and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

 

10

 

 

Contract Modifications

 

The Company occasionally enters into amendments to previously executed contracts that constitute contract modifications. The Company assesses each of these contract modifications to determine:

 

  if the additional services and goods are distinct from the services and goods in the original arrangement; and
   if the amount of consideration expected for the added services or goods reflects the stand-alone selling price of those services and goods.

 

A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either a prospective basis as a termination of the existing contract and the creation of a new contract, or a cumulative catch-up basis (see Note 3 and Note 12).

 

Recently Adopted Accounting Standards

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. On January 1, 2021, the Company adopted ASU 2019-12 with no material impact to its condensed consolidated financial position, results of operations or cash flows.

 

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which updates various codification topics to simplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and amends the diluted EPS computation for these instruments. On January 1, 2021, the Company adopted ASU 2020-06 with no material impact to its condensed consolidated financial statements.

 

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20 – Receivables – Nonrefundable Fees and Other Costs, which clarifies that a reporting entity should assess whether a callable debt security purchased at a premium is within the scope of ASC 310-20-35-33 each reporting period, which impacts the amortization period for nonrefundable fees and other costs. On January 1, 2021, the Company adopted ASU 2020-08 with no material impact to its condensed consolidated financial statements.

 

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. On January 1, 2021, the Company adopted ASU 2020-10 with no material impact to its condensed consolidated financial statements.

 

11

 

 

Loss per Common Share

 

Basic loss per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of common stock equivalent shares, such as stock options, restricted stock, and warrants. All restricted stock awards are considered outstanding but is included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. All restricted stock units are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. Contingently issuable shares are included in basic loss per common share only when there are no circumstances under which those shares would not be issued. Diluted loss per common share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.

 

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, 
   2021   2020 
Series G convertible preferred stock   188,791    188,791 
Series H Preferred Stock   59,384,849    58,787,879 
Series I Preferred Stock   -    46,200,000 
Series J Preferred Stock   -    28,571,428 
Indemnity shares of common stock   -    412,500 
Restricted Stock Awards   4,444,047    1,433,332 
Financing Warrants   2,882,055    2,882,055 
ABG Warrants   21,989,844    21,989,844 
AllHipHop warrants   125,000    - 
Publisher Partner Warrants   789,541    789,541 
Restricted Stock Units   -    2,399,997 
Common Stock Awards   6,872,890    8,033,936 
Common Equity Awards   160,352,784    82,744,480 
Outside Options   3,050,000    2,986,000 
Total   260,079,801    257,419,783 

 

 

 2. Acquisitions

 

College Spun Media Incorporated – On June 4, 2021, the Company acquired all of the issued and outstanding shares of capital stock of College Spun Media Incorporated, a New Jersey corporation (“The Spun”), for an aggregate of $11,829,893 in cash and the issuance of an aggregate of 4,285,714 restricted shares of the Company’s common stock, with one-half of the shares vesting on the first anniversary of the closing date and the remaining one-half of the shares vesting on the second anniversary of the closing date, subject to a customary working capital adjustment based on cash and accounts receivable as of the closing date. The cash payment consists of: (i) $10,829,893 paid at closing (of the cash paid at closing, $829,893 represents adjusted cash pursuant to the working capital adjustments), and (ii) $500,000 to be paid on the first anniversary of the closing and $500,000 to be paid on the second anniversary date of the closing. The vesting of shares of the Company’s common stock is subject to the continued employment of certain selling employees. The Spun operates in the United States.

 

The composition of the preliminary purchase price is as follows:

 

Cash  $10,829,893 
Deferred cash payments   1,639,016 
Total purchase consideration  $12,468,909 

 

12

 

 

The Company incurred $128,076 in transaction costs related to the acquisition, which primarily consisted of legal and accounting. The acquisition related expenses were recorded in general and administrative expense in the condensed consolidated statements of operations.

 

The preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the closing date of the acquisition based upon their respective fair values as summarized below:

 

Cash  $3,772,944 
Accounts receivable   1,833,323 
Other current assets   4,567 
Goodwill   7,456,402 
Accrued expenses   (1,500)
Deferred tax liabilities   (596,827)
Net assets acquired  $12,468,909 

 

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill from the acquisition. Goodwill is recorded as a non-current asset that is not amortized but is subject to an annual review for impairment. No portion of the goodwill will be deductible for tax purposes.

 

Petametrics Inc. – On March 9, 2020, the Company entered into an asset purchase agreement with Petametrics Inc., dba LiftIgniter, a Delaware corporation (“LiftIgniter”), where it purchased substantially all the assets, including the intellectual property and excluding certain accounts receivable, and assumed certain liabilities. The purchase price consisted of: (1) a cash payment of $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, the issuance of restricted stock units for an aggregate of up to 312,500 shares of the Company’s common stock (of which 256,661 shares of the Company’s common stock were issued during the three months ended June 30, 2021 and 55,839 are to be issued), and (5) on the second anniversary date of the closing, the issuance of restricted stock units for an aggregate of up to 312,500 shares of the Company’s common stock.

 

The composition of the 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 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 three years (3.0 years).

 

13

 

 

 3. Balance Sheet Components

 

The components of certain balance sheet amounts are as follows:

 

Accounts Receivable – Accounts receivable are presented net of allowance for doubtful accounts. The allowance for doubtful accounts as of June 30, 2021 and December 31, 2020 was $758,228 and $892,352, 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, 2021 and December 31, 2020 was $36,606,560 and $28,146,895, respectively. The noncurrent portion of the subscription acquisition costs as of June 30, 2021 and December 31, 2020 was $18,682,545 and $13,358,585, 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 under the heading Contract Balances in Note 12).

 

Property and Equipment – Property and equipment are summarized as follows:

 

   As of 
   June 30, 2021   December 31, 2020 
Office equipment and computers  $1,523,610   $1,341,292 
Furniture and fixtures   19,997    19,997 
Leasehold improvements   345,516    345,516 
Gross property and equipment costs   1,889,123    1,706,805 
Less accumulated depreciation and amortization   (797,093)   (577,367)
Net property and equipment  $1,092,030   $1,129,438 

 

Depreciation and amortization expense for the three months ended June 30, 2021 and 2020 was $109,912 and $102,067, respectively. Depreciation and amortization expense for the six months ended June 30, 2021 and 2020 was $219,726 and $241,830, respectively. Depreciation and amortization expense is included in selling and marketing expenses and general and administrative expenses, as appropriate, on the consolidated statements of operations.

 

Platform Development – Platform development costs are summarized as follows:

 

   June 30, 2021   December 31, 2020 
   As of 
   June 30, 2021   December 31, 2020 
Platform development  $18,857,612   $16,027,428 
Less accumulated amortization   (10,801,037)   (8,671,820)
Net platform development  $8,056,575   $7,355,608 

 

A summary of platform development activity for the six months ended June 30, 2021 and year ended December 31, 2020 is as follows:

 

   June 30, 2021   December 31, 2020 
   As of 
   June 30, 2021   December 31, 2020 
Platform development beginning of period  $16,027,428   $10,678,692 
Payroll-based costs capitalized during the period   1,971,432    3,750,541 
Total capitalized costs   17,998,860    14,429,233 
Stock-based compensation   858,752    1,608,995 
Dispositions   -    (10,800)
Platform development end of period  $18,857,612   $16,027,428 

 

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Amortization expense for the three months ended June 30, 2021 and 2020, was $1,060,372 and $1,037,834, respectively. Amortization expense for the six months ended June 30, 2021 and 2020, was $2,129,217 and $1,958,658, respectively.

 

Intangible Assets – Intangible assets subject to amortization consisted of the following:

 

   As of June 30, 2021   As of December 31, 2020 
   Carrying Amount   Accumulated Amortization   Net Carrying Amount   Carrying Amount   Accumulated Amortization   Net Carrying Amount 
Developed technology  $19,070,857   $(10,478,880)  $8,591,977   $19,070,857   $(8,283,740)  $10,787,117 
Noncompete agreement   480,000    (480,000)   -    480,000    (480,000)   - 
Trade name   3,328,000    (642,642)   2,685,358    3,328,000    (503,342)   2,824,658 
Subscriber relationships   73,458,799    (25,363,643)   48,095,156    73,458,799    (18,105,041)   55,353,758 
Advertiser relationships   2,240,000    (451,453)   1,788,547    2,240,000    (332,515)   1,907,485 
Database   1,140,000    (721,183)   418,817    1,140,000    (531,183)   608,817 
Subtotal amortizable intangible assets   99,717,656    (38,137,801)   61,579,855    99,717,656    (28,235,821)   71,481,835 
Website domain name   20,000    -    20,000    20,000    -    20,000 
Total intangible assets  $99,737,656   $(38,137,801)  $61,599,855   $99,737,656   $(28,235,821)  $71,501,835 

 

Amortization expense for the three months ended June 30, 2021 and 2020 was $4,950,990 and $5,094,791, respectively. Amortization expense for the six months ended June 30, 2021 and 2020 was $9,901,980 and $10,127,515, respectively. No impairment charges have been recorded during for the six months June 30, 2021 and 2020.

 

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, 2021    
Operating cash flows for operating leases  $1,938,629 
Noncash lease liabilities arising from obtaining operating leased assets during the period  $- 
Weighted-average remaining lease term   10.80 
Weighted-average discount rate   13.59%

 

The Company generally utilizes its incremental borrowing rate based on information available at the commencement of the lease in determining the present value of future payments since the implicit rate for most of the Company’s leases is not readily determinable.

 

Variable lease expense includes rental increases that are not fixed, such as those based on amounts paid to the lessor based on cost or consumption, such as maintenance and utilities.

 

Operating lease costs recognized for the three months ended June 30, 2021 and 2020 were $906,838 and $1,062,181, respectively. Operating lease costs recognized for the six months ended June 30, 2021 and 2020 were $1,815,303 and $2,100,085, respectively.

 

15

 

  

Maturities of operating lease liabilities as of June 30, 2021 are summarized as follows:

 

Years Ending December 31,    
2021 (remaining six months of the year)  $1,866,224 
2022   3,525,158 
2023   3,528,696 
2024   3,526,406 
2025   3,740,591 
Thereafter   23,822,981 
Minimum lease payments   40,010,056 
Less imputed interest   (19,559,730)
Present value of operating lease liabilities  $20,450,326 
Current portion of operating lease liabilities  $953,635 
Long-term portion of operating lease liabilities   19,496,691 
Total operating lease liabilities  $20,450,326 

 

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, 2021 and December 31, 2020 was $4,929,583 and $7,178,791, respectively. As of the date these condensed consolidated financial statements were issued or were available to be issued the balance outstanding was approximately $6,500,000.

 

6. Restricted Stock Liabilities

 

On December 15, 2020, the Company entered into an amendment for certain restricted stock awards and units that were previously issued to certain employees in connection with a previous merger. Pursuant to the amendment, the Company committed to repurchase 1,064,549 vested restricted stock awards as of December 31, 2020 at a price of $4.00 per share in 24 equal monthly installments on the second business day of each calendar month beginning January 4, 2021, subject to certain conditions.

 

16

 

 

The following table presents the components of the restricted stock liabilities as of June 30, 2021 and December 31, 2020:

 

   As of 
   June 30, 2021   December 31, 2020 
Restricted stock liabilities recorded upon modification of the restricted stock awards and units (1,064,549 restricted stock to be purchased at $4.00 per share)  $4,258,196   $4,258,196 
Less imputed interest   (457,462)   (457,462)
Present value of restricted stock liabilities   3,800,734    3,800,734 
Less payments (excluding imputed interest)   (893,427)   (177,425)
Restricted stock liabilities  $2,907,307   $3,623,309 
Current portion of restricted stock liabilities  $1,879,506   $1,627,499 
Long-term portion of restricted stock liabilities   1,027,801    1,995,810 
Total restricted stock liabilities  $2,907,307   $3,819,560 

 

 

7. Fair Value Measurements

 

The Company estimates the fair value of financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts the Company would realize upon disposition.

 

The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:

 

  Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;
  Level 2 Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
  Level 3 Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.

 

The Company accounts for certain warrants (as described under the heading Common Stock Warrants in Note 10) as derivative liabilities, which requires the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. The Company accounted for the embedded conversion features of the 12% senior convertible debentures (the “12% Convertible Debentures”) as derivative liabilities, which required the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. As of December 31, 2020, there was no longer any principal or accrued but unpaid interest outstanding under the 12% Convertible Debentures since certain holders converted the debt into shares of the Company’s common stock and certain holders were paid in cash.

 

These warrants and the embedded conversion features are classified as Level 3 within the fair-value hierarchy. Inputs to the valuation model include the Company’s publicly quoted stock price, the stock volatility, the risk-free interest rate, the remaining life of the warrants, notes and debentures, the exercise price or conversion price, and the dividend rate. The Company uses the closing stock price of its common stock over an appropriate period of time to compute stock volatility.

 

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Warrant Derivative Liabilities

 

The following table presents the assumptions used for the warrant derivative liabilities under the Black-Scholes option-pricing model:

 

   As of June 30, 2021   As of December 31, 2020 
   Strome Warrants   B. Riley Warrants   Strome Warrants   B. Riley Warrants 
Expected life   1.96    4.30    2.45    4.79 
Risk-free interest rate   0.25%   0.67%   0.13%   0.36%
Volatility factor   147.10%   134.44%   150.55%   140.95%
Dividend rate   0%   0%   0%   0%
Transaction date closing market price  $0.78   $0.78   $0.60   $0.60 
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, 2021

  

As of and for the Six Months Ended

June 30, 2020

 
   Carry Amount at Beginning of Period   Change in Valuation   Carrying Amount at End of Period   Carry Amount at Beginning of Period   Change in Valuation   Carrying Amount at End of Period 
Strome Warrants  $704,707   $185,156   $889,863   $1,036,687   $(260,345)  $776,342 
B. Riley Warrants   443,188    119,787    562,975    607,513    (122,150)   485,363 
Total  $1,147,895   $304,943   $1,452,838   $1,644,200   $(382,495)  $1,261,705 

 

For the three months ended June 30, 2021 and 2020, the change in valuation of warrant derivative liabilities recognized as other income on the condensed consolidated statement of operations, was $360,093 and $243,276, respectively. For the six months ended June 30, 2021 and 2020, the change in valuation of warrant derivative liabilities recognized as other income (expense) on the condensed consolidated statement of operations, as described in the above table, was ($304,943) and $382,495, respectively.

 

Embedded Derivative Liabilities

 

For the three months ended June 30, 2020, the change in valuation of embedded derivative liabilities recognized as other income on the condensed consolidated statements of operations was $2,922,000. For the six months ended June 30, 2020, the change in valuation of embedded derivative liabilities recognized as other income on the condensed consolidated statements of operations was $4,543,000.

 

8. Long-term Debt

 

12% Second Amended Senior Secured Notes

 

Below is a summary of the various amended and restated notes, as well as various amendments thereto, to the 12% senior secured note that was originally issued on June 10, 2019, for gross proceeds of $20,000,000. The transactions leading up to the 12% second amended and restated note that is outstanding as of June 30, 2021 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

 

18

 

 

 

  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.
     
  First amendment to second amended and restated note issued on March 24, 2020 was entered into on October 23, 2020 (“Amendment 1”), where the maturity date was changed to December 31, 2022, subject to certain acceleration conditions and interest payable on the notes on September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 will be payable in-kind in arrears on the last day of such fiscal quarter. Alternatively, at the option of the holder, such interest amounts originally could have been paid in shares of Series K convertible preferred stock (the “Series K Preferred Stock”); however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, such interest amounts can be converted into shares of the Company’s common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock, subject to certain adjustments.
     
  Second amendment to the second amended and restated note issued March 24, 2020 was entered into on May 19, 2021 (“Amendment 2”), with BRF Finance Co., LLC, an affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for the purchasers and as purchaser, pursuant to which: (i) the interest rate on the 12% Second Amended Senior Secured Notes decreased from a rate of 12% per annum to a rate of 10% per annum; and (ii) the Company agreed that within one (1) business day after receipt of cash proceeds from any issuance of equity interests, it will prepay the certain obligations in an amount equal to such cash proceeds, net of underwriting discounts and commissions; provided, that, this mandatory prepayment obligation does not apply to any proceeds that the Company received from shares of the Company’s common stock issued pursuant to the securities purchase agreement (as further described below under the heading Common Stock Private Placement in Note 10) during the 90-day period commencing on May 20, 2021.

 

Collectively the amended and restated notes and amendments thereto and the second amended and restated notes and Amendment 1 and Amendment 2 thereto are referred to as the “12% Second Amended Senior Secured Notes,” with all borrowings collateralized by substantially all assets of the Company.

 

Delayed Draw Term Note

 

On March 24, 2020, the Company entered into a 15% delayed draw term note (the “Delayed Draw Term Note”) pursuant to the second amended and restated note purchase agreement, in the aggregate principal amount of $12,000,000.

 

On March 24, 2020, the Company drew down $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.

 

On October 23, 2020, pursuant to the terms of Amendment 1, the maturity date of the Delayed Draw Term Note was changed from March 31, 2021 to March 31, 2022. Amendment 1 also provided that the holder, could originally elect, in lieu of receipt of cash for payment of all or any portion of the interest due or cash payments up to a certain conversion portion of the Delayed Draw Term Note, to receive shares of Series K Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, the holder may elect, in lieu of receipt of cash for such amounts, shares of the Company’s common stock at the price the Company last sold shares of the Company’s common stock.

 

On May 19, 2021, pursuant to Amendment 2, the interest rate on the Delayed Draw Term Note decreased from a rate of 15% per annum to a rate of 10% per annum.

 

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Paycheck Protection Program Loan

 

On April 6, 2020, the Company entered into a note agreement with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”) under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (“SBA”) (the “Paycheck Protection Program Loan”). The Company received total proceeds of $5,702,725 under the Paycheck Protection Program Loan. In accordance with the requirements of the CARES Act, the Company used proceeds from the Paycheck Protection Program Loan primarily for payroll costs. The Paycheck Protection Program Loan was scheduled to mature on April 6, 2022, with a 0.98% interest rate and is subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act.

 

On June 22, 2021, the SBA authorized full forgiveness of $5,702,725 under the Paycheck Protection Program Loan; thus the Company will not need to make any payments on the Paycheck Protection Program Loan that JPMorgan Chase facilitates as an SBA lender. JPMorgan Chase will apply the forgiveness amount the SBA authorized, plus all accrued interest, to the Company’s Paycheck Protection Program Loan. The requirements under this program are established by the SBA. All requests for Paycheck Protection Program Loan forgiveness are subject to SBA eligibility. The Company recorded a gain upon debt extinguishment of $5,716,697 (including accrued interest) pursuant to the forgiveness on the condensed consolidated statements of operations within other income (expense).

 

Further details as of the date these condensed consolidated financial statements were issued or were available to be issued are provided under the heading Long-term Debt in Note 14.

  

20

 

  

The following table summarizes the long-term debt:

 

   As of June 30, 2021   As of December 31, 2020 
   Principal
Balance
(including
accrued
interest)
   Unamortized
Discount and
 Debt Issuance
 Costs
   Carrying
Value
   Principal
Balance
(including
accrued
interest)
   Unamortized
Discount and
Debt Issuance
Costs
   Carrying
Value
 
12% Second Amended Senior Secured Note, as amended, due on December 31, 2022  $59,743,851   $(2,773,709)  $56,970,142   $56,296,091   $(3,739,690)  $52,556,401 
Delayed Draw Term Note, as amended, due on March 31, 2022   4,464,857    (324,271)   4,140,586    4,294,318    (359,172)   3,935,146 
Paycheck Protection Program Loan, scheduled to mature April 6, 2022, however, fully forgiven on June 22, 2021   -    -    -    5,702,725    -    5,702,725 
Total  $64,208,708   $(3,097,980)  $61,110,728   $66,293,134   $(4,098,862)  $62,194,272 

 

9. Preferred Stock

 

On May 4, 2021, a special committee of the Board declared a dividend of one preferred stock purchase right to be paid to the stockholders of record at the close of business on May 14, 2021 for (i) each outstanding share of the Company’s common stock and (ii) each share of the Company’s common stock issuable upon conversion of each share of the Company’s Series H convertible preferred stock (the “Series H Preferred Stock”). Each preferred stock purchase right entitles the registered holder to purchase, subject to a rights agreement, from the Company one one-thousandth of a share of the Company’s newly created Series L Junior Participating Preferred Stock, par value $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.

 

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10. 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.

 

Common Stock Private Placement

 

On May 20, 2021 and May 25, 2021, the Company entered into securities purchase agreements with several accredited investors, pursuant to which the Company sold an aggregate of 21,435,718 shares of its common stock, at a per share price of $0.70 for aggregate gross proceeds of $15,005,000 in a private placement. On June 2, 2021, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company sold an aggregate of 7,142,857 shares of its common stock, at a per share price of $0.70 for gross proceeds of $5,000,000 in a private placement that was in addition to the closings that occurred on May 20, 2021 and May 25, 2021. After payment of legal fees and expenses the investors of $167,244, of which $100,000 was paid in cash to B. Riley, the Company received net proceeds of $19,837,757. The Company intends to use the proceeds for general corporate purposes.

 

Pursuant to the registration rights agreements entered into in connection with the securities purchase agreements, the Company agreed to register the shares of the Company’s common stock issued in the private placements. The Company committed to file the registration statement on the earlier of: (i) in the event the Company does not obtain a waiver from the holders of the shares of the Company’s common stock that were issued upon the conversion of the Series K Preferred Stock (the “Waiver”), within ten (10) calendar days following the date the Company’s registration statement(s) on Form S-1, registering for resale shares of the Company’s common stock that were issued in connection with offerings prior to the date of the registration rights agreement (the “Prior Registration Statements”), is declared effective by the SEC; and (ii) in the event the Company does obtain the Waiver, the earliest practicable date on which the Company is permitted by the SEC guidance to file the initial registration statement following the filing of the Prior Registration Statements (the “Filing Date”). The Company also committed to cause the registration statement to become effective by no later than 90 days after the Filing Date (or, in the event of a full review by the staff of the SEC, 120 days following the Filing Date). The registration rights agreement provides for Registration Rights Damages upon the occurrence of certain events up to a maximum amount of 6% of the aggregate amount invested pursuant to the securities purchase agreements.

 

The securities purchase agreements included a provision that requires the Company to maintain its periodic filings with the SEC in order to satisfy the public information requirements under Rule 144(c) of the Securities Act. If the Company fails for any reason to satisfy the current public information requirement at any time during the period commencing from the twelve (12) month anniversary of the date the Company becomes current in its filing obligations and ending at such time that all of the common stock may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144(i)(1)(i) or becomes an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “Public Information Failure”) then, in addition to such purchaser’s other available remedies, the Company shall pay to a purchaser, in cash, as partial liquidated damages and not as a penalty, an amount in cash equal to one percent (1.0%) of the aggregate subscription amount of the purchaser’s shares then held by the purchaser on the day of a Public Information Failure and on every thirtieth (30th) day (pro-rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured up to a maximum of five (5) 30-day periods and (b) such time that such public information is no longer required for the purchasers to transfer the shares pursuant to Rule 144. Public Information Failure Damages shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Damages are incurred and (ii) the third (3rd) business day after the event or failure giving rise to the Public Information Failure Damages is cured. In the event the Company fails to make Public Information Failure Damages in a timely manner, such Public Information Failure Damages shall bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full.

 

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Common Stock Warrants

 

The Company issued warrants to purchase shares of the Company’s common stock to MDB Capital Group, LLC (the “MDB Warrants”), L2 Capital, LLC (the “L2 Warrants”), Strome Mezzanine Fund LP (the “Strome Warrants”), and B. Riley Financial, Inc. (the “B. Riley Warrants”) in connection with various financing transactions (collectively, the “Financing Warrants”).

 

The Financing Warrants outstanding and exercisable as of June 30, 2021 are summarized as follows:

 

          Outstanding     
          Classified as   Classified within     
          Derivative   Stockholders’   Total 
   Exercise   Expiration  Liabilities   Equity   Exercisable 
   Price   Date  (Shares)   (Shares)   (Shares) 
MDB Warrants  $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, 2021 was $609,944, based on a fair market value of the Company’s common stock of $0.78 per share on June 30, 2021.

 

11. 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 of the 2016 Stock Incentive Plan and 2019 Equity Incentive Plan to certain officers, directors and employees (referred to as the “Outside Options”), (e) common stock warrants to the Company’s publisher partners (referred to as the “Publisher Partner Warrants”), and (f) common stock warrants to ABG-SI, LLC (referred to as the “ABG Warrants”).

 

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Stock-based compensation and equity-based expense charged to operations or capitalized during the three months ended June 30, 2021 and 2020 are summarized as follows:

 

   Restricted   Common   Common       Publisher         
   Stock   Stock   Equity   Outside   Partner   ABG     
   Awards   Awards   Awards   Options   Warrants   Warrants   Totals 
During the Three Months Ended June 30, 2021                                   
Cost of revenue  $24,570   $19,202   $1,708,404   $1,455   $-   $-   $1,753,631 
Selling and marketing   -    4,891    1,507,535    74,372    -    -    1,586,798 
General and administrative   141,897    101,939    4,135,866    -    -    396,251    4,775,953 
Total costs charged to operations   166,467    126,032    7,351,805    75,827    -    396,251    8,116,382 
Capitalized platform development   4,125    2,351    540,917    2,164    -    -    549,557 
Total stock-based compensation  $170,592   $128,383   $7,892,722   $77,991   $-   $396,251   $8,665,939 
                                    
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 

 

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   Restricted   Common   Common       Publisher         
   Stock   Stock   Equity   Outside   Partner   ABG     
   Awards   Awards   Awards   Options   Warrants   Warrants   Totals 
During the Six Months Ended June 30, 2021                                   
Cost of revenue  $49,030   $146,265   $2,998,778   $3,496   $-   $-   $3,197,569 
Selling and marketing   -    9,929    2,479,048    149,178    -    -    2,638,155 
General and administrative   145,342    219,266    6,262,481    -    -    

 

752,581

    7,379,670 
Total costs charged to operations   194,372    375,460    11,740,307    152,674    -    752,581    13,215,394 
Capitalized platform development   8,948    5,071    840,951    3,782    -    -    858,752 
Total stock-based compensation  $203,320   $380,531   $12,581,258   $156,456   $-   $752,581   $14,074,146 
                                    
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 

  

Unrecognized compensation expense and expected weighted-average period to be recognized related to the stock-based compensation awards and equity-based awards as of June 30, 2021 was as follows:

 

   Restricted   Common   Common       Publisher         
   Stock   Stock   Equity   Outside   Partner   ABG     
   Awards   Awards   Awards   Options   Warrants   Warrants   Totals 
Unrecognized compensation expense  $3,178,298   $98,636   $62,311,494   $214,592   $-   $3,076,571   $68,879,591 
Expected weighted-average period expected to be recognized (in years)   1.93    0.19    2.30    0.69    -    1.88    2.25 

 

Pursuant to an amendment with ABG-SI, LLC on June 4, 2021, the exercise price of 10,994,922 ABG Warrants to acquire shares of the Company's common stock was changed to $0.42 per share from $0.84 per share in exchange for additional benefits under the Sports Illustrated licensing agreement.

 

Further details as of the date these condensed consolidated financial statements were issued or were available to be issued are provided under the heading Compensation Plans in Note 14.

 

25

 

 

12. Revenue Recognition

 

Disaggregation of Revenue

 

The following table provides information about disaggregated revenue by product line, geographical market and timing of revenue recognition:

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2021   2020   2021   2020 
Revenue by product line:                    
Advertising  $13,548,069   $7,541,616   $