0001493152-21-028521.txt : 20211115 0001493152-21-028521.hdr.sgml : 20211115 20211115151920 ACCESSION NUMBER: 0001493152-21-028521 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 110 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211115 DATE AS OF CHANGE: 20211115 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: 211409589 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 September 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.)

 

200 Vesey Street, 24th 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 November 1, 2021, the Registrant had 264,202,421 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 29
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 37
   
Item 4. Controls and Procedures 37
   
PART II - OTHER INFORMATION 38
   
Item 1. Legal Proceedings 38
   
Item 1A. Risk Factors 38
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
   
Item 3. Defaults Upon Senior Securities 38
   
Item 4. Mine Safety Disclosures 38
   
Item 5. Other Information 38
   
Item 6. Exhibits 38
   
SIGNATURES 40

 

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

 

4
 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  

September 30, 2021

(unaudited)

   December 31, 2020 
Assets          
Current assets:          
Cash and cash equivalents  $8,227,840   $9,033,872 
Restricted cash   500,809    500,809 
Accounts receivable, net   19,519,147    16,497,626 
Subscription acquisition costs, current portion   31,257,268    28,146,895 
Royalty fees, current portion   15,000,000    15,000,000 
Prepayments and other current assets   4,875,177    4,667,263 
Total current assets   79,380,241    73,846,465 
Property and equipment, net   668,663    1,129,438 
Operating lease right-of-use assets   2,048,900    18,292,196 
Platform development, net   8,011,707    7,355,608 
Royalty fees, net of current portion   -    11,250,000 
Subscription acquisition costs, net of current portion   18,682,545    13,358,585 
Acquired and other intangible assets, net   57,817,905    71,501,835 
Other long-term assets   692,021    1,330,812 
Goodwill   22,861,872    16,139,377 
Total assets  $190,163,854   $214,204,316 
Liabilities, mezzanine equity and stockholders’ deficiency          
Current liabilities:          
Accounts payable  $9,443,576   $8,228,977 
Accrued expenses and other   21,287,989    14,718,193 
Line of credit   6,705,391    7,178,791 
Unearned revenue   71,305,655    61,625,676 
Subscription refund liability   4,379,364    4,035,531 
Operating lease liabilities   282,011    1,059,671 
Liquidated damages payable   11,765,706    9,568,091 
Current portion of long-term debt   4,565,982    - 
Warrant derivative liabilities   651,083    1,147,895 
Total current liabilities   130,386,757    107,562,825 
Unearned revenue, net of current portion   19,207,736    23,498,597 
Restricted stock liabilities, net of current portion   521,621    1,995,810 
Operating lease liabilities, net of current portion   1,972,165    19,886,083 
Other long-term liabilities   8,072,442    753,365 
Deferred tax liabilities   577,960    210,832 
Long-term debt, net of current portion   58,718,289    62,194,272 
Total liabilities   219,456,970    216,101,784 
Commitments and contingencies (Note 14)   -    - 
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 September 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; aggregate liquidation value $19,546,000 and $19,596,000; Series H shares designated: 23,000; Series H shares issued and outstanding: 19,546 and 19,596; common shares issuable upon conversion: 59,243,926 and 59,395,476 shares at September 30, 2021 and December 31, 2020, respectively   18,197,496    18,247,496 
Total mezzanine equity   18,365,992    18,415,992 
Stockholders’ deficiency:          
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 264,246,777 and 229,085,167 shares at September 30, 2021 and December 31, 2020, respectively   2,642,467    2,290,851 
Common stock to be issued   10,809    10,809 
Additional paid-in capital   182,787,419    139,658,166 
Accumulated deficit   (233,099,803)   (162,273,286)
Total stockholders’ deficiency   (47,659,108)   (20,313,460)
Total liabilities, mezzanine equity and stockholders’ deficiency  $190,163,854   $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

September 30,

  

Nine Months Ended

September 30,

 
   2021   2020   2021   2020 
Revenue  $59,573,508   $32,089,993   $127,935,501   $85,593,786 
Cost of revenue (includes amortization of developed technology and platform development for three months ended 2021 and 2020 of $2,241,243 and $2,089,286, respectively, and for nine months ended 2021 and 2020 of $6,565,600 and $6,348,619, respectively)   32,173,859    24,708,941    83,978,050    76,321,953 
Gross profit   27,399,649    7,381,052    43,957,451    9,271,833 
Operating expenses                    
Selling and marketing   22,712,193    9,928,901    55,122,357    27,698,182 
General and administrative   23,023,883    7,172,175    44,230,360    24,852,891 
Depreciation and amortization   4,055,432    4,053,184    11,981,998    12,276,990 
Total operating expenses   49,791,508    21,154,260    111,334,715    64,828,063 
Loss from operations   (22,391,859)   (13,773,208)   (67,377,264)   (55,556,230)
Other (expense) income                    
Change in valuation of warrant derivative liabilities   801,755    (517,405)   496,812    (134,910)
Change in valuation of embedded derivative liabilities   -    (2,370,000)   -    2,173,000 
Interest expense   (2,512,637)   (4,253,180)   (7,695,317)   (12,169,315)
Interest income   -   1,116    471   4,499 
Liquidated damages   (833,612)   (319,903)   (2,197,615)   (1,487,577)
Other expenses   -    (31,851)   -    (31,851)
Gain upon debt extinguishment   -    -    5,716,697    - 
Total other expense   (2,544,494)   (7,491,223)   (3,678,952)   (11,646,154)
Loss before income taxes   (24,936,353)   (21,264,431)   (71,056,216)   (67,202,384)
Income taxes   229,699    -    229,699    - 
Net loss   (24,706,654)   (21,264,431)   (70,826,517)   (67,202,384)
Deemed dividend on Series H convertible preferred stock   -    (132,663)   -    (132,663)
Net loss attributable to common stockholders  $(24,706,654)  $(21,397,094)  $(70,826,517)  $(67,335,047)
Basic and diluted net loss per common stock  $(0.10)  $(0.55)  $(0.29)  $(1.72)
Weighted average number of common stock outstanding – basic and diluted   252,811,058    39,186,432    244,209,151    39,177,864 

 

See accompanying notes to condensed consolidated financial statements.

 

6
 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Nine Months Ended September 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 options   84,891    849    -    -    (849)   -    - 
Common stock withheld for taxes   (49,952)   (490)   -    -    (40,630)   -    (41,120)
Repurchase of restricted stock classified as liabilities   (133,068)   (1,331)   -    -    1,331    -    - 
Proceeds from common stock 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)
Issuance of common stock upon conversion of Series H convertible preferred stock   151,515    1,515    -    -    48,485    -    50,000 
Issuance of restricted stock in connection with the acquisition of Fulltime Fantasy   750,000    7,500    -    -    495,000    -    502,500 
Issuance of common stock upon vesting of restricted stock units   500,000    5,000    -    -    (5,000)   -    - 
Forfeiture of unvested restricted stock awards   (150,557)   (1,505)   -    -    1,505    -    - 
Repurchase of restricted stock classified as liabilities   (133,068)   (1,331)   -    -    1,331    -    - 
Common stock withheld for taxes   (46,856)   (469)   -    -    (28,649)   -    (29,118)
Stock-based compensation   -    -    -    -    8,961,704    -    8,961,704 
Net loss   -    -    -    -    -    (24,706,654)   (24,706,654)
Balance at September 30, 2021   264,246,777   $2,642,467    1,080,930   $10,809   $182,787,419   $(233,099,803)  $(47,659,108)

 

7
 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Nine Months Ended September 30, 2020

 

   Shares   Par Value   Shares   Par Value  

Paid-in

Capital

   Accumulated Deficit   Stockholders’
Deficiency
 
  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 at June 30, 2020   38,590,363   385,902    2,587,893    25,879   43,992,975   (118,979,276)  (74,574,520)
Issuance of common stock in connection with the acquisition of Say Media   1,107,378    11,074    (1,107,378)   (11,074)   -    -    - 
Issuance of common stock upon conversion of Series H convertible preferred stock   909,090    9,091    -    -    290,909    -    300,000 
Common stock withheld for taxes   (58,628)   (586)   -    -    (40,371)   -    (40,957)
Beneficial conversion feature on Series H convertible preferred stock   -    -    -    -    132,663    -    132,663 
Deemed dividend on Series H convertible preferred stock   -    -    -    -    (132,663)   -    (132,663)
Stock-based compensation   -    -    -    -    4,231,878    -    4,231,878 
Net loss   -    -    -    -    -    (21,264,431)   (21,264,431)
Balance September 30, 2020   40,548,203   $405,481    1,480,515   $14,805   $48,475,391   $(140,243,707)  $(91,348,030)

 

See accompanying notes to condensed consolidated financial statements.

 

8
 

 

THEMAVEN, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   2021   2020 
   Nine Months Ended September 30, 
   2021   2020 
Cash flows from operating activities          
Net loss  $(70,826,517)  $(67,202,384)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property and equipment   333,891    536,729 
Amortization of platform development and intangible assets   18,213,707    18,088,880 
Loss on disposition of assets   862,442    105,123 
Loss upon lease termination   7,344,655    - 
Gain upon debt extinguishment   (5,716,697)   - 
Amortization of debt discounts   1,533,537    4,899,625 
Change in valuation of warrant derivative liabilities   (496,812)   134,910 
Change in valuation of embedded derivative liabilities   -    (2,173,000)
Accrued interest   5,273,159    6,832,376 
Liquidated damages   2,197,615    1,487,577 
Stock-based compensation   21,688,226    11,185,953 
Deferred income taxes   (229,699)   - 
Other   (1,014,932)   (296,019)
Change in operating assets and liabilities net of effect of acquisitions:          
Accounts receivable   (173,266)   4,893,512 
Subscription acquisition costs   (8,434,333)   (11,053,054)
Royalty fees   11,250,000    11,250,000 
Prepayments and other current assets   (78,347)   327,088 
Other long-term assets   638,791    (376,142)
Accounts payable   1,214,599    (968,581)
Accrued expenses and other   5,566,243    (2,484,525)
Unearned revenue   5,389,118    2,871,080 
Subscription refund liability   343,833    (169,693)
Operating lease liabilities   (2,448,282)   1,837,138 
Other long-term liabilities   (692,255)   - 
Net cash used in operating activities   (8,261,324)   (20,273,407)
Cash flows from investing activities          
Purchases of property and equipment   (299,999)   (1,085,392)
Capitalized platform development   (3,016,924)   (2,885,788)
Payments for acquisition of businesses, net of cash acquired   (7,356,949)   (315,289)
Net cash used in investing activities   (10,673,872)   (4,286,469)
Cash flows from financing activities          
Proceeds from long-term debt   -    11,702,725 
Borrowings (repayments) under line of credit   (473,400)   3,328,431 
Proceeds from common stock private placement   20,005,000    - 
Proceeds from issuance of Series H convertible preferred stock   -    113,000 
Proceeds from issuance of Series J convertible preferred stock   -    6,000,000 
Payments of issuance costs from common stock private placement   (167,243)   - 
Payment for taxes related to repurchase of restricted common stock   (70,238)   (322,778)
Payment of restricted stock liabilities   (1,164,955)   - 
Net cash provided by financing activities   18,129,164    20,821,378 
Net decrease in cash, cash equivalents, and restricted cash   (806,032)   (3,738,498)
Cash, cash equivalents, and restricted cash – beginning of period   9,534,681    9,473,090 
Cash, cash equivalents, and restricted cash – end of period  $8,728,649   $5,734,592 
Supplemental disclosure of cash flow information          
Cash paid for interest  $896,580   $437,314 
Cash paid for income taxes   -    - 
Noncash investing and financing activities          
Reclassification of stock-based compensation to platform development  $1,347,624   $1,259,163 
Issuance of common stock in connection with professional services   125,000    - 
Deferred cash payments in connection with acquisition of The Spun   905,109    - 
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 
Restricted stock issued in connection with acquisition of Fulltime Fantasy   502,500    - 
Deferred cash payments in connection with acquisition of Fulltime Fantasy   419,367      
Deemed dividend on Series H convertible preferred stock   -    132,663 

 

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 September 30, 2021, and for the three and nine months ended September 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 impact during the first three quarters of 2021 of the novel coronavirus (“COVID-19”) on the Company has been less than the impact in the comparable period of the prior year. In 2021, restrictions on non-essential work activity have been largely lifted and sporting and other events are being 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 gatherings 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 current period 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.

 

Recently Issued Accounting Standards

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to account for revenue contracts acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. The acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired contracts. This update should lead to recognition and measurement consistent with what’s reported in the acquiree’s financial statements, provided that the acquiree prepared financial statements in accordance with U.S. GAAP. The new standard marks a change from current U.S. GAAP, under which assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts, are generally recognized at fair value at the acquisition date. ASU 2021-08 is effective for the Company in the fiscal year beginning after December 15, 2022, including interim periods within the fiscal year, and should be applied prospectively to business combinations on or after the effective date of the amendment. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that adopting this new accounting standard would have on its condensed consolidated financial statements.

 

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 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. 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.

 

11
 

 

The Company excluded the outstanding securities summarized below (capitalized terms are defined 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 September 30, 
   2021   2020 
Series G convertible preferred stock   188,791    188,791 
Series H Preferred Stock   59,243,926    58,206,061 
Series I Preferred Stock   -    46,200,000 
Series J Preferred Stock   -    43,584,500 
Indemnity shares of common stock   -    412,500 
Restricted Stock Awards   4,147,936    3,674,996 
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 
Common Stock Awards   6,861,973    8,033,936 
Common Equity Awards   161,367,349    82,400,952 
Outside Options   3,050,000    2,982,111 
Total   260,646,415    271,345,287 

 

2. Acquisitions

 

Fulltime Fantasy Sports, LLC – On July 15, 2021, the Company entered into an asset purchase agreement with Fulltime Fantasy Sports, LLC, a Delaware limited liability company (“Fulltime Fantasy”), where it purchased certain intellectual property (including databases, documents and certain rights related to the intellectual property) and subscriber and customer records (collectively the “Purchased Assets”) and assumed certain liabilities related to the Purchased Assets. The purchase price consisted of: (1) a cash payment of $335,000 (paid in advance) including transaction related costs of $35,000, (2) the issuance of 750,000 shares the Company’s common stock (subject to certain vesting earn-out provisions and certain buy-back rights), with 250,000 shares of the Company’s common stock that vested at closing; and the remaining consideration subject to certain terms and conditions for material breach of certain agreements and acceleration provisions under certain conditions consisting of: (3) a cash earn-out payment of $225,000 and the vesting of 250,000 shares of the Company’s common stock on December 31, 2021, and (4) a cash earn-out payment of $225,000 and the vesting of 250,000 shares of the Company’s common stock on June 30, 2022.

 

The composition of the purchase price is as follows:

 

 

      
Total purchase consideration  $1,256,887 
Cash (including $35,000 of transaction related costs)  $335,000 
Restricted stock   167,500 
Deferred cash payments   419,387 
Deferred restricted stock   335,000 
Total purchase consideration  $1,256,887 
      

 

The purchase price resulted in $1,256,887 (including $35,000 of transaction related costs) being assigned to a database acquired at the closing date of the acquisition. The useful life for the database is three years (3.0 years).

 

12
 

 

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   905,109 
Total purchase consideration  $11,735,002 

 

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 on 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   6,722,495 
Accrued expenses   (1,500)
Deferred tax liabilities   (596,827)
Net assets acquired  $11,735,002 

 

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., doing business as 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 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 with 55,839 shares to be issued), and (5) on the second anniversary date of the closing, the issuance of restricted stock for an aggregate of up to 312,500 shares (subject to certain indemnifications) 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 

 

13
 

 

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).

 

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 September 30, 2021 and December 31, 2020 was $675,806 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 September 30, 2021 and December 31, 2020 was $31,257,268 and $28,146,895, respectively, on the condensed consolidated balance sheets. The noncurrent portion of the subscription acquisition costs as of September 30, 2021 and December 31, 2020 was $18,682,545 and $13,358,585, respectively, on the condensed consolidated balance sheets.

 

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 
   September 30, 2021   December 31, 2020 
Office equipment and computers  $1,267,898   $1,341,292 
Furniture and fixtures   1,005    19,997 
Leasehold improvements   -    345,516 
    1,268,903    1,706,805 
Less accumulated depreciation and amortization   (600,240)   (577,367)
Net property and equipment  $668,663   $1,129,438 

 

Depreciation and amortization expense for the three months ended September 30, 2021 and 2020 was $114,165 and $102,067, respectively. Depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 was $333,891 and $536,729, respectively. Depreciation and amortization expense is included in selling and marketing expenses and general and administrative expenses, as appropriate, on the condensed consolidated statements of operations.

 

14
 

 

Platform Development – Platform development costs are summarized as follows:

 

   September 30, 2021   December 31, 2020 
   As of 
   September 30, 2021   December 31, 2020 
Platform development  $19,497,520   $16,027,428 
Less accumulated amortization   (11,485,813)   (8,671,820)
Net platform development  $8,011,707   $7,355,608 

 

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

 

   September 30, 2021   December 31, 2020 
   As of 
   September 30, 2021   December 31, 2020 
Platform development beginning of period  $16,027,428   $10,678,692 
Payroll-based costs capitalized during the period   3,016,924    3,750,541 
Total capitalized costs   19,044,352    14,429,233 
Stock-based compensation   1,347,624    1,608,995 
Dispositions   (894,456)   (10,800)
Platform development end of period  $19,497,520   $16,027,428 

 

Amortization expense for the three months ended September 30, 2021 and 2020, was $1,143,673 and $909,631, respectively. Amortization expense for the nine months ended September 30, 2021 and 2020, was $3,272,890 and $2,868,289, respectively.

 

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

 

   As of September 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   $(11,576,450)  $7,494,407   $19,070,857   $(8,283,740)  $10,787,117 
Noncompete agreement   480,000    (480,000)   -    480,000    (480,000)   - 
Trade name   3,328,000    (712,292)   2,615,708    3,328,000    (503,342)   2,824,658 
Subscriber relationships   73,458,799    (28,992,944)   44,465,855    73,458,799    (18,105,041)   55,353,758 
Advertiser relationships   2,240,000    (510,922)   1,729,078    2,240,000    (332,515)   1,907,485 
Database   2,396,887    (904,030)   1,492,857    1,140,000    (531,183)   608,817 
Subtotal amortizable intangible assets   100,974,543    (43,176,638)   57,797,905    99,717,656    (28,235,821)   71,481,835 
Website domain name   20,000    -    20,000    20,000    -    20,000 
Total intangible assets  $100,994,543   $(43,176,638)  $57,817,905   $99,737,656   $(28,235,821)  $71,501,835 

 

Amortization expense for the three months ended September 30, 2021 and 2020 was $5,038,837 and $5,093,076, respectively. Amortization expense for the nine months ended September 30, 2021 and 2020 was $14,940,817 and $15,220,591, respectively. No impairment charges have been recorded during the nine months September 30, 2021 and 2020.

 

Other Long-term Liabilities – Other long-term liabilities consisted of the following:

 

   September 30, 2021   December 31, 2020 
   As of 
   September 30, 2021   December 31, 2020 
Lease termination payments  $7,269,469   $541,381 
Deferred cash payments   666,677    - 
Other   136,296    211,984 
Other long-term liabilities  $8,072,442   $753,365 

 

15
 

 

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 that provides control over the use of an asset is 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 7.9 years.

 

The table below presents supplemental information related to operating leases:

 

Nine Months Ended September 30, 2021    
Operating cash flows for operating leases  $2,901,529 
Noncash lease liabilities arising from obtaining operating leased assets during the period  $- 
Weighted-average remaining lease term   6.00 
Weighted-average discount rate   9.90%

 

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 September 30, 2021 and 2020 were $642,926 and $982,414, respectively. Operating lease costs recognized for the nine months ended September 30, 2021 and 2020 were $2,458,229 and $3,082,499, respectively.

 

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

 

Years Ending December 31,    
2021 (remaining three months of the year)  $140,134 
2022   472,084 
2023   486,247 
2024   500,834 
2025   512,019 
Thereafter   896,034 
Minimum lease payments   3,007,352 
Less imputed interest   (753,176)
Present value of operating lease liabilities  $2,254,176 
Current portion of operating lease liabilities  $282,011 
Long-term portion of operating lease liabilities   1,972,165 
Total operating lease liabilities  $2,254,176 

 

Effective September 30, 2021, the Company terminated a certain lease arrangement for office space and as a result, relinquished the space and derecognized a right-of-use asset of $15,673,474, a lease liability of $17,934,940 and recorded a penalty upon termination of $9,606,121 (as discounted since the amount of the liability and timing of the Cash Payments, as defined below, are fixed), resulting in a net loss upon termination of $7,344,655, which has been reflected in general and administrative expenses on the condensed consolidated statements of operations. In connection with the termination, the Company agreed to pay the landlord cash of $10,000,000 (the “Cash Payments”) and $1,475,000 in market rate advertising. The Cash Payments are due as follows: $1,000,000 on December 1, 2021; $1,000,000 on October 1, 2022; $4,000,000 on October 1, 2023; and $4,000,000 on October 1, 2024.

 

16
 

 

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 September 30, 2021 and December 31, 2020 was $6,705,391 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 $9,400,000.

 

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.

 

The following table presents the components of the restricted stock liabilities:

 

   As of 
   September 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)   (1,342,379)   (177,425)
Restricted stock liabilities  $2,458,355   $3,623,309 
Current portion of restricted stock liabilities (included in accrued expenses and other)  $1,936,734   $1,627,499 
Long-term portion of restricted stock liabilities   521,621    1,995,810 
Total restricted stock liabilities  $2,458,355   $3,623,309 

 

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