424B4 1 form-424b4.htm

 

Filed Pursuant to Rule 424(b)(4)

Registration No. 333-262111

 

 

THE ARENA GROUP HOLDINGS, INC.

 

3,636,364 SHARES OF COMMON STOCK

 

We are offering 3,636,364 shares of common stock, $0.01 par value per share (our “common stock”), of The Arena Group Holdings, Inc. (the “Company”), in a firm commitment underwritten public offering for whom B. Riley Securities, Inc. (“B. Riley Securities”) is acting as representative of the underwriters in the offering (collectively, the “Underwriter”). The public offering price is $8.25 per share.

 

Unless otherwise noted, and except in our financial statements and the notes thereto and the financial information contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section, the share and per-share information in this prospectus reflects a reverse stock split of our outstanding common stock at an assumed one-for-twenty-two (1-for-22) ratio that was effective at 8:00 p.m. Eastern Time on February 8, 2022, and implemented at the beginning of trading on the NYSE American on February 9, 2022 (the “Reverse Stock Split”).

 

On February 9, 2022, our common stock began trading on the NYSE American (the “NYSE American”) under the symbol “AREN.” Prior to this, our common stock was quoted on the OTC Markets Group Inc.’s OTCQX® Best Market (the “OTCQX”) under the symbol “MVEN.” As of February 10, 2022, the last sale price of our common stock as reported on the NYSE American was $9.20 per share (as adjusted for the Reverse Stock Split). The final public offering price of our common stock in this offering was determined through negotiation between us and the Underwriter.

 

This prospectus contains or incorporates by reference summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed or have been incorporated by reference as exhibits to the registration statement of which this prospectus forms a part, and you may obtain copies of those documents as described in this prospectus under the heading “Where You Can Find Additional Information.”

 

Investing in shares of our common stock involves significant risks. You should read the section entitled “Risk Factors” beginning on page 9 for a discussion of certain risk factors that you should consider before investing in our common stock.

 

Neither the Securities and Exchange Commission (the “Commission”) nor any state securities commission has approved or disapproved of the securities to be issued under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

    Per Share     Total Without Exercise of Underwriter Option    

Total With

Exercise of

Underwriter Option

 
Public offering price   $ 8.25     $ 30,000,000     $ 34,500,000  
Underwriting discounts and commissions (1)   $ 0.53625     $ 1,950,000     $ 2,242,500  
Offering proceeds, before expenses, to us   $ 7.71375     $ 28,050,000     $ 32,257,500  

 

  (1) See “Underwriting (Conflicts of Interest)” on page 82 for additional information on the compensation payable to the Underwriter.

 

We have granted to the Underwriter an option to purchase up to a maximum of 545,454 additional shares of our common stock from us at the public offering price above, less underwriting discounts and commissions, within 30 days of the date of the prospectus.

 

The Underwriter expects to deliver the shares of our common stock to purchasers on or before February 15, 2022.

 

Sole Book-Running Manager

B. Riley Securities

 

Lead Manager

Lake Street

 

The date of this prospectus is February 14, 2022.

 

 

 

 

TABLE OF CONTENTS

 

  Page
EXPLANATORY NOTE i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS ii
PROSPECTUS SUMMARY 1
THE OFFERING 7
RISK FACTORS 9
USE OF PROCEEDS 23
Market Price and Dividend Information 24
Capitalization 25
Dilution 26
BUSINESS 27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 34
MANAGEMENT 52
EXECUTIVE COMPENSATION 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 65
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS 68
Description of Securities 72
Shares Available for Future Sales 77
Material U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders 78
Underwriting (CONFLICTS OF INTEREST) 82
LEGAL MATTERS 90
EXPERTS 90
WHERE YOU CAN FIND ADDITIONAL INFORMATION 90
FINANCIAL STATEMENTS F-1
APPENDIX A – INVESTOR POWERPOINT A-1

 

You should rely only on the information contained in this prospectus. Neither we nor the Underwriter have authorized anyone to provide you with different information. If anyone provides you with different information, you should not rely on it. We are not, and the Underwriter is not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date on the front cover of this prospectus. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained in this prospectus is correct as of any time after its date. Information contained on our website, or any other website operated by us, is not part of this prospectus.

 

This prospectus incorporates by reference market data and industry statistics and forecasts that are based on independent industry publications and other publicly available information. Although we believe these sources are reliable, we do not guarantee the accuracy or completeness of this information and we have not independently verified this information. Although we are not aware of any misstatements regarding the market and industry data presented in this prospectus and the documents incorporated herein by reference, these estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” contained in this prospectus and under similar headings in other documents that are incorporated by reference into this prospectus. Accordingly, investors should not place undue reliance on this information.

 

 

 

 

EXPLANATORY NOTE

 

On January 31, 2022, and February 1, 2022, we furnished a PowerPoint as Exhibit 99.2 (“Original PowerPoint”) to a Current Report on Form 8-K and a Current Report on Form 8-K/A, respectively. We have included a revised PowerPoint as an appendix to this prospectus (the “Revised PowerPoint”). It is possible that despite our intentions, the Original PowerPoint may have constituted the communication of an “offer to buy or sell” in potential violation of Section 5 of the Securities Act of 1933, as amended (the “Securities Act”). The Original PowerPoint did not contain complete information regarding us and our business, including discussions of various risks and uncertainties regarding an investment in us, which are described in this prospectus. You should instead make your investment decision only after reading this entire prospectus carefully. The information in this prospectus clarifies, supersedes and replaces the information set forth in the Original PowerPoint. Please see the section entitled “Risk Factors” for additional information.

 

In an effort to provide more consistent disclosure across conformed time periods, we have updated certain of the information contained in the Original PowerPoint and have reflected such updates in this prospectus and have included the Revised PowerPoint as an appendix to this prospectus. This necessarily resulted in certain variances that we believe are immaterial.

 

We urge investors to carefully review the information set forth in this prospectus prior to making an investment decision.

 

i
 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains statements that may constitute “forward-looking statements.” 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 prospectus 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.

 

Forward-looking statements in this prospectus and in any document incorporated by reference in this prospectus may include, for example, statements about:

 

  the impact of the novel coronavirus (“COVID-19”) pandemic;
     
  our ability to attract new subscribers and to persuade existing subscribers to renew their subscriptions;
     
  our ability to attract new advertisers and to persuade existing advertisers to continue to advertise on our digital media platform;
     
  our ability to manage our growth effectively, including through strategic acquisitions;
     
  our ability to maintain an effective system of internal control over financial reporting;
     
  our ability to grow market share in our existing markets or any new markets we may enter;
     
  our ability to recruit and retain qualified personnel;
     
  our ability to respond to general economic conditions;
     
  our ability to attract, develop, and retain capable publisher partners and expert contributors;
     
  our ability to achieve and maintain profitability in the future;
     
  the success of strategic relationships with third parties; and
     
  other factors detailed under the section entitled “Risk Factors.”

 

These forward-looking statements are based on information available as of the date of this prospectus and current expectations, forecasts, and assumptions, and involve a number of judgments, risks, and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.

 

ii
 

 

 

PROSPECTUS SUMMARY

 

This summary highlights selected information from this prospectus and may not contain all of the information that is important to you in making an investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See also the section entitled “Where You Can Find Additional Information.” Unless the context otherwise requires, references in this prospectus to “The Arena Group,” the “Company,” “we,” “us,” or “our” refer to The Arena Group Holdings, Inc., and our subsidiaries.

 

Our Company

 

We are a data-driven media company that focuses on building deep content verticals powered by a best-in-class digital media platform (the “Platform”), empowering premium publishers who impact, inform, educate and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports, finance) and where we can leverage the strength of our core brands to grow our audience and monetization both within our core brands as well as our media publishers (each, a “Publisher Partner”). Our focus is on leveraging the Platform and iconic brands in targeted verticals to maximize the audience, improve engagement and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our 35 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated (as defined below), own and operate TheStreet, Inc. (“TheStreet”) and College Spun Media Incorporated (“The Spun” and, collectively, Sports Illustrated, TheStreet and The Spun are hereinafter referred to as our “Owned and Operated Businesses”), and power more than 200 independent Publisher Partners, including Biography, History, and the many team sports sites that comprise FanNation, among others. Each Publisher Partner joins the Platform by invitation-only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization (“SEO”), social media, subscription marketing and ad monetization, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical on both the content and technology sides. While they benefit from these critical performance improvements, they also may save substantially in technology, infrastructure, advertising sales, member marketing, and management costs. In addition, they benefit from recirculation across our Platform, which, according to Comscore, reaches 140 million users, as well as syndication to more than 25 third-party sites.

 

Our Corporate History and Background

 

We were originally incorporated in Delaware as Integrated Surgical Systems, Inc. (“Integrated”) in 1990. On October 11, 2016, Integrated and TheMaven Network, Inc. (“Maven Network”) entered into a share exchange agreement (the “Share Exchange Agreement”), whereby the stockholders of Maven Network agreed to exchange all of the then-issued and outstanding shares of common stock for shares of common stock of Integrated. On November 4, 2016, the parties consummated a recapitalization pursuant to the Share Exchange Agreement and, as a result, Maven Network became a wholly owned subsidiary of Integrated. Integrated changed its name to theMaven, Inc. on December 2, 2016.

 

On September 20, 2021, we re-branded to “The Arena Group.”

 

NYSE American Listing, Reverse Stock Split, and Name Change

 

On February 9, 2022, our common stock began trading on the NYSE American.

 

 

1

 

 

 

We implemented a Reverse Stock Split of our common stock at a 1-for-22 ratio following approval of the Reverse Stock Split by the Financial Industry Regulatory Authority (“FINRA”). The Reverse Stock Split became effective at 8:00 p.m. on February 8, 2022, with implementation at the open of trading on February 9, 2022. The Reverse Stock Split combined each 22 shares of our outstanding common stock into one share of common stock, without any change in the par value per share, and the Reverse Stock Split correspondingly, among other things, reduced the number of shares of our common stock subject to outstanding options, warrants, and convertible securities by a factor of 22, and increased the exercise price or conversion price by a factor of 22. No fractional shares were issued in connection with the Reverse Stock Split, and any fractional shares resulting from the Reverse Stock Split were rounded up to the nearest whole share. Except as otherwise indicated, and except in our financial statements and the notes thereto and the financial information in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section, all historical share and per-share amounts in this prospectus have been adjusted to reflect the 1-for-22 Reverse Stock Split, as if it was effective and as if it had occurred at the beginning of the earliest period presented.

 

Finally, effective at 8:00 p.m. Eastern Time on February 8, 2022, our corporate name changed to The Arena Group Holdings, Inc. in conjunction with our filing a Certificate of Amendment and Certificate of Corrections with the State of Delaware and obtaining FINRA’s approval of the Reverse Stock Split.

 

Recent Developments

 

Preliminary and Unaudited Financial Results for the Three Months and Year Ended December 31, 2021, Compared to Unaudited Financial Results for the Three Months Ended December 31, 2020, and Audited Financial Results for the Year Ended December 31, 2020.

 

This section contains certain financial results for the following periods: (i) three months ended December 31, 2021 (“Fourth Quarter of 2021”); (ii) year ended December 31, 2021 (“Fiscal 2021”); (iii) three months ended December 31, 2021 (“Fourth Quarter of 2020”); and (iv) year ended December 31, 2020 (“Fiscal 2020”). The financial results for the Fourth Quarter of 2021 are preliminary and unaudited financial results (“Preliminary and Unaudited Fourth Quarter of 2021 Results”). The financial results for Fiscal 2021 are presented as preliminary and unaudited financial results (“Preliminary and Unaudited Fiscal 2021”). The financial results for the Fourth Quarter of 2020 are presented as unaudited financial results (“Unaudited Fourth Quarter of 2020 Results”). The financial results for Fiscal 2020 are presented as audited financial results (“Audited Fiscal 2020 Results”).

 

Accordingly, the tables below contain (i) consolidated statements of operations, (ii) revenue by category, (iii) cost of revenue by category and (iv) operating expenses on the following basis: Preliminary and Unaudited Fourth Quarter of 2021 Results, Preliminary and Unaudited Fiscal 2021 Results, Unaudited Fourth Quarter of 2020 Results, and Audited Fiscal 2021 Results.

 

The Preliminary and Unaudited Fourth Quarter of 2021 Results and Preliminary and Unaudited Fiscal 2021 Results are subject to completion of our customary year-end closing, review and audit procedures and are not a comprehensive statement of our financial results for those periods. The Preliminary and Unaudited Fourth Quarter of 2021 Results and Preliminary and Unaudited Fiscal 2021 Results should not be viewed as a substitute for complete financial statements prepared in accordance with GAAP and they are not necessarily indicative of the results to be achieved in any future period. Accordingly, you should not place undue reliance on the Preliminary and Unaudited Fourth Quarter of 2021 Results and Preliminary and Unaudited Fiscal 2021 Results. The Preliminary and Unaudited Fourth Quarter of 2021 Results, Preliminary and Unaudited Fiscal 2021 Results, Unaudited Fourth Quarter of 2020 Results included below have been prepared by and are the responsibility of our management. Marcum LLP (“Marcum”), our independent registered public accounting firm, have not audited, reviewed, compiled, or performed any procedures with respect to the accompanying Preliminary and Unaudited Fourth Quarter of 2021 Results and Preliminary and Unaudited Fiscal 2021 Results. Accordingly, Marcum does not express an opinion or any other form of assurance with respect thereto.

 

The following table sets forth the statements of operations:

 

   Three Months Ended December 31, 2021 (preliminary and unaudited)   Three Months Ended December 31, 2020
(unaudited)
   $ Change   % Change   Year
Ended December 31, 2021
(preliminary and unaudited)
   Year
Ended December 31, 2020
   $ Change   % Change 
Revenue  $57,064,503   $42,438,611   $14,625,892    34.5%  $185,000,004   $128,032,397   $56,967,607    44.5%
Cost of revenue   27,484,434    26,741,492    742,942    2.8%   111,462,484    103,063,445    8,399,039    8.1%
Gross profit   29,580,069    15,697,119    13,882,950    88.4%   73,537,520    24,968,952    48,568,568    194.5%
Operating expenses                                 -      
Selling and marketing   27,990,221    15,891,057    12,099,164    76.1%   83,112,578    43,589,239    39,523,339    90.7%
General and administrative   18,183,021    11,154,347    7,028,674    63.0%   62,413,381    36,007,238    26,406,143    73.3%
Depreciation and amortization   3,038,407    4,003,485    (965,078)   -24.1%   15,020,405    16,280,475    (1,260,070)   -7.7%
Total operating expenses   49,211,649    31,048,889    18,162,760    58.5%   160,546,364    95,876,952    64,669,412    67.5%
Loss from operations   (19,631,580)   (15,351,770)   (4,279,810)   27.9%   (87,008,844)   (70,908,000)   (16,100,844)   22.7%
Other (expense) income                                 -      
Change in valuation of warrant derivative liabilities   (462,320)   631,215    (1,093,535)   -173.2%   34,492    496,305    (461,813)   -93.1%
Change in valuation of embedded derivative liabilities   -    398,004    (398,004)   -100.0%   -    2,571,004    (2,571,004)   -100.0%
Interest expense   (2,600,747)   (4,327,902)   1,727,155    -39.9%   (10,296,064)   (16,497,217)   6,201,153    -37.6%
Interest income   -  376,527    (376,527)   -100.0%   471   381,026    (380,555)   -99.9%
Loss on conversion of convertible debt   -    (3,297,539)   3,297,539    -100.0%   -    (3,297,539)   3,297,539    -100.0%
Liquidated damages   (480,307)   -    (480,307)   100.0%   (2,677,922)   (1,487,577)   (1,190,345)   80.0%
Gain upon debt extinguishment   -    (247,282)   247,282    -100.0%   5,716,697    (279,133)   5,995,830    -2148.0%
Total other expense   (3,543,374)   (6,466,977)   2,923,603    -45.2%   (7,222,326)   (18,113,131)   10,890,805    -60.1%
Loss before income taxes   (23,174,954)   (21,818,747)   (1,356,207)   6.2%   (94,231,170)   (89,021,131)   (5,210,039)   5.9%
Income taxes   -    (210,832)   210,832    -100.0%   229,699    (210,832)   440,531    -208.9%
Net loss  (23,174,954)  (22,029,579)  (1,145,375)   5.2%  (94,001,471)  (89,231,963)  (4,769,508)   5.3%
Deemed dividend on convertible preferred stock   -    (15,509,932)   15,509,932    

-100.0

%   -    (15,642,595)   15,642,595    -100.0%
Net loss attributable to common stockholders  $(23,174,954)  $(37,539,511)  $14,364,557    -38.3%  $(94,001,471)  $(104,874,558)  $10,873,087    -10.4%

 

 

2

 

 

 

The following table sets forth revenue by category:

 

Revenue by Category  Three Months Ended December 31, 2021 (preliminary and unaudited)   Three Months Ended December 31, 2020 (unaudited)   $ Change   % Change   Year
Ended December 31, 2021 (preliminary and unaudited)
   Year
Ended December 31, 2020
   $ Change   % Change 
Digital Revenue                                        
Digital advertising  $22,033,894   $11,937,683   $10,096,211    84.6%  $61,429,971   $34,596,838   $26,833,133    77.6%
Digital subscriptions   6,659,413    8,399,036    (1,739,623)   -20.7%   29,132,364    28,495,676    636,688    2.2%
Other revenue   2,747,513    1,929,443    818,070    42.4%   8,583,195    4,596,686    3,986,509    86.7%
Total digital revenue   31,440,820    22,266,162    9,174,658    41.2%   99,145,530    67,689,200    31,456,330    46.5%
Print Revenue                                        
Print advertising   2,042,376    3,633,508    (1,591,132)   -43.8%   8,947,273    9,762,984    -815,711    -8.4%
Print subscriptions   23,581,307    16,538,941    7,042,366    42.6%   76,907,201    50,580,213    26,326,988    52.0%
Total print revenue   25,623,683    20,172,449    5,451,234    27.0%   85,854,474    60,343,197    25,511,277    42.3%
Total revenue  $57,064,503   $42,438,611   $14,625,892    34.5%  $185,000,004   $128,032,397   $56,967,607    44.5%

 

Total preliminary and unaudited revenue for the three months ended December 31, 2021, increased approximately 34.5% to approximately $57.1 million, as compared to approximately $42.4 million for the unaudited three months ended December 31, 2020. Total preliminary and unaudited digital revenue for the three months ended December 31, 2021, increased approximately 41.2% to approximately $31.4 million as compared to approximately $22.3 million for the unaudited three months ended December 31, 2020. The increase in digital revenue period-over-period was primarily due to an approximately $10.1 million increase in digital advertising.

 

Total preliminary and unaudited revenue for the year ended December 31, 2021, increased approximately 44.5% to approximately $185.0 million as compared to approximately $128.0 million for the year ended December 31, 2020. Total preliminary and unaudited digital revenue for the year ended December 31, 2021, increased approximately 46.5% to approximately $99.1 million as compared to approximately $67.7 million for the year ended December 31, 2020. This increase in revenues was attributable to management’s decision to make a strategic shift to focus on premium content providers and reduced reliance on publisher guarantees in September 2020. As a result of this change, our revenue from Publisher Partners increased by 74.1% to approximately $34.8 million in the year ended December 31, 2021, as compared to approximately $20.0 million for the year ended December 31, 2020.

 

Our compound annual growth rate (“CAGR”) for revenue from fiscal 2019 to fiscal 2021 was approximately 86.3%. Our CAGR for digital revenue from fiscal 2019 to fiscal 2021 was approximately 64.3%. For additional information, please see this section entitled “Recent Developments” and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

The following table sets forth cost of revenue by category:

 

Cost of Revenue by Category  Three Months Ended December 31, 2021 (preliminary and unaudited)   Three Months Ended December 31, 2020 (unaudited)   $ Change   % Change   Year
Ended December 31, 2021 (preliminary and unaudited)
   Year
Ended December 31, 2020
   $ Change   % Change 
Publisher Partner revenue share payments  $6,285,605   $5,394,863   $890,742    16.5%  $22,043,444   $19,427,196   $2,616,248    13.5%
Hosting, bandwidth, and software licensing fees   521,837    625,292    (103,455)   -16.5%   2,163,417    2,419,143    (255,726)   -10.6%
Fees paid for data analytics and to other outside services providers   761,385    804,850    (43,465)   -5.4%   2,883,405    3,222,869    (339,464)   -10.5%
Royalty fees   3,750,000    3,750,000    -    0.0%   15,000,000    15,000,000    -    0.0%
Content and editorial expenses   5,921,728    7,466,383    (1,544,655)   -20.7%   31,618,234    29,080,353    2,537,881    8.7%
Printing, distribution and fulfillment costs   3,484,098    4,444,867    (960,769)   -21.6%   14,385,212    15,706,519    (1,321,307)   -8.4%
Amortization of our Platform   3,292,711    2,202,333    1,090,378    49.5%   9,858,311    8,550,952    1,307,359    15.3%
Stock-based compensation   1,861,739    776,225    1,085,514    139.8%   6,791,447    4,339,916    2,451,531    56.5%
Other cost of revenue   1,605,331    1,276,679    328,652    25.7%   6,719,014    5,316,497    1,402,517    26.4%
Total cost of revenue  $27,484,434   $26,741,492   $742,942    2.8%  $111,462,484   $103,063,445   $8,399,039    8.1%

 

Total preliminary and unaudited cost of revenue for the three months ended December 31, 2021, increased approximately 2.8% to approximately $27.5 million as compared to approximately $26.7 million for the unaudited three months ended December 31, 2020. The increase in cost of revenue is primarily attributable to costs associated with the amortization of our Platform, stock-based compensation and Publisher Partner revenue share payments partially offset by a decrease in content and editorial expenses and printing, distribution, and fulfillment costs.

 

Total preliminary and unaudited cost of revenue for the year ended December 31, 2021, increased approximately 8.1% to approximately $111.5 million as compared to approximately $103.1 million for the year ended December 31, 2020. The increase in cost of revenue is primarily attributable to Publisher Partner revenue share payments, content and editorial expenses and stock-based compensation.

 

 

3

 

 

 

The following table sets forth operating expenses:

 

Operating Expenses  Three Months Ended December 31, 2021 (preliminary and unaudited)   Three Months Ended December 31, 2020 (unaudited)   $ Change   % Change   Year
Ended December 31, 2021 (preliminary and unaudited)
   Year
Ended December 31, 2020
   $ Change   % Change 
Selling and marketing  $27,990,221   $15,891,057   $12,099,164    76.1%  $83,112,578   $43,589,239   $39,523,339    90.7%
General and administrative   18,183,021    11,154,347    7,028,674    63.0%   62,413,381    36,007,238    26,406,143    73.3%
Depreciation and amortization   3,038,407    4,003,485    (965,078)   -24.1%   15,020,405    16,280,475    (1,260,070)   -7.7%
Total operating expenses  $49,211,649   $31,048,889   $18,162,760    58.5%  $160,546,364   $95,876,952   $64,669,412    67.5%

 

Operating expenses increased 58.5% to approximately $49.2 million for the three months ended December 31, 2021, as compared to approximately $31.0 million in the prior year period. The primary driver of the increase in operating expenses was attributable to increases in selling and marketing expenses of approximately $12.1 million and general and administrative expenses of approximately $7.0 million, partially offset by a decrease in depreciation and amortization of approximately $1.0 million.

 

Operating expenses increased 67.5% to approximately $160.5 million for the year ended December 31, 2021, as compared to approximately $95.9 million the prior year period. The primary driver of the increase in operating expenses was attributable to increases in selling and marketing expenses of approximately $39.5 million and general and administrative expenses of approximately $26.4 million, partially offset by a decrease in depreciation and amortization of approximately $1.3 million.

 

 

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Key Performance Indicators 

 

Our management reviews several key performance indicators (“KPIs”). They are mostly non-financial indicators which inform our management of business performance and aids in determining our operating strategy and actions. These KPIs include revenue per page view (“RPM”), cost per thousand (“CPM”), the number of unique users, the number of video views on our Platform, and the number of impressions on our Platform. RPM represents the advertising revenue earned per 1,000 pageviews; CPM represents the advertising revenue earned per 1,000 advertising impressions; unique users is based on the number of unique individuals who visit a site in a given period (usually on a monthly basis); impressions is a count of the number of advertisements viewed by users; and video views is a count of the number of videos viewed by users. Unique users, impressions and video views are measures that inform management about the activity on a particular website and potential inventory of digital display and video advertisements which are available for sale. RPM and CPM are indications of yield and pricing driven by both the advertising density and demand from advertisers. These KPIs are critical for management as they provide insights into our digital revenue generation and overall business performance.  This information also provides feedback on the content on the website and its ability to attract and engage users, which allows us to make strategic business decisions as our engagement increases and drives advertising revenue across all our platforms.

 

RPM increased 39% to $18.95 for the three months ended December 31, 2021, as compared to $13.63 for the three months ended December 31, 2020, which included a 13% increase in RPM attributable to Sports Illustrated. RPM grew 71% to $15.21 for the year ended December 31, 2021, as compared to $8.90 for the year ended December 31, 2020. Overall CPM increased 9% to $2.89 for the three months ended December 31, 2021, as compared to $2.66 for the three months ended December 31, 2020. CPM for programmatic advertising revenue increased 36% to $1.86 for the year ended December 31, 2021, as compared to $1.36 for the year ended December 31, 2020. Lastly, our monthly average unique users grew 16% for the year ended December 31, 2021, as compared to the prior year, according to Comscore.

 

Sports partners impressions increased 255% to 1.7 billion for the three months ended December 31, 2021, as compared to 484.7 million for the three months ended December 31, 2020. Video views increased 137% to 232.0 million for the three months ended December 31, 2021, as compared to 97.9 million for the three months ended December 31, 2020.

 

Please also see the section entitled “Business” for additional information regarding unique users and pageviews.

 

 

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Stock Purchase Agreements

 

On January 24, 2022, after negotiations with certain of our current purchasers of previous securities issued by us (the “Investors”), we entered into several Stock Purchase Agreements with the Investors (collectively, the “Stock Purchase Agreements”), pursuant to which we agreed to issue an aggregate of 505,671 shares (the aggregate amount of shares issuable after giving effect to the termination below) at a price equal to $13.86 per share, which price was based on the volume-weighted average price of our common stock at the close of trading on the sixty (60) previous trading days, to the Investors in lieu of an aggregate of approximately $7.01 million owed in liquidated damages, which includes accrued but unpaid interest, for our failure to meet certain covenants in prior Registration Rights Agreements and related Securities Purchase Agreements with the Investors. On February 9, 2022, we terminated the Stock Purchase Agreement with B. Riley Principal Investments, LLC and cancelled the 206,275 shares that were to be issued to them because the issuance of the shares of our common stock may have been deemed to be compensation within the meaning of FINRA Rule 5110. By negotiating the Stock Purchase Agreements with the Investors, the per share price at which the shares of our common stock were issued pursuant to the Stock Purchase Agreements was higher than the offering price of $8.25. If the price used to derive the number of shares of our common stock was the offering price of $8.25, we would have been required to issue an aggregate of 849,490 shares. We also agreed that we would prepare and file as soon as reasonably practicable, a registration statement covering the resale of these shares of our common stock issued in lieu of payment of these liquidated damages in cash.

 

Amendment to Second Amended and Restated Note Purchase Agreement

 

On January 23, 2022, we entered into Amendment No. 4 to the Second Amended and Restated Note Purchase Agreement (the “Second A&R NPA”) with BRF Finance, an affiliated entity of B. Riley, in its capacity as agent and a purchaser, pursuant to which the parties agreed to extend the maturity dates in the event that we consummate an offering of our common stock of at least $20.0 million on or before February 14, 2022, which was further extended to February 15, 2022 by the parties, as well as excluding from the mandatory prepayment provisions proceeds received from such offering.

 

Proposed Acquisition

 

We have entered into a letter of intent to acquire 100% of the issued and outstanding equity interests (the “Proposed Acquisition”) of Athlon Holdings, Inc. (“Athlon”) for an anticipated purchase price of $16 million, comprised of (i) a cash portion of $13 million, with $10 million to be paid at closing and $3 million to be paid post-closing and (ii) an equity portion of $3 million to be paid in shares of our common stock. The acquisition of Athlon is subject to the preparation and negotiation of definitive documents, our completion of due diligence, and the agreement of a certain number of key employees of Athlon to remain as employees post-closing, among other items. We can provide no assurances that we will consummate the acquisition of Athlon on a timely or cost-effective basis, if at all.

 

Athlon develops and distributes premium content on digital, video, and print platforms in the lifestyle, celebrity, food, health and wellness, sports, and outdoor verticals. Its brands include Athlon Sports, Athlon Outdoors, Parade, Relish and Spry Living. Athlon Sports is the leading publisher of preseason annuals for the NFL, NBA, MLB, NASCAR, and college football and basketball, including draft and fantasy issues. Athlon Outdoors publishes twelve titles for outdoor enthusiasts. Athlon Sports’ digital presence is already on our Platform and has over 3 million monthly unique users and Athlon Outdoors has 1 million unique uses. Parade has a circulation of over 16 million via weekly distribution in over 600 newspapers in the U.S. Spry Living and Relish each have a circulation of 9 million. Parade.com is a popular lifestyle digital publication with over 14 million monthly average unique users, placing it in the top 30 of all lifestyle publications in the U.S.

 

Corporate Information

 

We are a Delaware corporation. Our principal executive office is located at 200 Vesey Street, 24th Floor, New York, New York, 10281. Our telephone number is (212) 321-5002. Our website address is www.thearenagroup.net. Information on or accessed through our website is not incorporated into this prospectus and is not a part of this prospectus.

 

 

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THE OFFERING

 

Issuer:   The Arena Group Holdings, Inc.
     
Securities Being Offered by Us:   3,636,364 shares of our common stock (or 4,181,818 shares of our common stock if the Underwriter exercises their option to purchase additional shares in full).
     
Offering Price:   The offering price is $8.25 per share.
     
Risk Factors:   The shares of our common stock offered hereby involve a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” for a discussion of the factors you should carefully consider before making an investment decision.
     
Shares of Our Common Stock Issued and Outstanding Prior to the Offering:   13,153,197 shares (1) (2)
     
Shares of Our Common Stock to be Outstanding After the Offering:   16,789,561 shares (or 17,335,015 shares if the Underwriter exercises its option to purchase additional shares in full) (1) (2)
     
Underwriter Option:   We have granted the Underwriter a 30-day option to purchase up to an additional 545,454 shares of our common stock at the public offering price, less estimated underwriting discounts and commissions.
     
Use of Proceeds:  

Based on an offering price of $8.25 per share, we estimate that the gross proceeds to us from this offering will be up to $30.0 million (or $34.5 million if the Underwriter exercises its option to purchase additional shares in full). We estimate the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $26.9 million ($31.1 million if the Underwriter’s option to purchase additional shares of our common stock is exercised in full), based on a public offering price of $8.25 per share.

 

We intend to use the net proceeds from this offering for the initial cash portion of $10 million of the purchase price of the acquisition of Athlon and our working capital and general corporate purposes. For a more complete description of our intended use of the net proceeds from this offering, see “Use of Proceeds.”

     
Conflicts of Interest:  

Affiliates of B. Riley Securities, representative of the Underwriter in this offering, beneficially own 26.10% of our outstanding common stock. As a result, B. Riley Securities is deemed to have a “conflict of interest” within the meaning of FINRA Rule 5121.

 

Accordingly, this offering is made in compliance with the applicable provisions of Rule 5121. Rule 5121 requires that no sale be made to discretionary accounts by underwriters having a conflict of interest without the prior written approval of the account holder and that a “qualified independent underwriter,” as defined in the rule, has participated in the preparation of the registration statement and prospectus and exercised the usual standards of due diligence with respect thereto. Lake Street Capital Markets, LLC (“Lake Street”) is assuming the responsibilities of acting as the “qualified independent underwriter” in this offering. Lake Street will not receive any additional compensation for acting as a qualified independent underwriter.

 

 

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Lock-Ups:   We and our executive officers, directors, and certain holders of outstanding shares of our common stock have agreed with the Underwriter, subject to certain exceptions, not to dispose of or hedge any of their shares of our common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 90 days, in the case of certain stockholders, or 120 days, in the case of us and our executive officers and directors, after the date of this prospectus.
     
Reverse Stock Split:   Our Board of Directors (our “Board”) and stockholders approved of a reverse stock split of the outstanding shares of our common stock in the range from one for-two (1-for-2) to one-for-hundred (1-for-100), which ratio is to be selected by our Board. Our Board set the ratio of the Reverse Stock Split at 1-for-22. The Reverse Stock Split became effective following approval by FINRA of the Reverse Stock Split on February 8, 2022, with implementation at the open of trading on February 9, 2022. Except as otherwise indicated, and except in our financial statements and notes thereto and the financial information contained in the Management’s Discussion and Analysis, all references to our common stock, share data, per share data, and related information depict a Reverse Stock Split ratio of 1-for-22 as if it was effective and as if it had occurred at the beginning of the earliest period presented.
     
Trading Symbol:   On February 9, 2022, our common stock began trading on the NYSE American under the symbol “AREN.”

 

(1) Unless we indicate otherwise, the number of shares of our common stock outstanding prior to this offering is based on 13,153,197 shares of our common stock outstanding on February 10, 2022, and excludes the following: (i) 1,150,063 shares of our common stock issuable upon exercises of outstanding warrants; (ii) 2,075,684 shares of our common stock issuable upon conversions of the Series H Convertible Preferred Stock (“Series H Preferred Stock”); (iii) 5,575,108 shares of our common stock issuable upon exercises of outstanding option awards; (iv) 1,870,862 shares of our common stock either to be issued that are vested or issuable upon vesting of outstanding restricted stock units; (v) 8,582 shares of our common stock issuable upon conversion of Series G Convertible Preferred Stock (“Series G Preferred Stock”), (vi) 1,286,083 shares of our common stock reserved for issuance under the 2019 Equity Incentive Plan (the “2019 Plan”), (vii) 144,565 shares of our common stock reserved for issuance under the 2016 Stock Incentive Plan (the “2016 Plan”), and (viii) 49,134 of our common stock held in reserve to be issued pursuant to completion of documentation related to transactions from 2018. The number of shares of our common stock outstanding prior to this offering includes 194,806 shares of our common stock issued pursuant to restricted stock awards that remain subject to forfeiture.
   
(2)

On a fully diluted basis, we have 15,835,854 shares of our common stock outstanding as of February 10, 2022, which includes 13,153,197 shares of our common stock outstanding as of such date, as well as 49,134 shares of our common stock that we are required to issue pursuant to agreements, 2,075,684 shares of our common stock issuable upon conversion of outstanding shares Series H Preferred Stock, 8,582 shares of our common stock issuable upon conversion of outstanding shares of Series G Preferred Stock, 542,706 shares of our common stock issuable upon vested restricted stock units, 4,773 shares of our common stock that are issuable upon the exercise of vested outstanding warrants on a cashless basis that are in-the-money based on an offering price of $8.25, and 1,778 shares of our common stock that are issuable upon the exercise of vested outstanding options on a net exercise basis that are in-the-money based on an offering price of $8.25.

 

 

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RISK FACTORS

 

An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.

 

In the course of conducting our business operations, we are exposed to a variety of risks. Any of the risk factors we describe below have affected or could materially and adversely affect our business, financial condition, and results of operations. The market price of shares of our common stock could decline, possibly significantly or permanently, if one or more of these risks and uncertainties occurs. Certain statements in “Risk Factors” are forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

 

RISKS RELATED TO OUR BUSINESS AND OUR FINANCIAL CONDITION

 

Our business operations have been and may continue to be materially and adversely affected by the outbreak of COVID-19. An outbreak of respiratory illness caused by COVID-19 emerged in late 2019 and has spread globally. In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout the world. Many national governments and sports authorities around the world made the decision to postpone/cancel high attendance sports events in an effort to reduce the spread of the COVID-19 virus. In addition, many governments and businesses limited non-essential work activity, furloughed, and/or terminated many employees and closed some operations and/or locations, all of which has had a negative impact on the economic environment.

 

Beginning in March 2020, as a result of the COVID-19 pandemic, our revenue and earnings began to decline largely due to the cancellation of high attendance sports events and the resulting decrease in traffic to the Platform and advertising revenue. This initial decrease in revenue and earnings were partially offset by revenues generated by TheStreet, as well as some recovery of sporting events (including, in some cases, limited in-person attendance) that have generated content for the media business (the “Sports Illustrated Licensed Brands”) of Sports Illustrated (“Sports Illustrated”) that we have the right to operate pursuant to the licensing agreement, as amended by Amendment No. 1 dated September 1, 2019, Amendment No. 2 dated April 1, 2020, Amendment No. 3 dated July 28, 2020, Amendment No. 4 dated June 4, 2021, and side letter dated June 4, 2021 (collectively, the “Sports Illustrated Licensing Agreement”), we previously entered into with ABG-SI LLC (“ABG”). Through 2021, we increasingly saw sports leagues and events return to pre-pandemic scheduling, as well as additional lifting of restrictions on in-person attendance at sporting events, which have continued to result in some recovery of our operational and financial performance. Despite this initial recovery, the future impact, or continued impact, from the COVID-19 pandemic remains uncertain.

 

The extent of the impact on our operational and financial performance will depend, in part, on future developments, including the duration and spread of the COVID-19 pandemic, related group gathering and sports event advisories and restrictions, and the extent and effectiveness of containment actions taken, all of which remain uncertain at the time of issuance of our accompanying consolidated financial statements.

 

These and other impacts of the COVID-19 pandemic, or other pandemics or epidemics, could have the effect of heightening many of the other risks described in the registration statement of which this prospectus forms a part under this “Risk Factors” section.

 

Because of the effects of COVID-19 pandemic and the uncertainty about their persistence, we may need to raise more capital to continue operations. At September 30, 2021, we had cash of approximately $8.2 million. We have seen stabilization in our markets since May 2020 and believe that based on our current assessment of the impact of COVID-19, we have sufficient resources to fully fund our business operations through 12 months from the filing date of this registration statement. However, due to the continuing uncertainty regarding the duration of the impact of COVID-19 and its effect on our financial performance and the potential that our traffic and advertising revenue becomes destabilized again, we may require additional capital. We did not have difficulties accessing the capital markets during 2020 and 2021, however, due to the continuing uncertainty surrounding COVID-19, we may experience difficulties in the future.

 

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As market conditions present uncertainty as to our ability to secure additional capital, there can be no assurances that we will be able to secure additional financing on acceptable terms, or at all, as and when necessary to continue to conduct operations. Our future liquidity and capital requirements will depend upon numerous factors, including the success of our offerings and competing technological and market developments. We may need to raise funds through public or private financings, strategic relationships, or other arrangements. There can be no assurance that such funding will be available on terms acceptable to us, or at all. Furthermore, any equity financing may be dilutive to existing stockholders, and debt financing, if available, may involve restrictive covenants that may limit our operating flexibility with respect to certain business matters. Strategic arrangements may require us to relinquish our rights or grant licenses to some or substantial parts of our intellectual property. If funds are raised through the issuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution in net book value per share, and such equity securities may have rights, preferences, or privileges senior to those of the holders of our existing capital stock. If adequate funds are not available on acceptable terms, we may not be able to continue operating, develop or enhance products, take advantage of future opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our business, operating results, and financial condition.

 

We have incurred losses since our inception, have yet to achieve profitable operations, and anticipate that we will continue to incur losses for the foreseeable future. We have had losses from inception, and as a result, have relied on capital funding or borrowings to fund our operations. Our accumulated deficit as of December 31, 2020, was approximately $162.3 million. Our accumulated deficit as of September 30, 2021, was approximately $233.1 million. While we anticipate generating positive cash flow in fiscal 2022, the uncertainty surrounding the COVID-19 pandemic yields some doubt as to our ability to do so and could require us to raise additional capital. We cannot predict whether we will be able to continue to find capital to support our business plan if the negative effects of the COVID-19 pandemic continue longer than anticipated.

 

We identified material weaknesses in our internal control over financial reporting. If we do not adequately address these material weaknesses or if other material weaknesses or significant deficiencies in our internal control over financial reporting are discovered, our financial statements could contain material misstatements and our business, operations and stock price may be adversely affected. As disclosed under Item 9A, Controls and Procedures, of our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”), our management identified material weaknesses in our internal control over financial reporting at December 31, 2020. We continued to have material weaknesses in our internal controls over financial reporting at March 31, 2021, June 30, 2021, and September 30, 2021. We expect to have remediated our material weaknesses in our internal control over financial reporting by December 31, 2021, which would be determined and disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, of which there can be no assurance. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Although no material misstatement of our historical financial statements was identified, the existence of these material weaknesses or significant deficiencies could result in material misstatements in our financial statements and we could be required to restate our financial statements. Further, significant costs and resources may be needed to remediate the identified material weaknesses or any other material weaknesses or internal control deficiencies. If we are unable to remediate, evaluate, and test our internal controls on a timely basis in the future, management will be unable to conclude that our internal controls are effective and our independent registered public accounting firm will be unable to express an unqualified opinion on the effectiveness of our internal controls. If we cannot produce reliable financial reports, investors may lose confidence in our financial reporting, the price of our common stock could be adversely impacted and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which could negatively impact our business, financial condition, and results of operations.

 

As of the date of filing this prospectus, we currently lack certain internal controls over our financial reporting. While we have six independent directors serving on our Board, have added to our accounting staff, and have hired a Chief Technology Officer, we are still implementing such internal controls at this time. The lack of such controls makes it difficult to ensure that information required to be disclosed in our reports filed and submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported as and when required. 

 

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We cannot assure you that we will be able to develop and implement the necessary internal controls over financial reporting. The absence of such internal controls may inhibit investors from purchasing our shares and may make it more difficult for us to raise debt or equity financing.

 

If we fail to retain current users or add new users, or if our users decrease their level of engagement with the Platform, our business would be seriously harmed. The success of our business heavily depends on the size of our user base and the level of engagement of our users. Thus, our business performance will also become increasingly dependent on our ability to increase levels of user engagement in existing and new markets. We are continuously subject to a highly competitive market in order to attract and retain our users’ attention. A number of factors could negatively affect user retention, growth, and engagement, including if:

 

  users increasingly engage with competing platforms instead of ours;
     
  we fail to introduce new and exciting products and services, or such products and services do not achieve a high level of market acceptance;
     
  we fail to accurately anticipate consumer needs, or we fail to innovate and develop new software and products that meet these needs;
     
  we fail to price our products competitively;
     
  we do not provide a compelling user experience because of the decisions we make regarding the type and frequency of advertisements that we display;
     
  we are unable to combat spam, bugs, malwares, viruses, hacking, or other hostile or inappropriate usage on our products;
     
  there are changes in user sentiment about the quality or usefulness of our existing products in the short-term, long-term, or both;
     
  there are increased user concerns related to privacy and information sharing, safety, or security;
     
  there are adverse changes in our products or services that are mandated by legislation, regulatory authorities, or legal proceedings;
     
  technical or other problems frustrate the user experience, particularly if those problems prevent us from delivering our products in a fast and reliable manner;
     
  we, our Publisher Partners, or other companies in our industry are the subject of adverse media reports or other negative publicity, some of which may be inaccurate or include confidential information that we are unable to correct or retract; or
     
  we fail to maintain our brand image or our reputation is damaged.

 

Any decrease in user retention, growth, or engagement could render our products less attractive to users, advertisers, or our Publisher Partners, thereby reducing our revenues from them, which may have a material and adverse impact on our business, financial condition, and results of operations. In addition, there can be no assurance that we will succeed in developing products and services that eventually become widely accepted, that we will be able to timely release products and services that are commercially viable, or that we will establish ourselves as a successful player in a new business area. Our inability to do so would have an adverse impact on our business, financial condition, and results of operations.

 

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The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed. The digital media industry is fragmented and highly competitive. There are many players in the digital media market, many with greater name recognition and financial resources, which may give them a competitive advantage. Some of our current and potential competitors have substantially greater financial, technical, marketing, distribution, and other resources than we do. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, customer, and user requirements and trends. In addition, our customers and strategic partners may become competitors in the future. Certain of our competitors may be able to negotiate alliances with strategic partners on more favorable terms than we are able to negotiate. Pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of the Platform to achieve or maintain more widespread market acceptance, any of which could adversely affect our revenues and operating results. With the introduction of new technologies, the evolution of the Platform, and new market entrants, we expect competition to intensify in the future.

 

We may have difficulty managing our growth. We have added, and expect to continue to add, Publisher Partner and end-user support capabilities, to continue software development activities, and to expand our administrative operations. In the past two years, we have entered into multiple strategic transactions. These strategic transactions, which have significantly expanded our business, have and are expected to place significant strain on our managerial, operational, and financial resources. To manage any further growth, we will be required to improve existing, and implement new, operational, customer service, and financial systems, procedures and controls and expand, train, and manage our growing employee base. We also will be required to expand our finance, administrative, technical, and operations staff. There can be no assurance that our current and planned personnel, systems, procedures, and controls will be adequate to support our anticipated growth, that management will be able to hire, train, retain, motivate, and manage required personnel or that our management will be able to successfully identify, manage and exploit existing and potential market opportunities. If we are unable to manage growth effectively, our business could be harmed.

 

The strategic relationships that we may be able to develop and on which we may come to rely may not be successful. We will seek to develop strategic relationships with advertising, media, technology, and other companies to enhance the efforts of our market penetration, business development, and advertising sales revenues. These relationships are expected to, but may not, succeed. There can be no assurance that these relationships will develop and mature, or that potential competitors will not develop more substantial relationships with attractive partners. Our inability to successfully implement our strategy of building valuable strategic relationships could harm our business.

 

We rely heavily on our ability to collect and disclose data and metrics in order to attract new advertisers and retain existing advertisers. Any restriction, whether by law, regulation, policy, or other reason, on our ability to collect and disclose data that our advertisers find useful would impede our ability to attract and retain advertisers. Our advertising revenue could be seriously harmed by many other factors, including:

 

  a decrease in the number of active users of the Platform;
     
  our inability to create new products that sustain or increase the value of our advertisements;
     
  our inability to increase the relevance of targeted advertisements shown to users;
     
  adverse legal developments relating to advertising, including changes mandated by legislation, regulation, or litigation; and
     
  difficulty and frustration from advertisers who may need to reformat or change their advertisements to comply with our guidelines.

 

The occurrence of any of these or other factors could result in a reduction in demand for advertisements, which may reduce the prices we receive for our advertisements or cause advertisers to stop advertising with us altogether, either of which would negatively affect our business, financial condition, and results of operations.

 

The sales and payment cycle for online advertising is long, and such sales, which were significantly impacted by the COVID-19 pandemic during 2020 and the beginning of 2021, may not occur when anticipated or at all. The decision process is typically lengthy for brand advertisers and sponsors to commit to online campaigns. Some of their budgets are planned a full year in advance. The COVID-19 pandemic significantly impacted the amount and pricing of advertising throughout the media industry during 2020 and to a lesser extent in 2021. It is still uncertain when and to what extent advertisers will return to pre-pandemic spending levels. The decision process for such purchases, even in normal business situations, is subject to delays and aspects that are beyond our control. In addition, some advertisers and sponsors take months after the campaign runs to pay, and some may not pay at all, or require partial “make-goods” based on performance.

 

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We are dependent on the continued services and on the performance of our key executive officers, management team, and other key personnel, the loss of which could adversely affect our business. Our future success largely depends upon the continued services of our key executive officers, management team, and other key personnel. The loss of the services of any of such key personnel could have a material adverse effect on our business, operating results, and financial condition. We depend on the continued services of our key personnel as they work closely with both our employees and our Publisher Partners. Such key personnel are also responsible for our day-to-day operations. Although we have employment agreements with some of our key personnel, these are at-will employment agreements, albeit with non-competition and confidentiality provisions and other rights typically associated with employment agreements. We do not believe that any of our executive officers are planning to leave or retire in the near term; however, we cannot be certain that our executive officers or members of our management team will remain with us. We also depend on our ability to identify, attract, hire, train, retain, and motivate other highly skilled technical, managerial, sales, operational, business development, and customer service personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate, or retain sufficiently qualified personnel. The loss or limitation of the services of any of our executive officers, members of our management team, or key personnel, including our regional and country managers, or the inability to attract and retain additional qualified key personnel, could have a material adverse effect on our business, financial condition, or results of operations.

 

We are dependent on the continued services and on the performance of key third party content contributors, the loss of which could adversely affect our business. We rely on content contributed by third party providers, which has in turn attracted users that drive advertising and subscription revenue. The loss of the services of any of such key contributors could have a material adverse effect on our business, operating results, and financial condition. Although we have service agreements with some of our key contributors, many are short term in nature or have cancelation clauses in the agreements. We also depend on our ability to identify, attract, and retain other highly skilled third-party content contributors. Competition for such contributors is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain them. The loss or limitation of the services of any of our key third party contributors, or the inability to attract and retain additional qualified key contributors, could have a material adverse effect on our business, financial condition or results of operations.

 

Our revenues could decrease if the Platform does not continue to operate as intended. The Platform performs complex functions and is vulnerable to undetected errors or unforeseen defects that could result in a failure to operate efficiently. There can be no assurance that errors and defects will not be found in current or new products or, if discovered, that we will be able to successfully correct them in a timely manner or at all. The occurrence of errors and defects could result in loss of or delay in revenue, loss of market share, increased development costs, diversion of development resources and injury to our reputation or damage to our efforts to expand brand awareness.

 

Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results. Our growth will depend in part on the ability of our users and Publisher Partners to access the Platform at any time and within an acceptable amount of time. We believe that the Platform is proprietary and we rely on the expertise of members of our engineering, operations, and software development teams for their continued performance. It is possible that the Platform may experience performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing the Platform software simultaneously, denial of service attacks, or other security related incidents. We may not be able to identify the cause or causes of any performance problems within an acceptable period of time. It may be that it will be difficult to maintain and/or improve our performance, especially during peak usage times and as the Platform becomes more complex and our user traffic increases. If the Platform software is unavailable or if our users are unable to access it within a reasonable amount of time, or at all, our business would be negatively affected. Therefore, in the event of any of the factors described above, or certain other failures of our infrastructure, partner or user data may be permanently lost. Moreover, the partnership agreements (“Partnership Agreements”) with our Publisher Partners include service level standards that obligate us to provide credits or termination rights in the event of a significant disruption in the Platform. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be adversely affected.

 

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We operate our exclusive coalition of professional-managed online media channels on third party cloud platforms and data center hosting facilities. We rely on software and services licensed from, and cloud platforms provided by, third parties in order to offer our digital media services. Any errors or defects in third-party software or cloud platforms could result in errors in, or a failure of, our digital media services, which could harm our business. Any damage to, or failure of, these third-party systems generally could result in interruptions in the availability of our digital media services. As a result of this third-party reliance, we may experience the aforementioned issues, which could cause us to render credits or pay penalties, could cause our Publisher Partners to terminate their contractual arrangements with us, and could adversely affect our ability to grow our audience of unique visitors, all of which could reduce our ability to generate revenue. Our business would also be harmed if our users and potential users believe our product and services offerings are unreliable. In the event of damage to, or failure of, these third-party systems, we would need to identify alternative channels for the offering of our digital media services, which would consume substantial resources and may not be effective. We are also subject to certain standard terms and conditions with Amazon Web Services and Google Cloud related to data storage purposes. These providers have broad discretion to change their terms of service and other policies with respect to us, and those changes may be unfavorable to us. Therefore, we believe that maintaining successful partnerships with Amazon Web Services, Google Cloud, and other third-party suppliers is critical to our success.

 

Real or perceived errors, failures, or bugs in the Platform could adversely affect our operating results and growth prospects. Because the Platform is complex, undetected errors, failures, vulnerabilities, or bugs may occur, especially when updates are deployed. Despite testing by us, errors, failures, vulnerabilities, or bugs may not be found in the Platform until after they are deployed to our customers. We expect from time to time to discover software errors, failures, vulnerabilities, and bugs in the Platform and anticipate that certain of these errors, failures, vulnerabilities, and bugs will only be discovered and remediated after deployment to our Publisher Partners and used by subscribers. Real or perceived errors, failures, or bugs in our software could result in negative publicity, loss of or delay in market acceptance of the Platform, loss of competitive position, or claims by our Publisher Partners or subscribers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem.

 

Malware, viruses, hacking attacks, and improper or illegal use of the Platform could harm our business and results of operations. Malware, viruses, and hacking attacks have become more prevalent in our industry and may occur on our systems in the future. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware, or other computer equipment, and the inadvertent transmission of computer viruses could harm our business, financial condition, and operating results. Any failure to detect such attack and maintain performance, reliability, security and availability of products and technical infrastructure to the satisfaction of our users may also seriously harm our reputation and our ability to retain existing users and attract new users.

 

Our information technology systems are susceptible to a growing and evolving threat of cybersecurity risk. Any substantial compromise of our data security, whether externally or internally, or misuse of agent, customer, or employee data, could cause considerable damage to our reputation, cause the public disclosure of confidential information, and result in lost sales, significant costs, and litigation, which would negatively affect our financial position and results of operations. Although we maintain policies and processes surrounding the protection of sensitive data, which we believe to be adequate, there can be no assurances that we will not be subject to such claims in the future.

 

If we are unable to protect our intellectual property rights, our business could suffer. Our success significantly depends on our proprietary technology. We rely on a combination of copyright, trademark and trade secret laws, employee and third-party non-disclosure and invention assignment agreements and other methods to protect our proprietary technology. However, these only afford limited protection, and unauthorized parties may attempt to copy aspects of the Platform’s features and functionality, or to use information that we consider proprietary or confidential. There can be no assurance that the Platform will be protectable by patents, but if they are, any efforts to obtain patent protection that is not successful may harm our business in that others will be able to use our technologies. For example, previous disclosures or activities unknown at present may be uncovered in the future and adversely impact any patent rights that we may obtain. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate or that third parties will not infringe or misappropriate our trademarks, copyrights, and similar proprietary rights. If we resort to legal proceedings to enforce our intellectual property rights, those proceedings could be expensive and time-consuming and could distract our management from our business operations. Our business, profitability and growth prospects could be adversely affected if we fail to receive adequate protection of our proprietary rights.

 

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We could be required to cease certain activities and/or incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights. Some of our competitors, and other third parties, may own technology patents, copyrights, trademarks, trade secrets and website content, which they may use to assert claims against us. We cannot assure you that we will not become subject to claims that we have misappropriated or misused other parties’ intellectual property rights. Any claim or litigation alleging that we have infringed or otherwise violated intellectual property or other rights of third parties, with or without merit, and whether or not settled out of court or determined in our favor, could be time-consuming and costly to address and resolve, and could divert the time and attention of our management and technical personnel.

 

The results of any intellectual property litigation to which we might become a party may require us to do one or more of the following:

 

  cease making, selling, offering, or using technologies or products that incorporate the challenged intellectual property;
     
  make substantial payments for legal fees, settlement payments, or other costs or damages;
     
  obtain a license, which may not be available on reasonable terms, to sell or use the relevant technology; or
     
  redesign technology to avoid infringement.

 

If we are required to make substantial payments or undertake any of the other actions noted above, as a result of any intellectual property infringement claims against us, such payments or costs could have a material adverse effect upon our business and financial results.

 

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including privacy, data protection, and personal information, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, personal information, electronic contracts and other communications, competition, protection of minors, consumer protection, telecommunications, employee classification, product liability, taxation, economic or other trade prohibitions or sanctions, securities law compliance, and online payment services. The collection, use, retention and sharing of personal information by us and our third-party service providers is subject to international, federal, state, and local data privacy, protection and security laws and regulations, which have become increasingly stringent, are rapidly evolving, and are likely to remain uncertain for the foreseeable future. All states have enacted some form of data privacy legislation, including data security and breach notification laws in all 50 states, and some form of regulation regarding the collection, use and disclosure of personal information at the federal level and in several states. These laws are not consistent and compliance in the event of a widespread data breach could be costly. In addition, foreign data protection, privacy, competition, and other laws and regulations can impose different obligations or be more restrictive than those in the United States. Many of these laws and regulations are still evolving and could be interpreted or applied in ways that could limit or harm our business, require us to make certain fundamental and potentially detrimental changes to the products and services we offer, or subject us to claims. For example, laws relating to the liability of providers of online services for activities of their users and other third-parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright, trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. In addition, there have been calls by members of Congress, from both parties, to limit the scope of the current immunities and safe harbors afforded online publishers with regard to user content and communications under the federal Digital Millennium Copyright Act and the federal Communications Decency Act. Any material reduction of those protections would make us more vulnerable to third party claims arising out of user content published by our online services. Finally, the introduction of new products, expansion of our activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations, monetary penalties, or other government scrutiny.

 

United States federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change, which could adversely affect our business. The application, interpretation, and enforcement of federal, state, and foreign laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. Any change in legislation and regulations could affect our business. For example, regulatory or legislative actions affecting the manner in which we display content to our users or obtain consent to various practices could adversely affect user growth and engagement. Such actions could affect the manner in which we provide our services or adversely affect our financial results.

 

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Furthermore, significant penalties could be imposed on us for failure to comply with various statutes or regulations. Violations may result from:

 

  ambiguity in statutes;
     
  regulations and related court decisions;
     
  the discretion afforded to regulatory authorities and courts interpreting and enforcing laws;
     
  new regulations affecting our business; and
     
  changes to, or interpretations of, existing regulations affecting our business.

 

While we prioritize ensuring that our business and compensation model are compliant, and that any product or income related claims are truthful and non-deceptive, we cannot be certain that the Federal Trade Commission (“FTC”) or similar regulatory body in another country will not modify or otherwise amend its guidance, laws, or regulations or interpret them in a way that would render our current practices inconsistent with the same.

 

Our services involve the storage and transmission of digital information; therefore, cybersecurity incidents, including those caused by unintentional errors and those intentionally caused by third parties, may expose us to a risk of loss, unauthorized disclosure or other misuse of this information, litigation liability and regulatory exposure, reputational harm and increased security costs. We and our third-party service providers experience cyber-attacks of varying degrees on a regular basis. We expect to incur significant costs in ongoing efforts to detect and prevent cybersecurity-related incidents and these costs may increase in the event of an actual or perceived data breach or other cybersecurity incident. The COVID-19 pandemic has increased opportunities for cyber-criminals and the risk of potential cybersecurity incidents, as more companies and individuals work online. We cannot ensure that our efforts to prevent cybersecurity incidents will succeed. An actual or perceived breach of our cybersecurity could impact the market perception of the effectiveness of our cybersecurity controls. If our users or business partners, including our Publisher Partners, are harmed by such an incident, they could lose trust and confidence in us, decrease their use of our services or stop using them entirely. We could also incur significant legal and financial exposure, including legal claims, higher transaction fees and regulatory fines and penalties, which in turn could have a material and adverse effect on our business, reputation, and operating results. While our insurance policies include liability coverage for certain of these types of matters, a significant cybersecurity incident could subject us to liability or other damages that exceed our insurance coverage.

 

Prior employers of our employees may assert violations of past employment arrangements. Our employees are highly experienced, having worked in our industry for many years. Prior employers may try to assert that our employees are breaching restrictive covenants and other limitations imposed by past employment arrangements. We believe that all of our employees are free to work for us in their various capacities and have not breached past employment arrangements. Notwithstanding our care in our employment practices, a prior employer may assert a claim. Such claims will be costly to contest, highly disruptive to our work environment, and may be detrimental to our operations.

 

Our products may require availability of components or known technology from third parties and their non-availability can impede our growth. We license/buy certain technology integral to our products from third parties, including open-source and commercially available software. Our inability to acquire and maintain any third-party product licenses or integrate the related third-party products into our products in compliance with license arrangements, could result in delays in product development until equivalent products can be identified, licensed, and integrated. We also expect to require new licenses in the future as our business grows and technology evolves. We cannot provide assurance that these licenses will continue to be available to us on commercially reasonable terms, if at all.

 

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Government regulations may increase our costs of doing business. The adoption or modification of laws or regulations relating to online media, communities, commerce, security, and privacy could harm our business, operating results, and financial condition by increasing our costs and administrative burdens. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, security, libel, consumer protection, and taxation apply. Laws and regulations directly applicable to Internet activities are becoming more diverse and prevalent in all global markets. We must comply with regulations in the United States, as well as any other regulations adopted by other countries where we may do business. The growth and development of Internet content, commerce and communities may prompt calls for more stringent consumer protection laws, privacy laws and data protection laws, both in the United States and abroad, as well as new laws governing the taxation of these activities. Compliance with any newly adopted laws may prove difficult for us and may harm our business, operating results, and financial condition.

 

We may face lawsuits or incur liabilities in the future in connection with our businesses. In the future, we may face lawsuits or incur liabilities in connection with our businesses. For example, we could face claims relating to information that is published or made available on the Platform. In particular, the nature of our business exposes us to claims related to defamation, intellectual property rights and rights of publicity and privacy. We might not be able to monitor or edit a significant portion of the content that appears on the Platform. This risk is enhanced in certain jurisdictions outside the United States where our protection from liability for third-party actions may be unclear and where we may be less protected under local laws than we are in the United States. We could also face fines or orders restricting or blocking our services in particular geographies as a result of content hosted on our services. If any of these events occur, our business could be seriously harmed.

 

RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES

 

You should rely only on statements made in this prospectus in determining whether to purchase our shares. We furnished the Original PowerPoint as Exhibit 99.2 to a Current Report on Form 8-K and Current Report on Form 8-K/A filed on January 31, 2022, and February 1, 2022, respectively. As described in the risk factor below, the Original PowerPoint may have constituted the communication of an “offer to buy or sell” in potential violation of Section 5 of the Securities Act. The Original PowerPoint did not contain complete information regarding us, including a discussion of various risks and uncertainties regarding an investment in us, described in this prospectus. As a result, we have included the Revised PowerPoint as an appendix to this prospectus. You should make your investment decision only after reading this entire prospectus carefully. The information in this prospectus clarifies, supersedes, and replaces the information set forth in the Original PowerPoint.

 

We may have contingent liability arising out of a possible violation of the Securities Act, in connection with the Original PowerPoint which we furnished as Exhibit 99.2 to our Current Report on Form 8-K, and the Current Report on Form 8-K/A, filed with the Commission on January 31, 2022, and February 1, 2022, respectively. On January 31, 2022, and February 1, 2022, we furnished, as Exhibit 99.2 to a Current Report on Form 8-K, and a Form 8-K/A, respectively, a copy of the Original PowerPoint. The furnishing of the Original PowerPoint publicly may have constituted the communication of an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the Original PowerPoint may be deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act.

 

If the Original PowerPoint is proven to be a violation of Section 5 of the Securities Act because it is deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, we could have a contingent liability arising out of such violation. Any liability would depend upon the number of shares purchased by the “recipients” of the Original PowerPoint that may have constituted a violation of Section 5 of the Securities Act. If a claim were brought by any such recipients of the Original PowerPoint and a court were to conclude that the public dissemination of such Original PowerPoint constituted a violation of Section 5 of the Securities Act, we could be required to repurchase the shares sold to investors who reviewed such Original PowerPoint, at the original purchase price, plus statutory interest from the date of purchase, for claims brought during a period of one year from the date of their purchase of our common stock. We could also incur considerable expense in contesting any such claims. Further, if our use of the Original PowerPoint is deemed to be a violation of Section 5 of the Securities Act, the Commission and/or relevant state regulators could impose monetary fines or other sanctions under relevant federal and state securities laws. Such payments, expenses, and fines, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, or force us to raise additional funding, which funding may not be available on favorable terms, if at all. Additionally, the value of our securities will likely decline in value in the event we are deemed to have liability, or are required to make payments, pay expenses, or face sanctions in connection with the potential claim described above.

 

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We are subject to the reporting requirements of the United States securities laws, which will require expenditure of capital and other resources, and may divert management’s attention. We are a public reporting company subject to the information and reporting requirements of the Exchange Act, the Sarbanes-Oxley Act (“Sarbanes”), and other applicable securities rules and regulations. Complying with these rules and regulations have caused us and will continue to cause us to incur additional legal and financial compliance costs, make some activities more difficult, be time-consuming or costly, and continue to increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The cost of maintaining current financial reporting has been, and will continue to be, a financial burden for us. If we fail to or are unable to comply with Sarbanes, we will not be able to obtain independent accountant certifications that Sarbanes requires publicly traded companies to obtain. Further, by complying with public disclosure requirements, our business and financial condition are more visible, which we believe may result in the likelihood of increased threatened or actual litigation, including by competitors and other third parties. Compliance with these additional requirements may also divert management’s attention from operating our business. Any of these may adversely affect our operating results.

 

Our common stock is listed on the NYSE American, there is no assurance that we will be able to maintain compliance with the NYSE American’s continued listing standards. Our common stock is listed on the NYSE American. In order to maintain that listing, we must satisfy minimum financial and other continued listing standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with such applicable continued listing standards. Assuming we are able to maintain such listing, security analysts and major brokerage houses may not provide coverage of us. We may also not be able to attract any brokerage houses to conduct secondary offerings with respect to our securities. Neither we nor the Underwriter can provide any assurance that an active and liquid trading market in our securities will develop or, if developed, that such markets will continue.

 

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We effected the Reverse Stock Split of our outstanding common stock prior to the effective date of the registration statement of which this prospectus forms a part. The Reverse Stock Split increased the market price of our common stock and enabled us to meet the minimum market price requirement of the listing rules of the NYSE American. However, the effect of the Reverse Stock Split upon the market price of our common stock cannot be predicted with certainty, and the results of reverse stock splits by companies in similar circumstances have been varied. It is possible that the market price of our common stock following the Reverse Stock Split will not increase sufficiently for us to be in compliance with the minimum market price requirement of the NYSE American, or another national securities exchange, or if it does, that such price will be sustained. If we are unable to maintain our stock price such that it falls below the minimum stock price required by the NYSE American, our shares may be delisted.

 

We may be unable to comply with other continued listing standards of the NYSE American, or another national securities exchange. Our common stock is newly listed on the NYSE American. We cannot assure you that we will be able to continue to comply with the other standards that we are required to meet to maintain a listing of our common stock on the NYSE American. Our failure to meet the NYSE American’s continue listing requirements may result in our common stock being delisted from the NYSE American, or another national securities exchange.

 

The Reverse Stock Split may decrease the liquidity of the shares of our common stock. The liquidity of the shares of our common stock may be affected adversely by the Reverse Stock Split given the reduced number of shares that are outstanding following the Reverse Stock Split. In addition, the Reverse Stock Split may increase the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

 

Our Board is authorized to issue additional shares of our common stock that would dilute existing stockholders. We are authorized to issue up to 1,000,000,000 shares of our common stock and 1,000,000 shares of preferred stock, par value $0.01 per share (our “Preferred Stock”) of which 13,153,197 shares of our common stock and 15,234 shares of our Preferred Stock, consisting of 15,066 shares of Series H Preferred Stock and approximately 168 shares of Series G Preferred Stock are issued and outstanding as of February 10, 2022. The number of shares of our common stock issued and outstanding as of February 10, 2022 excludes 5,575,108 shares of our common stock issuable upon exercise of outstanding option awards, 1,870,862 shares of our common stock either (i) that are vested and to be issued or (ii) issuable upon vesting of restricted stock units, 1,150,063 shares of our common stock issuable upon exercise of outstanding warrants, 2,075,684 shares of our common stock issuable upon conversion of Series H Preferred Stock, 8,582 shares of our common stock issuable upon conversion of Series G Preferred Stock, 144,565 shares of our common stock reserved for issuance under the 2016 Plan, 1,286,083 shares of our common stock reserved for issuance under the 2019 Plan, 49,134 shares of our common stock held in reserve to be issued pursuant to completion of documentation related to transactions from 2018, and 14,619 shares of our common stock to be issued pursuant to various agreements. The number of shares of our common stock outstanding prior to this offering includes 194,806 shares of our common stock issued pursuant to restricted stock awards that remain subject to forfeiture. We expect to seek additional financing in order to provide working capital to our business in the future. Our Board has the power to issue any or all such authorized but unissued shares of our common stock at any price and, in respect of our Preferred Stock, at any price and with any attributes our Board considers sufficient, without stockholder approval. The issuance of additional shares of our common stock in the future will reduce the proportionate ownership and voting power of current stockholders and may negatively impact the market price of our common stock.

 

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We may issue additional securities with rights superior to those of our common stock, which could materially limit the ownership rights of our stockholders. We may offer additional debt or equity securities in private and/or public offerings in order to raise working capital or to refinance our debt. Our Board has the right to determine the terms and rights of any debt securities and Preferred Stock without obtaining the approval of our stockholders. It is possible that any debt securities or Preferred Stock that we sell would have terms and rights superior to those of our common stock and may be convertible into shares of our common stock. Any sale of securities could adversely affect the interests or voting rights of the holders of our common stock, result in substantial dilution to existing stockholders, or adversely affect the market price of our common stock.

 

The elimination of monetary liability against our directors, officers, and employees under Delaware law and the existence of indemnification rights for our obligations to our directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees. Our Amended and Restated Certificate of Incorporation, as amended (our “Certificate of Incorporation”), and our Second Amended and Restated Bylaws (our “Bylaws”) contain provisions permitting us to eliminate the personal liability of our directors and officers to us and our stockholders for damages for the breach of a fiduciary duty as a director or officer to the extent provided by Delaware law. We may also have contractual indemnification obligations under any future employment agreements with our officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even through such actions, if successful, might otherwise benefit us and our stockholders.

 

Because we are a “smaller reporting company,” we will not be required to comply with certain disclosure requirements that are applicable to other public companies and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors. We are a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. As a smaller reporting company, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not smaller reporting companies, including, but not limited to:

 

  reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements;
  not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002; and
  reduced disclosure obligations for our annual and quarterly reports, proxy statements, and registration statements.

 

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We will remain a smaller reporting company until the end of the fiscal year in which (1) we have a public common equity float of more than $250 million, or (2) we have annual revenues for the most recently completed fiscal year of more than $100 million plus we have any public common equity float or public float of more than $700 million. We also would not be eligible for status as smaller reporting company if we become an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company.

 

Sales by our stockholders of a substantial number of shares of our common stock in the public market could adversely affect the market price of our common stock. A substantial portion of the total outstanding shares of our common stock may be sold into the market at any time. Some of these shares are owned by our executive officers and directors, and we believe that such holders have no current intention to sell a significant number of shares of our stock. If all of the major stockholders were to decide to sell large amounts of stock over a short period of time, such sales could cause the market price of our common stock to drop significantly, even if our businesses were doing well.

 

Provisions in our Certificate of Incorporation and Bylaws and Delaware law may discourage a takeover attempt even if a takeover might be beneficial to our stockholders. Provisions contained in our Certificate of Incorporation and Bylaws could make it more difficult for a third party to acquire us. Provisions in our Certificate of Incorporation and Bylaws impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. For example, our Certificate of Incorporation authorizes our Board to determine the rights, preferences, privileges, and restrictions of unissued series of our Preferred Stock without any vote or action by our stockholders. Thus, our Board can authorize and issue shares of our Preferred Stock with voting or conversion rights that could dilute the voting power of holders of other series of our capital stock. These rights may have the effect of delaying or deterring a change of control of us. Additionally, our Certificate of Incorporation and/or Bylaws establish limitations on the removal of directors and include advance notice requirements for nominations for election to our Board and for proposing matters that can be acted upon at stockholder meetings.

 

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which prohibits an “interested stockholder” owning in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which such stockholder acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. See “Description of Securities – Certain Provisions of our Certificate of Incorporation, our Bylaws, and the DGCL.” These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.

 

The terms of our Rights Agreement, dated May 4, 2021 (the “Rights Agreement”) and Series L Junior Participating Preferred Stock may discourage a takeover attempt even if a takeover might be beneficial to our stockholders. Features of our Rights Agreement will make it difficult for a party to acquire control of our Company in a transaction not approved by our Board. On May 4, 2021, we adopted a Rights Agreement, which provided for a dividend distribution of a right to purchase from us one-thousandth of a share of our Series L Junior Participating Preferred Stock for: (i) each outstanding share of our common stock and (ii) each share of our common stock issuable upon conversion of each share of our Series H Preferred Stock. The description of such rights is set forth in the Rights Agreement, between America Stock Transfer & Trust Company, LLC, as Rights Agent, and us. The Rights Agreement is set to expire on May 3, 2022; however, our Board may elect to extend the termination date at any time, subject to ratification by our stockholders. See “Description of Securities – Rights Agreement and Series L Junior Participating Preferred Stock.” This Rights Agreement could limit the price that certain investors might be willing to pay in the future for shares of our common stock.

 

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Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us. Our Certificate of Incorporation provides that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. In addition, Section 145 of the DGCL or our Certificate of Incorporation provides that:

 

  We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful.
  We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.
  We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
  The rights conferred in our Certificate of Incorporation are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees, and agents and to obtain insurance to indemnify such persons.
  We may not retroactively amend our Certificate of Incorporation or indemnification agreement, if any, to reduce our indemnification obligations to directors, officers, employees, and agents.

 

Risks Related to the Proposed Acquisition

 

If we fail to raise sufficient net proceeds from this offering to fund the anticipated cash portion purchase price, and cannot obtain alternative sources of financing, we will be unable to consummate the Proposed Acquisition. If we are unable to raise sufficient funds from this offering, we will need to seek alternative sources of financing to fund the anticipated purchase price. We may not be able to obtain alternative sources of financing sufficient to fund the purchase price on terms acceptable to us, if at all. If we are unable to obtain sufficient financing, we may be unable to pursue and, ultimately, consummate the Proposed Acquisition. See “The Proposed Acquisition,” above.

 

Cash expenditures associated with the Proposed Acquisition may create significant liquidity and cash flow risks for us. We expect to incur significant transaction costs and some integration costs in connection with the Proposed Acquisition. While we have assumed that this level of expense will be incurred, there are many factors beyond our control that could affect the total amount or the timing of the Proposed Acquisition and integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. To the extent these Proposed Acquisition and integration expenses are higher than anticipated, we may experience liquidity or cash flow issues.

 

Failure to complete the Proposed Acquisition could materially and adversely affect our results of operations and the market price of our common stock. Our consummation of the Proposed Acquisition is subject to many contingences and conditions, including the negotiation, execution, and delivery of the definitive agreements necessary to consummate the Proposed Acquisition, and raising the financing required to pay the anticipated cash portion of the purchase price. We cannot assure you that we will be able to successfully consummate the Proposed Acquisition as currently contemplated or at all. Risks related to the failure of the Proposed Acquisition to be consummated include, but are not limited to, the following:

 

  we would not realize any of the potential benefits of the transaction, which could have a negative effect on our stock price;
     
  we expect to incur, and have incurred, significant fees and expenses regardless of whether the Proposed Acquisition is consummated, including due diligence fees and expenses and legal fees and expenses;
     
  we may experience negative reactions to the Proposed Acquisition from customers, clients, business partners, lenders, and employees;
     
  the trading price of our common stock may decline to the extent that the current market price of our stock reflects a market assumption that Proposed Acquisition will be completed; and
     
  the attention of our management may be diverted to the Proposed Acquisition rather than to our own operations and the pursuit of other opportunities that could have been beneficial to us.

 

The occurrence of any of these events individually or in combination could materially and adversely affect our results of operations and the market price of our common stock.

 

If the Proposed Acquisition is consummated, the combined company may not perform as we or the market expects, which could have an adverse effect on the price of our common stock. Even if the Proposed Acquisition is consummated, the combined company may not perform as we or the market expects. Risks associated with the combined company following the Proposed Acquisition include:

 

  integrating businesses is a difficult, expensive, and time-consuming process, and the failure to integrate successfully our businesses with the business of Athlon in the expected time frame would adversely affect our financial condition and results of operations;
     
  the Proposed Acquisition will materially increase the size of our operations, and, if we are not able to manage our expanded operations effectively, our common stock price may be adversely affected;
     
  it is possible that certain key employees of the Athlon might decide not to remain with us after the Proposed Acquisition is completed, and the loss of such personnel could have a material adverse effect on the financial condition, results of operations, and growth prospects of the combined company; and
     
  the success of the combined company will also depend upon relationships with third parties and Athlon’s or our pre-existing customers, which relationships may be affected by customer preferences or public attitudes about the Proposed Acquisition. Any adverse changes in these relationships could adversely affect the combined company’s business, financial condition, and results of operations.

 

The obligations and liabilities of Athlon, some of which may be unanticipated or unknown, may be greater than we have anticipated, which may diminish the value of Athlon to us.

 

Athlon’s obligations and liabilities, some of which may not have been disclosed to us or may not be reflected or reserved for in Athlon’s historical financial statements, may be greater than we have anticipated. The obligations and liabilities of Athlon could have a material adverse effect on Athlon’s business or Athlon’s value to us or on our business, financial condition, or results of operations. Even in cases where we are able to obtain indemnification, we may discover liabilities greater than the contractual limits or the financial resources of the indemnifying party. In the event that we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification or alternative remedies that might be available to us, or any applicable insurance, we could suffer severe consequences that would substantially reduce our earnings and cash flows or otherwise materially and adversely affect our business, financial condition, or results of operations.

 

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USE OF PROCEEDS

 

We estimate that the net proceeds from our issuance and sale of 3,636,364 shares of our common stock in this offering will be approximately $26.9 million, or approximately $31.1 million if the Underwriter exercises its option to purchase additional shares in full, at an offering price of $8.25 per share after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

We currently intend to use the net proceeds from the sale of shares under this prospectus to fund the initial $10.0 million cash portion of the purchase price of the acquisition of Athlon and for our working capital and general corporate purposes.

 

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition, which could change in the future as our plans and business conditions evolve. As of the date of this prospectus, we cannot specify with certainty all of the particular uses of the proceeds from this offering. Accordingly, we will retain broad discretion over the use of such proceeds.

 

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MARKET PRICE AND DIVIDEND INFORMATION

 

Market Information

 

Beginning on December 1, 2016, until September 20, 2021, our common stock was quoted on the OTCM’s Pink Open Market trading under the symbol “MVEN.” Beginning on September 21, 2021, until February 8, 2022, our common stock was quoted on the OTCM’s OTCQX. Beginning on February 9, 2022, our common stock began to be traded on the NYSE American under the symbol “AREN.”

 

The following table sets forth the high and low bid prices during the periods indicated, as reported by the  OTCM (or, beginning on February 9, 2022, the NYSE American). Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Prices in the table below have been presented to reflect the Reverse Stock Split of our outstanding shares of common stock.

 

    Post-Reverse  
    High     Low  
2022                
First Quarter(1)   $ 15.40     $ 7.50  
2021                
First Quarter   $ 66.00     $ 9.24  
Second Quarter   $ 22.88     $ 12.32  
Third Quarter   $ 17.82     $ 6.60  
Fourth Quarter   $ 17.60     $ 6.82  
2020                
First Quarter   $ 21.78     $ 6.82  
Second Quarter   $ 17.60     $ 6.60  
Third Quarter   $ 24.64     $ 11.00  
Fourth Quarter   $ 19.80     $ 11.00  
2019                
First Quarter   $ 16.50     $ 8.80  
Second Quarter   $ 15.40     $ 8.14  
Third Quarter   $ 22.00     $ 11.00  
Fourth Quarter   $ 20.68     $ 12.32  

 

(1)As of February 10, 2022.

 

Holders

 

As of February 10, 2022, there were approximately 269 holders of record of our common stock. We believe that there are additional holders of our common stock who have their stock in “street name” with their brokers. Currently, we cannot determine the approximate number of those street name holders. As of such date, 13,153,197 shares of our common stock were issued and outstanding.

 

Dividends

 

We have never paid cash dividends on our common stock, and our present policy is to retain any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board.

 

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CAPITALIZATION

 

The following table sets forth our capitalization assumed as of September 30, 2021:

 

  On an actual basis;
     
  On a pro forma basis, giving effect to this offering of 3,636,364 shares of our common stock at a public offering price of $8.25 per share, after deducting the estimated underwriting discounts and commissions, and estimated offering expenses payable to us; and
     
  On a pro forma as-adjusted basis, giving effect to this offering of 3,636,364 shares of our common stock at a public offering price of $8.25 per share, after deducting the estimated underwriting discounts and commissions, and estimated offering expenses payable by us, and after giving effect to the proposed acquisition of Athlon as follows: (i) the cash portion of the purchase price due at closing, or $10.0 million; (ii) the equity portion of the purchase price due at closing, or $3.0 million in shares of our common stock based on the average closing price for the 10 trading days before the closing (or, as of September 30, 2021, an assumed price of $11.22 per share; and (iii) the estimated acquisition related expenses.

 

The as-adjusted information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited financial statements and the related notes appearing elsewhere in this prospectus.

 

  

As of September 30, 2021

 
  

Actual

(unaudited)

  

Pro Forma

(unaudited)

  

Pro Forma

As Adjusted

(unaudited)

 
Cash and Cash Equivalents  $8,227,840   $35,166,829   $24,716,821 
Total Liabilities   219,456,970    219,456,970    219,456,970 
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   168,496    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; $19,546,000; Series H shares issued and outstanding: 19,546; common shares issuable upon conversion: 59,243,926 at September 30, 2021   18,197,496    18,197,496    18,197,496 
Total Mezzanine Equity   18,365,992    18,365,992    18,365,992 
Stockholders’ Deficit               
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 264,246,777 shares at September 30, 2021   2,642,467    2,678,831    2,681,505 
Common stock to be issued   10,809    10,809    10,809 
Additional paid-in capital   182,787,419    209,690,044    212,687,362 
Accumulated deficit   (233,099,803)   (233,099,803)   (233,549,803)
Total Stockholders’ Deficit   (47,659,108)   (20,720,119)   (18,170,127)
Total Capitalization and Indebtedness  $190,163,854   $217,102,843   $219,652,835 

 

The number of shares of our common stock is based on 12,011,218 shares of our common stock outstanding as of September 30, 2021, and excludes as of such date: (i) 5,670,428 shares of our common stock underlying outstanding stock options; (ii) 125,989 shares of our common stock reserved for issuance under the 2016 Plan; (iii) 1,282,609 shares of our common stock reserved for issuance under the 2019 Plan; (iv) 2,692,906 of our common stock issuable upon the conversion of the Series H Preferred Stock; (v) 8,582 shares of our common stock issuable upon the conversion of the Series G Preferred Stock; (vi) 1,157,225 shares of our common stock issuable upon the exercise of outstanding warrants; (viii) 49,134 shares of our common stock held in reserve to be issued pursuant to completion of documentation related to transactions from 2018; and (ix) 1,814,043 shares of our common stock issuable upon vesting of outstanding restricted stock units. The number of shares of our common stock outstanding prior to this offering includes 203,982 shares of our common stock issued pursuant to restricted stock awards that remain subject to forfeiture.

 

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DILUTION

 

If you invest in our shares of common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the as-adjusted net tangible book value per share of our common stock after this offering.

 

Our historical net tangible book deficit as of September 30, 2021, was $120,033,500, or approximately $9.99 per share of our common stock. Historical net tangible book deficit per share represents the amount of our total tangible assets less total liabilities, divided by the number of our shares of our common stock outstanding as of September 30, 2021.

 

After giving effect to the issuance and sale of 3,636,364 shares of our common stock in this offering at an assumed public offering price of $8.25 per share, the last reported sale price of our common stock on February 10, 2022, and after deducting the underwriting discounts and commissions, and estimated offering expenses payable by us, our as-adjusted net tangible book value as of September 30, 2021 would have been $93,094,511, or $5.95 per share. This represents an immediate decrease in net tangible book value per share of $4.04 to existing stockholder and immediate dilution of $14.20 per share to new investors in this offering. Dilution per share to new investors is determined by subtracting (i) the pro forma net tangible book value per share as of September 30, 2021, after this offering from (ii) the assumed public offering price per share paid by new investors. The following table illustrates this dilution on a per-share basis:

 

Assumed public offering price per share paid by new investors           $ 8.25  
Less:                
Historical net tangible book deficit per share as of September 30, 2021, before this offering   $ 9.99          
Decrease in pro forma net tangible book deficit per share attributable to new investors participating in this offering   $ (4.04 )        
Pro forma net tangible book deficit per share as of September 30, 2021, after this offering           $ 5.95
Dilution per share to new investors in this offering           $ 14.20  

 

If the Underwriter exercises its option to purchase additional shares of our common stock in full, the net tangible book value per share after this offering would be $5.49 per share, the increase in net tangible book value per share to existing stockholders would be $4.50 per share, and the dilution to new investors purchasing shares in this offering would be $13.74 per share.

 

The information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering, as determined between us and the Underwriter at pricing.

 

The number of shares of our common stock shown above to be outstanding after this offering is based on 12,011,218 shares outstanding as of September 30, 2021, and excludes:

 

  5,670,428 shares of our common stock underlying outstanding stock options as of September 30, 2021, with a weighted-average exercise price of $15.32 per share;
     
  1,282,609 shares of our common stock reserved for issuance under the 2019 Plan as of September 30, 2021;
     
  125,989 shares of our common stock reserved for issuance under the 2016 Plan as of September 30, 2021;
     
  2,692,906 shares of our common stock issuable upon the conversion of the Series H Preferred Stock outstanding as of September 30, 2021;
     
  8,582 shares of our common stock issuable upon the conversion of the Series G Preferred Stock outstanding as of September 30, 2021;
     
  1,157,225 shares of our common stock issuable upon the exercise of outstanding warrants outstanding as of September 30, 2021, with a weighted-average exercise price of $10.11  per share;
     
  1,814,043 shares of our common stock issuable upon vesting of outstanding restricted stock units as of September 30, 2021;
     
  49,134 shares of our common stock held in reserve to be issued pursuant to completion of documentation related to transactions from 2018 as of September 30, 2021; and
     
  545,454 shares of our common stock issuable upon exercise of the Underwriter’s option to purchase additional shares granted in connection with this offering.

 

To the extent that these outstanding options or warrants are exercised, the Series H Preferred Stock or Series G Preferred Stock are converted, or we issue additional shares of our common stock in the future, whether pursuant to the 2019 Plan or 2016 Plan, pursuant to outstanding restricted stock unit awards or stock options, pursuant to exercises of outstanding warrants, or otherwise, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in future dilution to our stockholders.

 

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BUSINESS

 

General

 

We are a data-driven media company that focuses on building deep content verticals powered by a best-in-class digital media platform empowering premium publishers who impact, inform, educate, and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports and finance) and where we can leverage the strength of our core brands to grow our audience and monetization both within our core brands as well as our Publisher Partners. Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize the audience, improve engagement and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our 35 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated, own and operate TheStreet and The Spun, and power more than 200 independent Publisher Partners, including Biography, History, and the many sports team sites that comprise FanNation, among others. Each Publisher Partner joins the Platform by invitation-only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization (SEO), social media, subscription marketing and ad monetization, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While they benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management. In addition, they benefit from recirculation across our Platform, which, according to Comscore, currently reaches approximately 140 million users, as well as syndication to more than 25 third-party sites. During 2021, we added more than 40 new Publisher Partners and had an aggregate of 4.1 billion page views across our Platform.

 

Corporate History

 

We were originally incorporated in Delaware as Integrated in 1990. On October 11, 2016, Integrated and Maven Network entered into the Share Exchange Agreement, whereby the stockholders of Maven Network agreed to exchange all of the then-issued and outstanding shares of common stock for shares of common stock of Integrated. On November 4, 2016, the parties consummated a recapitalization pursuant to the Share Exchange Agreement and, as a result, Maven Network became a wholly owned subsidiary of Integrated. Integrated changed its name to theMaven, Inc. on December 2, 2016.

 

In 2018, we acquired HubPages and Say Media. In 2019, we acquired TheStreet. Also, in 2019, we entered into the Sports Illustrated Licensing Agreement with ABG, pursuant to which we have the exclusive right and license in the United States, Canada, Mexico, United Kingdom, Republic of Ireland, Australia, and New Zealand to operate the Sports Illustrated media business (in the English and Spanish languages), including to (i) operate the digital and print editions of Sports Illustrated (including all special interest issues and the swimsuit issue) and Sports Illustrated for Kids, (ii) develop new digital media channels under the Sports Illustrated brands, and (iii) operate certain related businesses, including without limitation, special interest publications, video channels, bookazines, and the licensing and/or syndication of certain products and content under the Sports Illustrated brand.

 

In 2020, we acquired substantially all the assets of Petametrics Inc., doing business as LiftIgniter, a Delaware corporation (“LiftIgniter”). In 2021, we acquired all of the issued and outstanding shares of capital stock of The Spun.

 

On September 20, 2021, we re-branded to “The Arena Group.”

 

The Platform

 

We developed the Platform, a proprietary online publishing platform that provides our owned and operated media businesses, Publisher Partners, who are third parties producing and publishing content on their own domains, and individual creators contributing content to our owned and operated sites (“Expert Contributors”), the ability to produce and manage editorially focused content through tools and services provided by us. We have also developed proprietary advertising technology, techniques and relationships that allow us, our Publisher Partners and Expert Contributors to monetize online, editorially focused content through various display and video advertisements and tools and services for driving a subscription or membership based business and other monetization services (the “Monetization Solutions” and, together with the Platform, the “Platform Services”). Our Platform offers audiences bespoke content with optimized design and page construction. During the fourth quarter of 2021, the digital audience on our Platform grew by approximately 71%, as compared to the fourth quarter of 2020, based on data from Comscore, primarily due to our search engine optimization, social distribution, and our in-content recommendations. The number of monthly average unique users with respect to our sports vertical, according to Comscore increased by 104% in 2021, compared to 2020.

 

27

 

 

The Platform comprises state-of-the-art publishing tools, video platforms, social distribution channels, newsletter technology, machine learning content recommendations, notifications, and other technology that deliver a complete set of features to drive a digital media business in an entirely cloud-based suite of services. Our software engineering and product development teams are experienced at delivering these services at scale. We continue to develop the Platform software by combining proprietary code with components from the open-source community, plus select commercial services as well as identifying, acquiring, and integrating other platform technologies, where we see unique long-term benefits to us.

 

The Platform Services include:

 

  1. Content management, machine learning driven content recommendations, traffic redistribution, hosting and bandwidth;
     
  2. Video publishing, hosting, and player solution via an integrated set of third-party providers;
     
  3. Dashboards for our Publisher Partners as well as integration with leading analytics services like Google Analytics;
     
  4. Digital subscriptions and membership with paywalls, exclusive member access, and metering, credit card processing and reporting;
     
  5. User account management;
     
  6. User account migration to platform, including emails and membership data;
     
  7. Technical support team to train and support our Publisher Partners and staff (if applicable) on the Platform;
     
  8. Advertising serving, trafficking/insertion orders, yield management, and reporting and collection;
     
  9. Dedicated customer service and sales center to assist our Publisher Partners with customer support, sign-ups, cancellations, and “saves;”
     
  10. Services for maintaining evergreen content to Expert Contributors;
     
  11. Various syndication integrations (e.g., Apple News, Facebook Instant Articles, Google AMP, Google news and RSS feeds);
     
  12. Structured data objects (i.e., structured elements such as recipes or products); and
     
  13. Other features, as they may be added to the Platform from time to time.

 

Our Platform partners use the Platform Services to produce, manage, host and monetize their content in accordance with the terms and conditions of partner agreements between each of our Publisher Partners and us (the “Partnership Agreements”). Our Publisher Partners incur the costs with respect to creating their content; thus, not requiring capital expenditures by us. Pursuant to the Partnership Agreements, we and our Publisher Partners split revenue generated from the Platform Services used in connection with the Publisher Partner’s content based on certain metrics such as whether the revenue was from direct sales, was generated by our Publisher Partner or us, was generated in connection with a subscription or a membership, was based on standalone or bundled subscriptions or whether the revenue was derived from affiliate links.

 

28

 

 

Subject to the terms and conditions of each Partnership Agreement and in exchange for the Platform Services, our Publisher Partners grant us, for so long as our Publisher Partner’s assets are hosted on the Platform, (i) exclusive control of ads.txt with respect to our Publisher Partner’s domains and (ii) the exclusive right to include our Publisher Partner’s website domains and related URLs in our coalition in a consolidated listing assembled by third party measurement companies such as comScore, Nielsen and/or other similar measuring services selected by us. As such, the Platform serves as the primary digital media and social platform with respect to each of our Publisher Partners’ website domains during the applicable term of each Partnership Agreement.

 

Our Brands and Growth Strategy

 

Our business model is to grow our Platform audience while striving to diversify revenue and drive gross margin through traditional media brands as well as new digital-first brands. We believe our vertical model allows us and our partners to leverage audience growth, technological efficiencies and cost savings across all of our brands. Our vertical model consists of (i) acquiring and/or partnering with powerful brands that can offer our audience bespoke content and domain authority, (ii) forming key strategic partnerships with like-minded partners of high quality content, (iii) partnering with entrepreneurial publishers to drive local content at variable cost tied to performance, and (iv) growing our Publisher Partners on our network to expand our content offerings and add scale to the ecosystem. While projections are subject to a high degree of risk and uncertainty, we believe that in the long-term, pursuing these strategies would yield growth in our digital revenue of between 30% and 40%, which could help improve gross profit margins to in excess of 50%. There can be no assurances as to whether we can achieve this digital revenue growth and gross profit margin, or, if so, the timing of such achievements. In late 2021, both Sports Illustrated and TheStreet increased its focus on producing data-driven breaking and trending news packaged specifically for Facebook News. During the fourth quarter of 2021, Sports Illustrated experienced its highest social traffic, substantially increasing its social page views as compared to the third quarter of 2021.

 

Our growth strategy is to continue to expand the coalition by adding new Publisher Partners in key verticals that management believes will expand the scale of unique users interacting on the Platform. In each vertical, we seek to build around a leading brand, such as Sports Illustrated (for sports) and TheStreet (for finance), surround it with subcategory specialists, and further enhance coverage with individual expert contributors. The primary means of expansion is adding independent Publisher Partners and/or acquiring publishers that have premium branded content and can broaden the reach and impact of the Platform. As our digital  revenue and gross margin grows, we believe we can further accelerate our growth. Specifically, our 2022 growth initiatives include: (i) increasing syndication of the content on our Platform through the re-publishing the content on third-party websites, (ii) offering of podcasts and e-commerce through our Platform, (iii) growing Sports Illustrated sportsbook (“SI Sportsbook”), (iv) acquiring and/or developing new verticals for our users, and (v) continuing to identify and partner with new Publisher Partners.

 

The Arena Group

 

We operate a best-in-class digital media platform empowering premium publishers who impact, inform, educate, and entertain. We operate the media businesses for Sports Illustrated and TheStreet, and power more than 200 independent brands, including Biography, History, and the many team sports sites that comprise FanNation, among others. These brands range from niche media businesses to world-leading independent publishers, operating on the Platform, a shared digital publishing, monetization, and distribution platform.

 

Sports Illustrated

 

We assumed management of certain Sports Illustrated media assets (pursuant to the Sports Illustrated License Agreement) on October 4, 2019. Sports Illustrated is owned by ABG, a brand development, marketing, and entertainment company that owns a global portfolio of media, entertainment, and lifestyle brands. Since assuming management of the Sports Illustrated media assets, we have implemented significant changes to rebuild the historic brand and beacon of sports journalism, to evolve and expand the business, and to position it for growth and continued success going forward.

 

SI Sportsbook was launched in 2021 in Colorado. We provide the content for SI Sportsbook and our partner, 888, one of the world’s leading online betting and gaming companies, provides the gambling engine.   The SI Sportsbook covers the NFL, CFB, NCAAMB, MLB, NBA, NHA, PGA, Horse Racing, UCF, Boxing. The content we provide includes: (i) Sports Illustrated winners club newsletter, live NFL pre-game show and twitter spaces, (ii) 50,000 NFL and CFB game betting previews and player props, (iii) five new betting articles series, and (iv) four new video on-demand betting series. SI Sportsbook intends to expand into 10 more markets by the end of 2023.

 

We have added more than 47 million unique users since we assumed management of certain Sports Illustrated media assets   Our monthly average unique users grew by approximately 217% during the fourth quarter of 2021, compared to the fourth quarter of 2020 based on data from Comscore and our video views grew by approximately 274% during the fourth quarter of 2021, compared to the fourth quarter of 2020. Our social traffic to the Sports Illustrated website grew by approximately 186% during the fourth quarter of 2021, compared to the fourth quarter of 2020. Our page views on the Sports Illustrated website grew to 193.4 million, or 121%, in the fourth quarter of 2021 compared to $87.5 million in the fourth quarter of 2020. All of these factors contributed to Sports Illustrated’s total digital advertising revenue in the fourth quarter of 2021 increasing 194% compared to the fourth quarter of 2020.

 

Sports Illustrated moved up to number 5 in Comscore’s Sports Ranking for 2021, compared to number 10 for 2020.  In addition, according to Crowdtangle, Sports Illustrated ranked number one “share of voice on Facebook” among sports publishers for linked stories, compared to its previous ranking of between six and twelve.

 

With respect to SI Swim, we have continued to transition it to a female-focused lifestyle brand, with the annual content release in July 2021. We increased revenue from SI Swim to $11.2 million, or 133%, during 2021 as compared to $4.8 million in 2020, primarily through increasing our star talent featured in the SI Swim annual content, and increasing diversity. With respect to our fan-facing event to celebrate our annual content release and ongoing digital sponsorships, we partnered with Hard Rock, Diageo, and Vita Coco.

 

TheStreet

 

TheStreet is a leading financial news and information provider to investors and institutions worldwide and has produced business news and market analysis for individual investors. TheStreet brings its editorial tradition, strong subscription platform, and valuable membership base to us, and benefits from our mobile-friendly CMS, social, video, and monetization technology. As we previously described, our agreement with Jim Cramer expired in September 2021 and we have refocused our efforts to broaden our targeted user base to a more diverse demographic profile. In the fourth quarter of 2021, TheStreet’s page views decreased by 26%, compared to the fourth quarter of 2020, and our digital subscribers decreased by 14%, from approximately 80,500 paying subscribers in the fourth quarter of 2020, to approximately 69,600 paying subscribers in the fourth quarter of 2021. The number of average monthly unique users in the fourth quarter of 2021 decreased by 24%, compared to the fourth quarter of 2020, based on data from Comscore. However, our focus on a more diverse user base has contributed to TheStreet’s Facebook engagement increased by 514% in the fourth quarter of 2021, compared to the fourth quarter of 2020. Based on data from Crowdtangle, as compared to Yahoo! Finance, TheStreet had approximately 69% more total engagement on Facebook in the fourth quarter of 2021.

 

HubPages

 

We acquired HubPages to enhance the user’s experience by increasing content, including from Expert Contributors. HubPages operates a network of 28 premium content channels that act as an open community for writers, explorers, knowledge seekers, and conversation starters to connect in an interactive and informative online space. HubPages operates in the United States.

 

Say Media

 

We acquired Say Media to enhance the user’s experience by increasing content. Now fully integrated into the Platform, Say Media’s technology provides a comprehensive online media publishing platform and enables brand advertisers to engage today’s social media consumer through rich advertising experiences across its network of web properties. Say Media operates in the United States.

 

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LiftIgniter

 

LiftIgniter provides a distribution and recommendation engine for premium publishers. The LiftIgniter platform connects users efficiently to hundreds of professional content creators, with custom recommendations of content aligned with users’ personal passions. Aided by machine-learning technology, publishers can identify and target those interested in their content. LiftIgniter activates the value of hosting hundreds of premium journalists on a single platform by interconnecting them through unified content distribution.

 

The Spun

 

The Spun (thespun.com), founded in September 2012, is an online independent sports publication that brings readers the most interesting athletic stories of the day. Currently, The Spun produces more than 30,000 annual content pieces. The Spun reaches approximately 35 million unique readers per month and focuses on the social media aspect of the industry. The former Chief Executive Officer of The Spun is now serving as our Vice President of Growth for Sports, a role we believe will continue to assist us in growing our sports vertical business. The Spun increased its page views by approximately 192% in the fourth quarter of 2021, compared to the fourth quarter of 2020 (which was prior to our acquisition of The Spun), and increased its unique users by approximately 238% in the fourth quarter of 2021 compared to the fourth quarter of 2020, based on data from Comscore. All of these factors contributed to The Spun’s revenue increasing 422% in the fourth quarter of 2021, compared to the fourth quarter of 2020.

 

Other Publisher Partners

 

We have over 100 team specific and niche sports sites under the brand FanNation. FanNation increased its page views by approximately 100% in the fourth quarter of 2021, compared to the fourth quarter of 2020. The increase in page views has increased its revenue 164% in the fourth quarter of 2021, as compared to the fourth quarter of 2020.

 

Additionally, Fadeaway World joined our Platform in May 2021, which is a sports-oriented Publisher Partner, and is a fast-growing online basketball media brand focused on breaking news and commentary. Fadeaway World joined our Platform in May 2021.  It increased its page views by approximately 261% in the fourth quarter of 2021, compared to the fourth quarter of 2020 (at which time it was operating independently). Our monetization capabilities have driven a 488% increase in revenue in the fourth quarter of 2021 compared to the fourth quarter of 2020 (which was prior to Fadeaway World joining our Platform.

 

Intellectual Property

 

We have seven patent registrations in the United States in connection with our technology. All of our patent registrations are owned by our wholly-owned subsidiary, Maven Coalition, Inc. (“Maven Coalition”).

 

Maven and Key Design

 

We currently have trademark registrations directed to our key design logo and the MAVEN name in the United States, Australia, China, the European Union (the “EU”), the United Kingdom, India, Japan, and New Zealand, as well as international Madrid Protocol registrations. We have trademark applications directed to our key design logo and the MAVEN name pending in Canada.

 

Moreover, we have a United States trademark registration for the word mark MAVEN COALITION, trademark registrations in the EU and the United Kingdom for the word mark THEMAVEN, and a United States trademark registration for the word mark A MAVEN CHANNEL. We have trademark registrations for the work mark A MAVEN CHANNEL in Australia, New Zealand, the EU, and the United Kingdom, and applications for the word mark A MAVEN CHANNEL pending in Canada and Mexico, as well as an international Madrid Protocol registration.

 

Other Marks

 

We have trademark registrations for the word marks ACTION ALERTS PLUS, ALPHA RISING, BANKING MY WAY, BULL MARKET FANTASY, INCOME SEEKER, LIFTIGNITOR, MAIN ST. (logo), REAL MONEY, REALMONEY, STREETLIGHTNING, THE SPUN, TEMPEST, THESTREET, THESTREET.COM, THESTREET.COM, THE STREET (logo), and TEMPEST in the United States. We also have trademark applications for the marks ACTION ALERTS PLUS, BULL MARKET FANTASY, REAL MONEY, and THESTREET pending in Canada.

 

We have trademark applications for the marks THE ARENA, THE ARENA GROUP, and THE ARENA GROUP (logo) pending in the United States. We also have Madrid Protocol applications pending for the word mark THE ARENA GROUP and for THE ARENA GROUP logo mark, each seeking registration of the marks in Australia, Canada, China, EU, Mexico, New Zealand, and the United Kingdom.

 

We have a United States trademark registration for the word mark HUBPAGES, and trademark registrations for the HUBPAGES mark in Argentina, Australia, Brazil, Canada, China, Colombia, the EU, Hong Kong, India, Indonesia, Japan, Mexico, New Zealand, Peru, Philippines, South Korea, South Africa, and the United Kingdom, as well as an international Madrid Protocol registration.

 

We continue to file updated trademark applications to reflect our branding evolution and intend to continue strengthening our trademark portfolio as financial resources permit.

 

Our Publisher Partners and Licensing

 

In connection with our Partnership Agreements and any other applicable agreements between us and our Publisher Partners, (i) we and our affiliates own and retain (a) all right, title, and interest in and to the Platform, Monetization Solutions and data collected by us, and (b) we and our licensors’ trademarks and branding and all software and technology we use to provide and operate the Platform and Monetization Solutions, and (ii) each Publisher Partner owns and retains (a) all right, title, and interest in and to the Publisher Partner’s assets, content, and data collected by Publisher Partner and (b) each Publisher Partner’s trademarks and branding.

 

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Seasonality

 

We expect to experience typical media company advertising and membership sales seasonality, which is strong in the fiscal fourth quarter and slower in the fiscal first quarter.

 

Competition

 

Currently, we believe that there are dozens of competitors delivering niche media content on the web and on mobile devices and an even broader array of general media companies and major media brands. All those competitors use mobile alerts, invest heavily in video, and leverage social media. We believe that we have developed distribution, production, and technology tactics that are superior because our management team’s tactics in the past with prior companies have proven to be highly engaging and effective for our particular model, which organizes channels into interest groups, led by key brands, such as Sports Illustrated in the sports vertical and TheStreet in the finance vertical.

 

The web provides unlimited access to the market by niche or general media companies, so there are a large number and variety of direct competitors of ours competing for audience and ad and membership dollars. The general business of online media, combined with some level or method of leveraging community attracts many potential entrants, and in the future, there may be strong competitors that will compete with us in general or in selected markets. These and other companies may be better financed and be able to develop their markets more quickly and penetrate those market more effectively. The following is a list of possible competitors and their respective categories:

 

  Vice, Buzzfeed, Business Insider, et al. – niche content, leverages social, mobile, and video, and competes for ad dollars;
  Fortune, CNN, ESPN, Yahoo!, Google, et al. – general content, major media companies, and competes for ad dollars;
  WordPress, Medium, RebelMouse, Arc – content management software, open to all including experts and professionals, and competes for publishers;
  Leaf Group Ltd. and Future PLC – competes for partners and ad dollars;
  YouTube, Twitter, Facebook, Reddit – social platforms open to all including experts and professionals; and
  Affiliate networks such as Liberty Alliance – competes for ad dollars.

 

In addition, even though do not compete in the same market, we view Nexstar Media Group, Inc. and Ziff Davis as peer companies for purposes of comparing our performance.

 

We believe that we compete on the basis of our technology, substantial scale in traffic, ease of use, recognized lead media brands, and platform evolution through a continuing development and acquisition program. We believe that our scale, methods, technology, and experience enable us to compete for a material amount of market share of media dollars and membership revenue.

 

Government Regulations

 

Our operations are subject to a number of United States federal and state laws and regulations that involve privacy, rights of publicity, data protection, content regulation, intellectual property, or other subjects. Many of these laws and regulations are still evolving and being tested in courts and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and regulations often are uncertain, particularly in the new and rapidly evolving industry in which we operate.

 

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A number of government authorities, both in the United States and abroad, and private parties are increasing their focus on privacy issues and the use of personal information. All states have enacted some form of data privacy legislation, including data security and breach notification laws in all 50 states, and some form of regulation regarding the collection, use and disclosure of personal information at the federal level and in several states. California has been the most active in the area of consumer privacy legislation, including passing a comprehensive law requiring transparency, access, and choice known as the California Consumer Privacy Act of 2018 (the “CCPA”), which was amended in November 2020 by a ballot measure known as the California Privacy Rights Act (the “CPRA”). The CCPA went into effect January 1, 2020, with enforcement having begun in June 2020. The CPRA goes into effect over time, with enforcement to begin July 2023. Other states are also considering comprehensive consumer privacy legislation. Certain states have also enacted legislation requiring certain encryption technologies for the storage and transmission of personally identifiable information, including credit card information, and more states are considering laws for or have enacted laws about information security, which may require the adoption of written information security policies that are consistent with state laws if businesses have personal information of residents of those states. Data privacy and information security legislation is also being considered at the federal level, concerning the privacy of individuals and use of internet and marketing information. In the United States, the Federal Trade Commission (“FTC”) and attorneys general in several states have oversight of business operations concerning the use of personal information and breaches of the privacy laws under existing consumer protection laws. In particular, an attorney general or the FTC may examine privacy policies to ensure that a company discloses all material practices and fully complies with representations in the policies regarding the manner in which the information provided by consumers and other visitors to a website is used and disclosed by it, and the failure to do so could give rise to a complaint under state or federal unfair competition or consumer protection laws. The California Attorney General has begun aggressively investigating companies, especially those with websites, with respect to CCPA compliance and these investigations reportedly include inquiries into issues for which there has not yet been clear guidance issued by the state, such as regarding third party cookies that collect personal information from users when they visit our and other websites.

 

We review our privacy policies and overall operations on a regular basis to ensure compliance with applicable United States federal and state laws, and to the extent applicable, any foreign laws. We launched a CCPA compliance program in January 2020 and at the end of 2020 reviewed the program and made adjustments to our privacy notice and compliance program practices to account for our evolving practices and the new CCPA regulations, which were promulgated in July 2020 and continue to be subject to ongoing rulemaking. We believe the position we take regarding various CCPA issues, including third party cookies, is based on sound and good faith interpretations of the law based on consultation with legal counsel. However, there are conflicting interpretations of the law that have been adopted by various parties in the digital media industry, and given the lack of guidance to date on many of these issues, our compliance posture on some issues might not be accepted by the State of California.

 

In addition to the laws of the United States, we may be subject to foreign laws regulating web sites and online services, and the laws in some jurisdictions outside of the United States are stricter than the laws in the United States. For instance, in May 2018, the General Data Protection Regulation (the “GDPR”) went into effect in the EU and European Economic Area and Switzerland. The GDPR includes operational requirements for companies that receive or process personal data of residents of the EU that include significant penalties for non-compliance. In addition, some EU countries are considering or have passed legislation implementing additional data protection requirements or requiring local storage and processing of personal data or similar requirements that could increase the cost and complexity of delivering our services. How the GDPR will be fully applied to online services, including cookies and digital advertising, is still being determined through ongoing rulemaking and evolving interpretation by applicable authorities. We operate a GDPR compliance program that we believe, based on our good faith interpretation of the GDPR in consultation with counsel, is consistent with our obligations under that law. The highest court in the EU recently ruled that the United States/EU Privacy Shield was inadequate under GDPR and questioned the viability or legality of any EU to United States personal data transfer methods. We are working to address this issue, for instance, including standard contractual clauses as part of our Data Processing Agreements, and we continue to monitor the development of EU to United States personal data transfer methods and the law relating thereto.

 

Social networking websites are under increasing scrutiny. Legislation has been introduced on the state and federal level that could regulate social networking websites. Some rules call for more stringent age-verification techniques, attempt to mandate data retention or data destruction by Internet providers, and impose civil and/or criminal penalties on owners or operators of social networking websites.

 

The FTC regularly considers issues relating to online behavioral advertising (a/k/a interest-based advertising), which is a significant revenue source for us, and Congress and state legislatures are frequently asked to regulate this type of advertising, including requiring consumers to provide express consent for tracking purposes, so that advertisers may know their interests and are, therefore, able to serve them more relevant, targeted ads. Targeted ads generate higher per impression fees than non-targeted ads. New laws, or new interpretations of existing laws, could potentially place restrictions on our ability to utilize our database and other marketing data (e.g., from third parties) on our own behalf and on behalf of our advertising clients, which may adversely affect our business.

 

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Legislation concerning the above-described online activities has either been enacted or is in various stages of development and implementation in other countries around the world and could affect our ability to make our websites available in those countries as future legislation is made effective. It is possible that state and foreign governments might also attempt to regulate our transmissions of content on our website or prosecute us for violations of their laws. United States law offers limited safe harbors and immunities to publishers for certain liability arising out of user-posted content, but other countries do not. Further, there are a number of legislative proposals in the United States and internationally, that could impose new obligations in areas affecting our business, such as liability for copyright infringement by third parties and liability for defamation or other claims arising out of user-posted content. Our business could be negatively impacted if applicable laws subject us to greater regulation or risk of liability.

 

Our business could also be adversely affected if regulatory enforcement authorities, such as the California Attorney General or EU/EEA data protection authorities, take issue with any of our approaches to compliance, or if new laws, regulations or decisions regarding the collection, storage, transmission, use and/or disclosure of personal information are implemented in such ways that impose new or additional technology requirements on us, limit our ability to collect, transmit, store and use or disclose the information, or if government authorities or private parties challenge our data privacy and/or security practices that result in liability to, or restrictions, on us, or we experience a significant data or information breach which would require public disclosure under existing notification laws and for which we may be liable for damages and/or penalties.

 

Furthermore, governments of applicable jurisdictions might attempt to regulate our transmissions or levy sales or other taxes relating to our activities even though we do not have a physical presence and/or operate in those jurisdictions. As our platforms, products and advertisement activities are available over the Internet anywhere in the world, multiple jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each of those jurisdictions and pay various taxes in those jurisdictions. We address state and local jurisdictions where we believe we have nexus, however, there can be no assurance that we have complied with all jurisdictions that may assert that we owe taxes.

 

Employees

 

Our total number of employees as of January 26, 2022, was 370, of which 336 were full-time employees, 23 were part-time employees, and 11 were interns. Roughly 25% of our workforce (92 employees) is represented by a union named The NewsGuild of New York, CWA Local 31003 (the “Guild”) pursuant to a binding Memorandum of Agreement executed by and between the Guild and Maven Media Brands, LLC (“Maven Media”) on December 31, 2021 (the “MOA”), which covers Sports Illustrated editorial staff. The MOA is intended to be finalized in the form of a collective bargaining agreement before April 1, 2022. The MOA comprehensively addresses the terms of employment for covered employees and non-employees regarding, among other things, wages, raises, bonuses, severances, benefits, discipline and the like. We have incorporated the terms of the MOA into our fiscal 2022 employment practices.

 

Available Information

 

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Section 13 of the Exchange Act, are available free of charge after we electronically file or furnish them to the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically. We also maintain a website, www.thearenagroup.net, through which you can obtain copies of the documents that we have filed with the SEC. The information set forth on, or accessible from, our website is not part of this prospectus.

 

Properties

 

Effective October 1, 2019, we entered into an office lease (the “Santa Monica Lease”) of approximately 5,258 rentable square feet at 301 Arizona Avenue, 4th Floor, Santa Monica, California 90401. The Santa Monica Lease has a term of 5 years, expiring on September 30, 2024. The initial monthly rent was approximately $36,800 and increased to approximately $37,900 in October 2020. We entered into a sublease of the Santa Monica Lease under which, for a period beginning January 1, 2022 and through the end of the term, the sublessee will pay rent of $20,000 for the first 12 months (with the sublessee receiving a 50% abatement of rent for 7 months so long as the sublessee is not in breach of the sublease), increasing to $21,000 for the next 12 months, and $22,500 for the remainder of the lease term. We remain responsible to the original lessor for the difference between the sublease payments and the amount due under the Santa Monica Lease.

 

On January 14, 2020, we entered into an office sublease agreement (the “Liberty Street Sublease”) of approximately 40,868 rentable square feet at 225 Liberty Street, 27th Floor, New York, New York 10281, with an effective date of February 1, 2020, with lease payments commencing November 1, 2020, and expiring on November 30, 2032. Monthly lease payments from November 1, 2020, through October 31, 2025, are approximately $252,000. On September 1, 2021, we entered into a termination and surrender agreement (the “Liberty Surrender Agreement”) pursuant to which we agreed, as of October 1, 2021, to surrender the premises. Pursuant to the Liberty Surrender Agreement, we agreed to pay approximately $11.5 million to the sublandlord over a period of four years.

 

We have begun to re-evaluate our property leases and, to the extent feasible and in our best interests, have either surrendered leased properties to the landlord prior to the expiration of such leases or not renewed certain leases. We expect that we will continue this trend of not leasing properties and, instead, continue to encourage our work force to work remotely, provided, that it continues to be feasible to do so in the future. To the extent we need to lease physical properties in the future, we believe we would be able to find suitable properties at market rates.

 

Legal Proceedings

 

From time to time, we may be subject to claims and litigation arising in the ordinary course of business. We are not currently subject to any pending or threatened legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of operations and financial condition for the three and nine months ended September 30, 2021, and 2020 and the years ended December 31, 2020, and 2019 should be read in conjunction with the financial statements and related notes and the other financial information that are included elsewhere in this prospectus. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements,” and “Business” sections in the registration statement, of which this prospectus forms a part. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. We and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this prospectus and other filings with the SEC, reports to our stockholders, and news releases. All statements that express expectations, estimates, forecasts, or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. The following discussion should be read in conjunction with the financial statements and the notes thereto that are included in this prospectus.

 

Liquidity and Capital Resources

 

As of September 30, 2021, our principal sources of liquidity consisted of cash of approximately $8.2 million. As of February 10, 2022, our cash and cash equivalents were approximately $7.5 million. In addition, we had the use of additional proceeds from our working capital facility with FPP Finance LLC (“FastPay”) in the amount of approximately $8.3 million. As of February 10, 2022, the outstanding balance of the FastPay working capital facility was approximately $10.0 million. During the three months ended September 30, 2021, we generated positive cash flows from operations in the amount of approximately $1.7 million. We experience seasonality with respect to our revenues, with the fourth quarter typically generating a larger portion of our revenues compared to other quarters. On December 6, 2021, we entered into an amendment to the FastPay line of credit, pursuant to which (i) the maximum amount of advances available was increased from $15.0 million to $25.0 million, (ii) the margin applicable to the interest rate decreased from 8.50% per annum to 6.00% per annum, and (iii) the maturity date was extended to February 28, 2024. There is approximately $5.4 million of principal payment due on the 15% delayed draw term note (the “Term Note”) on March 31, 2022, with the remaining principal balance will be due on the Term Note on December 31, 2022. Also, on December 31, 2022, a principal payment in the amount of approximately $62.7 million will be due under the 12% senior secured notes. In addition, to the principal payments, interest is due on both the Term Note and the 12% senior secured notes on a quarterly basis during fiscal 2022. The outstanding principal balance of the Term Note as of February 10, 2022, was approximately $9.9 million. The outstanding principal balance of the 12% senior secured notes as of February 10, 2022, was approximately $62.7 million.

 

On January 23, 2022, we entered into Amendment No. 4 to the Second A&R NPA, pursuant to which the parties agreed to extend the maturity dates in the event that we consummate an offering of our common stock of at least $20.0 million of gross proceeds on or before February 14, 2022, which was further extended to February 15, 2022 by the parties, as well as excluding from the mandatory prepayment provisions proceeds received from such offering. As of February 10, 2022, the outstanding principal balance of the 12% senior secured notes was approximately $62.7 million. Historically, we have relied on equity and debt offerings, to the extent available and, to a lesser extent, cash from operations to satisfy our liquidity needs. If we are unable to continue to generate positive cash flows, or otherwise extend the maturity date of our line of credit and the Term Note, we may need to seek additional capital. Should capital not be available to us at reasonable terms, other actions may become necessary in addition to cost control measures and continued efforts to increase revenue.

 

In addition, we continue to be focused on growing our existing operations and seeking accretive and complementary strategic acquisitions as part of our growth strategy. We believe, that with additional sources of liquidity and the ability to raise additional capital or incur additional indebtedness to supplement our internal projections, we will be able to execute our growth plan and finance our working capital requirements.

 

Finally, we may have a contingent liability arising out of possible violations of the Securities Act in connection with the Original PowerPoint, which we furnished as Exhibit 99.2 to our Current Report on Form 8-K and Current Report on Form 8-K/A filed on January 31, 2022, and February 1, 2022, respectively. Specifically, the furnishing of the Original PowerPoint publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the Original PowerPoint may be deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon such Original PowerPoint that may have constituted a potential violation of Section 5 of the Securities Act. If a claim were brought by any such ‘recipients’ of such Original PowerPoint and a court were to conclude that the public disclosure of such PowerPoint constituted a violation of Section 5 of the Securities Act, we could be required to repurchase the shares sold to the investors who reviewed such Original PowerPoint at the original purchase price, plus statutory interest. We could also incur considerable expense in contesting any such claims. As of the date of this prospectus, no legal proceedings or claims have been made or threatened by any investors in our offering. Such payments and expenses, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, or force us to raise additional funding, which funding may not be available on favorable terms, if at all. See also the “Risk Factor” entitled “We may have contingent liability arising out of a possible violation of the Securities Act, in connection with the Original PowerPoint which we furnished as Exhibit 99.2 to our Current Report on Form 8-K, and the Current Report on Form 8-K/A, filed with the Commission on January 31, 2022, and February 1, 2022, respectively” herein.

 

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We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of September 30, 2021 and December 31, 2020 was as follows:

 

   As of 
   September 30, 2021   December 31, 2020 
Current assets  $79,380,241   $73,846,465 
Current liabilities   (130,386,757)   (107,562,825)
Working capital deficit   (51,006,516)   (33,716,360)

 

As of September 30, 2021, we had a working capital deficit of approximately $51.0 million, as compared to approximately $33.7 million as of December 31, 2020, consisting of approximately $79.4 million in total current assets and approximately $130.4 million in total current liabilities. Included in current assets as of September 30, 2021, was approximately $0.5 million of restricted cash. Also included in our working capital deficit are noncash current liabilities, consisting of approximately $0.7 million of warrant derivative liabilities, leaving a working capital deficit that requires cash payments of approximately $50.9 million.

 

Our cash flows during the nine months ended September 30, 2021, and 2020 consisted of the following:

 

   Nine Months Ended September 30, 
   2021   2020 
Net cash used in operating activities  $(8,261,324)  $(20,273,407)
Net cash used in investing activities   (10,673,872)   (4,286,469)
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, end of period  $8,728,649   $5,734,592 

 

For the nine months ended September 30, 2021, net cash used in operating activities was approximately $8.3 million, consisting primarily of: approximately $125.1 million of cash received from customers (including payments received in advance of performance obligations); less (i) approximately $132.5 million of cash paid (a) to employees, Publisher Partners, expert contributors, suppliers, and vendors, and (b) for revenue share arrangements and professional services; and (ii) approximately $0.9 million of cash paid for interest; as compared to the nine months ended September 30, 2020, where net cash used in operating activities was approximately $20.3 million, consisting primarily of: approximately $82.1 million of cash received from customers (including payments received in advance of performance obligations); less (y) approximately $102.0 million of cash paid (a) to employees, Publisher Partners, suppliers, and vendors, and (b) for revenue share arrangements, advance of royalty fees and professional services; and (z) approximately $0.4 million of cash paid for interest.

 

For the nine months ended September 30, 2021, net cash used in investing activities was approximately $10.7 million, consisting primarily of: (i) approximately $7.4 million used to acquire a business; (ii) approximately $0.3 million for property and equipment; and (iii) approximately $3.0 million for capitalized costs for our Platform; as compared to the nine months ended September 30, 2020, where net cash used in investing activities was approximately $4.3 million consisting primarily of: (x) approximately $0.3 million used for the acquisition of a business; (y) approximately $1.1 million for property and equipment; and (z) approximately $2.9 million for capitalized costs for our Platform.

 

For the nine months ended September 30, 2021, net cash used by financing activities was approximately $18.1 million, consisting primarily of: (i) approximately $19.8 million in net proceeds from the private placement issuance of common stock; less (ii) approximately $0.5 million from repayment under our line of credit; and (iii) approximately $1.2 million in payments of restricted stock liabilities; as compared to the nine months ended September 30, 2020, where net cash provided by financing activities was approximately $20.8 million, consisting primarily of: (i) approximately $6.1 million in net proceeds from the issuance of Series H Preferred Stock and Series J convertible preferred stock (the “Series J Preferred Stock”); (ii) approximately $11.7 million in net proceeds from the Term Note and the Payroll Protection Program Loan; and (iii) approximately $3.3 million in borrowings of our line of credit; less (iv) approximately $0.3 million in payments for taxes relating to repurchase of restricted shares.

 

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Results of Operations

 

Three Months Ended September 30, 2021 and 2020

 

  

Three Months Ended

September 30,

   2021 versus 2020 
   2021   2020   $ Change   % Change 
Revenue  $59,573,508   $32,089,993   $27,483,515    85.6%
Cost of revenue   32,173,859    24,708,941    7,464,918    30.2%
Gross profit   27,399,649    7,381,052    20,018,597    271.2%
Operating expenses                    
Selling and marketing   22,712,193    9,928,901    12,783,292    128.7%
General and administrative   23,023,883    7,172,175    15,851,708    221.0%
Depreciation and amortization   4,055,432    4,053,184    2,248    0.1%
Total operating expenses   49,791,508    21,154,260    28,637,248    135.4%
Loss from operations   (22,391,859)   (13,773,208)   (8,618,651)   62.6%
Total other (expense)   (2,544,494)   (7,491,223)   4,946,729    -66.0%
Loss before income taxes   (24,936,353)   (21,264,431)   (3,617,922)   17.3%
Income taxes   229,699    -    229,699    100.0%
Net loss   (24,706,654)   (21,264,431)   (3,442,223)   16.2%
Deemed dividend on Series H convertible preferred stock   -    (132,663)   132,663    -100.0%
Net loss attributable to common stockholders  $(24,706,654)  $(21,397,094)  $(3,309,560)   15.5%
Basic and diluted net loss per common stock  $(0.10)  $(0.55)  $0.45    -81.8%
Weighted average number of common stock outstanding – basic and diluted   252,811,058    39,186,432    213,624,626    545.1%

 

For the three months ended September 30, 2021, the total net loss was approximately $24.7 million. The total net loss increased by approximately $3.3 million as compared to the three months ended September 30, 2020, which had a net loss of approximately $21.4 million. The primary reasons for the increase in the total net loss is a lease termination charge of approximately $7.3 million and an increase in stock-based compensation of approximately $4.6 million during the three months ended September 30, 2021. The basic and diluted net loss per common share for the three months ended September 30, 2021, of $0.10 decreased from $0.55 for the three months ended September 30, 2020, primarily because of our net loss per common share decreased along with the increase of the daily weighted average shares outstanding to 252,811,058 shares from 39,186,432 shares.

 

Revenue

 

The following table sets forth revenue, cost of revenue, and gross profit:

 

   Three Months Ended September 30,   2021 versus 2020 
   2021   2020   Change   % Change 
  

(percentages reflect cost of revenue as a

percentage of total revenue)

         
Revenue  $  59,573,508    100.0%  $  32,089,993    100.0%  $  27,483,515    85.6%
Cost of revenue   32,173,859    54.0%   24,708,941    77.0%   7,464,918    30.2%
Gross profit  $27,399,649    46.0%  $7,381,052    23.0%  $20,018,597    271.2%

 

For the three months ended September 30, 2021, we had revenue of approximately $59.6 million, as compared to revenue of approximately $32.1 million for the three months ended September 30, 2020.

 

36

 

 

The following table sets forth revenue by category and the corresponding percent of total revenue:

 

   Three Months Ended September 30,   2021 versus 2020 
   2021   2020   $ Change   % Change 
  

(percentages reflect category as a

percentage of total revenue)

         
Digital revenue                              
Digital advertising  $18,321,133    30.8%  $7,885,615    24.6%  $  10,435,518    132.3%
Digital subscriptions   7,698,359    12.9%   8,469,943    26.4%   (771,584)   -9.1%
Other revenue   4,222,816    7.1%   1,336,445    4.2%   2,886,371    216.0%
Total digital revenue   

30,242,308

    

50.8

%   

17,692,003

  

55.1

%   

12,550,305

    

70.9

%
Print revenue                              
Print advertising   3,357,347    5.6%   1,523,416    4.7%   1,833,931    120.4%
Print subscriptions   25,973,853    43.6%   12,874,574    40.1%   13,099,279    101.7%
Total print revenue   

29,331,200

    

49.2

%   

14,397,990

    

44.9

%   

14,933,210

    

103.7

%
Total revenue  $59,573,508    100.0%  $32,089,993    100.0%  $27,483,515    85.6%

 

For the three months ended September 30, 2021, the primary sources of revenue were as follows: (i) digital advertising of approximately $18.3 million; (ii) digital subscriptions of approximately $7.7 million; (iii) approximately $4.2 million from other revenue; (iv) print advertising of approximately $3.4 million; and (v) print subscriptions of approximately $26.0 million. Our digital advertising revenue increased by approximately $10.4 million, due a doubling of advertising sponsorships of the SI Swim business and approximately $5.5 million generated as a result of The Spun, which was acquired during the second quarter of 2021. Our digital subscriptions decreased by approximately $0.8 million. Our print advertising revenue increase by approximately $1.8 million, largely due to the improvement in SI Swim. Our print subscriptions increased by approximately $13.1 million reflecting a drive to increase subscribers in the fourth quarter of 2020 and the diminishing effect of acquisition accounting adjustments on the subscribers that existed when we began operating the Sports Illustrated media business. Our other revenue, primarily consisting of licensing and e-commerce revenue, increased by approximately $2.9 million due to additional revenue primarily for certain licensing agreements related to SI Swim and other Sports Illustrated media businesses.

 

Cost of Revenue

 

The following table sets forth cost of revenue by category and the corresponding percent of total cost of revenue:

 

   Three Months Ended September 30, 
   2021   2020   $ Change   % Change 
  

(percentages reflect costs as a

percentage of total cost of revenue)

         
Publisher Partner revenue share payments  $4,911,713    15.3%  $4,840,964    19.6%  $70,749    1.5%
Hosting, bandwidth, and software licensing fees   482,794    1.5%   640,268    2.6%   (157,474)   -24.6%
Fees paid for data analytics and to other outside services providers   734,125    2.3%   590,929    2.4%   143,196    24.2%
Royalty fees   3,750,000    11.7%   3,750,000    15.2%   -    0.0%
Content and editorial expenses   10,583,561    32.9%   7,129,972    28.9%   3,453,589    48.4%
Printing, distribution and fulfillment costs   5,118,504    15.9%   3,095,272    12.5%   2,023,232    65.4%
Amortization of our Platform   2,241,243    7.0%   2,089,286    8.5%   151,957    7.3%
Stock-based compensation   1,732,139    5.4%   1,270,498    5.1%   461,641    36.3%
Other cost of revenue   2,619,780    8.1%   1,301,752    5.3%   1,318,028    101.3%
Total cost of revenue  $32,173,859    100.0%  $24,708,941    100.0%  $7,464,918    30.20%

 

For the three months ended September 30, 2021, we recognized cost of revenue of approximately $32.2 million, which represented a 46% gross profit percentage, compared to approximately $24.7 million in the three months ended September 30, 2020, representing a 23% gross profit percentage. The increase in the cost of revenue of approximately $7.5 million during the three months ended September 30, 2021 is primarily from increases in: (i) printing, distribution, and fulfillment costs of approximately $2.0 million; (ii) content and editorial expenses of approximately $3.5 million; (iii) other costs of revenue related to SI Swim of approximately $1.3 million; (iv) stock-based compensation of approximately $0.5 million; and (v) amortization of our Platform of approximately $0.2 million. The improvement in gross profit percentage was due to a decrease in partner revenue shares from 61% of digital advertising revenue in the third quarter of 2020 to 27% in the third quarter of 2021, as a result of the elimination of most partner guarantees near the end of fiscal year 2020.

 

For the three months ended September 30, 2021, we capitalized costs related to our Platform of approximately $1.5 million, as compared to approximately $1.2 million for the three months ended September 30, 2020. For the three months ended September 30, 2021, the capitalization of our Platform consisted of: (i) approximately $1.0 million in payroll and related expenses, including taxes and benefits; and (ii) approximately $0.5 million in stock-based compensation for related personnel.

 

Operating Expenses

 

The following table sets forth operating expenses and the corresponding percentage of total revenue:

 

   Three Months Ended September 30,   2021 versus 2020 
   2021   2020   Change   % Change 
  

(percentages reflect expense as a

percentage of total revenue)

         
Selling and marketing  $22,712,193    38.1%  $9,928,901    30.9%  $12,783,292    60.4%
General and administrative   23,023,883    38.6%   7,172,175    22.4%   15,851,708    74.9%
Depreciation and amortization   4,055,432    6.8%   4,053,184    12.6%   2,248    0.0%
Total operating expenses  $  49,791,508        $  21,154,260        $  28,637,248    135.4%

 

37

 

 

Selling and Marketing. For the three months ended September 30, 2021, we incurred selling and marketing costs of approximately $22.7 million, as compared to approximately $9.9 million for the three months ended September 30, 2020. The increase in selling and marketing costs of approximately $12.8 million is primarily from increases in circulation costs of approximately $9.4 million; advertising costs of approximately $1.4 million; professional and marketing service costs of approximately $0.7 million; payroll of selling and marketing account management support teams, along with the related benefits and stock-based compensation of approximately $1.3 million; office and occupancy costs of approximately $0.1 million; less a decrease in other selling and marketing related costs of approximately $0.1 million.

 

General and Administrative. For the three months ended September 30, 2021, we incurred general and administrative costs of approximately $23.0 million from payroll and related expenses, professional services, occupancy costs, stock-based compensation of related personnel, depreciation and amortization, and other corporate expense, as compared to approximately $7.2 million for the three months ended September 30, 2020. The increase in general and administrative expenses of approximately $15.9 million is primarily from an increase in our payroll, along with the related benefits and stock-compensation of approximately $5.5 million; an increase in professional services, including accounting, legal and insurance of approximately $2.2 million; an increase in facilities costs related to the lease termination of approximately $7.3 million and an increase in other general corporate expenses of approximately $0.9 million.

 

Other (Expenses) Income

 

The following table sets forth other (expense) income:

 

   Three Months Ended September 30,   2021 versus 2020 
   2021   2020   Change   % Change 
  

(percentages reflect other (expense)

income as a percentage of the total)

         
Change in valuation of warrant derivative liabilities  $801,755    -31.5%  $(517,405)   6.9%  $1,319,160    -17.6%
Change in valuation of embedded derivative liabilities   -    0.0%   (2,370,000)   31.6%   2,370,000    -31.6%
Interest expense   (2,512,637)   98.7%   (4,253,180)   56.8%   1,740,543    -23.2%
Interest income   -    0.0%   1,116    0.0%   (1,116)   0.0%
Liquidated damages   (833,612)   32.8%   (319,903)   4.3%   (513,709)   6.9%
Other income   -    0.0%   (31,851)   0.4%   31,851    -0.4%
Total other (expense)  $(2,544,494)   100.0%  $(7,491,223)   100.0%  $4,946,729    -66.0%

 

Change in Valuation of Warrant Derivative Liabilities. There was approximately $1.3 million increase in noncash income related the change in the valuation of the warrant derivative liabilities for the three months ended September 30, 2021, as compared to the prior year period.

 

Change in Valuation of Embedded Derivative Liabilities. There was approximately $2.4 million increase in noncash income related the change in the valuation of the embedded derivative liabilities for the three months ended September 30, 2021, as compared to the prior year period.

 

Interest Expense. We incurred interest expense of approximately $2.5 million for the three months ended September 30, 2021, as compared to approximately $4.3 million for the three months ended September 30, 2020. The decrease in interest expense of approximately $1.8 million is primarily from an increase of approximately $0.2 million of other interest; less a decrease of accrued interest of approximately $0.8 million and a decrease from the amortization of debt discount on notes payable of approximately $1.2 million.

 

38

 

 

Liquidated Damages. We recorded liquidated damages of approximately $0.8 million for the three months ended September 30, 2021, an increase of approximately $0.5 million as compared to the three months ended September 30, 2020, primarily from issuance of our 12% Senior Secured Convertible Debentures (the “Debentures”), Series H Preferred Stock, Series I convertible preferred stock (the “Series I Preferred Stock”), Series J Preferred Stock, and Series K convertible preferred stock (“Series K Preferred Stock”). The liquidated damages were recognized because we determined that: (i) registration statements covering the shares of common stock issuable upon conversion under the aforementioned instruments would not be declared effective within the requisite time frame; and (ii) that we would not be able to file our periodic reports in the requisite time frame with the SEC in order to satisfy the public information requirements under the securities purchase agreements. For additional information regarding liquidated damages after September 30, 2021, please see the section entitled “Prospectus Summary,” and heading “Recent Developments – Stock Purchase Agreements.”

 

Nine Months Ended September 30, 2021, and 2020

 

   Nine Months Ended September 30,   2021 versus 2020 
   2021   2020   $ Change   % Change 
Revenue  $127,935,501   $85,593,786   $42,341,715    49.5%
Cost of revenue   83,978,050    76,321,953    7,656,097    10.0%
Gross profit   43,957,451    9,271,833    34,685,618    374.1%
Operating expenses                    
Selling and marketing   55,122,357    27,698,182    27,424,175    99.0%
General and administrative   44,230,360    24,852,891    19,377,469    78.0%
Depreciation and amortization   11,981,998    12,276,990    (294,992)   -2.4%
Total operating expenses   111,334,715    64,828,063    46,506,652    71.7%
Loss from operations   (67,377,264)   (55,556,230)   (11,821,034)   21.3%
Total other (expense)   (3,678,952)   (11,646,154)   7,967,202    -68.4%
Loss before income taxes   (71,056,216)   (67,202,384)   (3,853,832)   5.7%
Income taxes   229,699    -    229,699    100.0%
Net loss  (70,826,517)  (67,202,384)  (3,624,133)   5.4%
Deemed dividend on Series H convertible preferred stock  -   (132,663)  132,663    -100.0%
Net loss attributable to common stockholders  $(70,826,517)  $(67,335,047)  $(3,491,470)   5.2%
Basic and diluted net loss per common share  $(0.29)  $(1.72)  $1.43    -83.1%
Weighted average number of shares outstanding – basic and diluted   244,209,151    39,177,864    205,031,287    523.3%

 

For the nine months ended September 30, 2021, the total net loss was approximately $70.8 million. The total net loss increased by approximately $3.5 million as compared to the nine months ended September 30, 2020, which had a net loss of approximately $67.3 million. The primary reasons for the increase in the total net loss is a lease termination charge of approximately $7.3 million and an increase in stock-based compensation of approximately $10.5 million during the nine months ended September 30, 2021. The basic and diluted net loss per common share for the nine months ended September 30, 2021, of $0.29 decreased from $1.72 for the nine months ended September 30, 2020, primarily because our net loss per common share decreased along with the increase of the daily weighted average shares outstanding to 244,209,151 shares from 39,177,864 shares.

 

Revenue

 

The following table sets forth revenue, cost of revenue, and gross profit:

 

   Nine Months Ended September 30,   2021 versus 2020 
   2021   2020   Change   % Change 
  

(percentages reflect cost of revenue as a

percentage of total revenue)

         
Revenue  $  127,935,501    100.0%  $  85,593,786    100.0%  $  42,341,715    49.5%
Cost of revenue   83,978,050    65.6%   76,321,953    89.2%   7,656,097    10.0%
Gross profit  $43,957,451    34.4%  $9,271,833    10.8%  $34,685,618    374.1%

 

39

 

 

For the nine months ended September 30, 2021, we had revenue of approximately $127.9 million, as compared to revenue of approximately $85.6 million for the nine months ended September 30, 2020.

 

The following table sets forth revenue by category and the corresponding percent of total revenue:

 

   Nine Months Ended September 30,   2021 versus 2020 
   2021   2020   $ Change   % Change 
  

(percentages reflect category as a

percentage of total revenue)

         
Digital revenue                              
Digital advertising  $39,396,077    30.8%  $22,659,155    26.5%  $16,736,922    73.9%
Digital subscriptions   22,472,951    17.6%   20,096,640    23.5%   2,376,311    11.8%
Other revenue   5,835,682    4.6%   2,667,243    3.1%   3,168,439    118.8%

Total digital revenue

   

67,704,710

  

52.9

%   

45,423,038

    

53.1

%   

22,281,672

    

49.1

%
Print revenue                              
Print advertising   6,904,897    5.4%   6,129,476    7.2%   775,421   12.7%
Print subscriptions   53,325,894    41.7%   34,041,272    39.8%   19,284,622    56.7%
Total print revenue   

60,230,791

    

47.1

%   

40,170,748

    

46.9

%   

20,060,043

    

49.9

%
Total revenue  $127,935,501    100.0%  $85,593,786    100.0%  $42,341,715    49.5%

 

For the nine months ended September 30, 2021, the primary sources of revenue were as follows: (i) digital advertising of approximately $39.4 million; (ii) digital subscriptions of approximately $22.5 million; (iii) approximately $5.8 million from other revenue; (iv) print advertising of approximately $6.9 million; and (v) print subscriptions of approximately $53.3 million. Our digital advertising revenue increased by approximately $16.7 million due to additional revenue of approximately $10.0 million generated as a result of the Sports Illustrated media business, approximately $6.5 million generated as a result of The Spun, which was acquired during the second quarter 2021, and approximately $3.2 million in revenue generated from our other business. Our digital subscriptions increased by approximately $2.4 million due to additional revenue generated by TheStreet. Our print advertising revenue increased by $0.8 million as a result of the Sports Illustrated media business. Our print subscriptions increased by approximately $19.3 million reflecting a drive to increase subscribers in the fourth quarter of 2020 and the diminishing effect of acquisition accounting adjustments on the subscribers that existed when we began operating the Sports Illustrated media business. Our other revenue, primarily consisting of licensing and ecommerce revenue, increased by approximately $3.2 million, due to additional revenue of approximately $3.6 generated as a result of the Sports Illustrated media business, offset by an approximately $0.4 million decrease in revenue from our other business.

 

Cost of Revenue

 

The following table sets forth cost of revenue by category and the corresponding percent of total cost of revenue:

 

   Nine Months Ended September 30, 
   2021   2020   $ Change   % Change 
  

(percentages reflect costs as a

percentage of total cost of revenue)

         
Publisher Partner revenue share payments  $15,757,839    18.8%  $14,032,333    18.4%  $1,725,506    12.3%
Hosting, bandwidth, and software licensing fees   1,641,580    2.0%   1,793,851    2.4%   (152,271)   -8.5%
Fees paid for data analytics and to other outside services providers   2,122,020    2.5%   1,940,153    2.5%   181,867    9.4%
Royalty fees   11,250,000    13.4%   11,250,000    14.7%   -    0.0%
Content and editorial expenses   25,696,506    30.6%   21,315,611    27.9%   4,380,895    20.6%
Printing, distribution and fulfillment costs   10,901,114    13.0%   11,261,652    14.8%   (360,538)   -3.2%
Amortization of our Platform development    6,565,600    7.8%   6,348,619    8.3%   216,981    3.4%
Stock-based compensation   4,929,708    5.9%   4,339,916    5.7%   589,792    13.6%
Other cost of revenue   5,113,683    6.1%   4,039,818    5.3%   1,073,865    26.6%
Total cost of revenue  $83,978,050    100.0%  $76,321,953    100.0%  $7,656,097    10.0%

 

For the nine months ended September 30, 2021, we recognized cost of revenue of approximately $84.0 million, a 34% gross profit percentage, compared to approximately $76.3 million in the nine months ended September 30, 2020, representing a 11% gross profit percentage. The increase of approximately $7.7 million in cost of revenue during the nine months ended September 30, 2021 is primarily from increases in: (i) our Publisher Partner revenue share payments of approximately $1.7 million; (ii) content and editorial expenses of approximately $4.4 million; (iii) stock-based compensation of approximately $0.6 million; (iv) other costs of revenue of approximately $1.1 million; (v) amortization of our Platform of approximately $0.2 million; and offset by (vi) printing, distribution, and fulfillment costs of approximately $0.4 million. The improvement in gross profit percentage was due to a decrease in partner revenue shares from 74% of digital advertising revenue in the third quarter of 2020 to 40% in the third quarter of 2021 as a result of the elimination of most partner guarantees near the end of fiscal year 2020.

 

For the nine months ended September 30, 2021, we capitalized costs related to our Platform of approximately $4.4 million, as compared to approximately $4.1 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, the capitalization of our Platform consisted of: (i) approximately $3.0 million in payroll and related expenses, including taxes and benefits; and (ii) approximately $1.3 million in stock-based compensation for related personnel.

 

40

 

 

Operating Expenses

 

The following table sets forth operating expenses and the corresponding percentage of total revenue:

 

   Nine Months Ended September 30,   2021 versus 2020 
   2021   2020   Change   % Change 
  

(percentages reflect expense as a

percentage of total revenue)

         
Selling and marketing  $55,122,357    43.1%  $27,698,182    32.4%  $27,424,175    42.3%
General and administrative   44,230,360    34.6%   24,852,891    29.0%   19,377,469    29.9%
Depreciation and amortization   11,981,998    9.4%   12,276,990    14.3%   (294,992)   -0.5%
Total operating expenses  $  111,334,715        $  64,828,063        $  46,506,652    71.7%

 

Selling and Marketing. For the nine months ended September 30, 2021, we incurred selling and marketing costs of approximately $55.1 million, as compared to approximately $27.7 million for the nine months ended September 30, 2020. The increase in selling and marketing costs of approximately $27.4 million is primarily from an increase in circulation costs of approximately $22.4 million; payroll of selling and marketing account management support teams, along with the related benefits and stock-based compensation of approximately $3.3 million; an increase in advertising costs of approximately $1.8 million; an increase in professional and marketing service costs of approximately $1.2 million; an increase in office, travel, conferences and occupancy costs of approximately $0.3 million; less a decrease in other selling and marketing related costs of approximately $1.0 million.

 

General and Administrative. For the nine months ended September 30, 2021, we incurred general and administrative costs of approximately $44.2 million from payroll and related expenses, professional services, occupancy costs, stock-based compensation of related personnel, depreciation and amortization, and other corporate expense, as compared to approximately $24.9 million for the nine months ended September 30, 2020. The increase in general and administrative expenses of approximately $19.4 million is primarily from an increase in our payroll, along with the related benefits and stock-compensation of approximately $8.4 million; an increase in professional services, including accounting, legal and insurance of approximately $3.1 million; an increase in facilities costs related to the lease termination of approximately $7.1 million; and an increase in other general corporate expenses of approximately $0.8 million.

 

Other (Expenses) Income

 

The following table sets forth other (expense) income:

 

   Nine Months Ended September 30,   2021 versus 2020 
   2021   2020   Change   % Change 
  

(percentages reflect other (expense)

income as a percentage of the total)

         
Change in valuation of warrant derivative liabilities  $496,812    -13.5%  $(134,910)   1.2%  $631,722    -5.4%
Change in valuation of embedded derivative liabilities   -    0.0%   2,173,000    -18.7%   (2,173,000)   18.7%
Interest expense   (7,695,317)   209.2%   (12,169,315)   104.4%   4,473,998    -38.4%
Interest income   471    0.0%   4,499    0.0%   (4,028)   0.0%
Liquidated damages   (2,197,615)   59.7%   (1,487,577)   12.8%   (710,038)   6.1%
Other expense   -    0.0%   (31,851)   0.3%   31,851    -0.3%
Gain upon debt extinguishment   5,716,697    -155.4%   -    0.0%   5,716,697    -49.1%
Total other (expense)  $(3,678,952)   100.0%  $(11,646,154)   100.0%  $7,967,202    -68.4%

 

Change in Valuation of Warrant Derivative Liabilities. There was approximately $0.6 million increase in noncash income related the change in the valuation of the warrant derivative liabilities for the nine months ended September 30, 2021, as compared to the prior year period.

 

Change in Valuation of Embedded Derivative Liabilities. There was approximately $2.2 million decrease in noncash income related the change in the valuation of the embedded derivative liabilities for the nine months ended September 30, 2021, as compared to the prior year period.

 

Interest Expense. We incurred interest expense of approximately $7.7 million for the nine months ended September 30, 2021, as compared to approximately $12.2 million for the nine months ended September 30, 2020. The decrease in interest expense of approximately $4.5 million is primarily from an increase of approximately $0.5 million of other interest; less a decrease of approximately $1.6 million of accrued interest and a decrease of the amortization of debt discount on notes payable of approximately $3.4 million.

 

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Liquidated Damages. We recorded liquidated damages of approximately $2.2 million for the nine months ended September 30, 2021, primarily from issuance of the Debentures, Series H Preferred Stock, Series I Preferred Stock, and Series J Preferred Stock issued during 2020. The liquidated damages were recognized because we determined that: (i) registration statements covering the shares of common stock issuable upon conversion under the aforementioned instruments would not be declared effective within the requisite time frame; and (ii) that we would not be able to file our periodic reports in the requisite time frame with the SEC in order to satisfy the public information requirements under the securities purchase agreements. For additional information regarding liquidated damages after September 30, 2021, please see the section entitled “Prospectus Summary,” and heading “Recent Developments – Stock Purchase Agreements.”

 

Gain Upon Debt Extinguishment. We recorded a gain upon debt extinguishment of approximately $5.7 million (including accrued interest) pursuant to the forgiveness of the Paycheck Protection Program Loan for the nine months ended September 30, 2021.

 

Comparison of Fiscal 2020 to Fiscal 2019

 

   Years Ended December 31,   2020 versus 2019 
   2020   2019   $ Change   % Change 
Revenue  $128,032,397   $53,343,310   $74,689,087    140.0%
Cost of revenue   103,063,445    47,301,175    55,762,270    117.9%
Gross profit (loss)   24,968,952