UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31,September 30, 2022

 

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

 

For the transition period from __________ to __________

 

Commission file number 1-12471

 

THE ARENA GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 68-0232575

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

200 Vesey Street, 24thFloor

New York, New York

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

(212) 321-5002

(Registrant’s telephone number, including area code)

 

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

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value $0.01 AREN NYSE American

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

 

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

 

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

 

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

 

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

 

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

 

As of May 2,November 7, 2022, the Registrant had 17,808,43418,245,040 shares of common stock outstanding.

 

 

 

TABLE OF CONTENTS

TABLE OF CONTENTS

 

Page

Number

  
PART I - FINANCIAL INFORMATION4
  
Item 1. Condensed Consolidated Financial Statements4
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations25
Item 3. Quantitative and Qualitative Disclosures About Market Risk32
Item 4. Controls and Procedures32
PART II - OTHER INFORMATION33
  
Item 1. Legal Proceedings3. Quantitative and Qualitative Disclosures About Market Risk3345
  
Item 1A. Risk Factors4. Controls and Procedures3345
  
PART II - OTHER INFORMATION46
Item 1. Legal Proceedings46
Item 1A. Risk Factors46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds3346
  
Item 3. Defaults Upon Senior Securities3346
  
Item 4. Mine Safety Disclosures3346
  
Item 5. Other Information3347
  
Item 6. Exhibits
3447
  
SIGNATURES3548

2

 

 

Forward-Looking Statements

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

 

We caution investors that any forward-looking statements presented in this Quarterly Report, or that we may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information currently available, to, us. Such statements are based on assumptions,as well as our beliefs and theassumptions. The actual outcome related to forward-looking statements will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements, which are based only on known results and trends at the time they are made, to anticipate future results or trends. OtherWe detail other risks are detailed by us in our public filings with the Securities and Exchange Commission (the “SEC”), including in Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 1, 2022 (the “Form 10-K”).2021. The discussion in this Quarterly Report should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and our Annual Report.Report on Form 10-K for the year ended December 31, 2021.

 

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

3

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL INFORMATION

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

Index to Condensed Consolidated Financial Statements

 

 PAGE
Condensed Consolidated Balance Sheets - March 31,– September 30, 2022 (Unaudited) and December 31, 20215
Condensed Consolidated Statements of Operations (Unaudited) - Three Months and Nine Months Ended March 31,September 30, 2022 and 20216
Condensed Consolidated Statements of Stockholders’ Deficiency (Unaudited) - ThreeNine Months Ended March 31,September 30, 2022 and 20217
Condensed Consolidated Statements of Cash Flows (Unaudited) - ThreeNine Months Ended March 31,September 30, 2022 and 2021910
Notes to Condensed Consolidated Financial Statements (Unaudited)1011

 

4

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

March 31, 2022

(unaudited)

  

December 31,

2021

  

September 30, 2022

(unaudited)

  December 31, 2021 
 ($ in thousands, except share data)  ($ in thousands, except share data) 
Assets                
Current assets:                
Cash and cash equivalents $22,480  $9,349  $13,303  $9,349 
Restricted cash  502   502   502   502 
Accounts receivable, net  19,998   21,660   33,662   21,660 
Subscription acquisition costs, current portion  24,940   30,162   22,800   30,162 
Royalty fees  7,500   11,250   -   11,250 
Prepayments and other current assets  4,972   4,748   3,978   4,748 
Total current assets  80,392   77,671   74,245   77,671 
Property and equipment, net  593   636   793   636 
Operating lease right-of-use assets  493   528   415   528 
Platform development, net  10,013   9,299   10,339   9,299 
Subscription acquisition costs, net of current portion  7,307   8,235   7,497   8,235 
Acquired and other intangible assets, net  52,255   57,356   51,155   57,356 
Other long-term assets  587   639   564   639 
Goodwill  19,619   19,619   22,554   19,619 
Total assets $171,259  $173,983  $167,562  $173,983 
Liabilities, mezzanine equity and stockholders’ deficiency                
Current liabilities:                
Accounts payable $7,070  $11,982  $11,746  $11,982 
Accrued expenses and other  17,425   24,011   22,354   24,011 
Line of credit  9,291   11,988   18,474   11,988 
Unearned revenue  48,519   54,030   51,683   54,030 
Subscription refund liability  2,534   3,087   837   3,087 
Operating lease liability  387   374 
Operating lease liabilities  413   374 
Liquidated damages payable  5,369   5,197   5,836   5,197 
Current portion of long-term debt  5,847   5,744   5,899   5,744 
Total current liabilities  96,442   116,413   117,242   116,413 
Unearned revenue, net of current portion  12,362   15,277   11,491   15,277 
Operating lease liability, net of current portion  683   785 
Operating lease liabilities, net of current portion  471   785 
Liquidating damages payable, net of current portion  -   7,008   -   7,008 
Other long-term liabilities  7,527   7,556   3,771   7,556 
Deferred tax liabilities  376   362   403   362 
Long-term debt  64,929   64,373   65,433   64,373 
Total liabilities  182,319   211,774   198,811   211,774 
Commitments and contingencies (Note 15)  -   - 
Commitments and contingencies (Note 16)  -     
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; Series G shares issued and outstanding: 168; common shares issuable upon conversion: 8,582 at March 31, 2022 and December 31, 2021  168   168 
Series H convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 23,000 shares designated; aggregate liquidation value: $14,556 and $15,066; Series H shares issued and outstanding: 14,556 and 15,066; common shares issuable upon conversion: 2,004,971 and 2,075,200 at March 31, 2022 and December 31, 2021, respectively  13,207   13,718 
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; Series G shares issued and outstanding: 168; common shares issuable upon conversion: 8,582 at September 30, 2022 and December 31, 2021  168   168 
Series H convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 23,000 shares designated; aggregate liquidation value: $14,556 and $15,066; Series H shares issued and outstanding: 14,556 and 15,066; common shares issuable upon conversion: 2,008,728 and 2,075,200 at September 30, 2022 and December 31, 2021, respectively  13,207   13,718 
Total mezzanine equity  13,375   13,886   13,375   13,886 
Stockholders’ deficiency:                
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 17,502,102 and 12,632,947 shares at March 31, 2022 and December 31, 2021, respectively  175   126 
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 18,149,622 and 12,632,947 shares at September 30, 2022 and December 31, 2021, respectively  182   126 
Common stock to be issued  -   -   -   - 
Additional paid-in capital  246,052   200,410   264,568   200,410 
Accumulated deficit  (270,662)  (252,213)  (309,374)  (252,213)
Total stockholders’ deficiency  (24,435)  (51,677)  (44,624)  (51,677)
Total liabilities, mezzanine equity and stockholders’ deficiency $171,259  $173,983  $167,562  $173,983 

See accompanying notes to condensed consolidated financial statements.statements

 

5

 

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 2022  2021  2022  2021  2022  2021 
 Three Months Ended March 31,  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 2022  2021  2022  2021  2022  2021 
 ($ in thousands, except per share data)  ($ in thousands, except share data) 
Revenue $48,243  $33,615  $66,706  $59,575  $180,024  $127,936 
Cost of revenue (includes amortization of developed technology and platform development for 2022 and 2021 of $2,311 and $2,167, respectively)  28,497   28,208 
Cost of revenue (includes amortization of developed technology and platform development for three months ended 2022 and 2021 of $2,413 and $2,242, respectively and for the nine months ended 2022 and 2021 of $7,099 and $6,566, respectively)  40,504   32,215   115,730   83,264 
Gross profit  19,746   5,407   26,202   27,360   64,294   44,672 
Operating expenses                        
Selling and marketing  17,216   17,529   20,103   22,892   56,626   54,232 
General and administrative  13,514   5,638   13,847   14,557   43,325   37,587 
Depreciation and amortization  4,202   3,963   4,478   4,055   13,124   11,982 
Loss on lease termination  -   7,345   -   7,345 
Loss on impairment of assets  257   -   209   904   466   904 
Total operating expenses  35,189   27,130   38,637   49,753   113,541   112,050 
Loss from operations  (15,443)  (21,723)  (12,435)  (22,393)  (49,247)  (67,378)
Other expenses        
Other (expense) income                
Change in valuation of warrant derivative liabilities  -   (665)  -   802   -   497 
Interest expense  (2,820)  (2,820)
Interest expense, net  (3,184)  (2,512)  (8,510)  (7,695)
Liquidated damages  (172)  (255)  (339)  (834)  (639)  (2,198)
Total other expenses  (2,992)  (3,740)
Gain upon debt extinguishment  -   -   -   5,717 
Total other (expense) income  (3,523)  (2,544)  (9,149)  (3,679)
Loss before income taxes  (18,435)  (25,463)  (15,958)  (24,937)  (58,396)  (71,057)
Income taxes  (14)  -   (547)  230   1,235   230 
Net loss $(18,449) $(25,463) $(16,505) $(24,707) $(57,161) $(70,827)
Basic and diluted net loss per common share $(1.20) $(2.44) $(0.90) $(2.15) $(3.30) $(6.38)
Weighted average number of common shares outstanding – basic and diluted  15,381,306   10,456,052   18,284,670   11,491,412   17,339,882   11,100,416 

See accompanying notes to condensed consolidated financial statements.

6

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

Three Months Ended March 31, 2022

                             
  Common Stock  

Common Stock

to be Issued

  Additional    Total 
  Shares  Par Value  Shares  Par Value  

Paid-in

Capital

  

Accumulated

Deficit

  

Stockholders’

Deficiency

 
  ($ in thousands, except number of shares) 
Balance at January 1, 2022  12,632,947  $126          49,134  $   -  $200,410  $(252,213) $(51,677)
Issuance of restricted stock awards to the board of directors  -   -   -   -   -   -   - 
Issuance of restricted stock awards to the board of directors, shares  -   -   -   -   -   -   - 
Issuance of common stock upon conversion of series H preferred stock  70,380   1   -   -   510   -   511 
Issuance of common stock for restricted stock units in connection with an acquisition  16,760   -   -   -   -   -   - 
Issuance of common stock in connection with professional services  14,617   -   -   -   184   -   184 
Issuance of common stock in connection with settlement of liquidated damages  505,671   5   -   -   6,680   -   6,685 
Gain upon issuance of common stock in connection with settlement of liquidated damages  -   -   -   -   323   -   323 
Issuance of common stock for restricted stock units  155,211   2   -   -   (2)  

-

   - 
Common stock withheld for taxes upon issuance of underlying shares for restricted stock units  (67,023)  (1)  -   -   (555)  -   (556)
Repurchase restricted stock classified as liabilities  (8,064)  -   -   -   -   -   - 
Issuance of common stock in connection with public offering  4,181,603   42   -   -   30,448   -   30,490 
Stock-based compensation  -   -   

-

   -   8,054   

-

   8,054 
Net loss  -   -   -   -   -   (18,449)  (18,449)
Balance at March 31, 2022  17,502,102  $175   49,134  $-  $246,052  $(270,662) $(24,435)

7

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

 

Three and Nine Months Ended March 31,September 30, 2022

  Shares  Par Value  Shares  Par Value  Paid-in Capital  Accumulated Deficit  Stockholders’ Deficiency 
  Common Stock  Common Stock to be Issued  Additional     Total 
  Shares  Par Value  Shares  Par Value  Paid-in Capital  Accumulated Deficit  Stockholders’ Deficiency 
  ($ in thousands, except share data)    
Balance at June 30, 2022  17,827,526  $178   41,283  $-  $258,727  $(292,869) $(33,964)
Issuance of common stock for restricted stock units  541,719   5   -   -   (5)  -   - 
Issuance of common stock upon exercise (including cashless exercise) of stock options  38,152   -   -   -   94   -   94 
Common stock withheld for taxes  (257,775)  (1)  -   -   (2,963)  -   (2,964)
Stock-based compensation  -   -   -   -   8,715   -   8,715 
Net loss  -   -   -   -   -   (16,505)  (16,505)
Balance at September 30, 2022  18,149,622  $182   41,283  $-  $264,568  $(309,374) $(44,624)

  Common Stock  Common Stock to be Issued  Additional     Total 
  Shares  Par Value  Shares  Par Value  Paid-in Capital  Accumulated Deficit  Stockholders’ Deficiency 
  ($ in thousands, except share data) 
Balance at January 1, 2022  12,632,947  $126   49,134  $ -  $200,410  $(252,213) $    (51,677)
Issuance of common stock upon conversion of Series H convertible preferred stock  70,380   1   -   -   510   -   511 
Issuance of common stock for restricted stock units in connection with an acquisition  16,760   -   -   -   -   -   - 
Issuance of common stock in connection with professional services  14,617   -   -   -   184   -   184 
Issuance of common stock in connection with settlement of liquidated damages  505,671   5   -   -   6,680   -   6,685 
Gain upon issuance of common stock in connection with settlement of liquidated damages  -   -   -   -   323   -   323 
Issuance of common stock for restricted stock units  718,530   7   -   -   (7)  -   - 
Issuance of common stock upon cashless exercise of stock options  20   -   -   -   -   -   - 
Common stock withheld for taxes  (324,798)  (2)  -   -   (3,518)  -   (3,520)
Repurchase restricted stock awards in connection with HubPages merger  (26,214)  -   -   -   -   -   - 
Issuance of common stock in connection with public offering  4,181,603   42   -   -   30,448   -   30,490 
Issuance of common stock in connection with the acquisition of Athlon  314,103   3   -   -   3,138   -   3,141 
Issuance of common stock upon exercise (including cashless exercise) of stock options  38,152   -   -   -   94   -   94 
Issuance of common stock in connection with Say Media merger  7,851   -   (7,851)  -   -   -   - 
Stock-based compensation  -   -   -   -   26,306   -   26,306 
Net loss  -   -   -   -   -   (57,161)  (57,161)
Balance at September 30, 2022  18,149,622  $182   41,283  $-  $264,568  $(309,374) $(44,624)

7

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

Three and Nine Months Ended September 30, 2021

 

  Common Stock  

Common Stock

to be Issued

  Additional    Total 
  Shares  Par Value  Shares  Par Value  

Paid-in

Capital

  

Accumulated

Deficit

  

Stockholders’

Deficiency

 
  ($ in thousands, except number of shares) 
Balance at January 1, 2021  10,412,963  $104   49,134  $-  $141,856  $(162,273) $(20,313)
Balance  10,412,963  $104   49,134  $-  $141,856  $(162,273) $(20,313)
Issuance of restricted stock awards to the board of directors  36,599   -   -   -   -   -   - 
Repurchase restricted stock classified as liabilities  (6,049)  -   -   -   -   -   - 
Issuance of common stock for restricted stock units in connection with an acquisition  11,667   -   -   -   -   -   - 
Issuance of common stock in connection with professional services  14,205   -       -   125   -   125 
Stock-based compensation  -   -   -   -   5,408   -   5,408 
Net loss  -   -   -   -   -   (25,463)  (25,463)
Balance at March 31, 2021  10,469,385  $104   49,134  $-  $147,389  $(187,736) $(40,243)
Balance  10,469,385  $104   49,134  $-  $147,389  $(187,736) $(40,243)
  Common Stock  Common Stock to be Issued  Additional     Total 
  Shares  Par Value  Shares  Par Value  Paid-in Capital  Accumulated Deficit  Stockholders’ Deficiency 
  ($ in thousands, except share data) 
Balance at June 30, 2021  11,962,537  $119   49,134  $-  $175,837  $(208,393) $(32,437)
Issuance of common stock upon conversion of Series H convertible preferred stock  6,888   -   -   -   50   -   50 
Issuance of restricted stock in connection with the acquisition of Fulltime Fantasy  34,091   -   -   -   502   -   502 
Issuance of common stock for restricted stock units  22,728   -   -   -   -   -   - 
Forfeiture of unvested restricted stock awards  (6,844)  -   -   -   -   -   - 
Common stock withheld for taxes  (2,130)  -   -   -   (29)  -   (29)
Stock-based compensation  -   -   -   -   8,962   -   8,962 
Net loss  -   -   -   -   -   (24,707)  (24,707)
Balance at September 30, 2021  12,017,270  $119   49,134  $-  $185,322  $(233,100) $(47,659)

8

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

Three and Nine Months Ended September 30, 2021

  Common Stock  Common Stock to be Issued  Additional     Total 
  Shares  Par Value  Shares  Par Value  Paid-in Capital  Accumulated Deficit  Stockholders’ Deficiency 
  ($ in thousands, except share data) 
Balance at January 1, 2021  10,412,963  $104   49,134  $-  $141,856  $(162,273) $(20,313)
Issuance of restricted stock awards to the board of directors  40,334   -   -   -   -   -   - 
Repurchase restricted stock classified as liabilities  (12,098)  -   -   -   -   -   - 
Issuance of common stock for restricted stock units in connection with an acquisition  11,667   -   -   -   -   -   - 
Issuance of common stock in connection with professional services  14,205   -   -   -   125   -   125 
Issuance of restricted stock in connection with the acquisition of The Spun  194,806   2   -   -   (2)  -   - 
Issuance of common stock upon cashless exercise of stock options  3,859   -   -   -   -   -   - 
Common stock withheld for taxes  (4,356)  -   -   -   (70)  -   (70)
Issuance of common stock in connection with private placement  1,299,027   13   -   -   19,825   -   19,838 
Issuance of common stock upon conversion of series H preferred stock  6,888   -   -   -   50   -   50 
Issuance of restricted stock in connection with the acquisition of Fulltime Fantasy  34,091   -   -   -   502   -   502 
Issuance of common stock for restricted stock units  22,728   -   -   -   -   -   - 
Forfeiture on unvested restricted stock awards  (6,844)  -   -   -   -   -   - 
Stock-based compensation  -   -   -   -   23,036   -   23,036 
Net loss  -   -   -   -   -   (70,827)  (70,827)
Balance at September 30, 2021  12,017,270  $119   49,134  $-  $185,322  $(233,100) $(47,659)

 

See accompanying notes to condensed consolidated financial statements.

9

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

  2022  2021 
  Nine Months Ended September 30, 
  2022  2021 
  ($ in thousands) 
Cash flows from operating activities        
Net loss $(57,161) $(70,827)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation of property and equipment  395   334 
Amortization of platform development and intangible assets  19,828   18,214 
Gain upon debt extinguishment  -   (5,717)
Loss on termination of lease  -   7,345 
Amortization of debt discounts  1,215   1,534 
Loss on impairments of assets  466   904 
Change in valuation of warrant derivative liabilities  -   (497)
Noncash and accrued interest  86   5,273 
Liquidated damages  639   2,198 
Stock-based compensation  24,777   21,689 
Deferred income taxes  (1,235)  (230)
Other  468   (1,060)
Change in operating assets and liabilities net of effect of business combination:        
Accounts receivable  (1,385)  (173)
Subscription acquisition costs  8,100   (8,434)
Royalty fees  11,250   11,250 
Prepayments and other current assets  2,107   (78)
Other long-term assets  75   639 
Accounts payable  (7,652)  1,215 
Accrued expenses and other  (3,390)  5,566 
Unearned revenue  (7,382)  5,389 
Subscription refund liability  (2,250)  344 
Operating lease liabilities  (162)  (2,448)
Other long-term liabilities  (3,465)  (692)
Net cash used in operating activities  (14,676)  (8,262)
Cash flows from investing activities        
Purchases of property and equipment  (444)  (300)
Capitalized platform development  (3,990)  (3,017)
Proceeds from sale of equity investment  2,450   - 
Payments for acquisition of business, net of cash acquired  (10,331)  (7,357)
Net cash used in investing activities  (12,315)  (10,674)
Cash flows from financing activities        
Borrowings (repayments) under line of credit  6,486   (473)
Proceeds from common stock public offering, net of offering costs  32,058   - 
Payments of issuance costs from common stock public offering  (1,568)  - 
Net exercise of common stock options  94   - 
Payment of The Spun deferred cash payment  (453)  - 
Proceeds from common stock private placement  -   20,005 
Payments of issuance costs from common stock private placement  -   (167)
Payment for taxes related to repurchase of restricted common stock  (3,520)  (70)
Payment of restricted stock liabilities  (2,152)  (1,165)
Net cash provided by financing activities  30,945   18,130 
Net increase (decrease) in cash, cash equivalents, and restricted cash  3,954   (806)
Cash, cash equivalents, and restricted cash – beginning of period  9,851   9,535 
Cash, cash equivalents, and restricted cash – end of period $13,805  $8,729 
Cash, cash equivalents, and restricted cash        
Cash and cash equivalents $13,303  $8,228 
Restricted cash  502   501 
Total cash, cash equivalents, and restricted cash $13,805  $8,729 
Supplemental disclosure of cash flow information        
Cash paid for interest $7,209  $902 
Cash paid for income taxes  -   - 
Noncash investing and financing activities        
Reclassification of stock-based compensation to platform development $1,529  $1,347 
Restricted stock issued in connection with acquisition of Fulltime Fantasy  -   503 
Deferred cash payments in connection with acquisition of Fulltime Fantasy  -   419 
Issuance of common stock in connection with settlement of liquidated damages  7,008   - 
Issuance of common stock in connection with professional services  -   125 
Common stock issued in connection with acquisition of Athlon  3,141   - 
Deferred cash payments in connection with acquisition of Athlon  949   - 
Assumption of liabilities in connection with acquisition of Athlon  11,602   - 
Deferred cash payments in connection with acquisition of The Spun  -   905 
Assumption of liabilities in connection with acquisition of The Spun  -   2 
Conversion of Series H convertible preferred stock into common stock  511   - 

See accompanying notes to condensed consolidated financial statements.

 

810

 

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

  2022  2021 
  Three Months Ended March 31, 
  2022  2021 
  ($ in thousands) 
Cash flows from operating activities        
Net loss $(18,449) $(25,463)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation of property and equipment  114   110 
Amortization of platform development and intangible assets  6,399   6,020 
Amortization of debt discounts  660   694 
Loss on impairment of assets  257   - 
Change in valuation of warrant derivative liabilities  -   665 
Accrued interest  -   1,866 
Liquidated damages  172   255 
Stock-based compensation  7,367   5,099 
Deferred income taxes  14   - 
Other  183   (509)
Change in operating assets and liabilities:        
Accounts receivable  1,594   2,917 
Subscription acquisition costs  6,150   (8,349)
Royalty fees  3,750   3,750 
Prepayments and other current assets  (224)  (1,630)
Other long-term assets  52   (238)
Accounts payable  (4,912)  1,920 
Accrued expenses and other  (7,444)  1,821 
Unearned revenue  (8,358)  9,039 
Subscription refund liability  (553)  737 
Operating lease liabilities  (54)  (215)
Other long-term liabilities  (29)  - 
Net cash used in operating activities  (13,311)  (1,511)
Cash flows from investing activities        
Purchases of property and equipment  (71)  (98)
Capitalized platform development  (1,582)  (868)
Net cash used in investing activities  (1,653)  (966)
Cash flows from financing activities        
Repayments under line of credit, net of borrowings  (2,697)  (1,752)
Proceeds from public offering of common stock, net of offering costs  32,058   - 
Payment of tax withholdings of common stock withheld  (556)  - 
Payment of restricted stock liabilities  (710)  (280)
Net cash provided by (used for) financing activities  28,095   (2,032)
Net increase (decrease) in cash, cash equivalents, and restricted cash  13,131   (4,509)
Cash, cash equivalents, and restricted cash – beginning of period  9,851   9,535 
Cash, cash equivalents, and restricted cash – end of period $22,982  $5,026 
Cash, cash equivalents, and restricted cash        
Cash and cash equivalents $22,480  $4,525 
Restricted cash  502   501 
Total cash, cash equivalents, and restricted cash $22,982  $5,026 
Supplemental disclosure of cash flow information        
Cash paid for interest $2,160  $260 
Cash paid for income taxes  -   - 
Noncash investing and financing activities        
Reclassification of stock-based compensation to platform development $687  $309 
Offering costs included in accrued expenses and other  1,568   - 
Issuance of common stock in connection with settlement of liquidated damages  7,008   - 
Issuance of common stock upon conversion of series H preferred stock  511   - 

See accompanying notes to condensed consolidated financial statements.

9

THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

($ in thousands, unless otherwise stated)

1.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements include the accounts of The Arena Group Holdings, Inc. (formerly known as TheMaven, Inc.) and its wholly owned subsidiaries (“The Arena Group” or the “Company”), after eliminating all significant intercompany balances and transactions. The Company does not have any material off-balance sheet arrangements. The Company changed its corporate name to The Arena Group Holdings, Inc. from TheMaven, Inc. on February 8, 2022.

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete audited financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in The Arena Group’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC onas of April 1, 2022.

 

The condensed consolidated financial statements as of March 31,September 30, 2022, and for the three and nine months ended March 31,September 30, 2022 and 2021, are unaudited but, in management’s opinion, include all adjustments necessary for a fair presentation of the results of interim periods. All such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet as of December 31, 2021, was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year.

The Company’s impact during the first quarter of 2022 by the novel coronavirus (“COVID-19”) pandemic has been to a lesser extentimpacted the Company less during the third quarter of 2022 than it did in 2021. WithDuring the initial onset of COVID-19, the Company faced significant change in its advertisers’ buying behavior. Since May 2020, however, there has been a steady recovery in the advertising market in both pricing and volume, whichvolume. This, coupled with the return of professional and college sports, has yielded steady growth in revenues.revenues in 2020 as compared to 2021. Given that the Sports Illustrated media business reliescertain of our sports businesses rely on sporting events to generate content and comprises a material portion of the Company’s revenues, the cash flows and results of operations are susceptible tocould be negatively impacted by a widespread cancellation of sporting events or a general limitation of societal activity akin to what is widely known to have occurred in the Unites States and elsewhere during the 2020 calendar year and, to a lesser extent, during the 2021 calendar year. Future widespread shutdowns of in-person economic activity could have a material impact on the Company’s business. As a result of the Company’s advertising revenue declining in early 2021 caused by the widespread cancellations of sporting events, the Company is vulnerable to a risk of loss in the near term and it is at least reasonably possible that events or circumstances may occur that could cause an impact in the near term, that depend on the actions taken to prevent the further spread of COVID-19.2021.

 

The Company operates in one reportable segment.

 

Reverse Stock Split

 

The accompanyingCompany effected a 1-for-22 reverse stock split as of February 9, 2022. The condensed consolidated financial statements and the notes to the condensed consolidated financial statementsthereto give effect to thesuch reverse stock split for all periods presented that was effective on February 9, 2022.presented. The shares of common stock retained a par value of $0.01$0.01 per share. Accordingly, stockholders’ deficiency reflects the reverse stock split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the reverse stock split. Any fractional shares that would otherwise be issued as a result of the reverse stock split were rounded up to the nearest whole share.

 

1011

 

Use of Estimates

 

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

Recently Adopted Accounting Standards

 

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which updates various codification topics to simplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and amends the diluted EPSearnings per share computation for these instruments. On January 1, 2022, the Company adopted ASU 2020-06 with no material impact to its condensed consolidated financial position, results of operations or cash flows.

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force (EITF), to provide explicit guidance on accounting by issuers for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. On January 1, 2022, the Company adopted ASU 2021-04 with no material impact to its condensed consolidated financial position, results of operations, cash flows or disclosures.

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to account for revenue contracts acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. The acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired contracts. This update should lead to recognition and measurement consistent with what’s reported in the acquiree’s financial statements, provided that the acquiree prepared financial statements in accordance with GAAP. The new standard marks a change from current GAAP, under which assets and liabilities acquired in a business combination, including contract assets and contract liabilities arising from revenue contracts, are generally recognized at fair value at the acquisition date. On January 1, 2022, the Company adopted ASU 2021-08 with no material impact to its condensed financial position, results of operations or cash flows. This new accounting standard will be applied prospectively to business combinations.

 

1112

 

Loss per Common Share

 

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

 

The Company excluded the outstanding securities summarized below (capitalized terms are described herein), which entitle the holders thereof to acquire shares of the Company’s common stock, from its calculation of net loss per common share, as their effect would have been anti-dilutive. Common stock equivalent shares are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.

Schedule of Net Income (Loss) Per Common Share

 2022  2021  2022  2021 
 As of March 31,  As of September 30, 
 2022  2021  2022  2021 
Series G convertible preferred stock  8,582   8,582   8,582   8,582 
Series H Preferred Stock  2,004,971   2,699,312   2,008,728   2,692,906 
Restricted Stock Awards  194,806   14,394   97,402   188,543 
Financing Warrants  116,118   131,003   116,118   131,003 
ABG Warrants  999,540   999,540   999,540   999,540 
AllHipHop warrants  5,681   5,681   5,682   5,682 
Publisher Partner Warrants  26,893   35,889   5,629   35,889 
2016 Plan  286,151   321,761 
2019 Plan  

6,326,538

   7,179,349 
Equity Plans  7,583,100   7,646,788 
Outside Options  138,637   138,637   134,098   138,644 
Total  10,107,917   11,534,148   10,958,879   11,847,577 

Reclassifications

Certain prior quarter amounts have been reclassified to conform to current period presentation. These reclassifications were immaterial, both individually and in the aggregate. These changes did not impact previously reported loss from operations or net loss.

 

2.Acquisitions

2022 Acquisitions

Athlon Holdings, Inc. – On April 1, 2022, the Company acquired 100% of the issued and outstanding capital stock of Athlon Holdings, Inc., a Tennessee corporation (“Athlon”), for a preliminary purchase price of $16,175, as adjusted for the estimated working capital adjustment as of the closing date of the transaction. The purchase price is pending finalization of a working capital adjustment and deferred taxes and could be subject to further revision if additional information related to the fair value of the identifiable net assets become available. As a part of the closing consideration, the Company also acquired cash of $1,840, that was further adjusted post-closing for the working capital adjustment. The preliminary purchase price of $16,175, as discounted, is comprised of (i) a cash portion of $13,162, with $11,840 paid at closing and $1,322 estimated to be paid post-closing (as further described below) and (ii) the issuance of 314,103 shares of the Company’s common stock with a fair market value of $3,141. The number of shares of the Company’s common stock issued was determined based on a $3,000 value using the common stock trading price for the 10 trading days preceding the April 1, 2022 closing date. Certain of Athlon’s key employees entered into either advisory agreements or employment agreements with the Company. Athlon operates in the United States.

13

The amount estimated to be paid post-closing of $1,322 will be or was paid as follows: (i) $1,077 will be paid on the nine-month anniversary of the closing date, or January 1, 2023 (consisting of $3,000 for the deferred cash payments, as discounted, less a $1,923 cash adjustment); and (ii) $245 was paid within two business days from the date the Company received proceeds of $2,450 from the sale of the equity investment in Just Like Falling Off a Bike, LLC that was held by Athlon as of the closing date (paid on April 7, 2022).

After the condensed consolidated financial statements for the quarterly period ended June 30, 2022 were issued, the Company received an updated valuation report from a third-party valuation firm. After considering the results of that valuation report, the Company estimated that the purchase consideration decreased by $940. The decrease in the purchase price was related to a decrease in the working capital adjustment of $180, an increase in fixed assets of $46, a decrease in identifiable assets of $477 (digital content increased $355, advertiser relationships decreased $498, and trade names decreased $334), a decrease in deferred tax liabilities of $533, and a decrease in goodwill of $862.

The composition of the preliminary purchase price is as follows:

Schedule of Preliminary Purchase Price

     
Cash $12,085 
Common stock  3,141 
Deferred cash payments, as discounted  949 
Total purchase consideration $16,175 

The Company incurred $200 in transaction costs related to the acquisition, which primarily consisted of legal and accounting expenses. The acquisition-related expenses were recorded within general and administrative expense on the consolidated statements of operations.

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

Summary of Price Allocation for Acquisition

     
Cash $2,604 
Accounts receivable  10,855 
Other current assets  1,337 
Equity investment  2,450 
Fixed assets  108 
Digital content  355 
Advertiser relationships  6,132 
Trade names  2,277 
Goodwill  2,935 
Accounts payable  (7,416)
Accrued expenses and other  (2,440)
Unearned revenue  (1,203)
Other long-term liabilities  (543)
Deferred tax liabilities  (1,276)
Net assets acquired $16,175 

The Company utilized an independent appraisal firm to assist in the determination of the fair values of the assets acquired and liabilities assumed, which required certain significant management assumptions and estimates. The fair value of the digital content was determined using a cost approach. The fair values of the advertiser relationships were determined by projecting the acquired entity’s cash flows, deducting notional contributory asset charges on supporting assets (working capital, tangible assets, trade names, and the assembled workforce) to compute the excess cash flows associated with the advertiser relationships. The fair values of the trade names were determined by projecting revenue associated with each trade name and applying a royalty rate to compute the amount of the royalty payments the company is relieved from paying due to its ownership of the trade names. The estimated weighted average useful life is two years (2.00 years) for digital content, eight point seventy-five years (8.75 years) for advertiser relationships, and fourteen point five years (14.50 years) for trade names.

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

14

Supplemental Pro forma Information

The following table summarizes the results of operations of the Athlon acquisition from the acquisition date included in the condensed consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisition been January 1, 2021:

Schedule Of Supplemental Cash Flow Information

  2022  2021  2022  2021 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  2022  2021  2022  2021 
Athlon from acquisition date of April 1, 2022 (unaudited):                
Revenue $15,370  $-  $32,887  $- 
Net income  81   -   2,521   - 
Combined entity supplemental pro forma information had the acquisition date been January 1, 2021 (unaudited):                
Revenue:                
Athlon $15,370  $15,966  $48,797  $51,458 
Arena  51,336   59,575   147,137   127,936 
Total supplemental pro forma revenue $66,706  $75,541  $195,934  $179,394 
Net income (loss):                
Athlon $81  $1,030  $1,945  $3,644 
Arena  (16,586)  (24,707)  (58,682)  (70,827)
Adjustments  533   (306)  (1,310)  158 
Total supplemental pro forma net loss $(15,972) $(23,983) $(59,047) $(67,025)

The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred as of the beginning of the Company’s reporting period.

The adjustments for the three months ended September 2022 and 2021 of $533 and ($306), respectively, represents adjustments: (1) to record depreciation and amortization expense related to the fixed and intangible assets acquired from the acquisition of $0 and ($306); and (2) to record the deferred tax (benefit) provision related to the acquisition $533 and $0, respectively. The adjustments for the nine months ended September 2022 and 2021 of ($1,310) and $158, respectively, represents adjustments (1) to record depreciation and amortization expense related to the fixed and intangible assets acquired from the acquisition of ($234) and ($918); (2) to record (reverse) the nonrecurring transaction cost related to the acquisition of $200 and ($200); and (3) to record the deferred tax (benefit) provision related to the acquisition of ($1,276) and $1,276, respectively.

Further details are provided under the heading Athlon Acquisition in Note 17.

Buffalo Groupe, LLC – On September 27, 2022, the Company entered into an asset purchase agreement with Buffalo Groupe, LLC, doing business as Morning Read, a Virginia limited liability company, where it purchased certain intellectual properties (including all media properties, trademarks, service marks, domain names, trade names corporate names and other identifiers of goodwill), certain assumed contracts, and other certain rights related to the intellectual properties (collectively, the “Morning Read Purchased Assets”) and assumed certain liabilities related to the Morning Read Purchased Assets. The purchase consideration consisted of a cash payment of $850 at closing.

The Company accounted for the asset acquisition in accordance with ASC 805-50, as substantially all of the fair value of the gross assets acquired by the Company is concentrated in a group of similar identifiable assets.

The purchase consideration totaled $850, which was assigned to the brand name acquired on the closing date of the acquisition. The useful life for the brand name is ten years (10.0 years).

15

2021 Acquisitions

College Spun Media Incorporated – On June 4, 2021, the Company acquired all of the issued and outstanding shares of capital stock of College Spun Media Incorporated, a New Jersey corporation (“The Spun”), for an aggregate of $11,830 in cash and the issuance of an aggregate of 194,806 restricted shares of the Company’s common stock, with one-half of the shares vesting on the first anniversary of the closing date and the remaining one-half of the shares vesting on the second anniversary of the closing date, subject to a customary working capital adjustment based on cash and accounts receivable as of the closing date. The cash payment consists of: (i) $10,830 paid at closing (of the cash paid at closing, $830 represents adjusted cash pursuant to the working capital adjustments), and (ii) $500 to be paid on the first anniversary of the closing and $500 to be paid on the second anniversary date of the closing. The vesting of shares of the Company’s common stock is subject to the continued employment of certain selling employees. The Spun operates in the United States.

The composition of the purchase price is as follows:

Schedule of Preliminary Purchase Price

     
Cash $10,830 
Deferred cash payments, as discounted  905 
Total purchase consideration $11,735 

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

After the June 30, 2021 condensed consolidated financial statements were issued, the Company received a final valuation report from a third-party valuation firm. After considering the results of that valuation report, the Company estimated the fair values for the brand name of $5,175, along with a decrease for working capital accounts of $1,932 (consisting of adjusted amounts for cash, accounts receivable, accrued expenses and deferred tax liabilities) resulting in a corresponding decrease to goodwill of $3,977.

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

Summary of Price Allocation for Acquisition

     
Cash $3,214 
Accounts receivable  1,772 
Other current assets  5 
Brand name  5,175 
Goodwill  3,479 
Accrued expenses and other  (85) 
Deferred tax liabilities  (1,825) 
Net assets acquired $11,735 

The Company utilized an independent appraisal firm to assist in the determination of the fair values of the assets acquired and liabilities assumed, which required certain significant management assumptions and estimates. The fair value of the brand name was determined by projecting the acquired entity’s cash flows, deducting notional contributory asset charges on supporting assets (working capital and the assembled workforce) to compute the excess cash flows associated with the brand with a useful life of ten years (10.0 years).

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

Fulltime Fantasy Sports, LLC – On July 15, 2021, the Company entered into an asset purchase agreement with Fulltime Fantasy Sports, LLC, a Delaware limited liability company (“Fulltime Fantasy”), where it purchased certain intellectual properties (including databases, documents and certain rights related to the intellectual properties), subscriber and customer records, and other certain rights related to the intellectual properties (collectively the “Fulltime Fantasy Purchased Assets”) and assumed certain liabilities related to the Fulltime Fantasy Purchased Assets. The purchase price consisted of: (1) a cash payment of $335 (paid in advance), including transaction related costs of $35, (2) 34,092restricted shares the Company’s common stock (subject to certain vesting earn-out provisions and certain buy-back rights), with 11,364 shares vested at closing and another 11,364 shares vested on December 31, 2021, and (3) a cash earn-out payment of $225 (paid in January 2022). The remaining consideration of a cash earn-out payment of $225 was paid on June 30, 2022 and the remaining 11,364 restricted shares of the Company’s common stock vested on June 30, 2022.

16

The Company accounted for the asset acquisition in accordance with ASC 805-50, as substantially all of the fair value of the gross assets acquired by the Company is concentrated in a group of similar identifiable assets. Transaction-related costs of $35 were assigned to the identifiable asset and recorded as part of the consideration transferred.

The composition of the purchase price is as follows:

Schedule of Preliminary Purchase Price

Cash (including $35,000 of transaction related costs) $335 
Restricted stock  168 
Deferred cash payments  419 
Deferred restricted stock  335 
Total purchase consideration $1,257 

The purchase consideration totaled $1,257 (including $35 of transaction related costs), which was assigned to a database acquired on the closing date of the acquisition. The useful life for the database is three years (3.0 years).

3.Balance Sheet Components

 

The components of certain balance sheet amounts are as follows:

 

Accounts Receivable – Accounts receivable are presented net of allowance for doubtful accounts. The allowance for doubtful accounts as of March 31,September 30, 2022 and December 31, 2021 was $2,278 and $1,578., respectively.

 

Subscription Acquisition Costs AsSubscription acquisition costs include the incremental costs of March 31,obtaining a contract with a customer, paid to external parties, if it expects to recover those costs. The Company has determined that sales commissions paid on all third-party agent sales of subscriptions are direct and incremental and, therefore, meet the capitalization criteria. The Company has elected to apply the practical expedient to account for these costs at the portfolio level. The sales commissions paid to third-party agents are amortized as the magazines are sent to the subscriber on an issue-by-issue basis. Subscription acquisition costs are included within selling and marketing expenses in the condensed consolidated statements of operations.

The current portion of the subscription acquisition costs as of September 30, 2022 and December 31, 2021 was $22,800 and $30,162, respectively. The noncurrent portion of the subscription acquisition costs wereas of September 30, 2022 and December 31, 2021 was $32,247 (short-term of $24,9407,497 and long-term of $7,307) and $38,397 (short-term of $30,162 and long-term of $8,235), respectively. Subscription acquisition costs as of March 31,September 30, 2022 presented as current assets of $24,94022,800 are expected to be amortized over a one yearone-year period, or through March 31,September 30, 2023 and $7,3077,497 presented as long-term assets are expected to be amortized after the one yearone-year period ending March 31, 2023.September 30, 2023.

 

Royalty Fees – Royalty fees represent royalties due to ABG-SI, LLC (“ABG”) in connection with the Sports Illustrated media business. The Company’s guaranteed minimum annual royalties are $15,000, with payment to be made in advance on a quarterly basis, and the royalty fee payments are amortized monthly. The Company’s guaranteed minimum annual royalties are $15,000 and require payment in advance on a quarterly basis that are amortized monthly. As of September 30, 2022 and December 31, 2021, $0 and $11,250, respectively, were paid in advance and reflected within current assets on the condensed consolidated balance sheets.

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

Schedule of Property and Equipment

 March 31, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
 As of  As of 
 March 31, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
Office equipment and computers $1,407  $1,341  $1,670  $1,345 
Furniture and fixtures  1   1   228   1 
Gross property and equipment  1,408   1,342 
Property and equipment, gross  1,898   1,346 
Less accumulated depreciation and amortization  (815)  (706)  (1,105)  (710)
Net property and equipment $593  $636  $793  $636 

 

Depreciation and amortization expense for the three months ended March 31,September 30, 2022 and 2021 was $114 150and $110114, respectively. Depreciation and amortization expense for the nine months ended September 30, 2022 and 2021 was $395 and $334, respectively. No impairment charges have been recorded for the three and nine months ended September 30, 2022. Impairment charges of $427 have been recorded for the three and nine months ended September 30, 2021.

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Platform Development – Platform development costs are summarized as follows:

Summary of Platform Development Costs

 March 31, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
 As of  As of 
 March 31, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
Platform development $16,699  $21,997  $19,948  $21,997 
Less accumulated amortization  (6,686)  (12,698)  (9,609)  (12,698)
Net platform development $10,013  $9,299  $10,339  $9,299 

Amortization expense for the three months ended September 30, 2022 and 2021, was $1,511 and $1,144, respectively. Amortization expense for the nine months ended September 30, 2022 and 2021, was $4,268 and $3,273, respectively.

 

A summary of platform development activity for the threenine months ended March 31,September 30, 2022 is as follows:

Summary of Platform Development Cost Activity

        
Platform development beginning of period $21,997 
Payroll-based costs capitalized  1,582 
Platform development beginning of year $21,997 
Payroll-based costs capitalized during the period  3,990 
Less dispositions  

(7,356

)  (7,357)
Total capitalized costs  16,223   18,630 
Stock-based compensation  687   1,529 
Impairments  (211)  (211)
Platform development end of period $16,699  $19,948 

 

Amortization expense forFor the threenine months ended March 31,September 30, 2022, and 2021, wasimpairment charges of $1,344211 and $1,069, respectively. Amortization expensehas been recorded for platform development is included in cost of revenues on the condensed consolidated statements of operations.development. For the three and nine months ended March 31, 2022 andSeptember 30, 2021, impairment charges of $211435 and $0, respectively, have been recordrecorded for platform development.

 

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

Schedule of Intangible Assets Subjects to Amortization

 As of March 31, 2022  As of December 31, 2021  As of September 30, 2022  As of December 31, 2021 
 Carrying Amount  Accumulated Amortization  Net Carrying Amount  Carrying Amount  Accumulated Amortization  Net Carrying Amount  

Carrying Amount

  Accumulated Amortization  Net Carrying Amount  

Carrying Amount

  Accumulated Amortization  Net Carrying Amount 
Developed technology $17,333  $(12,214) $5,119  $17,579  $(11,465) $6,114  $17,333  $(14,069) $3,264  $17,579  $(11,465) $6,114 
Trade name  3,328   (851)  2,477   3,328   (782)  2,546 
Brand name  5,175   (427)  4,748   5,175   (298)  4,877 
Trade names  5,396   (1,069)  4,327   3,328   (782)  2,546 
Brand names  6,025   (685)  5,340   5,175   (298)  4,877 
Subscriber relationships  73,459   (36,252)  37,207   73,459   (32,623)  40,836   73,459   (43,510)  29,949   73,459   (32,623)  40,836 
Advertiser relationships  2,240   (629)  1,611   2,240   (570)  1,670   8,372   (1,113)  7,259   2,240   (570)  1,670 
Digital content  355   (89)  266   -   -   - 
Database  2,397   (1,304)  1,093   2,397   (1,104)  1,293   2,397   (1,647)  750   2,397   (1,104)  1,293 
Subtotal amortizable intangible assets  103,932   (51,677)  52,255   104,178   (46,842)  57,336   113,337   (62,182)  51,155   104,178   (46,842)  57,336 
Website domain name  -   -   -   20   -   20   -   -   -   20   -   20 
Total intangible assets $103,932  $(51,677) $52,255  $104,198  $(46,842) $57,356  $113,337  $(62,182) $51,155  $104,198  $(46,842) $57,356 

 

Amortization expense for the three months ended March 31,September 30, 2022 and 2021 was $5,0555,230 and $4,9515,039, respectively, of which amortizationrespectively. Amortization expense for developed technology ofthe nine months ended September 30, 2022 and 2021 was $96715,560 and $1,09814,941, respectively, is included in cost of revenues on the condensed consolidated statements of operations.respectively. For the three and nine months ended March 31,September 30, 2022 and 2021, impairment charges of $46209 and $042, respectively, have beenwere recorded for the intangible assets.

 

Goodwill – The changes in carrying value of goodwill are as follows:

Schedule of Goodwill

  September 30, 2022  December 31, 2021 
  As of 
  September 30, 2022  December 31, 2021 
 Carrying value at beginning of year $19,619  $16,140 
 Goodwill acquired in acquisition of The Spun  -   3,479 
 Goodwill acquired in acquisition of Athlon  2,935   - 
 Carrying value at end of period $22,554  $19,619 

The Company performs its annual impairment test at the reporting unit level, which is the operating segment or one level below the operating segment. Management determined that the Company would be aggregated into a single reporting unit for purposes of performing the impairment test for goodwill.

3.4.Leases

 

The Company’s real estate lease for the use of office space was subleased during the year ended December 31, 2021 (as further described below). The Company’s current lease is a long-term operating lease with a remaining fixed payment term of 2.512.01 years.

13

 

The table below presents supplemental information related to operating leases:

Schedule of Supplemental Information Related to Operating Leases

 Three Months Ended March 31,  Nine Months Ended Year Ended 
 2022  2021  September 30, 2022  December 31, 2021 
Operating lease costs during the period (1) $179  $2,718  $727  $2,718 
Cash payments included in the measurement of operating lease liabilities during the period $117  $2,787  $351  $2,787 
Weighted-average remaining lease term (in years) as of period-end  2.51   11.02   2.01   2.75 
Weighted-average discount rate during the period  9.9%  13.6%  9.90%  9.90%

 

(1)Operating lease costs is presented net of sublease income that is not material.

 

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

 

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

 

The components of operating lease costs were as follows:

Schedule of Operating Lease Costs

 2022  2021  2022  2021  2022  2021 
 Three Months Ended March 31,  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 2022  2021  2022  2021  2022  2021 
Operating lease costs:                        
Cost of revenue $-  $1,797  $-  $630  $-  $1,261 
Selling and marketing  -   516   -   181   -   362 
General and administrative  234   423   328   148   891   297 
Total operating lease costs (1)  234   2,736   328   959   891   1,920 
Sublease income  (55)  (18)  (55)  -   (164)  - 
Operating cost $179  $2,718 
Total $273  $959  $727  $1,920 

 

(1)Includes certain costs associated with a business membership agreement (see below) that permits access to certain office space for the three and nine months ended September 30, 2022 of $170 and $510, see below.respectively, and month-to-month lease arrangements for the three and nine months ended September 30, 2022 of $95 and $191, respectively.

 

Maturities of the operating lease liability as of March 31,September 30, 2022 are summarized as follows:

Summary of Maturity of Lease Liabilities

Years Ending December 31,       
2022 (remaining nine months of the year) $355 
2022 (remaining three months of the year) $120 
2023  486   486 
2024  373   373 
Minimum lease payments  1,214   979 
Less imputed interest  (144)  (95)
Present value of operating lease liability $1,070  $884 
Current portion of operating lease liability $387  $413 
Long-term portion of operating lease liability  683   471 
Total operating lease liability $1,070  $884 

 

Sublease Agreement – In November 2021, the Company entered into an agreement to sublease its leased office space for the duration of its operating lease through September 2024. As of March 31,September 30, 2022, the Company is entitled to receive total sublease income of $582537.

 

Business Membership – Effective October 1, 2021, the Company entered into a business membership agreement with York Factory LLC, doing business as SaksWorks, that permits access to certain office space with furnishings, referred to as SaksWorks Memberships (each membership provides a certain number of accounts that equate to the use of the space granted). The term of the agreement was for 27 months, with 2115 months remaining at $57per month for 110 accounts.

 

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4.5.Line of Credit

 

On December 6, 2021, the Company entered into an amendment to its financing and security agreement for its line of credit with FPP Finance LLC (“FastPay”) that was originally entered into on February 27, 2020, pursuant to which (i) the maximum amount of advances available was increased to $25,000 from $15,000 (subject to eighty-five (85%) of eligible accounts receivable), (ii) the interest rate on the facility applicable margin was decreased to 6.0% per annum from 8.5% per annum (the facility bears interest at the LIBOR rate plus the applicable margin), and (iii) the maturity date was extended to February 28, 2024. from February 6, 2022. The line of credit is for working capital purposes and is secured by a first lien on all the Company’s cash and accounts receivable and a second lien on all other assets. As of March 31,September 30, 2022 and December 31, 2021, the balance outstanding under the FastPay line of credit was $9,29118,474 and $11,988, respectively.

 

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5.6.Restricted Stock Liabilities

 

On December 15, 2020, the Company entered into an amendment for certain restricted stock awards and units that were previously issued to certain employees in connection with a previous merger (the “HubPages merger”). Pursuant to the amendment, the Company committed to repurchase 48,389vested restricted stock awards as of December 31, 2020 at a price of $88.00 per share in 24 equal monthly installments on the second business day of each calendar month beginning January 4, 2021, subject to certain conditions.

 

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

Schedule of Components of Restricted Stock Liabilities

 March 31, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
 As of  As of 
 March 31, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
Restricted stock liabilities (before imputed interest) $2,307  $3,801  $2,307  $3,801 
Less imputed interest  (78)  (177)  (155)  (177)
Present value of restricted stock liabilities  2,229   3,624   2,152   3,624 
Less payments during the period  (710)  (1,472)
Less principal payments during the period  (2,152)  (1,472)
Restricted stock liabilities at end of period (reflected in accrued expenses and other) $1,519  $2,152  $-  $2,152 

 

The Company recorded the repurchase of 8,06426,214 and 6,04912,098 sharesduring the nine months ended September 30, 2022 and 2021, respectively, of the Company’s restricted common stock during the three months ended March 31, 2022 and 2021, respectively, on the condensed consolidated statements of stockholders’ deficiency. OnEffective April 4, 2022, there are no longer any shares of the Company’s common stock subject to repurchase. During the nine months ended September 30, 2022 and 2021, the Company paid $1,5972,307 and $1,419 in cash for the remaining repurchase, including interest of $18,134155 shares of the Company’s restricted common stock that were outstanding as of March 31, 2022 that were subject to repurchase.and $254, respectively.

 

6.7.Liquidated Damages Payable

 

Liquidated damages were recorded as a result of the following: (i) certain registration rights agreements provide for damages if the Company does not register certain shares of the Company’s common stock within the requisite time frame (the “Registration Rights Damages”); and (ii) certain securities purchase agreements provide for damages if the Company does not maintain its periodic filings with the SEC within the requisite time frame (the “Public Information Failure Damages”).

 

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Obligations with respect to the liquidated damages payable are summarized as follows:

Summary of Liquidated Damages

 As of March 31, 2022  As of September 30, 2022 
 

Registration

Rights

Damages

 

Public

Information

Failure

Damages

 

Accrued

Interest

  Balance  

Registration

Rights

Damages

 

Public

Information

Failure

Damages

 

Accrued

Interest

  Balance 
MDB common stock to be issued (1) $15  $-  $-  $15  $15  $-  $-  $15 
Series H convertible preferred stock  618   625   457   1,700   618   626   533   1,777 
Convertible debentures  -   704   216   920   -   704   258   962 
Series J convertible preferred stock  932   932   356   2,220   932   932   467   2,331 
Series K convertible preferred stock  95   379   40   514   191   478   82   751 
Total $1,660  $2,640  $1,069  $5,369  $1,756  $2,740  $1,340  $5,836 

21

 

  As of December 31, 2021 
  

Registration

Rights

Damages

  

Public

Information

Failure

Damages

  

Accrued

Interest

  Balance 
MDB common stock to be issued (1) $15  $-  $-  $15 
Series H convertible preferred stock  1,164   1,172   792   3,128 
Convertible debentures  -   873   242   1,115 
Series I convertible preferred stock  1,386   1,386   613   3,385 
Series J convertible preferred stock  1,560   1,560   490   3,610 
Series K convertible preferred stock  180   722   50   952 
Total $4,305  $5,713  $2,187  $12,205 

 

(1)Consists of shares of common stock issuable to MDB Capital Group, LLC (“MDB”).

 

During the three and nine months ended September 30, 2022, the Company recorded liquidated damages of $339 and $639 (including accrued interest of $143 and $300), respectively. During the three and nine months ended September 30, 2022, liquidated damages of $197 were recorded as a result of the Registration Rights Damages resulting from not registering Series K convertible preferred stock (the “Series K Preferred Stock”) timely. Further details as of the date these condensed consolidated financial statements were issued are provided under the heading Liquidated Damages in Note 17.

As of September 30, 2022, the short-term and long-term liquidated damages payable were $5,836 and $0, respectively. The Company will continue to accrue interest on the liquidated damages balance at 1.0% per month based on the balance outstanding as of March 31,September 30, 2022 or $5,369, until paid. There is no scheduled date when the unpaid liquidated damages become due.

 

As of December 31, 2021, the short-term and long-term liquidated damages payable were $5,197 and $7,008, respectively. The long-term portion was converted into shares of the Company’s common stock on January 24, 2022, as further described below.

 

On January 24, 2022, the Company entered into several stock purchase agreements with several investors, where the Company was liable to for liquidated damages, pursuant to which the Company issued an aggregate of 505,671shares of its common stock at a price equal to $13.86per share (determined based on the volume-weighted average price of the Company’s common stock at the close of trading on the sixtyninety (60) previous trading days), to the investors in lieu of an aggregate of $7,008owed in liquidated damages. TheIn connection with the stock purchase agreements, the Company agreed that it would prepare and file as soon as reasonably practicable,filed a registration statement covering the resale of thesethe 505,671 shares of the Company’s common stock issued in lieu of payment of these liquidated damages in cash.stock. The Company recorded $6,685 in connection with the issuance of shares of the Company’s common stock and recognized a gain of $323on the settlement of the liquidated damages, which was recorded within additional paid-in capital on the condensed consolidated statement of stockholders’ deficiency.

 

7.8.Fair Value Measurements

 

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

 

16

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

 

Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2. Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

Level 3. Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.

Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2. Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level 3. Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.22

 

The Company accounted for certain warrants (as described under the heading Common Stock Warrants in Note 10) as derivative liabilities, which required the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end. As of December 31, 2021, the Strome Warrants and B. Riley Warrants (as described in Note 10)11) were classified within equity.

 

For the three months ended March 31,September 30, 2021, the change in valuation of warrant derivative liabilities of $665802 was recognized as other income on the condensed consolidated statement of operations. For the nine months ended September 30, 2021, the change in valuation of warrant derivative liabilities of $497 was recognized as other expense on the condensed consolidated statement of operations.

 

8.9.Long-term Debt

 

Senior Secured Note

 

As of March 31,September 30, 2022 and December 31, 2021, the Company’s outstanding obligation under its senior secured note with BRF Finance Co., LLC, an affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for the purchasers and as purchaser, is summarized as follows:

 

 On March 24, 2020, the Company entered into a second amended and restated note when the principal balance outstanding under its note issued on JuneSeptember 19, 2019 was $51,336 (including accrued interest), due on JuneSeptember 14, 2022 (as further amended). The terms of the note also permitted the Company to enter into a Delayed Draw Term Note (as described below), in the aggregate principal amount of $12,000;
   
 On October 23, 2020, the Company entered into a first amendment to second amended and restated note issued on March 24, 2020 (“Amendment 1”), where the maturity date was changed to December 31, 2022 (as further amended) from JuneSeptember 14, 2022, subject to certain acceleration conditions and interest payable on the note on September 30, 2020, December 31, 2020, March 31, 2021, JuneSeptember 30, 2021, September 30, 2021, and December 31, 2021 will be payable in-kind in arrears on the last day of such fiscal quarter. Alternatively, at the option of the holder, such interest amounts originally could have been paid in shares of previously designated Series K convertible preferred stock (the “Series K Preferred Stock”);Stock; however, after December 18, 2020, the date the Series K Preferred Stock was converted into shares of the Company’s common stock, such interest amounts can be converted into shares of the Company’s common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock, subject to certain adjustments;

17

 On May 19, 2021, the Company entered into a second amendment to the second amended and restated note issued March 24, 2020 (“Amendment 2”), pursuant to which: (i) the interest rate on the Senior Secured Note, as defined below, decreased from a rate of 12.0%12.0% per annum to a rate of 10.0%10.0% per annum; and (ii) the Company agreed that within one (1) business day after receipt of cash proceeds from any issuance of equity interests, it will prepay the certain obligations in an amount equal to such cash proceeds, net of underwriting discounts and commissions; provided, that, this mandatory prepayment obligation does not apply to any proceeds that the Company received from shares of the Company’s common stock issued pursuant to a certain securities purchase agreement during the 90-day period commencing on May 20, 2021;
   
 On December 6, 2021, the Company entered into a third amendment to the second amended and restated note issued March 24, 2020 (“Amendment 3”), where the Company was permitted to increase the FastPay line of credit in an aggregate principal amount not to exceed $25,000; and
   
 On January 23, 2022, the Company entered into a fourth amendment to the second amended and restated note issued March 24, 2020 (“Amendment 4”), where the maturity date on the note was extended to (i) December 31, 2023 from December 31, 2022 upon the consummation of the equity financing on February 15, 2022 (further details are provided below), or (ii) the date accelerated pursuant to certain terms of Amendment 4.

 

Collectively, the second amended and restated note and Amendment 1, Amendment 2, Amendment 3 and Amendment 4 thereto are referred to as the “Senior Secured Note,” with all borrowings collateralized by substantially all assets of the Company.

 

23

After the date of Amendment 4, interest on the note will be payable, at the agent’s sole discretion, either (a) in cash quarterly in arrears on the last day of each fiscal quarter or (b) by continuing to add such interest due on such payment dates to the principal amount of the note. Interest on the Senior Secured Note will accrue for each calendar quarter on the outstanding principal amount of the note at an aggregate rate of 10.0%10.0% per annum, subject to adjustment in the event of default. Further, interest that was payable during fiscal years 2020 and 2021 and added to the principal amount under the note remains subject to the conversion election under Amendment 1.

Delayed Draw Term Note

As of March 31,September 30, 2022 and December 31, 2021, the Company’s outstanding obligation under its delayed draw term note with B. Riley is summarized as follows:

 

 On March 24, 2020, the Company entered into a delayed draw term note (the “Delayed Draw Term Note”) with an interest rate of 15.0%15.0% per annum, pursuant to the second amended and restated note purchase agreement, in the aggregate principal amount of $12,000. The terms of the note provided that up to $8,000 in principal amount was due on March 31, 2021;
   
 On March 24, 2020, the Company drew down $6,914 under the Delayed Draw Term Note, with interest payable in-kind in arrears on the last day of each fiscal quarter;
   
 On October 23, 2020, pursuant to the terms of Amendment 1, the maturity date of the Delayed Draw Term Note was changed to March 31, 2022 (as further amended) from March 31, 2021. Amendment 1 also provided that the holder, could originally elect, in lieu of receipt of cash for payment of all or any portion of the interest due or cash payments up to a certain conversion portion of the Delayed Draw Term Note, to receive shares of Series K Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, the holder may elect, in lieu of receipt of cash for such amounts, shares of the Company’s common stock at the price the Company last sold shares of the Company’s common stock;
   
 On October 23, 2020, $3,367, including principal and accrued interest of the Delayed Draw Term Note, converted into shares of the Company’s Series K Preferred Stock, which shares were further converted into shares of the Company’s common stock;

18

 On May 19, 2021, pursuant to Amendment 2, the interest rate on the Delayed Draw Term Note decreased to a rate of 10.0%10.0% per annum from a rate of 15.0%15.0% per annum;
   
 On December 28, 2021, the Company drew down $5,086 under the Delayed Draw Term Note, and after payment of commitment and funding fees paid of $509, the Company received net proceeds of $4,578; and
   
 On February 15, 2023,2022, pursuant to Amendment 4, the maturity date on the Delayed Draw Term Note was extended to (i) December 31, 2022 from March 31, 2022 for $5,925of principal due and (ii) December 31, 2023 from March 31, 2022 for $4,000of principal due, subject to certain acceleration terms.

 

Amendment 4 also provided that interest will be payable, at the agent’s sole discretion, either (a) in cash quarterly in arrears on the last day of each fiscal quarter or (b) in kind quarterly in arrears on the last day of each fiscal quarter, and will accrue for each fiscal quarter on the principal amount outstanding under the note at an aggregate rate of 10.0%10.0% per annum, subject to adjustment in the event of default.

 

24

The following table summarizes the long-term debt:

 Schedule of Long Term Debt

 As of March 31, 2022  As of December 31, 2021  As of September 30, 2022  As of December 31, 2021 
 Principal Balance (including accrued interest)  Unamortized Discount and Debt Issuance Costs  Carrying Value  Principal Balance (including accrued interest)  Unamortized Discount and Debt Issuance Costs  Carrying Value  Principal Balance (including accrued interest)  Unamortized Discount and Debt Issuance Costs  Carrying Value  Principal Balance (including accrued interest)  Unamortized Discount and Debt Issuance Costs  Carrying Value 
Senior Secured Note, as amended, matures December 31, 2023 $62,691  $(1,584) $61,107  $62,691  $(1,935) $60,756  $62,691  $(1,132) $61,559  $62,691  $(1,935) $60,756 
Delayed Draw Term Note, as amended, matures December 31, 2023  9,928   (259)  9,669   9,928   (567)  9,361   9,928   (155)  9,773   9,928   (567)  9,361 
Total $72,619  $(1,843) $70,776  $72,619  $(2,502) $70,117  $72,619  $(1,287) $71,332  $72,619  $(2,502) $70,117 
Carrying value                        
Current portion         $5,847         $5,744         $5,899          $5,744 
Long-term portion         64,929          64,373           65,433           64,373 
Total         $

70,776

          $

70,117

          $71,332          $70,117 

 

As of March 31,September 30, 2022 and December 31, 2021, the Company’s Delayed Draw Term Note, as amended, carrying value of $9,669 9,773and $9,361, respectively, was as follows: (1) $5,847 5,899and $5,744for the first draw (including accrued interest and less unamortized discount and debt issuance costs of $78 26and $180), respectively; and (2) $3,822 3,874and $3,617for the second draw (including accrued interest and less unamortized discount and debt issuance costs of $181 129and $387), respectively. As of March 31,September 30, 2022, the effective interest rate of the Senior Secured Note, Delayed Draw Term Note first draw and second draw werewas 11.4%, 11.7% and 12.5%, respectively.

 

The following table summarizes principal maturities of long-term debt:

Schedule of Principal Maturities of Long-term Debt

Years Ending December 31,    
2022 $5,924 
2023  66,695 
Total $72,619 

 

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10.Preferred Stock

9.Preferred Stock

 

The Company has the authority to issue 1,000,000 shares of preferred stock, $0.01 par value per share, consisting of authorized and/or outstanding shareswhich as of March 31,September 30, 2022 has been designated and issued as follows:

 

 1,800 authorized shares designated as “Series G Convertible Preferred Stock”, of which 168 shares are outstanding.
   
 23,000authorized shares designated as “Series H Convertible Preferred Stock” (as further described below), of which 14,556shares are outstanding.

 

Series H Preferred Stock

 

The Company recorded the issuance of 70,380 shares of the Company’s common stock upon conversion of 510shares of the Company’s series H convertible preferred stock (the “Series H Preferred Stock”) during the threenine months ended March 31,September 30, 2022, as reflected on the condensed consolidated statements of stockholders’ deficiency. The Company recorded the issuance of 6,888 shares of the Company’s common stock upon conversion of 50 shares of the Company’s Series H Preferred Stock during the three and nine months ended September 30, 2021, as reflected on the condensed consolidated statements of stockholders’ deficiency.

 

25

Series L Preferred Stock

 

On May 4, 2021, a special committee of the Board declared a dividend of one preferred stock purchase right to be paid to the stockholders of record at the close of business on May 14, 2021 for (i) each outstanding share of the Company’s common stock and (ii) each share of the Company’s common stock issuable upon conversion of each share of the Company’s Series H Preferred Stock. Each preferred stock purchase right entitles the registered holder to purchase, subject to a rights agreement (the “Rights Agreement”), from the Company one one-thousandth of a share of the Company’s newlythen-newly created Series L Junior Participating Preferred Stock, par value $0.01 per share (the “Series L Preferred Stock”), at a price of $4.00,$4.00, subject to certain adjustments. The Series L Preferred Stock will bewas entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share or (ii) 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions paid to the holders of the Company’s common stock. The Series L Preferred Stock will bewas entitled to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. In the event of any merger, consolidation or other transaction in which shares of the Company’s common stock are converted or exchanged, the Series L Preferred Stock will bewas entitled to receive 1,000 times the amount received per one share of the Company’s common stockstock..

 

The rights agreement pursuant to the Series L Preferred StockRights Agreement was set to expire on May 3, 2022; however, on May 2, 2022, the board of directorsBoard elected to extend the expiration date which extension is evidenced by an amended and restated rights agreement dated May(the “Extended Rights Agreement”), which was ratified by the Company’s stockholders on June 2, 2022, by and between2022.

The Company eliminated the Series L Preferred Stock. Even though the stockholders ratified the Extended Rights Agreement, the Board determined that the Rights Agreement was no longer necessary or in the best interest of the Company and its stockholders. The Board thus determined to terminate the Rights Agreement by amending its expiration date from May 3, 2024 to July 15, 2022 pursuant to an amendment to the Extended Rights Agreement. The amendment effectively terminated all preferred share purchase rights agent, and which extension is subject to ratification byunder the Company’s stockholders.Rights Agreement such that they are no longer issued or outstanding.

 

10.11.Stockholders’ Equity

 

Common Stock

The Company has the authority to issue 1,000,000,000 shares of common stock, $0.01 par value per share.

 

On February 15, 2022 and March 11, 2022, the Company raised gross proceeds of $34,498pursuant to a firm commitment underwritten public offering of 4,181,603shares of the Company’s common stock (on February 15, 2022 the Company issued 3,636,364shares and on March 11, 2022 the Company issued 545,239shares pursuant to the underwriter’s overallotment that was exercised on March 10, 2022), at a public offering price of $8.25per share. The Company received net proceeds of $32,058, after deducting underwriting discounts and commissions and other offering costs payable by the Company. In additions,addition, the Company directly incurred offering costs of $1,568and recorded $30,490upon the issuance of its common stock, as reflected on the condensed consolidated statementstatements of stockholders’ deficiency.

 

On April 27, 2022, the Company issued 7,851 shares of the Company’s common stock in connection with a previous merger with Say Media, Inc. (the “Say Media merger”). These shares were previously classified as common stock to be issued on the condensed consolidated statements of stockholders’ deficiency.

On May 20, 2021 and May 25, 2021, the Company entered into securities purchase agreements with several accredited investors, pursuant to which the Company sold an aggregate of 974,351 shares of the Company’s common stock, at a per share price of $15.40 for aggregate gross proceeds of $15,005 in a private placement. On September 2, 2021, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company sold an aggregate of 324,676 shares of the Company’s common stock, at a per share price of $15.40 for gross proceeds of $5,000 in a private placement that was in addition to the closings that occurred on May 20, 2021 and May 25, 2021. After payment of legal fees and expenses the investors of $167, of which $100 was paid in cash to B. Riley, the Company received net proceeds of $19,838. The Company used the proceeds for general corporate purposes.

26

Common Stock Warrants

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

 

The Financing Warrants outstanding and exercisable as of March 31,September 30, 2022 are summarized as follows:

 Schedule of Common Stock Financing Warrants Outstanding and Exercisable

 Exercise Price  Expiration Date Total Outstanding and Exercisable (Shares  Exercise Price Expiration Date Total Outstanding and Exercisable Shares 
Strome Warrants $11.00  June 15, 2023  68,182  $11.00  June 15, 2023  68,182 
B. Riley Warrants  7.26  October 18, 2025  39,773   7.26  October 18, 2025  39,773 
MDB Warrants  25.30  October 19, 2022  5,435   25.30  October 19, 2022  5,435 
MDB Warrants  55.00  October 19, 2022  2,728   55.00  October 19, 2022  2,728 
Total      116,118       116,118 

 

The intrinsic value of exercisable but unexercised in-the-money stock warrants as of March 31,September 30, 2022 was $142232, based on a fair market value of the Company’s common stock of $10.8313.10 per share on March 31,September 30, 2022.

20

 

11.12.Compensation Plans

 

The Company provides stock-based compensation in the form of (a) restricted stock awards to certain employees (referred to as the “Restricted Stock Awards”), (b) stock option grants to employees, directors and consultants under the 2016 Stock Incentive Plan (as described below)(the “2016 Plan”), (c) stock option awards, restricted stock awards and units, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants under the 2019 Equity Incentive Plan (as described below)(the “2019 Plan”), (d) stock option awards, restricted stock awards and units, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants under the Equity Incentive Plan (the “2022 Plan”) (collectively, the 2016 Plan, 2019 Plan and 2022 Plan are referred to as the “Equity Plans”), (e) stock option awards outside of the 2016 Plan, 2019 Plan and 20192022 Plan to certain officers, directors and employees (referred to as the “Outside Options”), (e)(f) common stock warrants to the Company’s publisher partners (referred to as the “Publisher Partner Warrants”), and (f)(g) common stock warrants to ABG-SI, LLCABG (referred to as the “ABG Warrants”). Effective with the adoption of the 2022 Plan, the Company ceased issuing new awards under the 2016 Plan and 2019 Plan.

27

 

Stock-based compensation and equity-based expense charged to operations or capitalized during the three and nine months ended March 31,September 30, 2022 and 2021 are summarized as follows:

 Summary of Stock-based Compensation

 

Restricted

Stock

Awards

 

2016

Plan

 

2019

Plan

 

Outside

Options

 

ABG

Warrants

  Totals  Restricted          
During the Three Months Ended March 31, 2022             
 Stock Equity Outside ABG    
 Awards  Plans  Options  Warrants  Totals 
During the Three Months Ended September 30, 2022                    
Cost of revenue $430  $14  $1,714  $-  $-  $2,158  $402  $2,370  $-  $-  $2,772 
Selling and marketing  -   9   591   -   -   600   -   810   -   -   810 
General and administrative  -   48   3,941   105   515   4,609   7   4,472   -   250   4,729 
Total costs charged to operations  430   71   6,246   105   515   7,367   409   7,652   -   250   8,311 
Capitalized platform development  -   5   682   -   -   687   -   404   -   -   404 
Total stock-based compensation $430  $76  $6,928  $105  $515  $8,054  $409  $8,056  $-  $250  $8,715 
                                            
During the Three Months Ended March 31, 2021                        
During the Three Months Ended September 30, 2021                    
Cost of revenue $24  $127  $1,290  $2  $-  $1,443  $12  $1,719  $1  $-  $1,732 
Selling and marketing  -   5   972   75   -   1,052   -   1,346   75   -   1,421 
General and administrative  3   117   2,128   -   356   2,604   414   4,162   -   746   5,322 
Total costs charged to operations  27   249   4,390   77   356   5,099   426   7,227   76   746   8,475 
Capitalized platform development  5   3   299   2   -   309   2   482   3   -   487 
Total stock-based compensation $32  $252  $4,689  $79  $356  $5,408  $428  $7,709  $79  $746  $8,962 

  Restricted             
  Stock  Equity  Outside  ABG    
  Awards  Plans  Options  Warrants  Totals 
During the Nine Months Ended September 30, 2022                    
Cost of revenue $1,236  $6,366  $-  $-  $7,602 
Selling and marketing  -   2,149   -   -   2,149 
General and administrative  7   13,669   105   1,245   15,026 
Total costs charged to operations  1,243   22,184   105   1,245   24,777 
Capitalized platform development  -   1,529   -   -   1,529 
Total stock-based compensation $1,243  $23,713  $105  $1,245  $26,306 
                     
During the Nine Months Ended September 30, 2021                    
Cost of revenue $61  $4,865  $4  $-  $4,930 
Selling and marketing  -   3,835   224   -   4,059 
General and administrative  560   10,642   -   1,498   12,700 
Total costs charged to operations  621   19,342   228   1,498   21,689 
Capitalized platform development  11   1,330   6   -   1,347 
Total stock-based compensation $632  $20,672  $234  $1,498  $23,036 

28

 

Unrecognized compensation expense and expected weighted-average period to be recognized related to the stock-based compensation awards and equity-based awards as of March 31,September 30, 2022 was as follows:

 Schedule of Unrecognized Compensation Expense

 Restricted           Restricted          
 Stock 2016 2019 Outside ABG     Stock Equity Outside ABG    
 Awards  Plan  Plan  Options  Warrants  Totals  Awards  Plans  Options  Warrants  Totals 
Unrecognized compensation cost $1,925  $-  $44,563  $-  $1,988  $48,476  $1,112  $36,606  $-  $1,257  $38,975 
Expected weighted-average period expected to be recognized (in years)  1.18   -   1.84   -   1.57   1.81   0.68   2.22   -   1.25   2.14 

Further details as of the date these condensed consolidated financial statements were issued are provided under the heading Compensation Plans in Note 17.

Stock Option Repricing

On March 18, 2022, the Company approved a repricing of certain outstanding stock options (the “Stock Option Repricing”) granted under the Company’s 2016 Stock Incentive Plan (the “2016 Plan”) and the 2019 Equity Incentive Plan (the “2019 Plan”) that had an exercise price above $8.82 per share, including certain outstanding stock options held by senior management of the Company. The Stock Option Repricing also included certain outstanding stock options granted outside of the 2016 Plan and 2019 Plan, which repricing is still subject to stockholder approval.Plan. The Stock Options Repricing was approved by the Board and stockholders. As a result of the Stock Option Repricing, the exercise prices were set to $8.82 per share, which was the closing sale price of the Company’s common stock as listed on the NYSE American exchange on March 18, 2022. Except for the repricing of the stock options under the 2019 Plan, all terms and conditions of each stock option remainsremain in full force and effect. For the repricing of the stock options under the 2019 Plan, the Company (i) modified the exercise price; (ii) will allow cashless exercise as a method of paying the exercise price, and (iii) will waive a lock-up provision in the stock option agreements. All other term and conditions of each of the stock options under the 2019 Plan remainsremain in full force and effect.

21

 

The Stock Option Repricing of approximately4,343,017stock option grants (for 340 employees) that were issued to employees of the Company, including senior management, resulted in incremental cost of $6,061, of which $143was recognized at the time of the Stock Option Repricing for the fully vested awards and included in ourthe condensed consolidated statement of operations, and $5,918will recognized over the remaining vesting term of the original award at the repricing date.

 

29

12.13.Revenue Recognition

Disaggregation of Revenue

 

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

 Schedule of Disaggregation of Revenue

  2022  2021 
  Three Months Ended March 31, 
  2022  2021 
Revenue by category:        
Digital revenue        
Digital advertising $21,646  $9,540 
Digital subscriptions  6,461   7,085 
Other revenue  3,465   746 
Total digital revenue  31,572   17,371 
Print revenue        
Print advertising  1,368   1,533 
Print subscriptions  15,303   14,711 
Total print revenue  16,671   16,244 
Total $48,243  $33,615 
Revenue by geographical market:        
United States $47,321  $32,528 
Other  922   1,087 
Total $48,243  $33,615 
Revenue by timing of recognition:        
At point in time $41,782  $26,530 
Over time  6,461   7,085 
Total $48,243  $33,615 

 

  2022  2021  2022  2021 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  2022  2021  2022  2021 
Revenue by category:                
Digital revenue                
Digital advertising $28,513  $18,325  $74,852  $39,397 
Digital subscriptions  4,629   7,699   16,580   22,474 
Other revenue  4,848   4,221   13,193   5,834 
Total digital revenue  37,990   30,245   104,625   67,705 
Print revenue                
Print advertising  12,541   3,356   27,697   6,904 
Print subscriptions  16,175   25,974   47,702   53,327 
Total print revenue  28,716   29,330   75,399   60,231 
Total $66,706  $59,575  $180,024  $127,936 
Revenue by geographical market:                
United States $64,187  $57,764  $174,680  $123,652 
Other  2,519   1,811   5,344   4,284 
Total $66,706  $59,575  $180,024  $127,936 
Revenue by timing of recognition:                
At point in time $62,077  $51,876  $163,444  $105,462 
Over time  4,629   7,699   16,580   22,474 
Total $66,706  $59,575  $180,024  $127,936 
Revenue $66,706  $59,575  $180,024  $127,936 

Contract Balances

 

The timing of the Company’s performance under its various contracts often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. A contract asset is recognized when a good or service is transferred to a customer and the Company does not have the contractual right to bill for the related performance obligations. A contract liability is recognized when consideration is received from the customer prior to the transfer of goods or services.

 

The following table provides information about contract balances:

 Schedule of Contract with Customer, Asset and Liability

 September 30, 2022  December 31, 2021 
 March 31, 2022  December 31, 2021    
 As of  As of 
 March 31, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
Unearned revenue (short-term contract liabilities):                
Digital revenue $12,815  $14,693 
Digital subscriptions $18,020  $14,693 
Print revenue  35,704   39,337   33,663   39,337 
Total unearned revenue (short-term contract liabilities) $48,519  $54,030  $51,683  $54,030 
Unearned revenue (long-term contract liabilities):                
Digital revenue $1,321  $1,446 
Digital subscriptions $871  $1,446 
Print revenue  11,041   13,831   10,620   13,831 
Total unearned revenue (long-term contract liabilities) $12,362  $15,277  $11,491  $15,277 

 

Unearned Revenue – Unearned revenue, also referred to as contract liabilities, include payments received in advance of performance under the contracts and are recognized as revenue over time. The Company records contract liabilities as unearned revenue on the condensed consolidated balance sheets.

 

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13.14.Income Taxes

 

The provision for income taxes in interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly provision for income taxes, and estimate of the Company’s annual effective tax rate, are subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company conducts business, and tax law developments.

 

The provision effective tax rate benefit for the threenine months ended March 31,September 30, 2022 and 2021 was 0.12.2% and 0.00.3%, respectively. The deferred income taxestax benefit for the threenine months ended March 31,September 30, 2022 was primarily due to discrete items.

 

The realization of deferred tax assets is dependent upon a variety of factors, including the generation of future taxable income, the reversal of deferred tax liabilities, and tax planning strategies. Based upon the Company’s historical operating losses and the uncertainty of future taxable income, the Company has provided a valuation allowance against most of the deferred tax assets as of March 31,September 30, 2022 and 2021.

 

14.15.Related Party

 

For the threenine months ended March 31,September 30, 2022 and 2021, the Company had certainseveral transactions with B. Riley, a principal stockholder, where itthe Company paid fees associated with the common stock public offering totaling approximately $2,440. and $0, respectively.

 

For the three months ended March 31,September 30, 2022 and 2021, the Company paid in cash or accrued interest that was added to the principal on the Senior Secured Note and Delayed Draw Term Note due to B. Riley, a principal stockholder, of $1,8151,856 (paid in cash) and $1,8521,641 (accrued interest that was added to the principal), respectively. For the nine months ended September 30, 2022 and 2021, the Company paid in cash or accrued interest that was added to the principal on the Senior Secured Note and Delayed Draw Term Note due to B. Riley, a principal stockholder, of $5,507 (paid in cash) and $5,253 (accrued interest that was added to the principal), respectively.

ServiceConsulting and ConsultingService Contracts

For the three months ended March 31,September 30, 2022 and 2021, the Company paid James C. Heckman, its former Chief Executive Officer, consulting fees of $16543 and $52, respectively, in connection with a consulting agreement, as amended from time to time. For the threenine months ended March 31,September 30, 2022 and 2021, the Company paid Mr. Heckman consulting fees of $307 and $155, respectively, in connection with a consulting agreement, as amended from time to time. For the nine months ended September 30, 2022, the Company paid an entity affiliated with Mr. Heckman, Roundtable Media, L.L.C., a net revenue share amount of $52 and $82, respectively, in connection with a partner agreement.

 

31

Repurchases of Restricted Stock

 

On December 15, 2020, the Company entered into an amendment for certain restricted stock awards and units that were previously issued to certain employees in connection with the HubPages merger (as further described in Note 6), pursuant to which the Company agreed to repurchase shares of the Company’s common stock from certain key personnel of HubPages, Inc., including from Paul Edmondson, one of the Company’s officers, and his spouse, an aggregate of 16,802shares of the Company’s common stock at a price of $88.00per share each month for a period of 24 months, for aggregate proceeds to Mr. Edmondson and his spouse of $67per month (see Note 5)month. For the nine months ended September 30, 2022, the Company repurchased 9,927 shares of the Company’s common stock for $874. Effective April 4, 2022, Mr. Edmondson no longer has any shares of the Company’s common stock subject to repurchase.

23

 

15.16.Commitments and Contingencies

 

Contingent Liability

 

In connection with the Company’s underwritten public offering in February 2022, the Company may have a contingent liability arising out of possible violations of the Securities Act of 1933, as amended (the “Securities Act”) in connection with an investor presentation, which the Company publicly filed. Specifically, the furnishing of the investor presentation publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the investor presentation may be deemed to be a prospectus that did 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 the investor presentation. If a claim were brought by any such investor and a court were to conclude that the public disclosure of such investor presentation constituted a violation of the Securities Act, the Company could be required to repurchase the shares sold to the investors at the original purchase price, plus statutory interest. The Company could also incur considerable expense in contesting any such claims. As of the issuance date of these consolidated financial statements, no legal proceedings or claims have been made or threatened by any investors. The likelihood and magnitude of this contingent liability, if any, is not determinable at this time.

 

Claims and Litigation

 

From time to time, the Company may be subject to claims and litigation arising in the ordinary course of business. The Company is not currently a party to any pending or threatened legal proceedings that it believes would reasonably be expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

 

16.17.Subsequent Events

 

The Company performed an evaluation of subsequent events through the date of filing of these condensed consolidated financial statements with the SEC. Other than the below described subsequent events, there were no material subsequent events which affected, or could affect, the amounts or disclosures on the condensed consolidated financial statementsstatements.

.

Liquidated Damages

 

Compensation Plans

From AprilOctober 1, 2022 through the date these condensed consolidated financial statements were issued, the Company granted commonaccrued additional liquidated damages of $100 (including accrued interest) as a result of the Registration Rights Damages resulting from not registering Series K Preferred Stock timely, and the liquidated damages will continue to accrue until the registration statement registering such preferred stock options, restricted stock units and restricted stock awards totaling 252,525, allis effective, up to a maximum of which remain outstanding.$473.

 

Athlon Acquisition

On September 16, 2022, management announced its plan to dispose of certain operations of Athlon, Holdings, Inc.referred to as the Parade print business, after the last edition is distributed in November 2022, as well as the Relish and Spry Living print products after October 2022 (collectively, “Parade Print”). The Company expects to incur certain charges and settlement a potential liability (as further described below) in connection with these activities in the quarter ending December 31, 2022.

 

On April 1, 2022,The Company estimates severance and related commissions for the employees, where the Company acquired identified a number of Parade employees who are primarily focused on the print business and who will be departing in a one-time restructuring event of $1001,000, %and a potential liability to settle an existing purchase commitment for paper used in the production of Parade Print. The potential liability amount will be recorded at the time of the issued and outstanding capital stock of Athlon Holdings, Inc. (“Athlon”) for a purchase price of $18,100, comprised of (i) a cash portion of $15,100, with $11,800 paid at closing (including cash acquired of $1,800) and $3,200 to be paid post-closing (as further described below) and (ii) the issuance of 314,103 shares of the Company’s common stock with a fair market value of $3,000 (the fair market value of the common stock issuance was determined based on the average closing price of the Company’s common stock for the 10 trading days preceding the April 1, 2022 closing date), subject to a customary working capital adjustment based on current assets less current liabilities as of the closing date. Certain of Athlon’s key employees entered into either advisory agreements or employment agreements with the Company.disposal.

 

The amount to be paid post-closing of $3,200 will be paid as follows: (i) $3,000 will be paid on the nine-month anniversaryAs a result of the closing date, or January 1, 2023, and (ii) $245 will be paid within two business days fromplanned disposal, certain pro forma adjustments reflected in the date the Company receives proceeds from the sale of all or a portion of the equity interest in Just Like Falling Off a Bike, LLC that was held by Athlon as of the closing date (this amount was paid on April 4, 2022).supplemental pro forma information are subject to change.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended March 31,September 30, 2022 and 2021 should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Form 10-K filed with the SEC on April 1, 2022. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those set forth above. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see the section above under the heading “Forward-Looking Statements.”

All dollar figures are presented in thousands unless otherwise stated.

Overview

 

We operateare a tech-powered media company that focuses on building deep content verticals powered by a best-in-class technologydigital 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 and finance), and where we can leverage the strength of our core brands to grow our audience and increase monetization both within our core brands as well as our media publishers (each, a “Publisher Partner”). Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize audience reach, improve engagement, and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our 40 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the print and digital business at SI.commedia businesses for Sports Illustrated (“Sports Illustrated”(the “Sports Illustrated media business”), own and operate TheStreet, Inc. (the “TheStreet”(“TheStreet”), ownCollege Spun Media Incorporated (“The Spun”), and operate more than 40 brands with our HubPages, Inc. (“HubPages”) business; own and operate Athlon Holdings, Inc. (“Parade”Athlon”), which includes titles such as Parade, Spry, and Relish, and the brands Athlon Sports and Athlon Outdoors with more than 25 special interest titles including Harris’ Farmer’s Almanac and Mopar Action, and we power more than 200 independent brands. Our proprietary technology platform (the “Platform”) provides digital publishing, distribution, data, marketing and monetization capabilities for the Sports Illustrated and TheStreet businesses as well as a subset of independent, professionally managed, online media publishers (each a “Publisher Partner”).

Of the more than 200 Publisher Partners, a large majorityincluding 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 them publishaugmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content within one of our three verticals of sports, finance or lifestyle, and oversee an online community forcreation on their respective sites, leveraging our Platform, monetization operation, distribution channels and data and analytics offerings and engages the collective audiences within a single network. Our lifestyle vertical will also see significant benefits with the acquisition of Parade and as we apply our existing technology to this new acquisition. Generally, Publisher Partners are independently owned, strategic partners who receive a share of the revenue from the interactionassociated with their content. Audiences expandBecause of the state-of-the-art technology and advertising revenue may improve due tolarge scale of the scale we have achieved by combining allPlatform and our expertise in search engine optimization, social media, subscription marketing and ad monetization, Publisher Partners onto a single platform and a large and experienced sales organization. They may alsocontinually benefit from our membership marketingongoing technological advances and management systems, which we believe will enhance their revenue.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.

Our growth strategy is to continue to expand by adding new premium publishers with high quality brands and content either as independent Publisher Partners or by acquiring publishers as owned and operated entities.

 

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Key Operating Metrics

We monitor and review the key operating metrics described below as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods, including an 81% increase year-over-year from 2020 to 2021 and a 90% increase in the nine months ended September 30, 2022 as compared to the same period in fiscal 2021. Management monitors and reviews these metrics because such metrics are readily measurable in real time and can provide valuable insight into the performance of and trends related to our digital advertising revenue and our overall business. We consider only those key operating metrics described here to be material to our financial condition, results of operations and future prospects.

Our key operating metrics are identified below:

Revenue per page view (“RPM”) – represents the advertising revenue earned per 1,000 pageviews. It is calculated as our advertising revenue during a period divided by our total page views during that period and multiplied by $1,000; and
Monthly average pageviews – represents the total number of pageviews in a given month or the average of each month’s pageviews in a fiscal quarter or year, which is calculated as the total number of page views recorded in a quarter or year divided by three months or 12 months, respectively.

For pricing indicators, we focus on RPM as it is the pricing metric most closely aligned with monthly average pageviews. RPM is an indicator of yield and pricing driven by both advertising density and demand from our advertisers.

Monthly average pageviews are measured across all properties hosted on the Arena Platform and provide us with insight into volume, engagement and effective page management and are therefore our primary measure of traffic. We utilize a third-party source, Google Analytics, to confirm this traffic data.

As described above, these key operating metrics are critical for management as they provide insights into our digital advertising revenue generation and overall business performance. This information also provides feedback on the content on our website and its ability to attract and engage users, which allows us to make strategic business decisions designed to drive more users to read or view more of our content and generate higher advertising revenue across all properties hosted on the Arena Platform.

For the three and nine months ended September 30, 2022 our RPM was $18.08 and $15.77, respectively. For the three and nine months ended September 30, 2022 our monthly average pageviews were 498,031,050 and 515,104,614, respectively. For the three and nine months ended September 30, 2021 our RPM was $16.46 and $13.59, respectively. For the three and nine months ended September 30, 2021 our monthly average pageviews were 378,714,372 and 325,391,284, respectively.

Liquidity and Capital Resources

 

Cash and Working Capital Facility

 

As of March 31,September 30, 2022, our principal sources of liquidity consisted of cash of $22,480.$13,303. In addition, as of March 31,September 30, 2022, we had the$6,526 available for additional use, of additional proceeds fromsubject to eligible accounts receivable, under our working capital facility with FPP Finance LLC (“FastPay”) in the amount of $15,709, subject to eligible accounts receivable.. As of March 31,September 30, 2022, the outstanding balance of the FastPay working capital facility was $9,291.$18,474. We also had accounts receivable, net of our advances from FastPay of $10,707$15,188 as of March 31,September 30, 2022. Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements is $13,179.$10,934.

 

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Material Contractual Obligations

We have material contractual obligations that arise in the normal course of business primarily consisting of employment contracts, consulting agreements, leases, liquidated damages, debt and related interest payments. Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months. See Notes 3, 64, 7 and 89 in our accompanying condensed consolidated financial statements for amounts outstanding as of March 31,September 30, 2022, related to leases, liquidated damages and long-term debt.debt, respectively. There have been no material changes fromduring the disclosuresnine months ended September 30, 2022 to our contractual obligations as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K.10-K for the year ended December 31, 2021.

 

Contingent Liability

 

Finally, weWe may have a contingent liability arising out of possible violations of the Securities Act in connection with an investor presentation, 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 investor presentation publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the investor presentation 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 investor presentation 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 investor presentation and a court were to conclude that the public disclosure of such investor presentation 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 investor presentation at the original purchase price, plus statutory interest. We could also incur considerable expense in contesting any such claims. As of the date of the filing of this Quarterly Report, 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.

 

Working Capital Deficit

 

We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of March 31,September 30, 2022 and December 31, 2021 was as follows:

 

 As of  As of 
 March 31, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
Current assets $80,392  $77,671  $74,245  $77,671 
Current liabilities  (96,442)  (116,413)  (117,242)  (116,413)
Working capital deficit  (16,050)  (38,742)  (42,997)  (38,742)

 

As of March 31,September 30, 2022, we had a working capital deficit of $16,050,$42,997, as compared to $38,742 as of December 31, 2021, consisting of $80,392$74,245 in total current assets and $96,442$117,242 in total current liabilities. As of December 31, 2021, our working capital deficit consisted of $77,671 in total current assets and $116,413 in total current liabilities.

 

Our cash flows during the threenine months ended March 31,September 30, 2022 and 2021 consisted of the following:

 

 Three Months Ended March 31,  Nine Months Ended September 30, 
 2022  2021  2022  2021 
Net cash used in operating activities $(13,311) $(1,511) $(14,676) $(8,262)
Net cash used in investing activities  (1,653)  (966)  (12,315)  (10,674)
Net cash provided by (used in) financing activities  28,095   (2,032)
Net cash provided by financing activities  30,945   18,130 
Net increase (decrease) in cash, cash equivalents, and restricted cash $13,131  $(4,509) $3,954  $(806)
Cash, cash equivalents, and restricted cash, end of period $22,982  $5,026  $13,805  $8,729 

 

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For the threenine months ended March 31,September 30, 2022, net cash used in operating activities was $13,311,$14,676, consisting primarily of $58,227$184,858 of cash paid (i) to employees, Publisher Partners, expert contributors, suppliers, and vendors, and (ii) for revenue share arrangements, advance of royalty fees and professional services; and (iii) $2,160$7,209 of cash paid for interest, offset by $47,076$177,391 of cash received from customers (including payments received in advance of performance obligations).customers. For the threenine months ended March 31,September 30, 2021, net cash used in operating activities was $1,511,$8,262, consisting primarily of $39,210$132,422 of cash paid (i) to employees, Publisher Partners, expert contributors, suppliers, and vendors, (ii)and for revenue share arrangements, advance of royalty fees and professional services; and (iii) $260$902 of cash paid for interest, offset by $37,959$125,062 of cash received from customers (including payments received in advance of performance obligations).customers.

 

For the threenine months ended March 31,September 30, 2022, net cash used in investing activities was $1,653,$12,315, consisting primarily of $1,582$10,331 for the acquisition of a business; $3,990 for capitalized costs for our PlatformPlatform; and $71$444 for property and equipment.equipment, offset by $2,450 from the sale of an equity investment. For the threenine months ended March 31,September 30, 2021, net cash used in investing activities was $966$10,674, consisting primarily of $868$7,357 for the acquisition of businesses; $3,017 for capitalized costs for our PlatformPlatform; and $98$300 for property and equipment.

 

For the threenine months ended March 31,September 30, 2022, net cash provided by financing activities was $28,095,$30,945, consisting primarily of $32,058 (excludes accrued offering$30,490 (net of issuance costs paid of $1,568) in net proceeds from thea public offering of common stock less (i) $2,697stock; $6,486 from repaymentsadvancements of our FastPay line of credit; (ii) $710 related to paymentsand $94 from exercises of restrictedcommon stock liabilities; and (iii) $556options, offset by $3,520 for tax payments relating to the withholding of shares of common stock for certain employees.employees; $2,152 related to payments of restricted stock liabilities; and $453 payment for The Spun deferred cash payment. For the threenine months ended March 31,September 30, 2021, net cash used inprovided by financing activities was $2,032$18,130 consisting primarily of $1,752$19,838 (net of issuance cost paid of $167) in net proceeds from a private placement of common stock, offset by $1,165 related to payments of restricted stock liabilities; $473 from repayments of our FastPay line of creditcredit; and $280 in$70 for tax payments relating to the withholding of restrictedshares of common stock liabilities.

for certain employees.

Results of Operations

 

Three Months Ended March 31,September 30, 2022 and 2021

  Three Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Revenue $66,706  $59,575  $7,131   12.0%
Cost of revenue  40,504   32,215   8,289   25.7%
Gross profit  26,202   27,360   (1,158)  -4.2%
Operating expenses                
Selling and marketing  20,103   22,892   (2,789)  -12.2%
General and administrative  13,847   14,557   (710)  -4.9%
Depreciation and amortization  4,478   4,055   423   10.4%
Loss on lease termination  -   7,345   (7,345)  -100.0%
Loss impairment of assets  209   904   (695)  -76.9%
Total operating expenses  38,637   49,753   (11,116)  -22.3%
Loss from operations  (12,435)  (22,393)  9,958   -44.5%
Total other (expense)  (3,523)  (2,544)  (979)  38.5%
Loss before income taxes  (15,958)  (24,937)  8,979   -36.0%
Income taxes  (547)  230   (777)  -337.8%
Net loss $(16,505) $(24,707) $(8,202)  -33.2%
Basic and diluted net loss per common share $(0.90) $(2.15) $1.25   -58.1%
Weighted average number of common shares outstanding – basic and diluted  18,284,670   11,491,412   6,793,258   59.1%

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Net Loss

  

Three Months Ended March 31,

  2022 versus 2021 
  2022  2021  $ Change  % Change 
Revenue $48,243  $33,615  $14,628   43.5%
Cost of revenue  28,497   28,208   289   1.0%
Gross profit  19,746   5,407   14,339   265.2%
Operating expenses                
Selling and marketing  17,216   17,529   (313)  -1.8%
General and administrative  13,514   5,638   7,876   139.7%
Depreciation and amortization  4,202   3,963   239   6.0%
Loss of impairment of assets  257   -   257   100.0%
Total operating expenses  35,189   27,130   8,059   29.7%
Loss from operations  (15,443)  (21,723)  6,280   -28.9%
Total other expenses  (2,992)  (3,740)  748   -20.0%
Loss before income taxes  (18,435)  (25,463)  7,028   -27.6%
Income taxes  (14)  -   (14)  100.0%
Net loss $(18,449) $(25,463) $7,014   -27.5%
Basic and diluted net loss per common share $(1.20) $(2.44) $1.24   -50.8%
Weighted average number of common shares outstanding – basic and diluted  15,381,306   10,456,052   4,925,254   47.1%

For the three months ended March 31,September 30, 2022, as referenced in the above table, net loss was $18,449,$16,505, as compared to $25,463$24,707 for the three months ended March 31,September 30, 2021, which represents an improvementa decrease of $7,014.$8,202. The primary driver for the improvementdecrease in net loss is due towas an $14,628 increase of $7,131 in revenue, which was partially offset by an increasewith a decrease in operating expenses of $8,059$11,116 during the three months ended March 31,September 30, 2022. The increase in revenues was attributable to management’s decision to make a strategic shift to focus on premium content providers and reduced reliance on Partner Publisher guarantees in September 2020 as well as the addition of the results of The Spun, which was acquired in June 2021.

 

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Revenue

 

The following table sets forth revenue costby product line and the corresponding percent of revenue, and gross profit:total revenue:

 

  Three Months Ended March 31,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Revenue $48,243  $33,615  $14,628   43.5%
Cost of revenue  28,497   28,208   289   1.0%
Gross profit $19,746  $5,407  $14,339   265.2%
  Three Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Digital revenue                
Digital advertising $28,513  $18,325  $10,188   55.6%
Digital subscriptions  4,629   7,699   (3,070)  -39.9%
Other revenue  4,848   4,221   627   14.9%
Total digital revenue  37,990   30,245   7,745   25.6%
Print revenue                
Print advertising  12,541   3,356   9,185   273.7%
Print subscriptions  16,175   25,974   (9,799)  -37.7%
Total print revenue  28,716   29,330   (614)  -2.1%
Total revenue $66,706  $59,575  $7,131   12.0%

 

For the three months ended March 31,September 30, 2022, we had gross profitas referenced in the above table, total revenue increased $7,131 or 12.0% from $59,575 to $66,706. The majority of $19,746, as comparedthe revenue driver was derived from total digital revenue which increased $7,745, or 25.6%, from the prior year period primarily due to $5,407an increase in digital advertising revenue of $10,188, or 55.6%. The increase in digital advertising revenue was mainly driven by a 32% increase in monthly average pageviews and a 10% increase in revenue per pageview with 86% of the total increase driven by organic growth and the remainder due to the acquisition of Athlon. Other revenue increased by $627, or 15%, despite the fact that the Sports Illustrated Swim magazine (“SI Swim”) launch added $3,033 of revenue to the third quarter of 2021 but was launched in the second quarter of 2022. Total print revenue decreased $614, or 2.1%, from $29,330 for the three months ended March 31,September 30, 2021 an improvement of $14,339. Gross profit percentageto $28,716 for the three months ended March 31,September 30, 2022 primarily related to a planned decrease from the Sports Illustrated media business as we reduced the rate base from 1.7 million to 1.2 million to focus on more profitable subscriptions. This was 40.9%, as compared to 16.1% forlargely offset by the three months ended March 31, 2021.

The improvement in gross profit percentage was driven by our strategic shift to eliminate most Publisher Partner guarantees near the end of fiscal 2020. As a result, Publisher Partner revenue share as a percentage of digital advertising revenue was 23.3% for the three months ended March 31, 2022, as compared to 55.0% for the three months ended March 31, 2021. In addition we continue to experience high contributions from our digital advertising.

The following table sets forth revenue by category:

  Three Months Ended March 31,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Digital revenue                
Digital advertising $21,646  $9,540  $12,106   126.9%
Digital subscriptions  6,461   7,085   (624)  -8.8%
Other revenue  3,465   746   2,719   364.5%
Total digital revenue  31,572   17,371   14,201   81.8%
Print revenue                
Print advertising  1,368   1,533   (165)  -10.8%
Print subscriptions  15,303   14,711   592   4.0%
Total print revenue  16,671   16,244   427   2.6%
Total revenue $48,243  $33,615  $14,628   43.5%

For the three months ended March 31, 2022, total revenue increased $14,628 to $48,243 from $33,615 for the three months ended March 31, 2021. The primary sources of revenue for the three months ended March 31, 2022 were as follows: (i) digital advertising of $21,646, (ii) digital subscriptions of $6,461, (iii) other digital revenue of $3,465, (iv) print advertising of $1,368 and (iv) print subscriptions of $15,303.

The primary driver of the increase in our total revenue is derived from our digital advertising revenueAthlon publications, which increased by $12,106. The main drivers of the increase in digital advertising revenue include an additional $6,018 of revenue generated as a result of The Spun business, which waswere acquired during the second quarter of 2021, $4,073 from Sports Illustrated due to an increase in advertising sponsorships, $759 generated from TheStreet; and $1,256 generated from other business. Our other digital revenue, primarily consisting of licensing and e-commerce revenue, increased by $2,719 due to additional revenue for certain licensing agreements related to, SI Swim and other Sports Illustrated media businesses.2022.

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Cost of Revenue

The following table sets forth cost of revenue by category:

 

 Three Months Ended March 31,  2022 versus 2021  Three Months Ended September 30,  2022 versus 2021 
 2022  2021  $ Change  % Change  2022  2021  $ Change  % Change 
Publisher Partner revenue share payments $5,042  $5,250  $(208)  -4.0% $4,471  $4,913  $(442)  -9.0%
Hosting, bandwidth, and software licensing fees  481   601   (120)  -20.0%
Fees paid for data analytics and to other outside services providers  1,380   667   713   106.9%
Technology, Platform and software licensing fees  4,851   2,363   2,488   105.3%
Royalty fees  3,750   3,750   -   0.0%  3,750   3,750   -   0.0%
Content and editorial expenses  9,744   9,636   108   1.1%  11,057   11,943   (886)  -7.4%
Printing, distribution and fulfillment costs  2,747   3,498   (751)  -21.5%  11,058   5,240   5,818   111.0%
Amortization of developed technology and platform development  2,311   2,167   144   6.6%  2,413   2,242   171   7.6%
Stock-based compensation  2,157   1,444   713   49.4%  2,772   1,732   1,040   60.0%
Other cost of revenue  885   1,195   (310)  -25.9%  132   32   100   312.5%
Total cost of revenue $28,497  $28,208  $289   1.0% $40,504  $32,215  $8,289   25.7%

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For the three months ended March 31,September 30, 2022, as referenced in the above table, we recognized cost of revenue of $28,497,$40,504, as compared to $28,208$32,215 for the three months ended March 31,September 30, 2021, which represents an increase of $289.$8,289 or 25.7%. Cost of revenue for the firstthird quarter of 2022, was impacted by increases in (i) stock-based compensation of $713, and (ii) fees paid for data analytics and outside service providers of $713, partially offset by decreases in (iii) printing, distribution, and fulfillment costs of $751, and (iv) other costs$5,818, primarily due to the Athlon acquisition, which was acquired in the second quarter of revenue related to SI Swim2022. We announced that we would be shutting down the Parade print business as of $310.November 13, 2022, eliminating unprofitable aspects of the business.

 

Operating Expenses

 

Selling and Marketing

The following table sets forth operating expenses:selling and marketing expenses by category:

 

  Three Months Ended March 31,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Selling and marketing $17,216  $17,529  $(313)  -1.8%
General and administrative  13,514   5,638   7,876   139.7%
Depreciation and amortization  4,202   3,963   239   6.0%
Loss on impairment of assets  257   -   257   100.0%
Total operating expenses $35,189  $27,130  $8,059   29.7%
  Three Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Payroll and employee benefits of selling and marketing account management support teams $5,025  $3,004  $2,021   67.3%
Stock-based compensation  810   1,421   (611)  -43.0%
Professional marketing services  550   882   (332)  -37.6%
Circulation costs  1,808   1,056   752   71.2%
Subscription acquisition costs  9,778   13,013   (3,235)  -24.9%
Advertising costs  1,474   2,344   (870)  -37.1%
Other selling and marketing expenses  658   1,172   (514)  -43.9%
Total selling and marketing $20,103  $22,892  $(2,789)  -12.2%

 

OperatingFor the three months ended September 30, 2022, as referenced in the above table, we incurred selling and marketing expenses of $20,103 as compared to $22,892 for the three months ended March 31, 2022 increased by $8,059 to $35,189September 30, 2021, a decrease of $2,789 or 12.2% from $27,130 for the three months ended March 31, 2021.

Selling and Marketing. For the three months ended March 31, 2022, we incurred selling and marketing costs of $17,216, as compared to $17,529 for the three months ended March 31, 2021.prior period. The decrease in selling and marketing expenses of $2,789 was primarily due to decreases in subscription acquisition costs of $313 is primarily related to a $2,205 decrease in$3,235; advertising costs of $870; stock-based compensation of $611; and other selling and marketing expenses $514. Offsetting these decreases, payroll and employee benefits of selling and marketing account management support teams due to a reclass to generalincreased $2,021 and administrative expense offset by an increase in circulation costs grew by $752, both of $1,893. The increasewhich were a result of the addition of the Athlon properties, which were acquired in circulation costs reflects the effects of acquisition accounting where agency fees were excluded from subscribers that existed upon acquisition, and benefited the firstsecond quarter of fiscal 2021 as compared to the first quarter of fiscal 2022.

 

General and Administrative. For the three months ended March 31, 2022, we incurred general and administrative costs of $13,514 as compared to $5,638 for the three months ended March 31, 2021.

The $7,876 increase infollowing table sets forth general and administrative expenses is primarily due to an increase in payroll, along with the related benefits and stock-based compensation, of $7,382 and other general corporate expenses of $390.by category:

  Three Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Payroll and related expenses for executive and administrative personnel $4,573  $3,586  $987   27.5%
Stock-based compensation  4,729   5,322   (593)  -11.1%
Professional services, including accounting, legal and insurance  3,166   4,090   (924)  -22.6%
Other general and administrative expenses  1,379   1,559   (180)  -11.5%
Total general and administrative $13,847  $14,557  $(710)  -4.9%

 

2938

 

 

For the three months ended September 30, 2022, as referenced in the above table, we incurred general and administrative expenses of $13,847 as compared to $14,557 for the three months ended September 30, 2021, a decrease of $710 or 4.9% from the prior period. The decrease is primarily related to professional services of $924; and stock-based compensation of $593, offset by an increase in payroll and related expenses of $987.

Other Expenses(Expenses) Income

 

The following table sets forth other expenses:(expense) income:

 

 Three Months Ended March 31,  2022 versus 2021  Three Months Ended September 30,  2022 versus 2021 
 2022  2021  $ Change  % Change  2022  2021  $ Change  % Change 
Change in valuation of warrant derivative liabilities $-  $(665) $665   -100.0% $-  $802  $(802)  -100.0%
Interest expense  (2,820)  (2,820)  -   0.0%  (3,184)  (2,512)  (672)  26.8%
Liquidated damages  (172)  (255)  83   -32.5%  (339)  (834)  495   -59.4%
Total other expenses $(2,992) $(3,740) $748   -20.0% $(3,523) $(2,544) $(979)  38.5%

 

Change in Valuation of Warrant Derivative Liabilities. The change of $802 in the valuation of warrant derivative liabilities for the three months ended March 31, 2022September 30, 2021 was the result of the decrease in the fair value of theno longer having any warrant derivative liabilities as of March 31, 2022, as compared to the change in the valuation for the three months ended March 31, 2021. The change in the valuation is not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock.September 30, 2022.

 

Interest Expense. We incurred interest expense of $2,820$3,184 for the three months ended March 31,September 30, 2022, andas compared to $2,512 for the three months ended September 30, 2021. The increase in interest expense of $672 was primarily from additional cash paid interest from our debt.

 

Liquidated Damages. We recorded $172 accrued interest as liquidated damages during the three months ended March 31, 2022 primarily from the issuance of our convertible debentures, Series H convertible preferred Stock, Series I convertible preferred stock, Series J convertible preferred stock and Series K convertible preferred stock since we determined that: (i) the registration statements registering for resale the shares of our common stock issuable upon conversion of such securities would not be declared effective within the requisite time frame; and (ii) that we would not be able to become current in our periodic filing obligations with the SEC in order to satisfy the public information requirements under the applicable securities purchase agreements. We recorded liquidated damages, including the accrued interest thereon, of $255 in$339 for the three months ended March 31,September 30, 2022, as compared to $834 for the three months ended September 30, 2021. The decrease of $495 primarily resulted from no further liquidated damages assessed under certain corresponding agreements and only recording interest expense related to the previous liquidated damages assessed.

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Nine Months Ended September 30, 2022 and 2021

  Nine Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Revenue $180,024  $127,936  $52,088   40.7%
Cost of revenue  115,730   83,264   32,466   39.0%
Gross profit  64,294   44,672   19,622   43.9%
Operating expenses                
Selling and marketing  56,626   54,232   2,394   4.4%
General and administrative  43,325   37,587   5,738   15.3%
Depreciation and amortization  13,124   11,982   1,142   9.5%
Loss on lease termination  -   7,345   (7,345)  -100.0%
Loss on impairment of assets  466   904   (438)  -48.5%
Total operating expenses  113,541   112,050   1,491   1.3%
Loss from operations  (49,247)  (67,378)  18,131   -26.9%
Total other (expense)  (9,149)  (3,679)  (5,470)  148.7%
Loss before income taxes  (58,396)  (71,057)  12,661   -17.8%
Income taxes  1,235   230   1,005   437.0%
Net loss $(57,161) $(70,827) $13,666   -19.3%
Basic and diluted net loss per common share $(3.30) $(6.38) $3.08   -48.3%
Weighted average number of common shares outstanding – basic and diluted  17,339,882   11,100,416   6,239,466   56.2%

Net loss

For the nine months ended September 30, 2022, as referenced in the above table, net loss was $57,161, as compared to $70,827 for the nine months ended September 30, 2021, which represents an improvement of $13,666. The primary driver for the improvement in net loss was due to an $52,088 increase in revenue, which was partially offset by an increase in cost of revenue of $32,466; and an increase in operating expenses of $1,491 during the nine months ended September 30, 2022.

Revenue

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

  Nine Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Digital revenue                
Digital advertising $74,852  $39,397  $35,455   90.0%
Digital subscriptions  16,580   22,474   (5,894)  -26.2%
Other revenue  13,193   5,834   7,359   126.1%
Total digital revenue  104,625   67,705   36,920   54.5%
Print revenue                
Print advertising  27,697   6,904   20,793   301.2%
Print subscriptions  47,702   53,327   (5,625)  -10.5%
Total print revenue  75,399   60,231   15,168   25.2%
Total revenue $180,024  $127,936  $52,088   40.7%

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For the nine months ended September 30, 2022, as referenced in the above table, total revenue increased $52,088, or 40.7% from $127,936 to $180,024. Total digital revenue increased $36,920, or 54.5%, from the prior year period, primarily due to an increase in digital advertising revenue of $35,455, or 90.0%. The increase in digital advertising revenue was mainly due to a 58% increase in average pageviews and a 16% increase in revenue per pageview for the nine months ended September 30, 2022, as compared to the same period in the prior year with 95% of the total increase driven by organic growth and the remainder due to the acquisition of Athlon. Other revenue increased by $7,359, or 126%, as we added new licensing and syndication relationships and by expanding existing ones to leverage our content with increased monetization. Total print revenue increased $15,168, or 25.2%, from $60,231 for the nine months ended September 30, 2021 to $75,399 for the nine months ended September 30, 2022 primarily related to $26,988 from Athlon magazine circulations, which was acquired during the second quarter of 2022, offset by a decrease of $11,820 from the Sports Illustrated media business.

Cost of Revenue

The following table sets forth cost of revenue by category:

  Nine Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Publisher Partner revenue share payments $14,242  $15,759  $(1,517)  -9.6%
Technology, Platform and software licensing fees  12,561   7,579   4,982   65.7%
Royalty fees  11,250   11,250   -   0.0%
Content and editorial expenses  36,104   25,864   10,240   39.6%
Printing, distribution and fulfillment costs  26,602   11,171   15,431   138.1%
Amortization of developed technology and platform development  7,099   6,566   533   8.1%
Stock-based compensation  7,602   4,930   2,672   54.2%
Other cost of revenue  270   145   125   86.2%
Total cost of revenue $115,730  $83,264  $32,466   39.0%

For the nine months ended September 30, 2022, as referenced in the above table, we recognized cost of revenue of $115,730, as compared to $83,264 for the nine months ended September 30, 2021, which represents an increase of $32,466 or 39.0%. Cost of revenue for the nine months ended September 30, 2022 was impacted by increases in printing, distribution and fulfillment costs of $15,431; and content and editorial expenses of $10,240, with both increases primarily due to the Athlon acquisition, which occurred in the second quarter of 2022; technology, Platform and software licensing fees of $4,982; stock-based compensation of $2,672; and amortization of developed technology and platform development of $533; partially offset by a decrease in Publisher Partner revenue share payments of $1,517.

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Operating Expenses

Selling and Marketing

The following table sets forth selling and marketing expenses by category:

  Nine Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Payroll and employee benefits of selling and marketing account management support teams $13,276  $8,518  $4,758   55.9%
Stock-based compensation  2,149   4,059   (1,910)  -47.1%
Professional marketing services  2,390   1,895   495   26.1%
Circulation costs  3,613   2,831   782   27.6%
Subscription acquisition costs  28,463   28,539   (76)  -0.3%
Advertising costs  4,591   5,503   (912)  -16.6%
Other selling and marketing expenses  2,144   2,887   (743)  -25.7%
Total selling and marketing $56,626  $54,232  $2,394   4.4%

For the nine months ended September 30, 2022, as referenced in the above table, we incurred selling and marketing expenses of $56,626, as compared to $54,232 for the nine months ended September 30, 2021, an increase of $2,394 or 4.4% from the prior year period. The increase in selling and marketing expenses of $2,394 is primarily related to increase in payroll of selling and marketing account management support teams of $4,758, of which $3,355 was related to the addition of the Athlon business.

General and Administrative

The following table sets forth general and administrative expenses by category:

  Nine Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Payroll and related expenses for executive, sales and administrative personnel $13,501  $11,018  $2,483   22.5%
Stock-based compensation  15,026   12,700   2,326   18.3%
Professional services, including accounting, legal and insurance  10,043   10,125   (82)  -0.8%
Other general and administrative expenses  4,755   3,744   1,011   27.0%
Total general and administrative $43,325  $37,587  $5,738   15.3%

For the nine months ended September 30, 2022, as referenced in the above table, we incurred general and administrative expenses of $43,325, as compared to $37,587 for the nine months ended September 30, 2021, an increase of $5,738 or 15.3% from the prior year period. The increase was primarily related to payroll and related expenses for executive and administrative personnel of $2,483; stock-based compensation of $2,326; and other general and administrative expenses of $1,011.

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Other (Expenses) Income

The following table sets forth other (expense) income:

  Nine Months Ended September 30,  2022 versus 2021 
  2022  2021  $ Change  % Change 
Change in valuation of warrant derivative liabilities $-  $497  $(497)  -100.0%
Interest expense  (8,510)  (7,695)  (815)  10.6%
Liquidated damages  (639)  (2,198)  1,559   -70.9%
Gain upon debt extinguishment  -   5,717   (5,717)  -100.0%
Total other expenses $(9,149) $(3,679) $(5,470)  148.7%

Change in Valuation of Warrant Derivative Liabilities. The change of $497 in the valuation of warrant derivative liabilities for the nine months ended September 30, 2021 was the result of no longer having any warrant derivative liabilities as of September 30, 2022.

Interest Expense. We incurred interest expense of $8,510 for the nine months ended September 30, 2022, as compared to $7,695 for the nine months ended September 30, 2021. The increase in interest expense of $815 was primarily from issuanceadditional cash paid interest from our debt.

Liquidated Damages. We recorded liquidated damages of $639 for the nine months ended September 30, 2022, as compared to $2,198 for the nine months ended September 30, 2021. The decrease of $1,559 primarily resulted from no further liquidated damages assessed under certain corresponding agreements and only recording interest expense related to the previous liquidated damages assessed.

Gain Upon Debt Extinguishment. We recorded a gain upon debt extinguishment of $5,717 (including accrued interest) pursuant to the forgiveness of the same securities as outlined above based uponPaycheck Protection Program Loan for the reasons set forth above.nine months ended September 30, 2021.

 

Use of Non-GAAP Financial Measures

 

We report our financial results in accordance with generally accepted accounting principles in the United States of America (“GAAP”); however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We believe Adjusted EBITDA provides visibility to the underlying continuing operating performance by excluding the impact of certain items that are noncash in nature or not related to our core business operations. We calculate Adjusted EBITDA as net loss, adjusted for (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in derivative valuations, (vi) liquidated damages, (vii) gain upon extinguishment of debt, (viii) loss on lease termination, (ix) loss on impairment of assets, (viii)(x) professional and vendor fees, and (ix)(xi) employee restructuring payments.

 

Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by other companies, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP Adjusted EBITDA as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations isare that Adjusted EBITDA:

 

 does not reflect stock-based compensation and, therefore, interest expense, or the cash required to service our debt, which reduces cash available to us;
does not include all of our compensation costs;reflect deferred income taxes, which is a noncash expense;
 does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements;
 does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us;
stock-based compensation and, therefore, does not reflect deferred income taxes, which is a noncash expense;include all of our compensation costs;

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 does not reflect the change in derivative valuations and, although this is a noncash expense, the change in the valuations each reporting period are not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock;

43

 does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to);
does not reflect any gains upon debt extinguishment, which we do not consider in our evaluation of our business operations;
does not reflect any losses on termination of our leases, which is a noncash operating expense;
 does not reflect any losses from the impairment of assets, which is a noncash operating expense;
 does not reflect the professional and vendor fees incurred by us for services provided by consultants, accountants, lawyers, and other vendors, which services were related to certain types of events that are not reflective of our business operations; and
 does not reflect payments related to employee restructuring changes for the former Chief Financial Officer of Athlon and our former Chief Executive Officer.

 

The following table presents a reconciliation of Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, for the periods indicated:

 

 Three Months Ended March 31,  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 2022  2021  2022  2021  2022  2021 
Net loss $(18,449) $(25,463) $(16,505) $(24,707) $(57,161) $(70,827)
Add:                        
Interest expense (1)  2,820   2,820   3,184   2,512   8,510   7,695 
Deferred income taxes  14   -   547   (230)  (1,235)  (230)
Depreciation and amortization (2)  6,513   6,130   6,891   6,297   20,223   18,548 
Stock-based compensation (3)  7,367   5,099   8,311   8,475   24,777   21,689 
Change in derivative valuations  -   665   -   (802)  -   (497)
Liquidated damages (4)  172   255   339   834   639   2,198 
Loss on impairment of assets (5)  257   - 
Professional and vendor fees (6)  -   1,719 
Employee restructuring payments (7)  174   61 
Gain upon debt extinguishment (5)  -   -   -   (5,717)
Loss on lease termination (6)  -   7,345   -   7,345 
Loss on impairment of assets (7)  209   904   466   904 
Professional and vendor fees (8)  -   2,124   -   5,152 
Employee restructuring payments (9)  -   513   679   580 
Adjusted EBITDA $(1,132) $(8,714) $2,976  $3,265  $(3,102) $(13,160)

 

 (1)Represents interest expense (net of $2,820interest income) of $3,184 and $2,820,$2,512, for the three months ended March 31,September 30, 2022 and 2021, respectively, and interest expense (net of interest income) of $8,510 and $7,695, for the nine months ended September 30, 2022 and 2021, respectively. Interest expense is related to our capital structure. Interest expense varies over time due to a variety of financing transactions. Interest expense includes $660$281 and $694$533 for amortization of debt discounts for the three months ended March 31,September 30, 2022 and 2021, respectively, which are a noncash item and $1,215 and $1,534 for amortization of debt discounts for the nine months ended September 30, 2022 and 2021, as presented in our condensed consolidated statements of cash flows.flows, which are a noncash item. Investors should note that interest expense will recur in future periods.
 (2)Represents depreciation and amortization related to our developed technology and Platform included within cost of revenues of $2,311$2,413 and $2,167$2,242, for the three months ended September 30, 2022 and 2021, respectively, and depreciation and amortization included within operating expenses of $4,202$4,478 and $3,963$4,055 for the three months ended March 31,September 30, 2022 and 2021, respectively. Represents depreciation and amortization related to our developed technology and Platform included within cost of revenues of $7,099 and $6,566, for the nine months ended September 30, 2022 and 2021, respectively, and depreciation and amortization included within operating expenses of $13,124 and $11,982 for the nine months ended September 30, 2022 and 2021, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods.

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 (3)Represents noncash costs arising from the grant of stock-based awards to employees, consultants and directors. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future.

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 (4)Represents damages (or interest expense related to accrued liquidated damages) we owe to certain of our investors in private placements offerings conducted in fiscal years 2018 through 2020, pursuant to which we agreed to certain covenants in the respective securities purchase agreements and registration rights agreements, including the filing of resale registration statements and becoming current in our reporting obligations, which we were not able to timely meet.
 (5)Represents a gain upon extinguishment of the Paycheck Protection Program Loan.
(6)Represents our loss related to the surrender and termination of our lease of office space located in New York based on our decision to no longer lease office space.
(7)Represents our impairment of certain assets that no longer are useful.
 (6)(8)

Represents one-time, non-recurring third party professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers, and other vendors (these fees are collectively referred to as “Professional Fees”) related to (i) the preparation of periodic reports in order for us to become current inon our Exchange Act reporting obligations, (“Delinquent Reporting Obligations Services”). With respect(ii) up-list to the Delinquent Reporting Obligations Services, we incurred professionala national exchange, (iii) contemplated and vendor fees in the first quarter of 2021 related to the preparationcompleted acquisitions, (iv) public and private offerings of our annual reports for fiscal years 2018securities and 2019 (which containedother financings, and (v) stockholder disputes and the financial information for the quarterly periods during fiscal 2019), andimplementation of our quarterly reports fiscal 2020. The amount of fees incurred in connection with the Delinquent Reporting Obligations Services is adjusted based on our best estimate of the amount we expect we would ordinarily incur to meet our reporting obligations pursuant to the Exchange Act.Rights Agreement.

The table below summarizes the costs defined above that we incurred during fiscal 2021:

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
Category 2022  2021  2022  2021 
(i) Catch-up periodic reports $-  $1,654  $-  $3,795 
(ii) Up-list  -   61   -   93 
(iii) M&A  -   89   -   338 
(iv) Public & private offerings and other financings  -   120   -   388 
(v) Stockholder disputes/Rights Agreement  -   200   -   538 
Totals $-  $2,124  $-  $5,152 

We incurred the majority of the Professional Fees during the three and nine months ended September 30, 2021 for preparation of our Exchange Act periodic reports, and because these costs were incurred for multiple reporting periods over several years simultaneously, the invoices received from our vendors itemized the services that each vendor provided for each respective reporting obligation (i.e., a quarterly or annual audit by year). As such, we were able to reasonably estimate the cost of a normal year’s compliance with Exchange Act reporting requirements related to periodic reports. Therefore, we did not adjust for (or add back) such normal year’s fees in calculating Adjusted EBITDA. Management believes that these Professional Fees represent non-recurring, infrequent and unusual expenses and does not expect to incur such expenses in the future.

 (7)(9)Represents severance payments to the former Chief Financial Officer of Athlon and our former Chief Executive Officer for the three and nine months ended March 31,September 30, 2022 and 2021.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer(s) and principal financial officer(s), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation, conducted in accordance with SEC’s guidance in Release No. 34-55929, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of such date in providing reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

 

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As permitted by SEC guidance, management excluded from its assessment the operations of Athlon, which was acquired on April 1, 2022, and which accounted for approximately 14.9% of our consolidated total assets as of September 30, 2022 and approximately 17.1% of our consolidated revenue, for the nine months ended September 30, 2022.

Changes in Internal Control over Financial Reporting

 

In connection with our continued monitoring and maintenance of our controls procedures as part of the implementation of Section 404 of the Sarbanes,Sarbanes-Oxley Act of 2002, we continue to review, test, and improve the effectiveness of our internal controls. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2022period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

ITEM 1. 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.

 

ITEM 1A. RISK FACTORS

There are numerous factors that affect our business and operating results, many of which are beyond our control. The risk factors described in Part I, “Item IA. Risk Factors” in our Annual Report on Form 10-K, for the year ended December 31, 2021, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with SEC in connection with evaluating us, our business and the forward-looking statements contained in this Quarterly Report on Form 10-Q.Report. Additional risks and uncertainties not known to us at present, or that we currently deem immaterial, may affect us. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following sets forth certain unregistered sales of our equity securities duringDuring the three months ended March 31, 2021 through the date of filing this Quarterly Report that have not been previously disclosed:

On March 7,September 30, 2022, we issued 88,188 shares of common stock to Mr. Ross Levinsohn in connection with the vesting of outstanding restricted stock units. The per share fair value on the issuance date was $8.36. In connection with the issuance, we withheld an additional 67,023 shares of common stock for taxes due which were withhold at a per share fair value of $8.28. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering.

On March 22, 2022, we issued 34,500 shares of our common stock upon the conversion of 250 shares of Series H Convertible Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.

On March 23, 2022, we issued 16,760 shares of our common stock pursuantor repurchased unregistered securities to the asset purchase agreement, dated March 9, 2020, by and between us and Petametrics Inc., doing business as LiftIgniter. The per share fair value on the issuance date was $9.51. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering.extent identified in this Item 2.

On March 22, 2022, we issued 34,500 shares of our common stock upon the conversion of 250 shares of Series H Convertible Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.Unregistered Issuances

On March 25, 2022, we issued 1,380 shares of our common stock upon the conversion of 10 shares of Series H Convertible Preferred Stock. The issuances were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder as transactions not involving a public offering.None.

On April 1, 2022, we issued 314,103 shares of our common stock pursuant to the stock purchase agreement, dated April 1, 2022, by and between us and Athlon Holdings, Inc. The number of shares issued was based on the average closing price of our common stock on the 10 trading days preceding April 1, 2022, the closing date. The per share fair value on the issuance date was $10.00. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof as a transaction not involving a public offering.Repurchases

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

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ITEM 5. OTHER INFORMATION

 

None.

33

 

ITEM 6. EXHIBITS

 

The following documents are filed as part of this Quarterly Report:

 

Exhibit

Number

 Description of Document
   
3.13.1* Certificate of AmendmentElimination of the Amended and Restated Certificate of Incorporation,Series L Convertible Preferred Stock, as filed with the Delaware Secretary of State of the State of Delaware on January 20, 2022, and which was filed as Exhibit 3.1 to our Current Report on Form 8-K filed on January 26,July 18, 2022.
   
3.24.1 Certificate of Correction of the Certificate of Amendment ofNo. 1 to the Amended and Restated CertificateRights Agreement, dated as of Incorporation, filed with the Secretary of State of the State of Delaware on January 26,July 15, 2022, by and between The Arena Group Holdings, Inc. and American Stock Transfer & Trust Company, LLC., which was filed as Exhibit 3.24.1 to our Current Report on Form 8-K filed on January 26, 2022.
3.3Certificate of Correction of the Certificate of Amendment of the Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on February 3, 2022, and which was filed as Exhibit 3.9 to Pre-Effective Amendment No. 3 to our Registration Statement on Form S-1 (File No. 333-262111) filed on February 9,July 15, 2022.
   
10.1 Bonus Letter,Standstill Agreement, dated October 6, 2021,July 15, 2022, by and between the Companyamong The Arena Group Holdings, Inc., B. Riley Financial, Inc., B. Riley Securities, Inc., B. Riley Principal Investments, LLC, BRF Investments, LLC, Bryant R. Riley and Ross Levinsohn,their affiliates and subsidiaries, which was filed as Exhibit 10.1 to our Current Report on Form 8-K filed on January 10, 2022.
10.2Amendment No. 1 to Second Amended and Restated executive Employment Agreement, dated December 22, 2021, by and between the Company and Ross Levinsohn, which was filed as Exhibit 10.2 to our Current Report on Form 8-K filed on January 10, 2022.
10.3Form of Stock Purchase Agreement, dated January 24, 2022, by and between the Company and several stockholders, which was filed as Exhibit 10.1 to our Current Report on Form 8-K filed on January 28, 2022.
10.4Amendment No. 4 to Second Amended and Restated Note Purchase Agreement, dated as of January 23, 2022, by and among the Company, Maven Coalition, Inc., TheStreet, Inc., Maven Media Brands, LLC, College Spun Media Incorporated, and BRF Finance Co., LLC as Agent and Purchaser, which was filed as Exhibit 10.2 to our Current Report on Form 8-K filed on January 28, 2022.
10.5Form of Amendment to Options Agreements by and between the Company and Douglas Smith, which was filed as Exhibit 10.1 to our Current Report on Form 8-K filed on March 24, 2022.
10.5Underwriting Agreement, dated February 10, 2022, by and between the Company and B. Riley Securities, Inc., as representative of the several underwriters, which was filed as Exhibit 1.1 to our Current Report on Form 8-K filed on February 11, 2022.
10.6Amended and Restated Rights Agreement, dated May 2, 2022, by and between the Company and American Stock Transfer & Trust Company, LLC, which was filed as Exhibit 4.1 to our Current Report on Form 8-K filed on May 3,July 15, 2022.
   
31.1* Chief Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2* Chief Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1*# Chief Executive Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2*# Chief Financial Officer’s Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS**+ Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
   
101.SCH**+ Inline XBRL Taxonomy Extension Schema DocumentDocument.
   
101.CAL**+ Inline XBRL Taxonomy Extension Calculation Linkbase DocumentDocument.
   
101.LAB**+ Inline XBRL Taxonomy Extension Label Linkbase DocumentDocument.
   
101.PRE**+ Inline XBRL Taxonomy Extension Presentation Linkbase DocumentDocument.
   
101.DEF**+ Inline XBRL Taxonomy Extension Definition Linkbase DocumentDocument.
   
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

* Filed herewith.

 

# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

+ In accordance with Regulation S-T, the Inline XBRL related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith but not “filed”.

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SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 The Arena Group Holdings, Inc.
  
Date: May 4,November 9, 2022By:/s/ ROSS LEVINSOHN
  Ross Levinsohn
  Chief Executive Officer
  (Principal Executive Officer)
   
Date: May 4,November 9, 2022By:/s/ SPIROS CHRISTOFORATOS
  Spiros Christoforatos
  Chief Accounting Officer
  (Principal Accounting Officer)

 

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