Paradium.AI, Inc 10-Q for FY2024 Q1
Paradium.AI, Inc. (PAAI)
About this 10-Q
Paradium.AI, Inc filed this 10-Q on May 17, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $28.94M
- up 1.8% from $28.42M a year earlier
- Net loss
- $103.36M
- compared with a net loss of $19.38M a year earlier
- Diluted EPS
- -$3.91
- compared with -$1.04 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| 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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
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| (Address of principal executive offices) | (Zip Code) |
(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 | ||
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.
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).
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. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | 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 14, 2024, the Registrant had shares of common stock outstanding.
TABLE OF CONTENTS
| 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, the timing, outcome or financial impacts of the pending Business Combination (as described in Note 18 of the Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1 herein) and related transactions, 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 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 information currently available, as well as our beliefs and assumptions. 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. We detail other risks in our public filings with the Securities and Exchange Commission (the “SEC”), including in Part I, Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024. The discussion in this Quarterly Report should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report and our consolidated financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023.
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 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
| 4 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| ($ in thousands, except share data) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepayments and other current assets | ||||||||
| Current assets from discontinued operations | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Platform development, net | ||||||||
| Acquired and other intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Goodwill | ||||||||
| Noncurrent assets from discontinued operations | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, mezzanine equity and stockholders’ deficiency | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other | ||||||||
| Line of credit | ||||||||
| Unearned revenue | ||||||||
| Subscription refund liability | ||||||||
| Operating lease liability | ||||||||
| Contingent consideration | ||||||||
| Liquidated damages payable | ||||||||
| Simplify loan | ||||||||
| Bridge notes | ||||||||
| Debt | ||||||||
| Current liabilities from discounted operations | ||||||||
| Total current liabilities | ||||||||
| Unearned revenue, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Noncurrent liabilities from discontinued operations | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 19) | ||||||||
| Mezzanine equity: | ||||||||
| Series G redeemable and convertible preferred stock, $ par value, $ per share liquidation value and shares designated; aggregate liquidation value: $ | ||||||||
| Total mezzanine equity | ||||||||
| Stockholders’ deficiency: | ||||||||
| Common stock, $ par value, authorized shares; issued and outstanding: and shares at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficiency | ( | ) | ( | ) | ||||
| Total liabilities, mezzanine equity and stockholders’ deficiency | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
| 5 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| 2024 | 2023 | |||||||
Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| ($ in thousands, except share data) | ||||||||
| Revenue | $ | $ | ||||||
| Cost of revenue (includes amortization of platform development and developed technology for 2024 and 2023 of $ | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Depreciation and amortization | ||||||||
| Loss on impairment of assets | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (expense) income | ||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||
| Interest expense | ( | ) | ( | ) | ||||
| Liquidated damages | ( | ) | ( | ) | ||||
| Total other expenses | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income taxes | ( | ) | ( | ) | ||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Loss from discontinued operations, net of tax | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per common share: | ||||||||
| Continuing operations | $ | ) | $ | ) | ||||
| Discontinued operations | ) | ) | ||||||
| Basic and diluted net loss per common share | $ | ) | $ | ) | ||||
| Weighted average number of common shares outstanding – basic and diluted | ||||||||
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, 2024
| Shares | Par Value | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| Common Stock | Common Stock to be Issued | Additional Paid-in | Accumulated | Total
Stockholders’ | ||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock in connection with private placement | - | |||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | - | ( | ) | |||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Repurchase of common stock for Fexy put option | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 7 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Three Months Ended March 31, 2023
| Common Stock | Common Stock to be Issued | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| ($ in thousands, except per share data) | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock in connection with the acquisition of Fexy Studios | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with settlement of liquidated damages | - | |||||||||||||||||||||||||||
| Gain upon issuance of common stock in connection with settlement of liquidated damages | - | - | ||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | - | ( | ) | |||||||||||||||||||||||||
| Common stock withheld for taxes | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of common stock upon exercise of stock options | ||||||||||||||||||||||||||||
| Issuance of common stock in connection with registered direct offering | - | |||||||||||||||||||||||||||
| Reclassification to liability upon modification of common stock option | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 8 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| 2024 | 2023 | |||||||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| ($ in thousands) | ||||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of platform development and intangible assets | ||||||||
| Amortization of debt discounts | ||||||||
| Noncash and accrued interest | ||||||||
| Loss on impairment of assets | ||||||||
| Change in fair value of contingent consideration | ||||||||
| Liquidated damages | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ||||||||
| Bad debt expense | ||||||||
| Change in operating assets and liabilities net of effect of business combination: | ||||||||
| Accounts receivable, net | ||||||||
| Subscription acquisition costs | ( | ) | ||||||
| Prepayments and other current assets | ( | ) | ( | ) | ||||
| Other long-term assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other | ( | ) | ||||||
| Unearned revenue | ( | ) | ||||||
| Subscription refund liability | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other long-term liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Capitalized platform development | ( | ) | ( | ) | ||||
| Payments for acquisition of business, net of cash acquired | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Payment of Fexy put option | ( | ) | ||||||
| Proceeds (repayments) under line of credit, net borrowing | ( | ) | ( | ) | ||||
| Proceeds from common stock private placement | ||||||||
| Proceeds from Simplify loan | ||||||||
| Proceeds from common stock registered direct offering | ||||||||
| Payments of issuance costs from common stock registered direct offering | ( | ) | ||||||
| Payment of deferred cash payments | ( | ) | ||||||
| Payment of taxes from common stock withheld | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ) | ||||||
| Cash, cash equivalents, and restricted cash – beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash – end of period | $ | $ | ||||||
| Cash, cash equivalents, and restricted cash | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| Noncash investing and financing activities | ||||||||
| Reclassification of stock-based compensation to platform development | $ | $ | ||||||
| Issuance cost of registered direct offering recorded in accrued expenses and other | ||||||||
| Repurchase of common stock for Fexy put option | ||||||||
| Issuance of common stock in connection with settlement of liquidated damages | ||||||||
| Issuance of common stock in connection with acquisition | ||||||||
| Deferred cash payments recorded in connection with acquisitions | ||||||||
| Reclassification to liability upon common stock modification | ||||||||
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. and its wholly owned subsidiaries (“The Arena Group” or the “Company”), after eliminating all significant intercompany balances and transactions.
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, 2023, filed with the SEC on April 1, 2024.
The condensed consolidated financial statements as of March 31, 2024, and for the three months ended March 31, 2024 and 2023, 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, 2023, 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 business and operations are sensitive to general business and economic conditions in the United States and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the United States and world economy. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse developments in these general business and economic conditions could have a material adverse effect on the Company’s financial condition and the results of its operations.
In addition, the Company will compete with many companies that currently have extensive and well-funded projects, marketing and sales operations as well as extensive human capital. The Company may be unable to compete successfully against these companies. The Company’s industry is characterized by rapid changes in technology and market demands. As a result, the Company’s products, services, or expertise may become obsolete or unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer and market demands, and enhance its current technology under development.
Uncertainty in the global economy presents significant risks to the Company’s business. Increases in inflation, rising interest rates, instability in the global banking system, geopolitical factors, including the ongoing conflicts in Ukraine and Israel and the responses thereto, and the remaining effects of the COVID-19 pandemic may have an adverse effect on the Company’s business. While the Company is closely monitoring the impact of the current macroeconomic conditions on all aspects of its business, the ultimate extent of the impact on its business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside of the Company’s control and could exist for an extended period of time. As a result, the Company is subject to continuing risks and uncertainties.
The
Company operates in
| 10 |
Going Concern
The Company’s condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company’s condensed consolidated financial statements do not include any adjustments that might be necessary if it is unable to continue as a going concern.
For
the three months ended March 31, 2024, the Company incurred a net loss from continuing operations of $
In its evaluation, management determined there is substantial doubt about the Company’s ability to continue as a going concern for a one-year period following the financial statement issuance date, unless it is able to refinance or modify its current debt and complete the Business Combination.
The Company plans to refinance or modify the maturities of its current debt and complete the Business Combination to alleviate the conditions that raise substantial doubt about its ability to continue as a going concern, however, there can be no assurance that the Company will be able to refinance or modify its current debt and complete the Business Combination.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported results of operations during the reporting period. Significant estimates include: reserves for bad debt; capitalization of platform development and associated useful lives; goodwill and other acquired intangible assets and associated useful lives; assumptions used in accruals for potential liabilities; revenue recognition and estimates of standalone selling price of performance obligations for revenue contracts with multiple performance obligations; stock-based compensation and the determination of the fair value; valuation allowances for deferred tax assets and uncertain tax positions; accounting for business combinations; and assumptions used to calculate contingent liabilities. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.
Recently Adopted Accounting Standards
In June 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This update also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain disclosures for equity securities subject to contractual sale restrictions. The adoption of ASU 2022-03 did not have a material impact on the Company’s condensed consolidated financial statements.
| 11 |
Basic loss per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of common stock equivalent shares, such as stock options, restricted stock, and warrants. All restricted stock awards are considered outstanding but are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. All restricted stock units are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. Contingently issuable shares are included in basic loss per common share only when there are no circumstances under which those shares would not be issued. Diluted loss per common share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method.
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.
| 2024 | 2023 | |||||||
| As of March 31, | ||||||||
| 2024 | 2023 | |||||||
| Series G convertible preferred stock | ||||||||
| Series H convertible preferred stock | ||||||||
| Financing warrants | ||||||||
| ABG Warrants | ||||||||
| AllHipHop warrants | ||||||||
| Publisher Partner Warrants | ||||||||
| Restricted stock awards | ||||||||
| Restricted stock units | ||||||||
| Common stock options | ||||||||
| Total | ||||||||
2. Discontinued Operations
On March 18, 2024, the Company discontinued the Sports Illustrated media business (the “SI Business”) that was operated under the Licensing Agreement with ABG-SI, LLC (“ABG”) dated June 14, 2019 (as amended to date, the “Licensing Agreement”). This discontinuation of the SI Business (i.e., discontinued operations) followed the termination of the Licensing Agreement by ABG on January 18, 2024. The last date of any obligation of the Company to perform under the Licensing Agreement was March 18, 2024. In connection with the termination, certain ABG Warrants vested (further details are provided under the heading Modification of Warrants in Note 15).
The table below sets forth the loss from discontinued operations:
Schedule of Discontinued Operations
| 2024 | 2023 | |||||||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expense | ||||||||
| Selling and marketing | ||||||||
| General and administrative(1) | ||||||||
| Depreciation and amortization | ||||||||
| Loss on impairment of assets | ||||||||
| Total operating expenses | ||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
| Income tax benefit | ( | ) | ||||||
| Net loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
| (1) |
| 12 |
The table below sets forth the major classes of assets and liabilities of the discontinued operations:
| March 31, 2024 | December 31, 2023 | |||||||
| As of | ||||||||
| March 31, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Accounts receivable, net | $ | $ | ||||||
| Subscription acquisition costs, current portion | ||||||||
| Prepayments and other current assets | ||||||||
| Current assets from discontinued operations | ||||||||
| Subscription acquisition costs, net of current portion | ||||||||
| Acquired and other intangibles assets, net | ||||||||
| Noncurrent assets from discontinued operations | ||||||||
| Total assets from discontinued operations | $ | $ | ||||||
| Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other | ||||||||
| Subscription refund liability | ||||||||
| Royalty fee liability | ||||||||
| Termination fee liability | ||||||||
| Subscription liability, current portion | ||||||||
| Current liabilities from discontinued operations | ||||||||
| Subscription liability, net of current portion | ||||||||
| Noncurrent liabilities from discontinued operations | ||||||||
| Total liabilities from discontinued operations | $ | $ | ||||||
The table below sets forth the cash flows of the discontinued operations:
| 2024 | 2023 | |||||||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities from discontinued operations | ||||||||
| Net loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of intangible assets | ||||||||
| Loss on impairment of assets | ||||||||
| Stock-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ||||||||
| Subscription acquisition costs | ( | ) | ||||||
| Prepayments and other current assets | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other | ||||||||
| Subscription refund liability | ( | ) | ||||||
| Subscription liability | ( | ) | ||||||
| Termination fee liability | ||||||||
| Net cash used in operating activities from discontinued operations | $ | $ | ||||||
| 13 |
3. Acquisitions
The Company uses the acquisition method of accounting, which is based on ASC, Business Combinations (Topic 805), and uses the fair value concepts which requires, among other things, that most assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date.
Teneology,
Inc. – On January 11, 2023, the Company entered into an asset purchase agreement with Teneology, Inc.,
(“Teneology”) pursuant to which it acquired certain assets (consisting of the RoadFood media business, including digital
and television assets; the Moveable Feast media business, including digital and television assets; the Fexy-branded content studio
business; and the MonkeySee YouTube Channel media business, collectively “Fexy Studios”), for a purchase price of $
The composition of the purchase price is as follows:
Schedule of Composition Preliminary Assets Purchase Price
| Cash | $ | |||
| Common stock | ||||
| Contingent consideration | ||||
| Deferred cash payments, as discounted | ||||
| Total purchase consideration | $ |
The Company accounted for the asset acquisition as a business combination in accordance with ASC 805 since the acquisition met the definition of a business under the applicable guidance.
The
Company incurred $
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 Preliminary Assets Purchase Price Allocation
| Advertiser relationships | $ | |||
| Brand names | ||||
| Goodwill | ||||
| Net assets acquired | $ |
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 advertiser relationships
were valued using the excess earnings method of the income approach and the brand names were valued using the relief-from-royalty method
of the income approach. The estimated useful life is fifteen 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.
The Company expects $
Further details are provided under the heading Intangible Assets in Note 4 related to an impairment of intangible assets (i.e., the advertiser relationships and brand names).
| 14 |
Supplemental Pro forma Information
The pro forma disclosures have been deemed impracticable for this acquisition since after making reasonable efforts the Company is unable to accept assumptions made by Teneology. The Company has determined, based on the information provided by Teneology and made available to the Company, that the earnings from the prior periods could not be verified since the acquisition only included certain activities of Teneology and financial statements were not available. In this regard, the Company: (1) made reasonable effort to obtain certain financial results of the certain activities but Teneology was unable to comply with this request; and (2) the presentation of the pro forma results and the assumptions made by Teneology management were unable to be independently substantiated.
4. Balance Sheet Components
The components of certain balance sheet amounts are as follows:
Accounts
Receivable and Allowance for Doubtful Accounts – The Company receives payments from advertising customers based upon contractual
payment terms; accounts receivable is recorded when the right to consideration becomes unconditional and are generally collected within
90 days. The Company generally receives payments from digital and print subscription customers at the time of sign up for each subscription;
accounts receivable from merchant credit card processors are recorded when the right to consideration becomes unconditional and are generally
collected weekly. Accounts receivable have been reduced by an allowance for doubtful accounts. The Company maintains the allowance for
estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance represents the
current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market
conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability,
customer creditworthiness, historical levels of credit losses, and future expectations. Accounts receivable are written off when deemed uncollectible and collection of the receivable is no longer being
actively pursued. Accounts receivable as of March 31, 2024 and
December 31, 2023 of $
The following table summarizes the allowance for doubtful accounts activity:
Schedule of Allowance For Doubtful Accounts
Three Months Ended March 31, 2024 (unaudited) | Year Ended December 31, 2023 | |||||||
| Allowance for doubtful accounts beginning of year | $ | $ | ||||||
| Additions | ||||||||
| Deductions – discontinued operations | ( | ) | ( | ) | ||||
| Deductions – write-offs | ( | ) | ( | ) | ||||
| Allowance for doubtful accounts end of period | $ | $ | ||||||
Prepayments and Other Current Assets – Prepayments and other current assets are summarized as follows:
Schedule of Prepayments and Other Current Assets
| March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| As of | ||||||||
| March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepaid supplies | ||||||||
| Refundable income and franchise taxes | ||||||||
| Unamortized debt costs | ||||||||
| Employee retention credits | ||||||||
| Excess collections under line of credit | ||||||||
| Other receivables | ||||||||
| Total prepayments and other current assets | $ | $ | ||||||
Under
the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the subsequent extensions
of the CARES Act, the Company was eligible for a refundable employee retention credit subject to certain criteria. The Company
determined that it qualifies for the tax credit under the CARES Act. In connection with the CARES Act, the Company adopted a policy
to recognize the employee retention credit when earned and to offset the credit against the related expenditure. For the three
months ended March 31, 2023, the Company recorded the employee retention credits as a reduction to payroll and related expenses of
$
| 15 |
Property and Equipment – Property and equipment are summarized as follows:
Schedule of Property and Equipment
March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| As of | ||||||||
March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| Office equipment and computers | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Gross property and equipment | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
Depreciation
and amortization expense for the three months ended March 31, 2024 and 2023 was $
Platform Development – Platform development costs are summarized as follows:
Summary of Platform Development Costs
March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| As of | ||||||||
March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| Platform development | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net platform development | $ | $ | ||||||
A summary of platform development activity for the three months ended March 31, 2024 is as follows:
Summary of Platform Development Cost Activity
| Platform development beginning of period | $ | |||
| Payroll-based costs capitalized | ||||
| Total capitalized costs | ||||
| Stock-based compensation | ||||
| Platform development end of period | $ |
Amortization
expense for the three months ended March 31, 2024 and 2023 was $
| 16 |
Intangible Assets – Intangible assets subject to amortization consisted of the following:
Schedule of Intangible Assets Subject to Amortization
As of March 31, 2024 (unaudited) | As of December 31, 2023 | |||||||||||||||||||||||
| Carrying Amount | Accumulated Amortization | Net Carrying Amount | Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
| Developed technology | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Trade name | ( | ) | ( | ) | ||||||||||||||||||||
| Brand name | ( | ) | ( | ) | ||||||||||||||||||||
| Subscriber relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Advertiser relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Database | ( | ) | ( | ) | ||||||||||||||||||||
| Digital content | ( | ) | ( | ) | ||||||||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Intangible
assets subject to amortization were recorded as part of the Company’s business acquisitions. Amortization expense from continuing
operations for the three months ended March 31, 2024 and 2023 was $
Accrued Expenses and Other – Accrued expenses and other are summarized as follows:
Schedule of Accrued Expenses
| March 31, 2024 | December 31, 2023 | |||||||
| As of | ||||||||
| March 31, 2024 | December 31, 2023 | |||||||
| General accrued expenses | $ | $ | ||||||
| Accrued payroll and related taxes | ||||||||
| Accrued publisher expenses | ||||||||
| Accrued interest | ||||||||
| Liabilities in connection with acquisitions and dispositions | ||||||||
| Assumed lease liability | ||||||||
| Lease termination liability | ||||||||
| Other accrued expenses | ||||||||
| Total accrued expenses and other | $ | $ | ||||||
5. Leases
The
Company’s real estate lease for the use of office space is subleased (as further described below). The Company’s current
operating lease has a remaining fixed payment term of
The table below presents supplemental information related to the operating lease:
Schedule of Supplemental Information Related to Operating Leases
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease costs during the period (1) | $ | $ | ||||||
| Cash payments included in the measurement of operating lease liabilities during the period | $ | $ | ||||||
| Weighted-average remaining lease term (in years) as of period-end | ||||||||
| Weighted-average discount rate during the period | % | % | ||||||
| (1) |
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.
| 17 |
Variable lease expense includes rental increases that are not fixed, such as those based on amounts paid to the lessor based on cost or consumption, such as maintenance and utilities.
The components of operating lease costs were as follows:
Schedule of Operating Lease Costs
| 2024 | 2023 | |||||||
Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease costs: | ||||||||
| General and administrative | $ | $ | ||||||
| Total operating lease costs (1) | ||||||||
| Sublease income | ( | ) | ( | ) | ||||
| Total operating lease costs | $ | $ | ||||||
| (1) |
Maturities of the operating lease liability as of March 31, 2024 are summarized as follows:
Summary of Maturity of Lease Liabilities
| Years Ending December 31, | ||||
| 2024 (remaining nine months of the year) | $ | |||
| Minimum lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of operating lease liability | $ | |||
| Current portion of operating lease liability | $ | |||
Sublease
Agreement – The Company has entered into agreements to sublease certain space that it does not occupy, through the duration
of the lease terms, with one sublease through September 2024 and two other subleases (these operating leases were recorded as an assumed
lease liability in connection with the acquisition of Men’s Journal) through March 2025. As of March 31, 2024, the Company is entitled
to receive total sublease income of $
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. This membership provides a certain number of accounts that equate to the use of the space granted. Effective June 1, 2022, the SaksWorks membership agreement was amended and assigned to Convene SW MSA Holdings, LLC (“Convene”). The initial term of the agreement with Convene was through December 31, 2023, with provisions for renewals. The Company terminated the arrangement effective December 31, 2023.
Lease
Termination – Effective September 30, 2021, the Company terminated a certain lease arrangement for office space. In connection
with the termination, the Company agreed to pay the landlord cash payments and credits for market rate advertising. As of March 31, 2024,
the Company has a remaining cash payment of $
| 18 |
6. Goodwill
The changes in carrying value of goodwill are as follows:
Schedule of Changes in Carrying Value of Goodwill
March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| As of | ||||||||
March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| Carrying value at beginning of year | $ | $ | ||||||
| Goodwill acquired in acquisition of Men’s Journal | ||||||||
| Goodwill acquired in acquisition of Fexy Studios | ||||||||
| Carrying value at end of period | $ | $ | ||||||
7. Line of Credit
Line
of Credit – In connection with the Arena Notes Default (as further described below in Note 18) there was a cross-default under
the SLR Digital Finance LLC (“SLR” and the “SLR Default”) financing and security agreement for a line of credit (the “Line of Credit”), where the Line of Credit, as amended, was terminated. In connection with the termination,
the Company paid SLR $
The
Line of Credit, as amended, provided for (i) $
The Company has refinanced the Line of Credit with a new credit facility with Simplify Inventions, LLC (“Simplify”), as further described in Note 10.
Information for the three months ended March 31, 2024 and 2023 with respect to interest expense related to the Line of Credit is provided under the heading Interest Expense in Note 12.
8. Liquidated Damages Payable
Liquidated damages were recorded as a result of the following: (i) certain registration rights agreements that 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 that 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”).
| 19 |
Obligations with respect to the liquidated damages payable are summarized as follows:
Summary of Liquidated Damages
As of March 31, 2024 (unaudited) | ||||||||||||||||
Registration Rights Damages | Public Information Failure Damages | Accrued Interest | Balance | |||||||||||||
| MDB common stock to be issued (1) | $ | $ | $ | $ | ||||||||||||
| Series H convertible preferred stock | ||||||||||||||||
| Convertible debentures | ||||||||||||||||
| Series J convertible preferred stock | ||||||||||||||||
| Series K convertible preferred stock | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2023 | ||||||||||||||||
Registration Rights Damages | Public Information Failure Damages | Accrued Interest | Balance | |||||||||||||
| MDB common stock to be issued (1) | $ | $ | $ | $ | ||||||||||||
| Series H convertible preferred stock | ||||||||||||||||
| Convertible debentures | ||||||||||||||||
| Series J convertible preferred stock | ||||||||||||||||
| Series K convertible preferred stock | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (1) |
As
of March 31, 2024 and December 31, 2023, the short-term liquidated damages payable were $
On
February 8, 2023, the Company entered into a stock purchase agreement with an investor, where the Company was liable for liquidated damages,
pursuant to which the Company issued shares of its common stock at a price equal to $ per share (determined
based on the volume-weighted average price of the Company’s common stock at the close of trading on the ninety (60) previous trading
days), to the investor in lieu of an aggregate of $
9. Fair Value
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.
| 20 |
The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2. Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level 3. Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.
The Company accounted for certain common stock issued in connection with the Fexy Studios acquisition that is subject to a put option (the “Fexy Put Option”), which provides for a cash payment to the sellers on the first anniversary date of the closing (on January 11, 2024) in the event the common stock trading price on such date is less than the common stock trading price on the day immediately preceding the acquisition date of $ per share, as a derivative liability, which requires the Company to carry such amounts on the condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end.
Fexy
Put Option – On February 15, 2024, in connection with the contingent consideration related to the acquisition of
Fexy Studios, the Company agreed to pay the amount due of $
Liabilities measured at fair value on a recurring basis consisted of the following as of December 31, 2023:
Schedule of Fair Value of Financial Instruments
| Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
Contingent Consideration – The fair value of the contingent consideration was primarily dependent on the common stock trading price on the first anniversary of the closing of Fexy Studios, or January 11, 2024. As of December 31, 2023, the estimated fair value was calculated based on the $ put option amount based on the exercise price of the Company’s common stock at the acquisition date, less the $ the Company’s common stock trading price as of the reporting date, or $ per share, multiplied by the number of shares subject to the put option of , which approximated the value if the Black-Scholes option-pricing model was used given the proximity date of the put option.
For
the three months ended March 31, 2024 and 2023, the change in valuation of the contingent consideration of $
10. Simplify Loan
On
March 13, 2024, the Company entered into a working capital loan agreement with Simplify, a related party as further described in Note 18 (the “Simplify Loan”), pursuant to
which the Company has available up to $
Information for the three months ended March 31, 2024 and 2023, with respect to interest expense related to the Simplify Loan is provided under the heading Interest Expense in Note 12.
| 21 |
11. Bridge Notes
2023 Notes
In
connection with the Note Purchase Agreement, the First Amendment and the Second Amendment (as further described under the heading Principal
Stockholder in Note 18), on August 31, 2023, the Company issued $
The terms of 2023 Notes provide for:
| ● | an
interest rate fixed at | |
| ● | an original
maturity date of | |
| ● | a
provision for the failure to repay the $ | |
| ● | an
election to prepay the notes, at any time, at |
The debt issuance cost incurred under the debt modifications pursuant to the First Amendment are being amortized over the term of the 2023 Notes. The debt modification pursuant to the Second Amendment resulted in the unamortized debt issuance cost being amortized over the extended term of the 2023 Notes.
On December 29, 2023, the Company failed to make the interest payment due on the 2023 Notes resulting in an event of default with subsequent agreement to a forbearance period through the earlier of the following: (a) September 30, 2024; (b) the occurrence of the closing of the Business Combination and (c) the termination of the Business Combination prior to closing.
As
of March 31, 2024, the effective interest rate on the 2023 Notes was
Information for the three months ended March 31, 2024 and 2023, with respect to interest expense related to the 2023 Notes is provided under the heading Interest Expense in Note 12.
12. Debt
Pursuant to the Note Purchase Agreement, as amended by the First Amendment and Second Amendment (as further described under the heading Principal Stockholder in Note 18), as of March 31, 2024 and December 31, 2023, the Company has notes outstanding referred to as the senior secured notes (the “Senior Secured Notes”), the delayed draw term notes (the “Delayed Draw Term Notes”) and the 2022 bridge notes (the “2022 Bridge Notes”), as further described below.
| 22 |
Senior Secured Notes
The terms of the Senior Secured Notes provide for:
| ● | a provision for the Company to enter into Delayed Draw Term Notes (as described below); | |
| ● | a
provision where the Company added $ | |
| ● | a provision where the paid in-kind interest can be paid in shares of the Company’s common stock based upon the conversion rate specified in the Certificate of Designation for the Series K convertible preferred stock, subject to certain adjustments; | |
| ● | an
interest rate of | |
| ● | interest on the notes payable after February 15, 2022, 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 notes; | |
| ● | a
maturity date of | |
| ● | the
Company to enter into the 2022 Bridge Notes for $ |
Delayed Draw Term Notes
The terms of the Delayed Draw Term Notes provide for:
| ● | an
interest rate of | |
| ● | interest on the notes payable after February 15, 2022, 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 notes; and | |
| ● | a
maturity date on |
2022 Bridge Notes
The terms of the 2022 Bridge Notes provide for:
| ● | an
interest rate fixed at | |
| ● | a
maturity date of |
| 23 |
| ● | a
prepayment requirement to apply a portion of the net proceeds from the Business Combination to repay $ | |
| ● | a
provision for the failure to repay the $ | |
| ● | an election to prepay the notes, at any time, in whole or in part with no premium or penalty. |
The following table summarizes the debt:
Schedule of long term debt
As of March 31, 2024 (unaudited) | As of December 31, 2023 | |||||||||||||||||||||||
| Principal Balance | Unamortized Discount and Debt Issuance Costs | Carrying Value | Principal Balance | Unamortized Discount and Debt Issuance Costs | Carrying Value | |||||||||||||||||||
| Senior Secured Notes, effective interest rate of 10.1% as of March 31, 2024, as amended | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Senior Secured Notes, effective interest rate of | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Delayed Draw Term Notes, effective interest rate of | ( | ) | ( | ) | ||||||||||||||||||||
| 2022 Bridge Notes, effective interest rate of | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
The debt issuance costs incurred under the debt modification pursuant to the First Amendment are being amortized over the term of the long-term debt. The debt modification pursuant to the Second Amendment resulted in the unamortized debt issuance cost being amortized over the extended term of the long-term debt.
On December 29, 2023, the Company failed to make the interest payment due on the Secured Senior Notes, Delayed Draw Term Notes and 2022 Bridge Notes (collectively the “Debt”) resulting in an event of default with subsequent agreement to a forbearance period through the earlier of the following: (a) September 30, 2024; (b) the occurrence of the closing of the Business Combination and (c) the termination of the Business Combination prior to closing.
As
of March 31, 2024 and December 31, 2023, the current maturities of the Debt were $
Information for the three months ended March 31, 2024 and 2023 with respect to interest expense related to the debt is provided below.
| 24 |
Interest Expense
The following table represents interest expense:
Summary of Interest Expense
| 2024 | 2023 | |||||||
Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Amortization of debt costs: | ||||||||
| Line of Credit | $ | $ | ||||||
| 2023 Notes | ||||||||
| Senior Secured Notes | ||||||||
| Delayed Draw Term Notes | ||||||||
| 2023 Notes | ||||||||
| Total amortization of debt costs | ||||||||
| Noncash and accrued interest: | ||||||||
| Simplify Loan | ||||||||
| 2023 Notes | ||||||||
| Senior Secured Notes | ||||||||
| Delayed Draw Term Notes | ||||||||
| 2022 Bridge Notes | ||||||||
| Total noncash and accrued interest | ||||||||
| Cash paid interest: | ||||||||
| Line of Credit | ||||||||
| Senior Secured Notes | ||||||||
| Delayed Draw Term Notes | ||||||||
| 2022 Bridge Notes | ||||||||
| Other | ||||||||
| Total cash paid interest | ||||||||
| Total interest expense | $ | $ | ||||||
13. Preferred Stock
The Company has the authority to issue shares of preferred stock, $ par value per share, consisting of authorized and/or outstanding shares as of March 31, 2024 as follows:
| ● | authorized shares designated as “Series G Convertible Preferred Stock”, of which shares are outstanding. | |
| ● | authorized shares designated as “Series H Convertible Preferred Stock” (as further described below), of which shares are outstanding. |
14. Stockholders’ Deficiency
Common Stock
The Company has the authority to issue shares of common stock, $ par value per share.
Common
Stock Private Placement – On February 14, 2024, the Company entered into a subscription agreement (the
“Subscription Agreement”) with Simplify, pursuant to which the Company agreed to sell and issue to Simplify in a private
placement (the “Private Placement”) an aggregate of shares
(the “Private Placement Shares”) of the Company’s common stock, at a purchase price of $per
share, a price equal to the 60-day volume weighted average price of the Company’s common stock. The Private Placement closed
on February 14, 2024 and the Company received proceeds from the Private Placement of $
| 25 |
Common
Stock Registered Direct Offering – On March 31, 2023, the Company entered into common stock purchase agreements with
certain purchasers, pursuant to which the Company agreed to issue and sell in a registered direct offering an aggregate of
shares of the Company’s common stock at a purchase price of $
per share, with gross proceeds of $
Restricted Stock Units – The Company issued, in connection with the vesting of restricted stock units, shares of the Company’s common stock and shares of the Company’s common stock during the three months ended March 31, 2024 and 2023, respectively, as reflected on the condensed consolidated statements of stockholders’ equity.
The Company provides stock-based and equity-based compensation in the form of (a) restricted stock awards and restricted stock units to certain employees (the “Restricted Stock”), (b) stock option awards, unrestricted stock awards and stock appreciation rights to employees, directors and consultants under various plans (the “Common Stock Options”), and (c) common stock warrants, referred to as the ABG Warrants and Publisher Partner Warrants (collectively the “Warrants”) as referenced in the below table.
Summary of Stock-based Compensation
| Three Months Ended March 31, 2024 | ||||||||||||||||
| Restricted
Stock | Common
Stock Options | Warrants | Totals | |||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total costs charged to operations | ||||||||||||||||
| Capitalized platform development | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||
| Restricted
Stock | Common Stock Options | Warrants | Totals | |||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total costs charged to operations | ||||||||||||||||
| Capitalized platform development | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
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, 2024 were as follows:
Schedule of Unrecognized Compensation Expense
| As of March 31, 2024 | ||||||||||||||||
Restricted Stock | Common Stock Options | Warrants | Totals | |||||||||||||
| Unrecognized compensation expense | $ | $ | $ | $ | ||||||||||||
| Weighted average period expected to be recognized (in years) | ||||||||||||||||
| 26 |
Modification of Warrants – On January 2, 2024, in connection with the default under the Licensing Agreement, the Performance-Based Warrants totaling vested as a result of the default pursuant to certain provisions where all of the warrants automatically vest upon certain terminations of the Licensing Agreement by ABG. Of the warrants that vested, had an exercise price of $ per share and had an exercise price of $ per share.
Modification
of Awards – On February 28, 2023, the Company modified certain equity awards as a result of the resignation of a senior executive
employee where restricted stock units with time-based vesting
that were unvested were vested and options for shares of the Company’s common
stock with time-based vesting that were unvested were vested, each subject to compliance with applicable securities laws and certain
other provisions. In connection with the modification of these equity awards, the Company agreed to purchase a options exercisable for shares of the
Company’s common stock (including previously vested options of shares of the Company’s common stock of )
as of the resignation date of the employee at a price of $per share, reduced by the exercise price and
required tax withholdings, subject to certain conditions. The modification of the equity awards resulted in the unamortized costs being
recognized at the modification date. The cash price of $per option less the strike price of $per option resulted in incremental cost of $being recognized at the modification date. The
modification resulted in liability classification of the equity awards, with $
16. Revenue Recognition
Disaggregation of Revenue
The following table provides information about disaggregated revenue by category, geographical market and timing of revenue recognition:
Schedule of Disaggregation of Revenue
| 2024 | 2023 | |||||||
Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue by category: | ||||||||
| Digital revenue | ||||||||
| Digital advertising | $ | $ | ||||||
| Digital subscriptions | ||||||||
| Licensing and syndication revenue | ||||||||
| Other digital revenue | ||||||||
| Total digital revenue | ||||||||
| Print revenue | ||||||||
| Print advertising | ||||||||
| Print subscriptions | ||||||||
| Total print revenue | ||||||||
| Total | $ | $ | ||||||
| Revenue by geographical market: | ||||||||
| United States | $ | $ | ||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| Revenue by timing of recognition: | ||||||||
| At point in time | $ | $ | ||||||
| Over time | ||||||||
| Total | $ | $ | ||||||
| Total revenue | ||||||||
For the three months ended March 31, 2024 and 2023, disaggregated revenue represents revenue from continuing operations.
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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
March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| As of | ||||||||
March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| Unearned revenue (short-term contract liabilities): | ||||||||
| Digital revenue | $ | $ | ||||||
| Total short-term contract liabilities | $ | $ | ||||||
| Unearned revenue (long-term contract liabilities): | ||||||||
| Digital revenue | $ | $ | ||||||
| Total long-term contract liabilities | $ | $ | ||||||
Unearned Revenue – Unearned revenue, also referred to as contract liabilities, include payments received in advance of performance under certain contracts and are recognized as revenue over time. The Company records contract liabilities as unearned revenue on the condensed consolidated balance sheets.
17. 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
income tax provision (benefit) effective tax rate for the three months ended March 31, 2024 and 2023 was
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, 2024 and 2023.
As
of March 31, 2024 and 2023, the Company has
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18. Related Party Transactions
Principal Stockholder
Arena
Loan Agreement – On January 5, 2024, as part of negotiations with Renew Group Private Limited (“Renew”), an affiliated entity
of Simplify, in connection with the Company’s failure
on December 29, 2023 to make the interest payment due on the loan agreement (the “Arena Loan Agreement”), dated December
15, 2022 held by Renew (the “Arena Notes”) in the amount of $
On April 29, 2024, the forbearance period was extended through the earlier of the following: (a) September 30, 2024; (b) the occurrence of the closing of the Business Combination (as further described below) and (c) the termination of the Business Combination prior to closing.
For
the three months ended March 31, 2024, the Company had certain transactions with Renew, where it incurred interest
expense totaling $
Common Stock Private Placement – As a result of the issuance of the Private Placement Shares to Simplify, Simplify owns approximately of the outstanding shares of the Company’s common stock, resulting in a change in control. As a result, Simplify has the ability to determine the outcome of any issue submitted to the Company’s stockholders for approval, including the election of directors. Prior to the consummation of the Private Placement, the Company’s public stockholders held a majority of the outstanding shares of the Company’s common stock. The funds used by Simplify to purchase the Private Placement Shares came from the working capital of Simplify.
Business
Combination – On February 9, 2024, New Arena Holdco, Inc. (“New Arena”), a wholly owned subsidiary of
the Company, filed a Registration Statement on Form S-4 (File No. 333-276999) with the SEC in connection with the Business
Combination Agreement by and among the Company, Simplify Inventions, LLC (“Simplify”), Bridge Media Networks, LLC
(“Bridge Media”), New Arena and the other parties dated November 5, 2023, as amended on December 1, 2023 (the
“Transaction Agreement”), that provides for the Company to combine its operations with those of Bridge Media, a wholly
owned subsidiary of Simplify by way of a series of mergers with and among New Arena (the “Mergers”), subject to
customary conditions, including the approval by the Company’s shareholders and certain regulatory approvals. Immediately
following the Mergers, the Transaction Agreement provides for: (i) the purchase by The Hans Foundation USA, a nonprofit nonstock
corporation (the “Hans Foundation”) of
shares of New Arena Series A Preferred Stock, par value $
per share, at a purchase price of $per
share, for an aggregate purchase price of $
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Immediately
following the Closing, (i) Simplify will own approximately of the outstanding shares of New Arena Common
Stock, on a fully diluted basis, (ii) 5-Hour will own approximately
Former Principal Stockholder
Note
Purchase Agreement – The Company had an outstanding obligation with BRF Finance Co., LLC (“BRF”), an
affiliated entity of B. Riley Financial, Inc. (“B. Riley”), in its capacity as agent for the purchasers and as
purchaser, pursuant to a third amended and restated note purchase agreement (the “Note Purchase Agreement”) entered into
on December 15, 2022, that was further amended pursuant to a first amendment to the third amended and restated note purchase
agreement on August 14, 2023 (the “First Amendment” as further described below), where it amended the second amended and
restated note purchase agreement issued on January 23, 2022. The Note Purchase Agreement contains provisions related to the 2022
Bridge Notes, 2023 Notes, Senior Secured Notes, and Delayed Draw Term Notes, all as further described below and referred to together
as the “Notes”. Under the terms of the Note Purchase Agreement and First Amendment, in the event there is a mandatory
prepayment requirement (as further described below), the principal payment of the notes will be applied to:
For
the three months ended March 31, 2023, the Company paid in cash interest of $
Registered
Direct Offering – On March 31, 2023, in connection with the registered direct offering, the Company entered into common
stock purchase agreements for shares of the Company’s common stock for a total of $
For
the three months ended March 31, 2023, the Company had certain transactions with B. Riley, where it paid
fees associated with the common stock public offering totaling $
Board Members
Registered
Direct Offering – On March 31, 2023, in connection with the registered direct offering, the Company entered into common
stock purchase agreements for shares of the Company’s common stock for a total of $
19. Commitments and Contingencies
Legal Contingencies
Claims and Litigation – From time to time, the Company may be subject to claims and litigation arising in the ordinary course of business. The outcome of any litigation is inherently uncertain. Based on the Company’s current knowledge it believes that the final outcome of the matters discussed below will not likely, individually or in the aggregate, have a material adverse effect on its business, financial position, results of operations or cash flows; however, in light of the uncertainties involved in such matters, there can be no assurance that the outcome of each case or the costs of litigation, regardless of outcome, will not have a material adverse effect on the Company’s business.
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On January 30, 2024, the former President of Media filed an action against the Company and Manoj Bhargava, the former interim CEO and a principal stockholder, alleging claims for breach of contract, failure to pay wages and defamation, among other things, in the United States District Court of the Southern District of New York, seeking damages in an unspecified amount. The Company believes that it has strong defenses to these claims and intends to vigorously defend itself and the allegations made in this lawsuit.
On
March 21, 2024, the former CEO and Chairman of the board of directors filed an action against the Company, members of its board of directors and Simplify,
alleging claims for retaliation, breach of contract, wrongful termination and age discrimination, among other things, in the Superior
Court of the State of California seeking damages in an amount of $
On
April 1, 2024, Authentic Brands Group, LLC, ABG-SI, LLC, and ABG Intermediate Holdings 2 LLC (collectively referred to as ABG) filed
an action against the Company and Manoj Bhargave, the former interim CEO and a principal stockholder, alleging breach of contract among
other things, in the United States District Court of the Southern District of New York seeking damages in the amount of $
In connection with the Company’s acquisition of Athlon Holdings, Inc., the Company prepared the working capital adjustment to the purchase price. The sellers are challenging the Company’s adjustments and both parties have agreed to a standstill and tolling agreement while the adjustments are being reviewed and discussed. The amount due from this challenge, if any, is not estimatable as of the issuance date of these condensed consolidated financial statements.
20. Subsequent Events
The Company performed an evaluation of subsequent events through the date of filing of these 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 consolidated financial statements.
Resignation and Appointments
On April 19, 2024, the Board appointed Sara Silverstein as the Chief Executive Officer, effective immediately, replacing Cavitt Randall.
Effective April 26, 2026, in connection with the ending of the interim management engagement with FTI Consulting Inc., Jason Frankl will no longer serve as interim Co-President and Chief Business Transformation Officer of the Company and Manoj Bhargava will serve as President.
Lease Agreement
Effective April 1, 2024, the Company entered into a sublease agreement
for office space located in New York, NY with an expiration date of
Common Stock
From April 1, 2024 through the date these condensed consolidated financial statements were issued, the Company issued shares of its common stock to members of the board of directors.
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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 months ended March 31, 2024 and 2023 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, 2023 included in the Annual Report on Form 10-K filed with the SEC on April 1, 2024. 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.. 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 “Forward-Looking Statements.”
Overview
We are a media company that leverages technology to build deep content verticals powered by anchor brands and a best-in-class digital media platform (the “Platform”) empowering publishers who impact, inform, educate, and entertain. Our strategy is to focus on key subject matter verticals where audiences are passionate about a topic category (e.g., sports and finance) 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 for our media publisher partners(each, a “Publisher Partner”). Our focus is on leveraging our Platform and brands in targeted verticals to maximize audience reach, enhance engagement, and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our greater than 40 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We own and operate Athlon Sports, TheStreet, The Spun, Parade, and Men’s Journal and power more than 360 independent Publisher Partners, including the many sports team sites that contribute to Athlon Sports.
Each Publisher Partner joins the Platform by invitation only with the objective of improving our position in key verticals while optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization, social media, ad monetization and subscription marketing, Publisher Partners continually benefit from our ongoing technological advances and audience development expertise. Additionally, we believe the lead brands within our verticals create a halo benefit for all Publisher Partners while each of them adds to the breadth and quality of content. While the Publisher Partners benefit from these critical performance improvements they may also save substantial technology, infrastructure, advertising sales, member marketing and management costs.
Of the more than 360 Publisher Partners, a large majority of them publish content within one of our four verticals of sports, finance, lifestyle and men’s lifestyle, and oversee an online community for their respective sites, leveraging our Platform, monetization operation, distribution channels and data and analytics offerings and benefiting from our ability to engage the collective audiences within a single network. Generally, Publisher Partners are independently owned, strategic partners who receive a share of revenue from the interaction with their content. Audiences expand and advertising revenue may improve due to the scale we have achieved by combining all Publisher Partners into a single platform and a large and experienced sales organization. They also benefit from our membership marketing and management systems, which we believe will enhance their revenue.
Our growth strategy is to continue adding new Publisher Partners in key verticals that management believes will expand the scale of unique users interacting on the Platform.
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Recent Developments
On February 9, 2024, New Arena Holdco, Inc. (“New Arena”), a wholly owned subsidiary of us, filed a Registration Statement on Form S-4 (File No. 333-276999) with the SEC in connection with the Business Combination Agreement by and among us, Simplify Inventions, LLC (“Simplify”), Bridge Media Networks, LLC (“Bridge Media”), New Arena and the other parties dated November 5, 2023, as amended on December 1, 2023 (the “Transaction Agreement”), that provides for us to combine our operations with those of Bridge Media, a wholly owned subsidiary of Simplify by way of a series of mergers with and among New Arena (the “Mergers”), subject to customary conditions, including the approval by our shareholders and certain regulatory approvals. Immediately following the Mergers, the Transaction Agreement provides for: (i) the purchase by The Hans Foundation USA, a nonprofit nonstock corporation (the “Hans Foundation”) of 25,000 shares of New Arena Series A Preferred Stock, par value $0.0001 per share, at a purchase price of $1,000.00 per share, for an aggregate purchase price of $25,000 pursuant to the subscription agreement, dated as of November 5, 2023, by and between New Arena and the Hans Foundation; and (ii) the purchase by 5-Hour International Corporation Pte. Ltd. (“5-Hour”) of 5,000,000 shares of New Arena common stock , par value $0.0001 per share (the “New Arena Common Stock”) at a purchase price of $5.00 per share, for an aggregate purchase price of $25,000 pursuant to the subscription agreement, dated as of November 5, 2023, by and between New Arena and 5-Hour. Further, concurrently with the closing of the Mergers, pursuant to that certain Committed Equity Facility Term Sheet, dated November 5, 2023, by and between New Arena and Simplify, New Arena will enter into a Stock Purchase Agreement with Simplify, pursuant to which Simplify will agree to purchase, at New Arena’s request, up to $20,000 in aggregate purchase price of shares of New Arena Common Stock from time to time during the 12 months following the closing date at a price per share equal to the lesser of (i) the volume-weighted average price of the New Arena Common Stock for the last sixty trading days prior to the purchase date and (ii) $3.86 per share (the “Equity Line of Credit”), along with 60,000 shares of New Arena Common Stock as payment of a 1.5% commitment fee.
Impact of Macroeconomic Conditions
Uncertainty in the global economy presents significant risks to our business. Increases in inflation, rising interest rates, instability in the global banking system, geopolitical factors, including the ongoing conflicts in Ukraine and Israel and the responses thereto, and the remaining effects of the COVID-19 pandemic may have an adverse effect on our business. While we are closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside of our control and could exist for an extended period of time. As a result, we are subject to continuing risks and uncertainties. For additional information, see the sections titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024 and in this Quarterly Report.
Key Operating Metrics
Our key operating metrics are:
| ● | 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. |
We monitor and review our key operating metrics 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. For the three months ended March 31, 2024, digital advertising revenue increased by 19.1%, as compared to the same period in 2023 as indicated in the Results of Operations section below. 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.
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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 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 Platform.
For the three months ended March 31, 2024 and 2023, our RPM was $19.99 and $14.56, respectively. The 37.29% increase in RPM reflects a significant increase in video advertising as a percentage of total digital advertising as digital video advertising is sold at a significantly higher price than digital display advertising. For the three months ended March 31, 2024 and 2023, our monthly average pageviews were 399,683,984 and 397,094,535, respectively. The 0.65% increase in monthly average pageviews reflects algorithmic changes at Google, Facebook and other platforms which subdued user click-throughs to the original content.
All dollar figures presented below are in thousands unless otherwise stated.
Liquidity and Capital Resources
Going Concern
Our accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Our condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
For the three months ended March 31, 2024, we incurred a net loss from continuing operations of $12,720, and as of March 31, 2024, had cash on hand of $4,003 and a working capital deficit of $225,009. Our net loss from continuing operations and working capital deficit have been evaluated by management to determine if the significance of those conditions or events would limit our ability to meet our obligations when due. Also, since our 2023 Notes (see Note 11 in our accompanying condensed consolidated financial statements), Senior Secured Notes, Delayed Draw Term Notes and 2022 Bridge Notes (see Note 12 in our accompanying condensed consolidated financial statements) (collectively our “current debt”) are subject to a forbearance period through the earlier of the following: (a) September 30, 2024; (b) the occurrence of the closing of the Business Combination and (c) the termination of the Business Combination prior to closing (as further described in Note 18 in our accompanying condensed consolidated financial statements) unless we are able to refinance or modify the terms of our current debt we run the risk that our debt could be called, therefore, we may not be able to meet our obligations when due.
In our evaluation, management determined there is substantial doubt about our ability to continue as a going concern for a one-year period following the (unaudited) condensed consolidated financial statement issuance date, unless we are able to refinance or modify our current debt and complete the Business Combination.
We plan to refinance or modify the maturities of our current debt and complete the Business Combination to alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, however, there can be no assurance that we will be able to refinance or modify our current debt and complete the Business Combination.
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Cash and Working Capital Facility
As of March 31, 2024, our principal sources of liquidity consisted of cash of $4,003 and accounts receivable from continuing operations, net of our allowance for doubtful accounts, of $26,452. In addition, as of March 31, 2024, we had $17,252 available for additional use under our working capital loan with Simplify. As of March 31, 2024, the outstanding balance of the Simplify working capital loan was $7,748. Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements is $4,151.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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 5, 8, 10, 11 and 12 in our accompanying condensed consolidated financial statements for amounts outstanding as of March 31, 2024, related to leases, liquidated damages, working capital loan, bridge notes and debt, respectively. During 2022, we assumed the lease from Men’s Journal for office space in Carlsbad, California, that expires in March 2025, and we remain responsible for $1,439 over the lease term. The lease provides for fixed payments ranging from $89 to $94 over the remainder of the lease term, with an estimate of common expenses per month of $25 through the end of the lease term. There have been no material changes from the disclosures in our Annual Report on Form 10-K for the year ended December 31, 2023.
Discontinued Operations
In connection with our discontinued operations from the discontinuance of the Sports Illustrated media business, we recorded the termination fee liability of $45,000 and recognized a loss on impairment of assets of $39,391 for the three months ended March 31, 2024. As a result of this discontinuance, our total liabilities from the discontinued operations were $98,874, offset by our total assets from discontinued operations of $5,691 as of March 31, 2024.
Net loss from our discontinued operations, net of tax, was $90,638 and $4,853 for the three months ended March 31, 2024 and 2023, respectively, as indicated in the Results of Operations section below.
See Note 2, Discontinued Operations and Note 19, Commitments and Contingencies in our accompanying condensed consolidated financial statements for information regarding our discontinued operations and action filed by ABG on April 1, 2024, respectively.
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, 2024 and December 31, 2023 was as follows:
| As of | ||||||||
| March 31, 2024 | December 31, 2023 | |||||||
| Current assets | $ | 43,168 | $ | 90,399 | ||||
| Current liabilities | (268,177 | ) | (236,021 | ) | ||||
| Working capital deficit | (225,009 | ) | (145,622 | ) | ||||
As of March 31, 2024, we had a working capital deficit of $225,009, as compared to $145,622 as of December 31, 2023, consisting of $43,168 in total current assets and $268,177 in total current liabilities. As of December 31, 2023, our working capital deficit consisted of $90,399 in total current assets and $236,021 in total current liabilities.
Our cash flows for the three months ended March 31, 2024 and 2023 consisted of the following:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (1,965 | ) | $ | (1,672 | ) | ||
| Net cash used in investing activities | (713 | ) | (1,688 | ) | ||||
| Net cash provided by (used in) financing activities | (2,603 | ) | 5,450 | |||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | (5,281 | ) | $ | 2,090 | |||
| Cash, cash equivalents, and restricted cash, end of period | $ | 4,003 | $ | 16,463 | ||||
For the three months ended March 31, 2024, net cash used in operating activities was $1,965, consisting primarily of $58,343 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, professional services, and $964 of cash paid for interest, offset by $56,632 of cash received from customers. For the three months ended March 31, 2023, net cash used in operating activities was $1,672, consisting primarily of $59,394 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services, and $3,252 of cash paid for interest, offset by $60,974 of cash received from customers.
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For the three months ended March 31, 2024, net cash used in investing activities was $713 consisting of $713 for capitalized costs for our Platform. For the three months ended March 31, 2023, net cash used in investing activities was $1,688, consisting of $1,188 for capitalized costs for our Platform and $500 for the acquisition of a business.
For the three months ended March 31, 2024, net cash used in financing activities was $2,603, consisting primarily of (i) $2,263 for the payment of the Fexy put option, (ii) $19,609 from repayment of our line of credit with SLR Digital Finance LLC (“SLR”) and (iii) $479 for tax payments relating to the withholding of shares of common stock for certain employees, less (iv) $12,000 in net proceeds from the common stock private placement, and (v) $7,748 in net proceeds from our working capital loan with Simplify. For the three months ended March 31, 2023, net cash provided by financing activities was $5,450, consisting primarily of (i) $11,431(excluding accrued offering costs of $69) in net proceeds from the public offering of common stock, less (ii) $4,533 from repayments of our SLR line of credit; (ii) $25 in payment of deferred cash payments, and (iii) $1,423 for tax payments relating to the withholding of shares of common stock for certain employees.
Results of Operations
Three Months Ended March 31, 2024 and 2023
| Three Months Ended March 31 | 2024 versus 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Revenue | $ | 28,941 | $ | 28,418 | $ | 523 | 1.8 | % | ||||||||
| Cost of revenue | 20,008 | 18,090 | 1,918 | 10.6 | % | |||||||||||
| Gross profit | 8,933 | 10,328 | (1,395 | ) | -13.5 | % | ||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 4,564 | 5,847 | (1,283 | ) | -21.9 | % | ||||||||||
| General and administrative | 10,135 | 12,975 | (2,840 | ) | -21.9 | % | ||||||||||
| Depreciation and amortization | 987 | 1,096 | (109 | ) | -9.9 | % | ||||||||||
| Loss on disposition of assets | 1,198 | 119 | 1,079 | 906.7 | % | |||||||||||
| Total operating expenses | 16,884 | 20,037 | (3,153 | ) | -15.7 | % | ||||||||||
| Loss from operations | (7,951 | ) | (9,709 | ) | 1,758 | -18.1 | % | |||||||||
| Total other expenses | (4,728 | ) | (4,808 | ) | 80 | -1.7 | % | |||||||||
| Loss before income taxes | (12,679 | ) | (14,517 | ) | 1,838 | -12.7 | % | |||||||||
| Income taxes | (41 | ) | (7 | ) | (34 | ) | 485.7 | % | ||||||||
| Net loss from continuing operations | (12,720 | ) | (14,524 | ) | 1,804 | -12.4 | % | |||||||||
| Net loss from discontinued operations, net of tax | (90,638 | ) | (4,853 | ) | (85,785 | ) | 1767.7 | % | ||||||||
| Net loss | $ | (103,358 | ) | $ | (19,377 | ) | $ | (83,981 | ) | 433.4 | % | |||||
For the three months ended March 31, 2024, the net loss from continuing operations improved $1,804 to $12,720, as compared to our prior period of $14,524. This improvement was primarily due to a $3,153 decrease in operating expenses that was offset by a decrease in gross profit of $1,395. This improvement was offset by a loss from discontinued operations of $90,638 as compared to $4,853 for the three months ended March 31, 2023. The increase in the loss from discontinued operations was primarily driven by the accrual of the $45,000 termination fee liability and the recognition of a loss on impairment of assets of $39,391. This increased loss from discontinued operations lead to an increase in our net loss of $83,981 as compared to $19,377 from our prior period, resulting in a net loss of $103,358 for the three months ended March 31, 2024.
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Revenue
The following table sets forth revenue, cost of revenue, and gross profit:
| Three Months Ended March 31 | 2024 versus 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Revenue | $ | 28,941 | $ | 28,418 | $ | 523 | 1.8 | % | ||||||||
| Cost of revenue | 20,008 | 18,090 | 1,918 | 10.6 | % | |||||||||||
| Gross profit | $ | 8,933 | $ | 10,328 | $ | (1,395) | -13.5 | % | ||||||||
For the three months ended March 31, 2024 we had gross profit of $8,933, as compared to $10,328 for the three months ended March 31, 2023, a decrease of $1,395. Gross profit percentage for the three months ended March 31, 2024 was 30.9%, as compared to 36.3% for the three months ended March 31, 2023.
The reduction in gross profit percentage was driven by a higher mix of revenue from sports partners, which receive a revenue share, resulting in Publisher Partner revenue share as a percentage of digital advertising revenue increasing to 27.9% for the three months ended March 31, 2024, as compared to 22.1% for the three months ended March 31, 2023.
The following table sets forth revenue by category:
| Three Months Ended March 31, | 2024 versus 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Digital revenue: | ||||||||||||||||
| Digital advertising | $ | 22,748 | $ | 19,093 | $ | 3,655 | 19.1 | % | ||||||||
| Digital subscriptions | 2,334 | 3,661 | (1,327 | ) | -36.2 | % | ||||||||||
| Licensing and syndication revenue | 2,300 | 3,351 | (1,051 | ) | -31.4 | % | ||||||||||
| Other digital revenue | 1,286 | 551 | 735 | 133.4 | % | |||||||||||
| Total digital revenue | 28,668 | 26,656 | 2,012 | 7.5 | % | |||||||||||
| Print revenue: | ||||||||||||||||
| Print advertising | - | 656 | (656 | ) | -100.0 | % | ||||||||||
| Print subscriptions | 273 | 1,106 | (833 | ) | -75.3 | % | ||||||||||
| Total print revenue | 273 | 1,762 | (1,489 | ) | -84.5 | % | ||||||||||
| Total revenue | $ | 28,941 | $ | 28,418 | $ | 523 | 1.8 | % | ||||||||
For the three months ended March 31, 2024, total revenue increased $523, or 1.8%, to $28,941 from $28,418 for the three months ended March 31, 2023. This reflected a decrease in print revenue of $1,489 due primarily to the shutdown of Athlon Outdoor print operations, which was largely offset by a 7.5% increase in digital revenue from $26,656 for the three months ended March 31, 2023 to $28,668 for the three months ended March 31, 2024.
The primary driver of the increase in our digital revenue is a 19.1% increase in our digital advertising revenue from $19,093 for the three months ended March 31, 2023 to $22,748 in the current year period. In addition, other digital revenue increased by $735 to $1,286 for the three months ended March 31, 2024 driven by the expansion in our e-commerce revenue. These improvements were partially offset by a decrease in our digital subscriptions of $1,327 and a $1,051 decline in licensing and syndication revenue.
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Cost of Revenue
The following table sets forth cost of revenue by category:
| Three Months Ended March 31, | 2024 versus 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Publisher Partner revenue share payments | $ | 6,357 | $ | 4,220 | $ | 2,137 | 50.6 | % | ||||||||
| Technology, Platform and software licensing fees | 4,224 | 3,759 | 465 | 12.4 | % | |||||||||||
| Content and editorial expenses | 7,249 | 4,796 | 2,453 | 51.1 | % | |||||||||||
| Printing, distribution and fulfillment costs | 244 | 872 | (628 | ) | -72.0 | % | ||||||||||
| Amortization of developed technology and platform development | 1,549 | 2,369 | (820 | ) | -34.6 | % | ||||||||||
| Stock-based compensation | 385 | 1,983 | (1,598 | ) | -80.6 | % | ||||||||||
| Other cost of revenue | - | 91 | (91 | ) | -100.00 | % | ||||||||||
| Total cost of revenue | $ | 20,008 | $ | 18,090 | $ | 1,918 | 10.6 | % | ||||||||
For the three months ended March 31, 2024, we recognized cost of revenue of $20,008, as compared to $18,090 for the three months ended March 31, 2023, which represents an increase of $1,918. Cost of revenue for the first quarter of 2024 was impacted by increases in technology, Platform and software licensing fees of $465 and Publisher Partner revenue share payments of $2,137 and content and editorial expenses of $2,453; partially offset by a decrease in stock-based compensation costs of $1,598.
Operating Expenses
Selling and Marketing
The following table sets forth selling and marketing expenses from continuing operations by category:
| Three Months Ended March 31, | 2024 versus 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Payroll and employee benefits of selling and marketing account management support teams | $ | 3,071 | $ | 3,623 | $ | (552 | ) | -15.2 | % | |||||||
| Stock-based compensation | 109 | 368 | (259 | ) | -70.4 | % | ||||||||||
| Professional marketing services | 102 | 664 | (562 | ) | -84.6 | % | ||||||||||
| Circulation costs | 86 | (83 | ) | 169 | -203.6 | % | ||||||||||
| Advertising costs | 572 | 916 | (344 | ) | -37.6 | % | ||||||||||
| Other selling and marketing expenses | 624 | 359 | 265 | 73.8 | % | |||||||||||
| Total selling and marketing | $ | 4,564 | $ | 5,847 | $ | (1,283 | ) | -21.9 | % | |||||||
For the three months ended March 31, 2024, we incurred selling and marketing costs of $4,564, as compared to $5,847 for the three months ended March 31, 2023. The decrease in selling and marketing costs of $1,283 is primarily related to decreases in payroll and employee benefits costs of $552, professional marketing services of $562, advertising costs of $344 and stock based compensation of $259; partially offset by other selling and marketing expenses of $265.
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General and Administrative
The following table sets forth general and administrative expenses by category:
| Three Months Ended March 31, | 2024 versus 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Payroll and related expenses for executive and administrative personnel | $ | 4,585 | $ | 3,727 | $ | 858 | 23.0 | % | ||||||||
| Stock-based compensation | 419 | 3,886 | (3,467 | ) | -89.2 | % | ||||||||||
| Professional services, including accounting, legal and insurance | 3,596 | 3,424 | 172 | 5.0 | % | |||||||||||
| Other general and administrative expenses | 1,535 | 1,938 | (403 | ) | -20.8 | % | ||||||||||
| Total general and administrative | $ | 10,135 | $ | 12,975 | $ | (2,840 | ) | -21.9 | % | |||||||
For the three months ended March 31, 2024, we incurred general and administrative costs of $10,135 as compared to $12,975 for the three months ended March 31, 2023. The $2,840 decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $3,467 and other general and administrative expenses of $403; partially offset by an increase in payroll and related expenses of $858.
Other Expenses
The following table sets forth other expenses:
| Three Months Ended March 31, | 2024 versus 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Change in fair value of contingent consideration | $ | 313 | $ | 499 | $ | (186 | ) | -37.3 | % | |||||||
| Interest expense, net | 4,339 | 4,182 | 157 | 3.8 | % | |||||||||||
| Liquidated damages | 76 | 127 | (51 | ) | -40.2 | % | ||||||||||
| Total other expenses | $ | 4,728 | $ | 4,808 | $ | (80 | ) | -1.7 | % | |||||||
Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $313 for the three months ended March 31, 2024 represents the change in the put option on our common stock in connection with the Fexy Studios acquisition.
Interest Expense. We incurred interest expense of $4,339 and $4,182 for the three months ended March 31, 2024 and 2023, respectively, an increase of $157 from the prior period, as a result of our debt increase.
Liquidated Damages. We recorded $76 of accrued interest on our liquidated damages payable for the three months ended March 31, 2024 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 in prior years. We recorded $127 of accrued interest on our liquidated damages payable for the three months ended March 31, 2023 primarily from issuance of the same securities as described above.
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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 as adjusted for loss from discontinued operations, with additional adjustments for (i) interest expense (net), (ii) income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in valuation of contingent consideration; (vi) liquidated damages, (vii) loss on impairment of assets, (viii) employee retention credit, and (ix) 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 are that Adjusted EBITDA:
| ● | does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us; | |
| ● | does not reflect income tax provision or benefit, which is a noncash income or 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 stock-based compensation and, therefore, does not include all of our compensation costs; | |
| ● | does not reflect the change in valuation of contingent consideration, and, although this is a noncash income or 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; | |
| ● | 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 losses from the impairment of assets, which is a noncash operating expense; | |
| ● | does not reflect the employee retention credits recorded by us for payroll related tax credits under the CARES Act; and | |
| ● | does not reflect payments related to employee severance and employee restructuring changes for our former executives. |
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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, | ||||||||
| 2024 | 2023 | |||||||
| Net loss | $ | (103,358 | ) | $ | (19,377 | ) | ||
| Net loss from discontinued operations | 90,638 | 4,853 | ||||||
| Net loss from continued operations | (12,720 | ) | (14,524 | ) | ||||
| Add (deduct): | ||||||||
| Interest expense, net (1) | 4,339 | 4,182 | ||||||
| Income tax provision (benefit) | 41 | 7 | ||||||
| Depreciation and amortization (2) | 2,536 | 3,465 | ||||||
| Stock-based compensation (3) | 913 | 6,237 | ||||||
| Change in fair value of contingent consideration (4) | 313 | 499 | ||||||
| Liquidated damages (5) | 76 | 127 | ||||||
| Loss on impairment of assets (6) | 1,198 | 119 | ||||||
| Employee retention credit (7) | - | (3,890 | ) | |||||
| Employee restructuring payments (8) | 2,456 | 1,675 | ||||||
| Adjusted EBITDA | $ | (848 | ) | $ | (2,103 | ) | ||
| (1) | Interest expense is related to our capital structure and varies over time due to a variety of financing transactions. Interest expense includes $536 and $930 for amortization of debt discounts for the three months ended March 31, 2024 and 2023, respectively, as presented in our condensed consolidated statements of cash flows, which are noncash items. Investors should note that interest expense will recur in future periods. | |
| (2) | Depreciation and amortization related to our developed technology and Platform is included within cost of revenues of $1,549 and $2,369, for the three months ended March 31, 2024 and 2023, respectively, and depreciation and amortization is included within operating expenses of $987 and $1,096 for the three months ended March 31, 2024 and 2023, 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. | |
| (3) | Stock-based compensation represents noncash costs arise 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. | |
| (4) | Change in fair value of contingent consideration represents the change in the put option on our common stock in connection with the Fexy Studios acquisition. | |
| (5) | Liquidated damages (or interest expense related to accrued liquidated damages) represents amounts 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. | |
| (6) | Loss on impairment of assets represents certain assets that are no longer useful. |
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| (7) | Employee retention credit represents payroll related tax credits under the Cares Act. | |
| (8) | Employee restructuring payments represents severance payments to employees under employer restructuring arrangements and payments to our former Chief Executive Officer for the three months ended March 31, 2024 and 2023, respectively. |
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the condensed consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenue, expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.
Except as described in Note 1, Summary of Significant Accounting Policies, of the notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 that was filed with the SEC on April 1, 2024.
Recent Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies, of the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted as of the date of this report.
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 Rule13a-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, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2024 in providing reasonable assurance that the 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.
Changes in Internal Control over Financial Reporting
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) that occurred during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
| 42 |
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. Except as described in Note 19, Commitments and Contingencies of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, 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, 2023 filed with the SEC on April 1, 2024 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. 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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The following documents are filed as part of this Quarterly Report:
| 44 |
| 45 |
* 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.
| 46 |
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 17, 2024 | By: | /s/ SARA SILVERSTEIN |
| Sara Silverstein | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 17, 2024 | By: | /s/ DOUGLAS B. SMITH |
| Douglas B. Smith | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| 47 |
Exhibit 10.9
Exhibit 10.10
Exhibit 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sara Silverstein, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of The Arena Group Holdings, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 17, 2024 | /s/ Sara Silverstein |
| Sara Silverstein | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a) AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Douglas B. Smith, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of The Arena Group Holdings, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 17, 2024 | /s/ Douglas B. Smith |
| Douglas B. Smith | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Sara Silverstein, the Chief Executive Officer of The Arena Group Holdings, Inc. (the “Company”) hereby certify, that, to my knowledge:
| 1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 17, 2024 | /s/ Sara Silverstein |
| Sara Silverstein | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Douglas B. Smith, the Chief Financial Officer of The Arena Group Holdings, Inc. (the “Company”), hereby certify, that, to my knowledge:
| 1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 17, 2024 | /s/ Douglas B. Smith |
| Douglas B. Smith | |
| Chief Financial Officer | |
| (Principal Financial Officer) |