Paradium.AI, Inc 10-Q for FY2023 Q3
Paradium.AI, Inc. (PAAI)
About this 10-Q
Paradium.AI, Inc filed this 10-Q on November 14, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $63.42M
- up 10.7% from $57.28M a year earlier
- Net loss
- $11.17M
- compared with a net loss of $16.51M a year earlier
- Diluted EPS
- -$0.48
- compared with -$0.90 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.) | |
| (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 ☐ | ||
| Non-accelerated filer ☐ | Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ or
As of November 10, 2023, 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,” “Arena, ” “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 planned Business Combination (as defined below) and related transactions and expansion plans and the adequacy of our funding. Other statements contained in this Quarterly Report that are not historical facts are also forward-looking statements. We have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and other 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, 2022 filed with the SEC on March 31, 2023 and in Item 1A of Part II of the Quarterly Report on Form 10-Q. 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, 2022.
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
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| ($ in thousands, except share data) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Subscription acquisition costs, current portion | ||||||||
| Prepayments and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Platform development, net | ||||||||
| Subscription acquisition costs, net of current portion | ||||||||
| Acquired and other intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Goodwill | ||||||||
| 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 | ||||||||
| Bridge notes | ||||||||
| Term debt | ||||||||
| Total current liabilities | ||||||||
| Unearned revenue, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Liquidated damages payable, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Term debt | ||||||||
| 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: $ | ||||||||
| Series H 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 September 30, 2023 and December 31, 2022, 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)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue (includes amortization of platform development and developed technology for three months ended 2023 and 2022 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 tax (provision) benefit | ( | ) | ( | ) | ( | ) | ||||||||||
| 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 and Nine Months Ended September 30, 2023
| Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
| ($ in thousands, except per share data) | ||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock upon conversion of Series H convertible preferred stock | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with settlement of Series H convertible preferred stock | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with settlement of Series H convertible preferred stock, shares | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with the acquisition of Fexy Studios | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with the acquisition of Fexy Studios, shares | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with settlement of liquidated damages | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with settlement of liquidated damages, shares | - | - | ||||||||||||||||||||||||||
| Gain upon issuance of common stock in connection with settlement of liquidated damages | - | - | ||||||||||||||||||||||||||
| Common stock withheld for taxes | ||||||||||||||||||||||||||||
| Common stock withheld for taxes, shares | ||||||||||||||||||||||||||||
| Issuance of common stock in connection with registered direct offering | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with registered direct offering, shares | - | - | ||||||||||||||||||||||||||
| Reclassification to liability upon modification of common stock option | - | - | ||||||||||||||||||||||||||
| Issuance of common stock for exercise | - | - | ||||||||||||||||||||||||||
| Issuance of common stock for exercise, shares | - | - | ||||||||||||||||||||||||||
| Common stock withheld for taxes upon issuance of underlying shares for restricted stock units | - | - | ||||||||||||||||||||||||||
| Common stock withheld for taxes upon issuance of underlying shares for restricted stock units, shares | - | - | ||||||||||||||||||||||||||
| Issuance of stock in connection with the acquisition of Athlon | - | - | ||||||||||||||||||||||||||
| Issuance of stock in connection with the acquisition of Athlon, shares | - | - | ||||||||||||||||||||||||||
| Issuance of stock in connection with the merger of Say Media | - | - | ||||||||||||||||||||||||||
| Issuance of stock in connection with the of Say Media merger, shares | - | - | ||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units in connection with an acquisition | - | - | ||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units in connection with an acquisition, shares | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with professional services | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with professional services, shares | - | - | ||||||||||||||||||||||||||
| Repurchase restricted stock classified as liabilities | - | - | ||||||||||||||||||||||||||
| Repurchase restricted stock classified as liabilities, shares | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with public offering | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with public offering, shares | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with the exercise of stock options | - | - | ||||||||||||||||||||||||||
| Issuance of common stock in connection with the exercise of stock options, shares | - | - | ||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with acquisition | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
| ($ in thousands, except per share data) | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | | $ | | | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Issuance of common stock in connection with settlement of Series H convertible preferred stock | - | |||||||||||||||||||||||||||
| 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 acquisition | ( | ) | ||||||||||||||||||||||||||
| 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 September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 7 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Three and Nine Months Ended September 30, 2022
| Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock for restricted stock units | - | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock for exercise | - | |||||||||||||||||||||||||||
| Common stock withheld for taxes upon issuance of underlying shares for restricted stock units | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common Stock | Common Stock to be Issued | Additional | Total | |||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | ||||||||||||||||||||||
| ($ in thousands, except share data) | ||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock upon conversion of series H preferred stock | - | |||||||||||||||||||||||||||
| Issuance of stock in connection with the acquisition of Athlon | - | |||||||||||||||||||||||||||
| Issuance of stock in connection with the merger of Say Media | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units in connection with an acquisition | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with professional services | - | |||||||||||||||||||||||||||
| 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 in connection with the exercise of stock options | - | |||||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | - | ( | ) | |||||||||||||||||||||||||
| Common stock withheld for taxes upon issuance of underlying shares for restricted stock units | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||
| Repurchase restricted stock classified as liabilities | ( | ) | - | |||||||||||||||||||||||||
| Issuance of common stock in connection with public offering | - | |||||||||||||||||||||||||||
| Issuance of common stock for exercise | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 8 |
THE ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| 2023 | 2022 | |||||||
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| ($ 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 | ||||||||
| Other | ||||||||
| Change in operating assets and liabilities net of effect of business combination: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Subscription acquisition costs | ( | ) | ||||||
| Royalty fees | ||||||||
| 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 | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Capitalized platform development | ( | ) | ( | ) | ||||
| Proceeds from sale of equity investment | ||||||||
| Payments for acquisition of business, net of cash acquired | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds (repayments) under line of credit, net borrowing | ||||||||
| Proceeds from common stock registered direct offering | ||||||||
| Payments of issuance costs from common stock registered direct offering | ( | ) | ||||||
| Proceeds from common stock public offering, net of offering costs | ||||||||
| Payments of issuance costs from common stock public offering | ( | ) | ||||||
| Proceeds from bridge notes | ||||||||
| Payments of debt issuance costs | ( | ) | ||||||
| Payment of deferred cash payments | ( | ) | ( | ) | ||||
| Payment of taxes from common stock withheld | ( | ) | ( | ) | ||||
| Payment of restricted stock liabilities | ( | ) | ||||||
| Net cash 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 offerings recorded in accrued expenses and other | ||||||||
| Issuance of common stock in connection with settlement of liquidated damages | ||||||||
| Issuance of common stock upon conversion of Series H convertible preferred stock | ||||||||
| Issuance of common stock in connection with acquisitions | ||||||||
| Deferred cash payments recorded in connection with acquisitions | ||||||||
| Assumptions of liabilities 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. (formerly known as TheMaven, Inc.) and its wholly owned subsidiaries (“The Arena Group” or the “Company”), after eliminating all significant intercompany balances and transactions. The Company changed its legal name to The Arena Group Holdings, Inc. from TheMaven, Inc. on February 8, 2022.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete audited financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in The Arena Group’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023.
The condensed consolidated financial statements as of September 30, 2023, and for the three and nine months ended September 30, 2023 and 2022, 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, 2022, 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 is subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including as a result of inflation, increasing interest rates, instability in the global banking system, geopolitical factors, including the ongoing conflicts in Ukraine and Israel, supply chain disruptions and the remaining effects of the COVID-19 pandemic. Given that certain of the Company’s sports businesses rely on sporting events to generate content and comprise a material portion of the Company’s revenues, the Company’s cash flows and results of operations could be negatively impacted by a significant downturn in economic activity, or general spending on sporting events or a general limitation of societal activity, due to market conditions, economic uncertainty or recession.
The
Company operates in
Reverse Stock Split
On
February 8, 2022, the Company’s board of directors (the “Board”) approved a
| 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 nine months ended September 30, 2023, the Company incurred a net loss of $
As a result, 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 they are able to close the Business Combination by December 31, 2023 or extend the date at which such a default would occur.
The Company plans to consummate 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 consummate the Business Combination.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the allowance for credit losses, fair values of financial instruments, capitalization of platform development, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, fair value of assets acquired and liabilities assumed in business acquisitions, determination of the fair value of stock-based compensation and valuation of derivatives liabilities and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Reclassifications
Certain prior year amounts have been reclassified to conform to current period presentation. These reclassifications were immaterial, both individually and in aggregate. These changes did not impact previously reported loss from operations or net loss.
Recently Adopted Accounting Standards
In March 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, addressing areas identified by the FASB as part of its post-implementation review of its previously issued credit losses standard (ASU 2016-13) that introduced the current expected credit losses (CECL) model. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancings and restructurings made with borrowers experiencing financial difficulty. This update requires an entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. As the Company has already adopted ASU 2016-13, the new guidance was adopted on January 1, 2023. The adoption of ASU 2022-02 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.
| As of September 30, | ||||||||
| 2023 | 2022 | |||||||
| 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
The Company, upon Board approval on September 15, 2022, discontinued (i.e., the “discontinued operations”) the Parade print business (“Parade Print”) that was acquired on April 1, 2022 (as part of the Parade acquisition, as further described below in Note 3), on November 13, 2022 (the last date of any obligation to deliver issues of Parade Print).
The table below sets forth the loss from discontinued operations for the period from April 1, 2022 to September 30, 2022:
Schedule of Discontinued Operations
| Revenue | $ | |||
| Cost of revenue | ||||
| Gross profit | ||||
| Operating expense: | ||||
| Selling and marketing | ||||
| General and administrative | ||||
| Loss on impairment of assets | $ | |||
| Total operating expenses | ||||
| Loss from discontinued operations | ( | ) | ||
| Income tax benefit | ||||
| Net loss from discontinued operations | $ | ( | ) |
The discontinued operations of Parade Print also included Relish and Spry Living print products that were acquired as part of the Parade acquisition. Further information is provided under the heading Supplemental Pro Forma Information in Note 3 and Note 16.
During
the three and nine months ended September 30, 2022, the Company recorded depreciation and amortization of $
| 12 |
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.
2023 Acquisition
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 preliminary 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 preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the closing date of the acquisition based upon their respective fair values as summarized below:
Summary of Preliminary Assets Purchase Price Allocation
| Advertiser relationships | $ | |||
| Brand names | ||||
| Goodwill | ||||
| Net assets acquired | $ |
The
Company utilized an independent appraisal firm to assist in the preliminary 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. A portion of the goodwill will be deductible for tax purposes.
| 13 |
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.
2022 Acquisition
Athlon
Holdings, Inc. - On April 1, 2022, the Company acquired
The composition of the purchase price is as follows:
Schedule of Composition of Purchase Price
| Cash | $ | |||
| Common stock | ||||
| Deferred cash payments, as discounted | ||||
| Total purchase consideration | $ |
The
Company incurred $
| 14 |
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 Purchase Price Allocation
| Cash | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Equity investment | ||||
| Fixed assets | ||||
| Digital content | ||||
| Advertiser relationships | ||||
| Trade names | ||||
| Goodwill | ||||
| Accounts payable | ( |
|||
| Accrued expenses and other | ( |
|||
| Unearned revenue | ( |
|||
| Other long-term liabilities | ( |
|||
| Deferred tax liabilities | ( |
|||
| 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 digital content was determined
using a cost approach. The fair values of the advertiser relationships were determined by projecting the acquired entity’s cash
flows, deducting notional contributory asset charges on supporting assets (working capital, tangible assets, trade names, and the assembled
workforce) to compute the excess cash flows associated with the advertiser relationships. The fair values of the trade names were determined
by projecting revenue associated with each trade name and applying a royalty rate to compute the amount of the royalty payments the company
is relieved from paying due to its ownership of the trade names. The estimated weighted average useful life is two years (
The excess purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill from the acquisition. Goodwill is recorded as a non-current asset that is not amortized but is subject to an annual review for impairment. No portion of the goodwill related to the acquisition will be deductible for tax purposes.
| 15 |
Supplemental Pro forma Information
The following table summarizes the results of operations of the Parade acquisition from the acquisition date included in the condensed consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisition been as of the beginning of the reporting period during the year of the acquisition, or January 1, 2021:
Schedule of Supplemental Proforma Information
Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||
| Parade from acquisition date of April 1, 2022 (unaudited): | ||||||||
| Revenue | $ | $ | ||||||
| Net income | ||||||||
| Combined entity supplemental pro forma information had the acquisition date been January 1, 2021 (unaudited): | ||||||||
| Revenue: | ||||||||
| Parade | $ | $ | ||||||
| Arena | ||||||||
| Total supplemental pro forma revenue | ||||||||
| Total supplemental pro forma revenue | $ | $ | ||||||
| Net income (loss): | ||||||||
| Parade | $ | $ | ||||||
| Arena | ( | ) | ( | ) | ||||
| Adjustment | ( | ) | ||||||
| Total supplemental pro forma net loss | $ | ( | ) | $ | ( | ) | ||
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred at the beginning of the Company’s reporting period and does not reflect the discontinued operations of Parade Print that was acquired on April 1, 2022 (as part of the Parade acquisition).
Buffalo
Groupe, LLC – On September 27, 2022, the Company entered into an asset purchase agreement with Buffalo Groupe, LLC, doing business
as Morning Read, a Virginia limited liability company, where it purchased certain intellectual properties (including all media properties,
trademarks, service marks, domain names, trade names corporate names and other identifiers of goodwill), certain assumed contracts, and
other certain rights related to the intellectual properties (collectively, the “Morning Read Purchased Assets”) and assumed
certain liabilities related to the Morning Read Purchased Assets. The purchase consideration consisted of a cash payment of $
The Company accounted for the asset acquisition in accordance with ASC 805-50, as substantially all of the fair value of the gross assets acquired by the Company is concentrated in a group of similar identifiable assets.
The
purchase consideration totaled $
| 16 |
4. Balance Sheet Components
The components of certain balance sheet amounts are as follows:
Accounts
Receivable – 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 September 30, 2023 and December 31, 2022 of $
Schedule of Allowance For Doubtful Accounts
Nine Months Ended September 30, 2023 (unaudited) | Year Ended December 31, 2022 | |||||||
| Allowance for doubtful accounts beginning of year | $ | $ | ||||||
| Additions | ||||||||
| Deductions – write-offs | ( | ) | ( | ) | ||||
| Allowance for doubtful accounts end of period | $ | $ | ||||||
Subscription Acquisition Costs – Subscription acquisition costs include the incremental costs of obtaining a contract with a customer, paid to external parties, if the Company expects to recover those costs. The Company has determined that sales commissions paid on all third-party agent sales of subscriptions are direct and incremental and, therefore, meet the capitalization criteria. The Company has elected to apply the practical expedient to account for these costs at the portfolio level. The sales commissions paid to third-party agents are amortized as magazines are sent to the subscriber on an issue-by-issue basis. Subscription acquisition costs are included within selling and marketing expenses on the condensed consolidated statements of operations.
The
current portion of the subscription acquisition costs as of September 30, 2023 and December 31, 2022 was $
Amortization
of subscription acquisition costs of $
| 17 |
Prepayments and other current assets – Prepayments and other current assets are summarized as follows:
Schedule of Prepayments and Other Current Assets
| As of | ||||||||
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepaid supplies | ||||||||
| Refundable income and franchise taxes | ||||||||
| Unamortized debt costs | ||||||||
| Employee retention credits | ||||||||
| 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 is 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 and nine months ended
September 30, 2023, the Company recorded the employee retention credits as a reduction to payroll and related expenses of $
Property and Equipment – Property and equipment are summarized as follows:
Schedule of Property and Equipment
| As of | ||||||||
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| 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 September 30, 2023 and 2022 was $
| 18 |
Platform Development – Platform development costs are summarized as follows:
Summary of Platform Development Costs
| As of | ||||||||
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| Platform development | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net platform development | $ | $ | ||||||
A summary of platform development activity for the nine months ended September 30, 2023 is as follows:
Summary of Platform Development Cost Activity
| Platform development beginning of period | $ | |||
| Payroll-based costs capitalized | ||||
| Less dispositions | ( | ) | ||
| Total capitalized costs | ||||
| Stock-based compensation | ||||
| Impairments | ( | ) | ||
| Platform development end of period | $ |
Amortization
expense for the three months ended September 30, 2023 and 2022, was $
Intangible Assets – Intangible assets subject to amortization consisted of the following:
Schedule of Intangible Assets Subjects to Amortization
As of September 30, 2023 (unaudited) | As of December 31, 2022 | |||||||||||||||||||||||
| 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 for the three
months ended September 30, 2023 and 2022 was $
| 19 |
5. Leases
The
Company’s real estate lease for the use of office space is subleased (as further described below). The Company’s current
lease is a long-term operating lease with a remaining fixed payment term of
The table below presents supplemental information related to operating leases:
Schedule of Supplemental Information Related to Operating Leases
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| 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.
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
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating lease costs: | ||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating lease costs (1) | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (1) |
Maturities of the operating lease liability as of September 30, 2023 are summarized as follows:
Summary of Maturity of Lease Liabilities
| Years Ending December 31, | ||||
| 2023 (remaining three months of the year) | $ | |||
| 2024 | ||||
| Minimum lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of operating lease liability | $ | |||
| Current portion of operating lease liability | $ | |||
| Long-term portion of operating lease liability | ||||
| Total operating lease liability | $ |
Sublease
Agreement – In November 2021, the Company entered into an agreement to sublease its leased office space for the duration of
its operating lease through September 2024. As of September 30, 2023, the Company is entitled to receive sublease income of $
| 20 |
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 (the “membership”), 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 term of the
agreement with Convene is for
6. Goodwill
The changes in carrying value of goodwill are as follows:
Schedule of Changes in Carrying Value of Goodwill
| As of | ||||||||
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| Carrying value at beginning of year | $ | $ | ||||||
| Goodwill acquired in acquisition of Parade | ||||||||
| Goodwill acquired in acquisition of Men’s Journal | ||||||||
| Goodwill acquired in acquisition of Fexy Studios | ||||||||
| Goodwill acquired in acquisition | ||||||||
| Carrying value at end of period | $ | $ | ||||||
In connection with the acquisition of Men’s
Journal, the Company received a final valuation report during the quarterly period ended September 30, 2023 from a third-party valuation
firm after the preliminary purchase price was determined. After considering the results of the final valuation report, the Company estimated
that the purchase consideration increased by $
7. Line of Credit
SLR
Line of Credit – On December 15, 2022, the Company entered into an amendment to its financing and security agreement for its
line of credit with SLR Digital Finance LLC (formerly FPP Finance LLC) (“SLR” or the “amended line of credit”),
as further amended on August 31, 2023 in connection with the Business Combination (see Note 20) (the “SLR Amendment”) pursuant
to which the SLR Amendment provided for an extension of the maturity date, additional event of default provisions in connection with
the Business Combination, payment of certain fees in connection with the Business Combination, additional borrowings under the 2023 Notes
pursuant to the First Amendment (see Note 11 and Note 18), and issuance of Series L preferred stock in connection with the Business Combination,
all of which are more fully described herein and collectively the amended line of credit and SLR Amendment are referred to as the “line
of credit”. The line of credit provides for (i)
$
In connection with the SLR Amendment and
amended line of credit, the Company incurred debt costs of $
Information for the three and nine months ended September 30, 2023 and 2022 with respect to interest expense related to the line of credit is provided under the heading Interest Expense in Note 12.
| 21 |
8. Restricted Stock Liabilities
On December 15, 2020, the Company entered into an amendment for certain restricted stock awards and units that were previously issued to certain employees in connection with a previous merger with HubPages. Pursuant to the amendment, the Company agreed to purchase the vested restricted stock awards, at a price of $ per share in 24 equal monthly installments on the second business day of each calendar month beginning on January 4, 2021, subject to certain conditions.
The
Company recorded the repurchase of shares of the Company’s restricted common
stock during the nine months ended September 30, 2022 on the condensed consolidated statements of stockholders’ deficiency. Effective
April 4, 2022, there are no longer any shares of the Company’s common stock subject to repurchase. During the nine months ended
September 30, 2022, the Company paid $
Further details are provided under the heading Repurchases of Restricted Stock in Note 18.
9. Liquidated Damages Payable
Liquidated damages were recorded as a result of the following: (i) certain registration rights agreements provide for damages if the Company does not register certain shares of the Company’s common stock within the requisite time frame (the “Registration Rights Damages”); and (ii) certain securities purchase agreements provide for damages if the Company does not maintain its periodic filings with the SEC within the requisite time frame (the “Public Information Failure Damages”).
Obligations with respect to the liquidated damages payable are summarized as follows:
Summary of Liquidated Damages
As of September 30, 2023 (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, 2022 | ||||||||||||||||
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 September 30, 2023 and December 31, 2022, the short-term liquidated damages payable were $
| 22 |
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 agreed to the issue 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 sixty (60) previous trading
days), to the investor in lieu of an aggregate of $
10. 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.
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 (which provides for a cash payment to the sellers on the first anniversary date of the closing (or 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, or $ per share), as a derivative liability, which requires the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end.
Liabilities measured at fair value on a recurring basis consisted of the following as of September 30, 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 is primarily dependent on the common stock trading price on
the first anniversary of the closing of Fexy Studios, or January 11, 2024. The estimated fair value was calculated using the Black-Scholes
option pricing model using the following inputs: (i) $ exercise price equal to the closing price of the Company’s common stock
at the acquisition date; (ii) $ common stock price equal to the trading price of the Company’s common stock as of the reporting
date; (iii) years for the expected term; (iv) % annualized risk free rate; (v) % selected volatility and (vi) % dividend
yield. For the three and nine months ended September 30, 2023, the change in valuation of the contingent consideration of $
| 23 |
11. Bridge Notes
2023 Notes
In
connection with the Note Purchase Agreement and First Amendment (both as further described under the heading Principal
Stockholder in Note 18), entered into in contemplation of the Business Combination (see Note
20), on August 31, 2023, the Company issued $
Pursuant to the Note Purchase Agreement and First Amendment, the 2023 Notes provide for:
| ● | an
interest rate fixed at | |
| ● | a
maturity date of | |
| ● | a
provision for the failure to repay the $ | |
| ● | an
election to prepay the notes, at any time, at |
As
of September 30, 2023, the effective interest rate on the 2023 Notes was
2022 Bridge Notes
On
December 15, 2022, the Company issued $
Information for the three and nine months ended September 30, 2023 with respect to interest expense related to the 2022 Bridge Notes is provided under the heading Interest Expense in Note 12.
12. Term Debt
Senior Secured Notes
Pursuant to the Note Purchase Agreement and the First Amendment, as of September 30, 2023 and December 31, 2022, the Company has certain notes outstanding referred to as the senior secured notes (the “Senior Secured Notes”).
| 24 |
Pursuant to the Note Purchase Agreement and First Amendment (see Note 18), the Senior Secured Notes provide for:
| ● | a
provision for the Company to enter into Delayed Draw Term Notes (as described below), in an aggregate principal amount of $ | |
| ● | 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
Pursuant
to the Note Purchase Agreement, as of September 30, 2023 and December 31, 2022, the Company has outstanding obligations of $
Pursuant to the Note Purchase Agreement and First Amendment (see Note 18), 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 |
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2022 Bridge Notes
Pursuant to the First Amendment, the 2022 Bridge Notes outstanding as of December 31, 2022 were amended and reclassified from a current liability to a noncurrent liability.
Pursuant to the Note Purchase Agreement and First Amendment (see Note 18), the 2022 Bridge Notes provide for:
| ● | an
interest rate fixed at | |
| ● | a
maturity date of | |
| ● | 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 term debt:
Schedule of Long Term Debt
As of September 30, 2023 (unaudited) | As of December 31, 2022 | |||||||||||||||||||||||
| 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 11.4% as of September 30, 2023, as amended, matures December 31, 2026, subject to acceleration | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Senior Secured Notes, effective interest rate of | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Delayed Draw Term Notes, effective interest rate of | ( | ) | ( | ) | ||||||||||||||||||||
| 2022 Bridge Notes, effective interest rate of | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
As of September 30, 2023, the current maturities and
noncurrent maturities under the term debt were $
The
Company’s principal maturities of the term debt of $
Information for the three and nine months ended September 30, 2023 and 2022 with respect to interest expense related to the term debt is provided below.
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Interest Expense
The following table represents interest expense:
Summary of Interest Expense
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Amortization of debt costs: | ||||||||||||||||
| Line of credit | $ | $ | $ | $ | ||||||||||||
| 2022 Bridge Notes | ||||||||||||||||
| Senior Secured Notes | ||||||||||||||||
| Delayed Draw Term Notes | ||||||||||||||||
| 2023 Notes | ||||||||||||||||
| Total amortization of debt costs | ||||||||||||||||
| Noncash and accrued interest: | ||||||||||||||||
| Parade | ||||||||||||||||
| Other accrued interest | ||||||||||||||||
| Total noncash and accrued interest | ||||||||||||||||
| Cash paid interest: | ||||||||||||||||
| Line of credit | ||||||||||||||||
| 2022 Bridge Notes | ||||||||||||||||
| Senior Secured Notes | ||||||||||||||||
| Delayed Draw Term Notes | ||||||||||||||||
| 2023 Notes | ||||||||||||||||
| Other | ||||||||||||||||
| Total cash paid interest | ||||||||||||||||
| Less interest income (1) | ( | ) | ( | ) | ||||||||||||
| Total interest expense | $ | $ | $ | $ | ||||||||||||
| (1) |
Noncash
and accrued interest of $
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 September 30, 2023 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 and shares are outstanding as of September 30, 2023 and December 31, 2022, respectively. |
Series
H Convertible Preferred Stock – All the outstanding shares of Series H convertible preferred stock automatically converted into
shares of the Company’s common stock on August 10, 2023, at the conversion price of $
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14. Stockholders’ Equity
Common Stock
The Company has the authority to issue shares of common stock, $ par value per share.
On
March 31, 2023, the Company entered into common stock purchase agreements with certain purchasers, pursuant to which the Company issued
and sold in a registered direct offering an aggregate of shares of the Company’s common stock, $ par value per share
at a purchase price of $ per share. The gross proceeds received were $
During
the three months ended September 30, 2023, the Company recorded the issuance of (issued July 21, 2023 upon conversion of shares
of Series H convertible preferred stock) and (issued August 10, 2023 upon conversion of shares of Series H convertible
preferred stock) shares of the Company’s common stock totaling as result of the conversion of shares of the Company’s
Series H convertible preferred stock ( shares of Series H convertible preferred stock) with a corresponding amount of $
On
January 24, 2022, the Company entered into several stock purchase agreements with several investors, where the Company was liable for
liquidated damages, pursuant to which the Company issued an aggregate of 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 sixty
(60) previous trading days), to the investors in lieu of an aggregate of $
On
February 15, 2022 and March 11, 2022, the Company raised gross proceeds of $
Between
March 22, 2022 and March 25, 2022, the Company recorded the issuance of
shares of the Company’s common stock upon conversion of
shares of the Company’s Series H convertible preferred stock, with a corresponding amount of $
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.
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Summary of Stock-based Compensation
| Three Months Ended September 30, 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 | $ | $ | $ | $ | ||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||
| Nine Months Ended September 30, 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 | $ | $ | $ | $ | ||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||
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Unrecognized compensation expense and expected weighted-average period to be recognized related to the stock-based compensation awards and equity-based awards as of September 30, 2023 were as follows:
Schedule of Unrecognized Compensation Expense
| As of September 30, 2023 | ||||||||||||||||
| Restricted Stock | Common Stock Options | Warrants | Totals | |||||||||||||
| Unrecognized compensation expense | $ | $ | $ | $ | ||||||||||||
| Weighted average period expected to be recognized (in years) | ||||||||||||||||
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 total
of options of 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
$
On
June 30, 2023, the Company modified certain equity awards upon the resignation of a senior executive employee pursuant to which unvested
restricted stock units for shares of the Company’s common stock vested, and unvested options for shares of the Company’s
common stock vested with the exercise period extended for the -year contractual term of the options from the grant date of the award.
In connection with the termination, the unamortized costs of the awards of $
Publisher
Partner Warrants – On March 13, 2023, the Company issued
warrants for shares of the Company’s common stock (
warrants were issued with an effective date of November 3, 2022 and an exercise price of $
Amendment to Stock Compensation Plan – On April 16, 2023 the Board approved an increase to the number of shares of the Company’s common stock reserved for issuance under the 2022 Stock and Incentive Compensation Plan from shares to shares, which was subsequently approved by the Company’s stockholders on June 1, 2023.
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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
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 and nine months ended September 30, 2022, disaggregated revenue represents revenue from continuing operations.
Contract Balances
The timing of the Company’s performance under its various contracts often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. A contract asset is recognized when a good or service is transferred to a customer and the Company does not have the contractual right to bill for the related performance obligations. A contract liability is recognized when consideration is received from the customer prior to the transfer of goods or services.
The following table provides information about contract balances:
Schedule of Contract with Customer, Asset and Liability
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| As of | ||||||||
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| Unearned revenue (short-term contract liabilities): | ||||||||
| Digital revenue | $ | $ | ||||||
| Print revenue | ||||||||
| Total short-term contract liabilities | $ | $ | ||||||
| Unearned revenue (long-term contract liabilities): | ||||||||
| Digital revenue | $ | $ | ||||||
| Print 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.
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The
income tax provision (benefit) effective tax rate for the nine months ended September 30, 2023 and 2022 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 September 30, 2023 and 2022.
As
of September 30, 2023 and 2022, the Company has
18. Related Party Transactions
Principal Stockholder
The
Company has 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 the third amended and
restated note purchase agreement entered into on December 15, 2022 (the “Note Purchase Agreement”), as amended by the first amendment to the Note Purchase Agreement on August 14, 2023 (the “First Amendment”) with an effective date of August 31, 2023. 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 above and referred to as the “Notes”. Under the
terms of the Note Purchase Agreement and First Amendment, in the event there is a mandatory prepayment requirement, the principal
payment of the Notes will be applied to:
For
the three and nine months ended September 30, 2023, the Company paid in cash interest of $
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 stocks for a total of $
For
the nine months ended September 30, 2022, the Company had certain transactions with B. Riley, a principal stockholder, where it paid
fees associated with the common stock public offering totaling $
On
August 10, 2023, the Company’s Series H convertible preferred stock automatically converted into shares of the Company’s
common stock at the conversion price of $
On
August 31, 2023, in connection with the 2023 Notes, BRF, which is an affiliate of B Riley, a principal stockholder, issued $
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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 stocks for a total of $
Repurchases of Restricted Stock
On
December 15, 2020, the Company entered into an amendment for certain restricted stock awards and units that were previously issued to
certain employees in connection with the HubPages merger, pursuant to which the Company agreed to repurchase from certain key personnel
of HubPages, Inc., including Paul Edmondson, one of the Company’s officers, and his spouse, an aggregate of shares of the Company’s
common stock at a price of $ per share each month for a period of 24 months, for aggregate proceeds to Mr. Edmondson and his spouse
of $
19. Commitments and 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 Company is not currently a party to any pending or threatened legal proceedings that it believes would reasonably be expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
In connection with the Athlon working capital adjustment (as previously disclosed in Note 3), the Company prepared the working capital adjustment. 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.
Royalty
Fees – The Company guaranteed minimum annual royalties of $
20. Subsequent Events
The Company performed an evaluation of subsequent events through the date of filing of these condensed consolidated financial statements with the SEC. Other than the below described subsequent events, there were no material subsequent events which affected, or could affect, the amounts or disclosures on the condensed consolidated financial statements.
Business Combination
On
November 5, 2023, the Company signed a definitive business combination agreement (the “BCA”) to combine its operations
with those of Bridge Media Networks, LLC (“Bridge Media Networks” or “Bridge Media”) a wholly owned
subsidiary of Simplify Inventions, LLC (“Simplify”). The transactions contemplated by the BCA are subject to customary
conditions, including the approval by the Company’s shareholders and certain regulatory approvals. Key components of the BCA
and related transactions include: (i) a restructure of the Company’s balance sheet and pay down of approximately $
In
addition, at the closing of the Business Combination, New Arena will enter into a stock purchase agreement with Simplify or one of
its affiliates (the “Simplify SPA Party”), pursuant to which the Simplify SPA Party will agree to purchase such number
of shares of New Arena common stock having an aggregate value of $
Compensation Plans
From October 1, 2023 through the date these condensed consolidated financial statements were issued, the Company granted options for shares of the Company’s common stock totaling , all of which remain outstanding.
| 33 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2023 and 2022 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, 2022 included in the Annual Report on Form 10-K filed with the SEC on March 31, 2023. 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 tech-powered media company that focuses on building deep content verticals powered by a best-in-class digital media platform (the “Platform”) empowering premium publishers who impact, inform, educate, and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports and finance), and where we can leverage the strength of our core brands to grow our audience and increase monetization both within our core brands as well as our media publisher partners (each, a “Publisher Partner”). Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize audience reach, improve engagement, and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our greater than 40 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated, own and operate TheStreet, Inc. College Spun Media Incorporated, Parade Media, and Men’s Journal and power more than 320 independent Publisher Partners, including the many sports team sites that comprise FanNation. Each Publisher Partner joins the Platform by invitation only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization, social media, ad monetization and subscription marketing, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While the Publisher Partners benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management.
Of the more than 320 Publisher Partners, a large majority of them publish content within one of our four verticals of sports, finance, lifestyle or 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 onto a single platform and a large and experienced sales organization. They may also benefit from our membership marketing and management systems, which we believe will enhance their revenue.
Our growth strategy is to continue to expand by adding new premium publishers with high quality brands and content either as independent Publisher Partners, by acquiring publishers as owned and operated entities or strategic expansion as described under Recent Developments.
Recent Developments
On November 5, 2023, we signed a definitive business combination agreement (the “BCA”) to combine its operations with those of Bridge Media Networks, LLC (“Bridge Media Networks” or “Bridge Media”) a wholly owned subsidiary of Simplify Inventions, LLC (“Simplify”). The transactions contemplated by the BCA (the “Transaction(s)” or the “Transaction Agreement”) are subject to customary conditions, including the approval by the Company’s shareholders and certain regulatory approvals. Key components of the BCA and related transactions include: (i) a restructure of the Company’s balance sheet and pay down of approximately $20,000 of the 2022 Bridge Notes and $6,000 of the 2023 Notes and the extension of the maturity date of its remaining Notes for a period of three years at an interest rate of 10.0%; (ii) a cash investment of approximately $50,000, comprised of a $25,000 purchase of common stock and a $25,000 investment in newly created Series L preferred stock with a 10.0% non-cash paid-in-kind (PIK) dividend; (iii) an advertising commitment of approximately $60,000 to be spent $12,000 annually for five (5) years from a group of consumer brands also owned by Simplify; and (iv) a business combination resulting in the Company owning and operating Bridge Media Networks’ two 24-hour networks, NEWSnet and Sports News Highlights, as well as the automotive and travel properties Driven and TravelHost (these components collectively defined as the “Business Combination”). The Business Combination will result in Simplify and related entities holding approximately 65.0% upon consummation of the transaction of the fully diluted common stock of a newly formed company (“New Arena”) to effectuate the Business Combination.
In addition, at the closing of the Business Combination, New Arena will enter into a stock purchase agreement with Simplify or one of its affiliates (the “Simplify SPA Party”), pursuant to which the Simplify SPA Party will agree to purchase such number of shares of New Arena common stock having an aggregate value of $20,000 in one or more private placements at New Arena’s option for one-year from the closing date of the Business Combination (the “additional equity issuances”). Pursuant to the stock purchase agreement, at closing of the Business Combination, 60,000 shares of New Arena’s common stock will be issued as payment of a 1.5% commitment fee.
For additional information related to the BCA, refer to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2023, which includes the full text of the BCA as Exhibit 2.1.
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Impact of Macroeconomic Conditions
Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including as a result of increases in inflation, rising interest rates and instability in the global banking system and geopolitical factors, including the ongoing conflicts in Ukraine and Israel and the responses thereto, and the remaining effects of the COVID-19 pandemic. 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 and continue to closely monitor the impact of the current conditions on our business. For additional information, see the sections titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 and in this Quarterly Report.
Key Operating Metrics
We monitor and review the key operating metrics described below as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods, for the three and nine months ended September 30, 2023, an increase of 19% and 14%, respectively, as compared to the same period in fiscal 2022. Management monitors and reviews these metrics because such metrics are readily measurable in real time and can provide valuable insight into the performance of and trends related to our digital advertising revenue and our overall business. We consider only those key operating metrics described here to be material to our financial condition, results of operations and future prospects.
Our key operating metrics are identified below:
| ● | Revenue per page view (“RPM”) – represents the advertising revenue earned per 1,000 pageviews. It is calculated as our advertising revenue during a period divided by our total page views during that period and multiplied by $1,000; and | |
| ● | Monthly average pageviews – represents the total number of pageviews in a given month or the average of each month’s pageviews in a fiscal quarter or year, which is calculated as the total number of page views recorded in a quarter or year divided by three months or 12 months, respectively. |
For pricing indicators, we focus on RPM as it is the pricing metric most closely aligned with monthly average pageviews. RPM is an indicator of yield and pricing driven by both advertising density and demand from our advertisers.
Monthly average pageviews are measured across all properties hosted on the Arena Platform and provide us with insight into volume, engagement and effective page management and are therefore our primary measure of traffic. We utilize a third-party source, Google Analytics, to confirm this traffic data.
As described above, these key operating metrics are critical for management as they provide insights into our digital advertising revenue generation and overall business performance. This information also provides feedback on the content on our website and its ability to attract and engage users, which allows us to make strategic business decisions designed to drive more users to read or view more of our content and generate higher advertising revenue across all properties hosted on the Arena Platform.
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For the three and nine months ended September 30, 2023 our RPM was $22.98 and $19.73, representing a 35% and 23% increase from RPM of $17.00 and $16.01 for the three and nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2023 our monthly average pageviews were 424,892,705 and 446,094,684, representing a decline of 12% and 8% as compared to monthly average pageviews were 484,299,721 and 482,326,093 for the three and nine months ended September 30, 2022, respectively.
All dollar figures presented below are in thousands unless otherwise stated.
Liquidity and Capital Resources
Going Concern
Our 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 it is unable to continue as a going concern.
For the nine months ended September 30, 2023, we incurred a net loss of $50,027. For the nine months ended September 30, 2023 and year ended December 31, 2022, we had cash on hand of $7,290 and $13,871 and a working capital deficit of $68,332 and $137,669, respectively. Our net loss 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. Furthermore, while we have executed an amendment to extend the maturity of our 2022 Bridge Notes of $36,000, Senior Secured Notes of $62,691, Delayed Draw Term Notes of $4,000 and to extend additional borrowings on our 2023 Notes of $6,000 (each as described in the condensed consolidated financial statements), totaling $108,691, if the Business Combination is not completed by December 31, 2023 it would represent an event of default under the related debt agreements in which case we may not be able to meet our obligations when due.
As a result, management determined there is substantial doubt about our ability to continue as a going concern for a one-year period following the financial statement issuance date, unless we are able to close the Business Combination by December 31, 2023 or extend the date at which such a default would occur.
Cash and Working Capital Facility
As of September 30, 2023, our principal sources of liquidity consisted of cash of $7,290. In addition, as of September 30, 2023, we had $22,697 available for additional use, subject to eligible accounts receivable, under our working capital line of credit with SLR Digital Finance LLC (formerly FastPay) (“SLR”). As of September 30, 2023, the outstanding balance of the SLR working capital line of credit was $17,303. We also had accounts receivable, net of our advances from SLR of $20,674 as of September 30, 2023. Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements is $4,586.
Off-Balance Sheet Arrangements
As of September 30, 2023, pursuant to our SLR line of credit, as disclosed above, in the event that our line of credit is accelerated, we will be obligated to pay SLR either a termination fee or performance fee equal to $900.
As of September 30, 2023, in connection with the Sports Illustrated media business, we guaranteed a minimum annual royalty of $15,000 through December 31, 2029, for a total of $78,750.
| 36 |
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, 9, 11 and 12 in our accompanying condensed consolidated financial statements for amounts outstanding as of September 30, 2023, related to leases, liquidated damages, bridge notes and term debt. 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 $2,142 over the lease term that may be offset after considering certain space that we sublet where we are entitled to receive $435. 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.
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 September 30, 2023 and December 31, 2022 was as follows:
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Current assets | $ | 84,117 | $ | 78,695 | ||||
| Current liabilities | (152,449 | ) | (216,364 | ) | ||||
| Working capital deficit | (68,332 | ) | (137,669 | ) | ||||
As of September 30, 2023, we had a working capital deficit of $68,332, as compared to $137,669 as of December 31, 2022, consisting of $84,117 in total current assets and $152,449 in total current liabilities. As of December 31, 2022, our working capital deficit consisted of $78,695 in total current assets and $216,364 in total current liabilities.
Our cash flows for the nine months ended September 30, 2023 and 2022 consisted of the following:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (22,265 | ) | $ | (14,676 | ) | ||
| Net cash used in investing activities | (3,467 | ) | (12,315 | ) | ||||
| Net cash provided by (used in) financing activities | 18,649 | 30,945 | ||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | (7,083 | ) | $ | 3,954 | |||
| Cash, cash equivalents, and restricted cash, end of period | $ | 7,290 | $ | 13,805 | ||||
For the nine months ended September 30, 2023, net cash used in operating activities was $22,265, consisting primarily of $178,732 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, professional services, and $10,835 of cash paid for interest, offset by $167,302 of cash received from customers. For the nine months ended September 30, 2022, net cash used in operating activities was $14,676, consisting primarily of $164,106 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 $7,209 of cash paid for interest, offset by $156,639 of cash received from customers.
For the nine months ended September 30, 2023, net cash used in investing activities was $3,467, consisting primarily of $2,967 for capitalized costs for our Platform and $500 for the acquisition of a business. For the nine months ended September 30, 2022, net cash used in investing activities was $12,315, consisting primarily of $10,331 for the acquisition of a business; $3,990 for capitalized costs for our Platform, and $444 for property and equipment, offset by $2,450 from the sale of an equity investment.
For the nine months ended September 30, 2023, net cash provided by financing activities was $18,649, consisting primarily of $11,333 (excluding accrued offering costs of $167) in net proceeds from the public offering of common stock and $3,211 from borrowings under our SLR line of credit, $5,603 (excluding debt issuance costs of $100) in net proceeds from issuance of notes; offset by $1,423 tax payments relating to the withholding of shares of common stock for certain employees, and $75 payment of deferred cash payments. For the nine months ended September 30, 2022, net cash provided by financing activities was $30,945, consisting primarily of $30,490 (excluding accrued offering costs of $1,568) in net proceeds from the public offering of common stock, $6,486 from borrowings under our SLR line of credit and $94 in proceeds from exercise of common stock options; offset by $3,520 tax payments relating to the withholding of shares of common stock for certain employees, $2,152 payments of restricted stock liabilities, and $453 payment for The Spun deferred cash payment.
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Results of Operations
Three Months Ended September 30, 2023 and 2022
| Three Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 63,418 | $ | 57,277 | $ | 6,141 | 10.7 | % | ||||||||
| Cost of revenue | 35,245 | 32,671 | 2,574 | 7.9 | % | |||||||||||
| Gross profit | 28,173 | 24,606 | 3,567 | 14.5 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 19,271 | 18,424 | 847 | 4.6 | % | |||||||||||
| General and administrative | 11,028 | 13,493 | (2,465 | ) | -18.3 | % | ||||||||||
| Depreciation and amortization | 4,726 | 4,478 | 248 | 5.5 | % | |||||||||||
| Total operating expenses | 35,025 | 36,395 | (1,370 | ) | -3.8 | % | ||||||||||
| Loss from operations | (6,852 | ) | (11,789 | ) | 4,937 | -41.9 | % | |||||||||
| Total other expenses | (4,253 | ) | (3,523 | ) | (730 | ) | 20.7 | % | ||||||||
| Loss before income taxes | (11,105 | ) | (15,312 | ) | 4,207 | -27.5 | % | |||||||||
| Income tax provision | (61 | ) | (547 | ) | 486 | -88.8 | % | |||||||||
| Net loss from continuing operations | (11,166 | ) | (15,859 | ) | 4,693 | -29.6 | % | |||||||||
| Net loss from discontinued operations, net of tax | - | (646 | ) | 646 | -100.0 | % | ||||||||||
| Net loss | $ | (11,166 | ) | $ | (16,505 | ) | $ | 5,339 | -32.3 | % | ||||||
For the three months ended September 30, 2023, the loss from operations narrowed by $4,937 due to a $6,141 increase in revenue and a decrease in operating expenses of $1,370. This was offset by an increase in interest expense of $858 included in other expenses leading to an improvement of $5,339 in net loss to $11,166 for the three months ended September 30, 2023, as compared to $16,505 for the three months ended September 30, 2022.
Revenue
The following table sets forth revenue, cost of revenue, and gross profit:
| Three Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 63,418 | $ | 57,277 | $ | 6,141 | 10.7 | % | ||||||||
| Cost of revenue | 35,245 | 32,671 | 2,574 | 7.9 | % | |||||||||||
| Gross profit | $ | 28,173 | $ | 24,606 | $ | 3,567 | 14.5 | % | ||||||||
For the three months ended September 30, 2023 we had gross profit of $28,173, as compared to $24,606 for the three months ended September 30, 2022, an increase of $3,567, or 14.5%. Gross profit percentage for the three months ended September 30, 2023 was 44.4%, as compared to 43.0% for the three months ended September 30, 2022, an improvement of 1.5 percentage points.
The improvement in gross profit percentage was driven by a higher mix of premium digital advertising, as reflected in the 35% increase in RPM, as well as more than tripling of other digital revenue, largely e-commerce. In addition, stock based compensation included in cost of revenue declined by $1,567 from $2,772 in the three months ended September 30, 2022 to $1,205 in the three months ended September 30, 2023.
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The following table sets forth revenue by category:
| Three Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Digital revenue: | ||||||||||||||||
| Digital advertising | $ | 36,659 | $ | 28,512 | $ | 8,147 | 28.6 | % | ||||||||
| Digital subscriptions | 3,181 | 4,629 | (1,448 | ) | -31.3 | % | ||||||||||
| Licensing and syndication revenue | 4,468 | 4,391 | 77 | 1.8 | % | |||||||||||
| Other digital revenue | 1,516 | 458 | 1,058 | 231.0 | % | |||||||||||
| Total digital revenue | 45,824 | 37,990 | 7,834 | 20.6 | % | |||||||||||
| Print revenue: | ||||||||||||||||
| Print advertising | 2,259 | 3,443 | (1,184 | ) | -34.4 | % | ||||||||||
| Print subscriptions | 15,335 | 15,844 | (509 | ) | -3.2 | % | ||||||||||
| Total print revenue | 17,594 | 19,287 | (1,693 | ) | -8.8 | % | ||||||||||
| Total revenue | $ | 63,418 | $ | 57,277 | $ | 6,141 | 10.7 | % | ||||||||
For the three months ended September 30, 2023, total revenue increased $6,141, or 10.7%, to $63,418 from $57,277 for the three months ended September 30, 2022. The primary sources of revenue for the three months ended September 30, 2023 were as follows: (i) digital advertising of $36,659, (ii) digital subscriptions of $3,181, (iii) licensing and syndication revenue and other digital revenue of $5,984, (iv) print advertising of $2,259 and (v) print subscriptions of $15,335.
The primary driver of the increase in our digital revenue of $7,834 is derived from our digital advertising revenue and other digital revenue which increased by $8,147 and $1,058, respectively, which was primarily offset by a decrease in our digital subscriptions of $1,448. Digital revenue represented 72.3% of total revenue in the three months ended September 30, 2023 as compared to $66.3% in the prior year period, an increase of 6.0 percentage points. Offsetting the increase in our digital revenue, our print revenue decreased by $1,693 with a 34.4% decrease in print advertising and a 3.2% decrease in print subscription revenue. Revenue for the three months ended September 30, 2022 has been adjusted for the discontinued operations of the Parade print business that was acquired in April 2022 totaling $20,753 since the operations were discontinued during the year ended December 31, 2022.
Cost of Revenue
The following table sets forth cost of revenue by category:
| Three Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Publisher Partner revenue share payments | $ | 7,586 | $ | 4,471 | $ | 3,115 | 69.7 | % | ||||||||
| Technology, Platform and software licensing fees | 5,721 | 4,721 | 1,000 | 21.2 | % | |||||||||||
| Royalty fees | 3,750 | 3,750 | - | 0.0 | % | |||||||||||
| Content and editorial expenses | 11,381 | 10,642 | 739 | 6.9 | % | |||||||||||
| Printing, distribution and fulfillment costs | 3,411 | 3,770 | (359 | ) | -9.5 | % | ||||||||||
| Amortization of developed technology and platform development | 2,191 | 2,413 | (222 | ) | -9.2 | % | ||||||||||
| Stock-based compensation | 1,205 | 2,772 | (1,567 | ) | -56.5 | % | ||||||||||
| Other cost of revenue | - | 132 | (132 | ) | -100.0 | % | ||||||||||
| Total cost of revenue | $ | 35,245 | $ | 32,671 | $ | 2,574 | 7.9 | % | ||||||||
For the three months ended September 30, 2023, we recognized cost of revenue of $35,245, as compared to $32,671 for the three months ended September 30, 2022, which represents an increase of $2,574, or 7.9% as compared to the 10.7% increase in revenue. Cost of revenue for the third quarter of 2023 was impacted by increases in (i) Publisher Partner revenue share payments of $3,115 due to very high growth among our FanNation publisher partners, (ii) technology, Platform and software licensing fees of $1,000 and (iii) content and editorial expenses of $739; partially offset by decreases in (iv) stock-based compensation costs of $1,567; (v) printing, distributions and fulfillment costs of $359; and (vi) amortization of our Platform of $222.
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Operating Expenses
Selling and Marketing
The following table sets forth selling and marketing expenses from continuing operations by category:
| Three Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Payroll and employee benefits of selling and marketing account management support teams | $ | 4,957 | $ | 4,026 | $ | 931 | 23.1 | % | ||||||||
| Stock-based compensation | 407 | 810 | (403 | ) | -49.8 | % | ||||||||||
| Professional marketing services | 1,221 | 500 | 721 | 144.2 | % | |||||||||||
| Circulation costs | 1,461 | 1,466 | (5 | ) | -0.3 | % | ||||||||||
| Subscription acquisition costs | 9,819 | 9,778 | 41 | 0.4 | % | |||||||||||
| Advertising costs | 880 | 1,280 | (400 | ) | -31.3 | % | ||||||||||
| Other selling and marketing expenses | 526 | 564 | (38 | ) | -6.7 | % | ||||||||||
| Total selling and marketing | $ | 19,271 | $ | 18,424 | $ | 847 | 4.6 | % | ||||||||
For the three months ended September 30, 2023, we incurred selling and marketing costs of $19,271, as compared to $18,424 for the three months ended September 30, 2022. The increase in selling and marketing costs of $847 or 4.6% is primarily related to increases in (i) payroll and employee benefits costs of $931 related to the higher mix of premium and direct advertising, (ii) professional fees of $721; partially offset by decreases in (iii) stock based compensation of $403 and (iv) advertising costs of $400.
General and Administrative
The following table sets forth general and administrative expenses by category:
| Three Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Payroll and related expenses for executive and administrative personnel | $ | 3,370 | $ | 4,424 | $ | (1,054 | ) | -23.8 | % | |||||||
| Stock-based compensation | 2,750 | 4,729 | (1,979 | ) | -41.8 | % | ||||||||||
| Professional services, including accounting, legal and insurance | 3,216 | 3,062 | 154 | 5.0 | % | |||||||||||
| Other general and administrative expenses | 1,692 | 1,278 | 414 | 32.4 | % | |||||||||||
| Total general and administrative | $ | 11,028 | $ | 13,493 | $ | (2,465 | ) | -18.3 | % | |||||||
For the three months ended September 30, 2023, we incurred general and administrative costs of $11,028 as compared to $13,493 for the three months ended September 30, 2022. The $2,465 or 18.3% decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $1,979 or 41.8% and payroll and related expenses of $1,054 or 23.8%.
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Other Expenses
The following table sets forth other expenses:
| Three Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Change in fair value of contingent consideration | $ | (60 | ) | $ | - | $ | (60 | ) | 100.0 | % | ||||||
| Interest expense, net | (4,042 | ) | (3,184 | ) | (858 | ) | 26.9 | % | ||||||||
| Liquidated damages | (151 | ) | (339 | ) | 188 | -55.5 | % | |||||||||
| Total other expenses | $ | (4,253 | ) | $ | (3,523 | ) | $ | (730 | ) | 20.7 | % | |||||
Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $60 for the three months ended September 30, 2023 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 $4,042 and $3,184 for the three months ended September 30, 2023 and 2022, respectively, as a result of our debt increase.
Liquidated Damages. We recorded $151 of accrued interest on our liquidated damages payable for the three months ended September 30, 2023 primarily from the issuance in past years 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 $339 of accrued interest on our liquidated damages payable for the three months ended September 30, 2022 primarily from issuance of the same securities as outlined above.
Nine Months Ended September 30, 2023 and 2022
| Nine Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 173,604 | $ | 159,272 | $ | 14,332 | 9.0 | % | ||||||||
| Cost of revenue | 102,422 | 98,790 | 3,632 | 3.7 | % | |||||||||||
| Gross profit | 71,182 | 60,482 | 10,700 | 17.7 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 56,743 | 53,123 | 3,620 | 6.8 | % | |||||||||||
| General and administrative | 35,803 | 41,841 | (6,038 | ) | -14.4 | % | ||||||||||
| Depreciation and amortization | 14,227 | 13,124 | 1,103 | 8.4 | % | |||||||||||
| Loss on disposition of assets | 119 | 257 | (138 | ) | -53.7 | % | ||||||||||
| Total operating expenses | 106,892 | 108,345 | (1,453 | ) | -1.3 | % | ||||||||||
| Loss from operations | (35,710 | ) | (47,863 | ) | 12,153 | -25.4 | % | |||||||||
| Total other expenses | (14,149 | ) | (9,149 | ) | (5,000 | ) | 54.7 | % | ||||||||
| Loss before income taxes | (49,859 | ) | (57,012 | ) | 7,153 | -12.5 | % | |||||||||
| Income tax provision | (168 | ) | 1,180 | (1,348 | ) | -114.2 | % | |||||||||
| Net loss from continuing operations | (50,027 | ) | (55,832 | ) | 5,805 | -10.4 | % | |||||||||
| Net loss from discontinued operations, net of tax | - | (1,329 | ) | 1,329 | -100.0 | % | ||||||||||
| Net loss | $ | (50,027 | ) | $ | (57,161 | ) | $ | 7,134 | -12.5 | % | ||||||
For the nine months ended September 30, 2023, the loss from operations improved $12,153 to $35,710 as compared to $47,863 during the nine months ended September 30, 2022 due to a $14,332 increase in revenue, with an $1,453 decrease in operating expenses. For the nine months ended September 30, 2023, the net loss was $50,027, a decrease of $7,134 as compared to $57,161 for the nine months ended September 30, 2022 as the improvement in the loss from operations was partially offset by an increase in interest expense of $4,715 included in other expenses.
| 41 |
Revenue
The following table sets forth revenue, cost of revenue, and gross profit:
| Nine Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | $ | 173,604 | $ | 159,272 | $ | 14,332 | 9.0 | % | ||||||||
| Cost of revenue | 102,422 | 98,790 | 3,632 | 3.7 | % | |||||||||||
| Gross profit | $ | 71,182 | $ | 60,482 | $ | 10,700 | 17.7 | % | ||||||||
For the nine months ended September 30, 2023 we had gross profit of $71,182, as compared to $60,482 for the nine months ended September 30, 2022, an increase of $10,700. Gross profit percentage for the nine months ended September 30, 2023 was 41.0%, as compared to 38.0% for the nine months ended September 30, 2022.
The improvement in gross profit percentage was driven by a higher mix of premium digital advertising, as reflected in the 23% increase in RPM, as well as an more than doubling of other digital revenue, largely e-commerce. In addition, stock based compensation included in cost of revenue declined by $2,552.
The following table sets forth revenue by category:
| Nine Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Digital revenue: | ||||||||||||||||
| Digital advertising | $ | 89,458 | $ | 74,849 | $ | 14,609 | 19.5 | % | ||||||||
| Digital subscriptions | 10,430 | 16,580 | (6,150 | ) | -37.1 | % | ||||||||||
| Licensing and syndication revenue | 13,523 | 11,820 | 1,703 | 14.4 | % | |||||||||||
| Other digital revenue | 3,486 | 1,374 | 2,112 | 153.7 | % | |||||||||||
| Total digital revenue | 116,897 | 104,623 | 12,274 | 11.7 | % | |||||||||||
| Print revenue: | ||||||||||||||||
| Print advertising | 7,677 | 7,786 | (109 | ) | -1.4 | % | ||||||||||
| Print subscriptions | 49,030 | 46,863 | 2,167 | 4.6 | % | |||||||||||
| Total print revenue | 56,707 | 54,649 | 2,058 | 3.8 | % | |||||||||||
| Total revenue | $ | 173,604 | $ | 159,272 | $ | 14,332 | 9.0 | % | ||||||||
For the nine months ended September 30, 2023, total revenue increased $14,332 to $173,604 from $159,272 for the nine months ended September 30, 2022. The primary sources of revenue for the nine months ended September 30, 2023 were as follows: (i) digital advertising of $89,458, (ii) digital subscriptions of $10,430, (iii) licensing and syndication revenue and other digital revenue of $17,009, (iv) print advertising of $7,677 and (v) print subscriptions of $49,030.
The primary driver of the increase in our total revenue is derived from digital advertising revenue, licensing and syndication, and other digital revenue which increased by $14,609, $1,703, and $2,112, respectively, for the nine months ended September 30, 2023 as compared to the prior year period. This was offset by a $6,150 decrease in digital subscriptions, resulting in a $12,274 increase in total digital revenue for the nine months ended September 30, 2023 as compared to the prior year period. In addition, total print revenue increased by $2,058 as print advertising decreased by $109 and print subscriptions grew by $2,167.
| 42 |
Cost of Revenue
The following table sets forth cost of revenue by category:
| Nine Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Publisher Partner revenue share payments | $ | 17,360 | $ | 14,242 | $ | 3,118 | 21.9 | % | ||||||||
| Technology, Platform and software licensing fees | 15,510 | 12,293 | 3,217 | 26.2 | % | |||||||||||
| Royalty fees | 11,250 | 11,250 | - | 0.0 | % | |||||||||||
| Content and editorial expenses | 34,626 | 35,034 | (408 | ) | -1.2 | % | ||||||||||
| Printing, distribution and fulfillment costs | 11,652 | 11,000 | 652 | 5.9 | % | |||||||||||
| Amortization of developed technology and platform development | 6,883 | 7,099 | (216 | ) | -3.0 | % | ||||||||||
| Stock-based compensation | 5,050 | 7,602 | (2,552 | ) | -33.6 | % | ||||||||||
| Other cost of revenue | 91 | 270 | (179 | ) | -66.3 | % | ||||||||||
| Total cost of revenue | $ | 102,422 | $ | 98,790 | $ | 3,632 | 3.7 | % | ||||||||
For the nine months ended September 30, 2023, we recognized cost of revenue of $102,422, as compared to $98,790 for the nine months ended September 30, 2022, representing an increase of $3,632 or 3.7% as compared to the 9.0% increase in total revenue. Cost of revenue for the first nine months of 2023 was impacted by increases in (i) technology, Platform and software licensing fees of $3,217, (ii) Publisher Partner revenue share payments of $3,118 and (iii) printing, distribution and fulfillment costs of $652; partially offset by decreases in (iv) stock-based compensation of $2,552, and (v) content and editorial expenses of $408.
Operating Expenses
Selling and Marketing
The following table sets forth selling and marketing expenses from continuing operations by category:
| Nine Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Payroll and employee benefits of selling and marketing account management support teams | $ | 14,118 | $ | 11,175 | $ | 2,943 | 26.3 | % | ||||||||
| Stock-based compensation | 1,275 | 2,149 | (874 | ) | -40.7 | % | ||||||||||
| Professional marketing services | 3,518 | 2,275 | 1,243 | 54.6 | % | |||||||||||
| Circulation costs | 4,070 | 3,158 | 912 | 28.9 | % | |||||||||||
| Subscription acquisition costs | 29,166 | 28,236 | 930 | 3.3 | % | |||||||||||
| Advertising costs | 2,935 | 4,205 | (1,270 | ) | -30.2 | % | ||||||||||
| Other selling and marketing expenses | 1,661 | 1,925 | (264 | ) | -13.7 | % | ||||||||||
| Total selling and marketing | $ | 56,743 | $ | 53,123 | $ | 3,620 | 6.8 | % | ||||||||
For the nine months ended September 30, 2023, we incurred selling and marketing costs of $56,743, as compared to $53,123 for the nine months ended September 30, 2022. The increase in selling and marketing costs of $3,620 is primarily related to increases in (i) payroll and employee benefits of $2,943, (ii) professional marketing services costs of $1,243 , (iii) circulation costs of $912, and (iv) subscription acquisition costs of $930; partially offset by decreases in (v) advertising costs of $1,270 and (vi) stock-based compensation costs of $874. The increase in circulation costs reflects the addition of the Athlon Outdoor properties.
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General and Administrative
The following table sets forth general and administrative expenses by category:
| Nine Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Payroll and related expenses for executive and administrative personnel | $ | 11,037 | $ | 12,704 | $ | (1,667 | ) | -13.1 | % | |||||||
| Stock-based compensation | 10,653 | 15,026 | (4,373 | ) | -29.1 | % | ||||||||||
| Professional services, including accounting, legal and insurance | 9,003 | 9,732 | (729 | ) | -7.5 | % | ||||||||||
| Other general and administrative expenses | 5,110 | 4,379 | 731 | 16.7 | % | |||||||||||
| Total general and administrative | $ | 35,803 | $ | 41,841 | $ | (6,038 | ) | -14.4 | % | |||||||
For the nine months ended September 30, 2023, we incurred general and administrative costs of $35,803 as compared to $41,841 for the nine months ended September 30, 2022. The $6,038 or 14.4% decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $4,373, payroll and related expenses of $1,667 and professional services of $729.
Other Expenses
The following table sets forth other expenses:
| Nine Months Ended September 30, | 2023 versus 2022 | |||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Change in fair value of contingent consideration | $ | (469 | ) | $ | - | $ | (469 | ) | 100.0 | % | ||||||
| Interest expense, net | (13,225 | ) | (8,510 | ) | (4,715 | ) | 55.4 | % | ||||||||
| Liquidated damages | (455 | ) | (639 | ) | 184 | -28.8 | % | |||||||||
| Total other expenses | $ | (14,149 | ) | $ | (9,149 | ) | $ | (5,000 | ) | 54.7 | % | |||||
Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $469 for the nine months ended September 30, 2023 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 $13,225 and $8,510 for the nine months ended September 30, 2023 and 2022, respectively, as a result of our debt increase.
Liquidated Damages. We recorded $455 of accrued interest on our liquidated damages payable for the nine months ended September 30, 2023 primarily from the issuance in past years 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 $639 of accrued interest on our liquidated damages payable for the nine months ended September 30, 2022 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) provision for or benefit from income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in fair value of contingent consideration; (vi) liquidated damages, (vii) loss on impairment of assets, (viii) employee retention credit, (ix) employee restructuring payments, and (x) professional and vendor fees.
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 deferred income taxes, which is a noncash expense; | |
| ● | does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements; | |
| ● | does not reflect stock-based compensation and, therefore, does not include all of our compensation costs; | |
| ● | does not reflect the change in fair value of contingent consideration, which is a noncash expense; | |
| ● | 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; | |
| ● | does not reflect payments related to employee restructuring changes for our former Chief Executive Officer; and | |
| ● | does not reflect the professional and vendor fees incurred by us for services provided by consultants, accountants, lawyers, and other vendors, which services were related to certain types of events that are not reflective of our business operations. |
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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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss | $ | (11,166 | ) | $ | (16,505 | ) | $ | (50,027 | ) | $ | (57,161 | ) | ||||
| Net loss from discontinued operations | - | 646 | - | 1,329 | ||||||||||||
| Net loss from continued operations | (11,166 | ) | (15,859 | ) | (50,027 | ) | (55,832 | ) | ||||||||
| Add (deduct): | ||||||||||||||||
| Interest expense, net (1) | 4,042 | 3,184 | 13,225 | 8,510 | ||||||||||||
| Income tax provision (benefit) | 61 | 547 | 168 | (1,180 | ) | |||||||||||
| Depreciation and amortization (2) | 6,917 | 6,891 | 21,110 | 20,223 | ||||||||||||
| Stock-based compensation (3) | 4,362 | 8,311 | 16,978 | 24,777 | ||||||||||||
| Change in fair value of contingent consideration (4) | 60 | - | 469 | - | ||||||||||||
| Liquidated damages (5) | 151 | 339 | 455 | 639 | ||||||||||||
| Loss on impairment of assets (6) | - | - | 119 | 257 | ||||||||||||
| Employee retention credit (7) | - | - | (6,868 | ) | - | |||||||||||
| Employee restructuring payments (8) | 735 | - | 4,997 | 679 | ||||||||||||
| Professional and vendor fees (9) | 1,194 | - | 1,194 | - | ||||||||||||
| Adjusted EBITDA | $ | 6,356 | $ | 3,413 | $ | 1,820 | $ | (1,927 | ) | |||||||
| (1) | Interest expense is related to our capital structure and varies over time due to a variety of financing transactions. Interest expense includes $533 and $280 for amortization of debt discounts for the three months ended September 30, 2023 and 2022, respectively, as presented in our condensed consolidated statements of cash flows, which is a noncash item. Interest expense includes $2,178 and $1,215 for amortization of debt discounts for the nine months ended September 30, 2023 and 2022, respectively. Investors should note that interest expense will recur in future periods. | |
| (2) | Depreciation and amortization is related to our developed technology and Platform included within cost of revenues of $2,191 and $2,413, for the three months ended September 30, 2023 and 2022, respectively, and depreciation and amortization included within operating expenses of $4,726 and $4,478 for the three months ended September 30, 2023 and 2022, respectively. Depreciation and amortization is related to our developed technology and Platform included within cost of revenues of $6,883 and $7,099, for the nine months ended September 30, 2023 and 2022, respectively, and depreciation and amortization included within operating expenses of $14,227 and $13,124 for the nine months ended September 30, 2023 and 2022, 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. | |
| (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 and nine months ended September 30, 2023 and 2022, respectively. | |
| (9) | Represents professional and vendor fees that are nonrecurring in connection with the Business Combination resulting in a change of control, including fees incurred by consultants, accountants, lawyers, and other vendors. |
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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, 2022 that was filed with the SEC on March 31, 2023.
Recent Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies, of the Notes to the 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.
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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. In light of the material weaknesses described in Part II, Item 9A to our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 that continue and have not been remediated as of the date of filing of this Quarterly Report, we have performed additional analyses, reconciliations, and other post-closing procedures to determine whether our condensed consolidated financial statements are prepared in accordance with GAAP. 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 September 30, 2023 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
In connection with our continued monitoring and maintenance of our control procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act of 2002, we continue to review, test, and improve the effectiveness of our internal controls. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2023 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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to claims and litigation arising in the ordinary course of business. We are not currently subject to any pending or threatened legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.
ITEM 1A. RISK FACTORS
There are numerous factors that affect our business and operating results, many of which are beyond our control. The following risk factors supplement and, to the extent inconsistent, supersede, 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, 2022 filed with the SEC on March 31, 2023 (the “2022 10-K”). The risk factors included herein as well as the risk factors described in the 2022 Form 10-K 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.
Risks Related to the Pending Transaction with Bridge Media Networks and Simplify.
The Transactions may not be completed on the terms or timeline currently contemplated, or at all, and failure to complete the Transactions may result in material adverse consequences to our business and operations.
The Transactions are subject to several closing conditions, including the adoption of the Transaction Agreement and approval of the Transactions by our stockholders, the effectiveness of a registration statement relating to the registration of the issuance of the New Arena common stock in the Transactions, the approval of the listing of the New Arena common stock on the NYSE American and the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). If any one of these conditions is not satisfied or waived, the Transactions may not be completed. There is no assurance that the Transactions will be completed on the terms or timeline currently contemplated, or at all.
Under the Transaction Agreement, the parties’ obligations to complete the Transactions are conditioned on the expiration or termination of the applicable waiting period under the HSR Act.
If our stockholders do not adopt the Transaction Agreement and approve the Transactions or if the Transactions are not completed for any other reason, we would be subject to a number of risks, including the following:
| ● | our stockholders would not become stockholders of New Arena and therefore would not realize the anticipated benefits of the Transactions, including any anticipated synergies from combining New Arena and Bridge Media; | |
| ● | the failure to consummate the Transactions by December 31, 2023 would result in an event of default under certain of our debt facilities; and | |
| ● | the trading price of our common stock may experience increased volatility to the extent that the current market prices reflect a market assumption that the Transactions will be completed. |
The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations or the trading price of our common stock. We are also exposed to general competitive pressures and risks, which may be increased if the Transactions are not completed.
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Each of Arena and Bridge Media will be subject to business uncertainties and contractual restrictions while the Transactions are pending that could adversely affect each of them.
Uncertainty about the effect of the Transactions on employees, customers and suppliers may have an adverse effect on either or both of us and Bridge Media, regardless of whether the Transactions are eventually completed, and, consequently, on New Arena. These uncertainties may impair our and Bridge Media’s ability to attract, retain and motivate key personnel until the Transactions are completed, or the Transaction Agreement is terminated, and for a period of time thereafter, and could cause customers, suppliers and others that deal with us or Bridge Media to seek to change or discontinue existing business relationships with us or Bridge Media.
Employee retention and recruitment may be particularly challenging for us and Bridge Media during the pendency of the Transactions, as employees and prospective employees may experience uncertainty about their future roles with New Arena. For each of us and Bridge Media, the departure of existing key employees or the failure of potential key employees to accept employment with New Arena, despite Arena’s and Bridge Media’s retention and recruiting efforts, could have a material adverse impact on our and New Arena’s business, financial condition and operating results, regardless of whether the Transactions are eventually completed.
The pursuit of the Transactions and the preparation for the integration of Arena and Bridge Media have placed, and will continue to place, a significant burden on the management and internal resources of Arena and Bridge Media. There is a significant degree of difficulty and management distraction inherent in the process of closing the Transactions and integrating Arena and Bridge Media, which could cause an interruption of, or loss of momentum in, the activities of each of the existing businesses, regardless of whether the Transactions are eventually completed. Before and immediately following the closing, the management teams of Arena and Bridge Media will be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage their respective existing businesses, service existing customers, attract new customers and develop new products, services or strategies. One potential consequence of such distractions could be the failure of management to realize other opportunities that could be beneficial to Arena or Bridge Media, respectively. If Arena’s or Bridge Media’s senior management is not able to effectively manage the process leading up to and immediately following the closing, or if any significant business activities are interrupted as a result of the integration process, the business of Arena or Bridge Media could suffer.
In addition, the Transaction Agreement restricts Arena and Simplify (with respect to Bridge Media) from taking specified actions without the consent of the other until the Transactions are consummated or the Transaction Agreement is terminated. These restrictions may prevent Arena and Simplify (with respect to Bridge Media) from pursuing otherwise attractive business opportunities and making other changes to their businesses before completion of the Transactions or termination of the Transaction Agreement.
Further, we and our directors could become subject to lawsuits relating to the Transactions that may be filed. While we intend to defend against any such actions vigorously, the costs of the defense of such lawsuits and other effects of such litigation could have an adverse effect on our business, financial condition and operating results.
The integration of Arena and Bridge Media following the closing will present challenges that may not result in the anticipated benefits of the Transactions.
The Transactions involve the combination of businesses that currently operate as independent businesses. New Arena will be required to devote management attention and resources to integrating its business practices and operations, and prior to the Transactions, management attention and resources will be required to plan for such integration. Potential difficulties New Arena may encounter in the integration process include the following:
| ● | the inability to successfully integrate the businesses, including operations, technologies, products and services, in a manner that permits New Arena to achieve the anticipated benefits from the Transactions, which could result in the anticipated benefits of the Transactions not being realized partly or wholly in the time frame currently anticipated or at all; | |
| ● | lost sales and customers as a result of certain customers of any of the businesses deciding not to do business with New Arena; | |
| ● | the necessity of coordinating geographically separated organizations, systems and facilities; | |
| ● | potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Transactions; | |
| ● | integrating personnel with diverse business backgrounds and business cultures, while maintaining focus on providing consistent, high-quality products and services; | |
| ● | consolidating and rationalizing information technology platforms and administrative infrastructures as well as accounting systems and related financial reporting activities and difficulty implementing effective internal controls over financial reporting and disclosure controls and procedures in particular; and | |
| ● | preserving important relationships of Arena and Bridge Media and resolving potential conflicts that may arise. |
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If New Arena experiences difficulties with the integration process, the anticipated benefits of the Transactions may not be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on the business, results of operations, financial condition or prospects of New Arena during this transition period and for an undetermined period after completion of the Transactions.
The Transaction Agreement contains provisions that may discourage other companies from trying to acquire Arena.
The Transaction Agreement contains provisions that may discourage third parties from submitting business combination proposals to Arena that might result in greater value to Arena stockholders than the Transactions. The Transaction Agreement generally prohibits Arena from soliciting any competing acquisition proposal.
Following the completion of the Transactions, New Arena will be controlled by Simplify. The interests of Simplify may differ from the interests of other stockholders of New Arena.
Immediately following the closing, Simplify will beneficially own 58.02% of the outstanding shares of New Arena common stock and 5-Hour will own 6.98% of the outstanding shares of New Arena common stock, in each case on a fully diluted basis. 5-Hour is an affiliate of Simplify. Such amounts exclude the ownership of shares of New Arena common stock that may be issued from time to time pursuant to the additional equity issuances to be provided to Arena by Simplify or an affiliate thereof.
Through its ownership of at least a majority of the shares of New Arena common stock and the provisions set forth in the certificate of incorporation of New Arena, the bylaw of New Arena and the nominating agreement to be entered into in connection with the Transactions, Simplify will have the ability to designate and elect a majority of the directors of the New Arena board of directors. New Arena will avail itself of available “Controlled Company” exemptions to the corporate governance listing standards of the NYSE American that would otherwise require New Arena to have (i) a majority of the board of directors consist of independent directors, (ii) a nominating/corporate governance committee that is composed solely of independent directors and (iii) a compensation committee that is composed solely of independent directors.
For as long as Simplify beneficially owns a majority of the outstanding shares of Common Stock, Simplify will also have control over all other matters submitted to stockholders for approval, including changes in capital structure, transactions requiring stockholder approval under Delaware law and corporate governance. Simplify and its subsidiaries may have different interests than other holders of New Arena common stock and may make decisions adverse to your interests.
Among other things, Simplify’s control could delay, defer, or prevent a sale of New Arena that New Arena’s other stockholders support, or, conversely, this control could result in the consummation of such a transaction that other stockholders do not support. This concentrated control could discourage a potential investor from seeking to acquire New Arena common stock and, as a result, might impact the market price of New Arena common stock.
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Arena and New Arena will incur transaction-related costs in connection with the Transactions and the integration of the businesses.
Arena has incurred transaction-related costs in connection with the Transactions and both Arena and New Arena will incur costs in connection with the integration of Arena’s and Bridge Media’s businesses. There are many systems that must be integrated, including information management, purchasing, accounting and finance, sales, billing, payroll and benefits, fixed asset and lease administration systems and regulatory compliance. Arena and Bridge Media are in the early stages of assessing the magnitude of these costs and, therefore, are not able to provide estimates of these costs. Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. These expenses could, particularly in the near term, reduce the anticipated benefits that New Arena expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost synergies related to the integration of the businesses following the completion of the Transactions, and accordingly, any net synergies may not be achieved in the near term or at all. These integration expenses may result in New Arena taking significant charges against earnings following the completion of the Transactions. Some of these costs and expenses will be incurred even if the Transactions are not consummated.
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:
* Filed herewith.
| + | Indicates a management or compensatory plan or arrangement in which directors or executive officers are eligible to participate. |
| ^ | Registrant has omitted portions of the exhibit as permitted under Item 601(b)(10) of Regulations S-K. |
# 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.
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| The Arena Group Holdings, Inc. | ||
| Date: November 14, 2023 | By: | /s/ ROSS LEVINSOHN |
| Ross Levinsohn | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ DOUGLAS B. SMITH |
| Douglas B. Smith | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
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Exhibit 4.1
Exhibit 10.1
Exhibit 10.2
VOTING AND SUPPORT AGREEMENT
This VOTING AND SUPPORT AGREEMENT (this “Agreement”), dated as of August 14, 2023, is entered into by and between The Arena Group Holdings, Inc., a Delaware corporation (the “Company”) and [●], a [●] (“Stockholder”). All terms used but not otherwise defined in this Agreement shall have the respective meanings ascribed to such terms in the Binding LOI (as defined below).
WHEREAS, concurrently with the execution hereof, Company, Simplify Inventions, LLC (“Simplify”) are entering into a Binding Letter of Intent and Term Sheet, dated as of the date hereof (a copy of which is attached hereto as Attachment 1, as it may be amended from time to time, the “Binding LOI”), which provides, among other things, for the issuance and sale by the Company, and the purchase by the Simplify of (i) shares of Common Stock for an aggregate purchase price of $25.0 million and (ii) shares of Series L Preferred Stock for an aggregate purchase price of $25.0 million upon the terms and subject to the conditions set forth in the Binding LOI (the shares referred to in (i) and (ii) above being referred to herein as the “Company Securities”);
WHEREAS, the transactions contemplated by the Binding LOI (the “Transactions”) will require the approval of the Company’s shareholders (the “Stockholder Approval”) pursuant to the rules of the NYSE American which require shareholder approval for (i) the sale or issuance of common stock equal to 20% or more of the presently outstanding common stock of the Company for less than the greater of book or market value and (ii) issuances of common stock of the Company that will result in a change of control of the Company (the “Company Change in Control”);
WHEREAS, as of the date hereof, Stockholder is the record and beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of the shares of Common Stock set forth on the signature page hereto (such shares, the “Current Owned Common Stock” and together with any shares of Common Stock or other voting equity securities of the Company that are hereafter issued to or otherwise directly or indirectly acquired or beneficially owned by Stockholder prior to the valid termination of this Agreement, being referred to herein as the “Subject Shares”); and
WHEREAS, as a condition to the willingness of Simplify to enter into the Binding LOI, and as an inducement and in consideration for the SIC Entities to enter into the Binding LOI, Stockholder has agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. Agreement to Vote and Approve. Stockholder agrees that it shall, and shall cause any other holder of record of any Subject Shares to, at any meeting of the stockholders of the Company (whether annual or special and whether or not an adjourned or postponed meeting) or in any other circumstances upon which a vote, consent or other approval of the stockholders of the Company is sought (a) when a meeting is held, appear at such meeting or otherwise cause the Subject Shares to be counted as present for the purpose of establishing a quorum; and (b) vote (or cause to be voted, including by proxy or by delivering a written consent) the Subject Shares (i) in favor of (A) the Transactions, including, but not limited to the issuance of the Company Securities (the “Stock Issuance Proposal”) and the resultant Company Change in Control (the “Change in Control Proposal”), and (B) any proposal to adjourn or postpone any such meeting of stockholders of the Company to a later date if there are not sufficient votes to adopt both the Stock Issuance Proposal and the Change in Control Proposal; and (ii) against any other proposal, action or agreement for an acquisition of, or change in control transaction involving, the Company. Stockholder agrees to waive, and to not exercise, any appraisal rights that may be available under Delaware law with respect to the Transactions. Any attempt by Stockholder to vote, consent or express dissent with respect to (or otherwise to utilize the voting power of), the Subject Shares in contravention of this Section 1 shall be null and void ab initio. Except as set forth in this Section 1, Stockholder shall not be restricted from voting in favor of, against or abstaining with respect to any matter presented to the stockholders of the Company.
2. No Transfer. Except in accordance with the terms of this Agreement, the Binding LOI and the definitive agreement to be entered into between Simplify and the Company in furtherance of the Transactions (the “Stock Purchase Agreement”), Stockholder hereby covenants and agrees that during the term of this Agreement, Stockholder will not (a) sell, transfer, pledge, encumber, assign, tender, exchange, hedge, short sell or otherwise dispose of (“Transfer”) any of the Subject Shares, (b) enter into any legally binding contract, option or other arrangement or undertaking providing for the Transfer of any Subject Shares, (c) deposit any of the Subject Shares into a voting trust or enter into a voting agreement or arrangement with respect to the Subject Shares or grant any proxy or power of attorney with respect thereto that is inconsistent with this Agreement or (d) knowingly take any action that would make any representation or warranty of Stockholder contained herein untrue or incorrect in any material respect or have the effect of materially preventing or disabling Stockholder from performing its obligations under this Agreement. Any action taken in violation of the immediately preceding sentence shall be null and void ab initio. If any involuntary Transfer of any of the Subject Shares shall occur (including, but not limited to, a sale by Stockholder’s trustee in any bankruptcy, or a sale to a purchaser at any creditor’s or court sale), the transferee (which term, as used herein, shall include any and all transferees and subsequent transferees of the initial transferee) shall, subject to applicable Law, take and hold the Subject Shares subject to all of the restrictions, obligations, liabilities and rights under this Agreement, which shall continue in full force and effect until valid termination of this Agreement in accordance with its terms.
3. Effectiveness of Agreement; Termination.
(a) This Agreement shall not be effective unless and until (i) the Binding LOI is executed and delivered by all parties thereto and (ii) this Agreement is executed by all parties hereto.
(b) This Agreement shall terminate automatically, without any notice or other action by any person, entity or organization upon the first to occur of (i) the valid termination or expiration of the Binding LOI (or, if executed by the Company prior to such termination, the valid termination or expiration of the Stock Purchase Agreement) in accordance with their respective terms without the consummation of the transactions contemplated thereby, (ii) the consummation of the Transactions pursuant to the Letter of Intent or the Stock Purchase Agreement, (iii) the mutual written consent of the Company and Stockholder and (iv) fourteen days following a Change in Board Recommendation. Upon termination of this Agreement, no party shall have any further obligations or liabilities under this Agreement; provided, however, that nothing set forth in this Section 3 shall relieve any party from liability for fraud or any breach of this Agreement prior to termination hereof; and provided, further, that the provisions of this Section 3 and Sections 5 through 14 hereof, inclusive, shall survive any termination of this Agreement.
(c) As used herein: a “Change in Board Recommendation” means, prior to obtaining the Stockholder Approval and upon receipt of a Superior Proposal, the withdrawal, change, amendment, modification or qualification of the recommendation of the Company’s Board of Directors (the “Board”) to approve the Transactions and adopt the Stock Purchase Agreement pursuant to a determination by the Board in good faith that the failure to so withdraw, change, amend, modify or qualify such recommendation would be inconsistent with the fiduciary duties of the Board, (ii) a “Superior Proposal” means any bona fide written Acquisition Proposal that the Board determines in its good faith judgment (after consultation with the Company’s financial advisors and outside legal counsel), and considering such factors as the Board considers to be relevant in good faith, to be (A) more favorable to the shareholders of the Company from a financial point of view than the Transactions and (B) reasonably capable of being completed in accordance with its terms, in each case, taking into account all financial, regulatory, legal and other aspects of the proposal, (iii) an “Acquisition Proposal” means any proposal or offer from any person or group (other than IC or its affiliates) relating to, in a single transaction or series of related transactions, (A) any (1) direct or indirect acquisition the assets or business of the Company (including securities, assets or business of the subsidiaries of the Company) equal to more than 50% of the Company’s consolidated assets or to which more than 50% of the Company’s revenues or earnings on a consolidated basis are attributable, (2) direct or indirect acquisition or issuance of more than 50% of any class of voting equity securities of the Company, (B) any tender offer or exchange offer, as defined pursuant to the Exchange Act, that if consummated would result, directly or indirectly, in any person or group (or the shareholders of any person or group) beneficially owning 50% or more of the outstanding voting power of the Company or (C) any merger, consolidation, business combination, share exchange, recapitalization or other similar transaction involving the Company that would result in any person or group (or the shareholders of any person or group) beneficially owning, directly or indirectly, more than 50% of the outstanding voting power of the Company or 50% of the voting power of the surviving entity in a merger involving the Company or the resulting direct or indirect parent of the Company or such surviving entity (or any securities convertible into, or exchangeable for, securities representing such voting power) , (iv) the “Exchange Act” means the Securities Exchange Act of 1934 and (v) “group” has the meaning set forth in Rule 13d-3 of the Exchange Act.
4. Representations and Warranties. Stockholder represents and warrants to the Company that:
(a) Existence, Power; Binding Agreement. If Stockholder is an entity, Stockholder is validly existing and in good standing under the laws of the jurisdiction of its formation. Stockholder has the requisite power and authority (if Stockholder is an entity) or legal capacity (if Stockholder is a natural person) to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Stockholder and, assuming due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of Stockholder, enforceable against Stockholder in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar Laws affecting creditors’ rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law).
(b) No Conflicts. Except for filings required under, and compliance with other applicable requirements of, the Exchange Act and the rules and regulations of The New York Stock Exchange, (i) no consent, approval, order, authorization, release or waiver of, or registration, declaration or filing with, any governmental entity or other person is necessary on the part of Stockholder for the execution and delivery of this Agreement by Stockholder and the consummation by Stockholder of the transactions contemplated hereby and (ii) neither the execution and delivery of this Agreement by Stockholder nor the consummation by Stockholder of the transactions contemplated hereby or compliance by Stockholder with any of the provisions hereof shall (A) if Stockholder is an entity, conflict with or violate any provision of its certificate of formation or operating agreement (or similar organizational documents), (B) result in any breach or violation of, or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien on any property or asset of Stockholder pursuant to any contract or agreement to which it is a party or by which Stockholder or any of its properties or assets are bound or affected or (C) violate any law, judgment, order or decree applicable to Stockholder or any of its properties or assets, except in the case of (B) or (C) for violations, breaches or defaults that would not in the aggregate materially impair the ability of Stockholder to perform its obligations hereunder.
(c) Ownership. As of the date hereof, Stockholder is the record and beneficial owner of, and has good and valid title to, the Current Owned Common Stock. As of the date hereof, Stockholder has full voting power, full power of disposition, full power to issue instructions with respect to the matters set forth herein and full power to agree to all of the matters set forth in this Agreement, in each case, with respect to all of the Current Owned Common Stock. Except as disclosed in the Company’s most recent proxy statement filed with the U.S. Securities and Exchange Commission, as of the date hereof, Stockholder does not own any options, equity awards, warrants, or equity interests or shares of the Company other than the Current Owned Common Stock.
(d) No Inconsistent Agreements. Stockholder (i) has not entered into any voting agreement or voting trust with respect to the Subject Shares, (ii) has not granted a proxy or power of attorney with respect to the Subject Shares that is inconsistent with its obligations pursuant to this Agreement and (iii) has not entered into any agreement or undertaking that is otherwise inconsistent with its obligations pursuant to this Agreement.
5. Notices. All notices and other communications hereunder must be in writing and will be deemed to have been duly delivered and received hereunder (a) four Business Days after being sent by registered or certified mail, return receipt requested, postage prepaid; (b) one Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable nationwide overnight courier service; or (c) immediately upon delivery by hand (with a written or electronic confirmation of delivery) or by email transmission, in each case to the intended recipient as set forth on the signature pages to this Agreement. Any notice received at the addressee’s location, or by email at the addressee’s email address, on any Business Day after 5:00 p.m., addressee’s local time, or on any day that is not a Business Day will be deemed to have been received at 9:00 a.m., addressee’s local time, on the next Business Day. From time to time, any party may provide notice to the other parties of a change in its address, email address, or fax number through a notice given in accordance with this Section 5, except that that notice of any change to the address, email address or any of the other details specified in or pursuant to this Section 5 will not be deemed to have been received until, and will be deemed to have been received upon, the later of the date (A) specified in such notice; or (B) that is five Business Days after such notice would otherwise be deemed to have been received pursuant to this Section 5.
6. Fiduciary Duties. Notwithstanding anything in this Agreement to the contrary, (a) Stockholder makes no agreement or understanding herein in any capacity other than in such Stockholder’s capacity as a record holder and beneficial owner of the Subject Shares and (b) nothing herein will be construed to limit or affect any action or inaction by such Stockholder (or its representative) in such person’s capacity as a member of the board of directors of the Company or as an officer, employee or fiduciary of the Company, in each case, acting in such person’s capacity as a director, officer, employee or fiduciary of the Company.
7. Amendments and Waivers. Any provision of this Agreement may be amended or waived if such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective. The waiver by any party of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
8. Entire Agreement; Assignment. This Agreement and the other documents and certificates delivered pursuant hereto, constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement. This Agreement shall not be assigned by any party (including by operation of law, by merger or otherwise) without the prior written consent of (a) the Company, in the case of an assignment by Stockholder and (b) Stockholder, in the case of an assignment by the Company; provided that the Company may assign any of its rights and obligations to any direct or indirect Subsidiary of the Company, but no such assignment shall relieve the Company of its obligations hereunder.
9. Rules of Construction. The parties to this Agreement have been represented by counsel during the negotiation and execution of this Agreement and waive the application of any laws or rules of construction providing that ambiguities in any agreement or other document will be construed against the party drafting such agreement or other document.
10. Governing Law; Consent to Jurisdiction.
(a) This Agreement, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance of this Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement) shall be governed by, and construed, interpreted and enforced in accordance with, the Laws of the State of Delaware, without regard to conflict of laws principles that would result in the application of the laws of another jurisdiction.
(b) Any legal action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be heard and determined exclusively in the Court of Chancery of the State of Delaware or, in the event (but only in the event) that such court does not have subject matter jurisdiction over such action or proceeding, in the federal courts of the United States of America located in the State of Delaware. Each party hereto hereby irrevocably (i) submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware or federal courts of the United States of America located in the State of Delaware in respect of any legal action, suit or proceeding arising out of or relating to this Agreement and (ii) waives, and agrees not to assert, as a defense in any such action, suit or proceeding, any claim that it is not subject personally to the jurisdiction of such courts, that its property is exempt or immune from attachment or execution, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of action, suit or proceeding is improper or that this Agreement or the transactions contemplated hereby may not be enforced in or by such courts.
(c) To the fullest extent permitted by law, each party hereto agrees that notice or the service of process in any action, suit or proceeding arising out of or relating to this Agreement shall be properly served or delivered if delivered in the manner contemplated by Section 5.
(d) The consents to jurisdiction set forth in this Section 9 shall not constitute general consents to service of process in the State of Delaware and shall have no effect for any purpose except as provided in this Section 9 and shall not be deemed to confer rights on any person other than the parties hereto. The parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law.
11. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
12. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that the parties hereto shall be entitled to specific performance of the terms hereof and injunctive and other equitable relief, in addition to any other remedy at law or equity, without posting any bond or other undertaking.
13. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement.
14. Further Assurances. Stockholder will execute and deliver, or cause to be executed and delivered, all further documents and instruments and use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable law, to perform its obligations under this Agreement.
15. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterpart, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same.
[signature page to follow]
IN WITNESS WHEREOF, the Company and Stockholder have executed or caused to be executed this Agreement as of the date first written above.
| THE ARENA GROUP HOLDINGS, INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
| Notice to the Company: | |
| The Arena Group Holdings, Inc. | |
| 200 Vesey Street, 24th Floor | |
| New York, NY 12081 | |
| Attention: Legal Department | |
| legal@thearenagroup.net | |
| With a copy (which does not constitute notice) to: | |
| Fenwick & West LLP | |
| 555 California Street, #12 | |
| San Francisco, CA 94104 | |
| Attention: Samuel Angus; Victoria Lupu | |
| E-mail: sangus@fenwick.com; vlupu@fenwick.com |
[Signature Page to Voting Agreement]
IN WITNESS WHEREOF, the Company and Stockholder have executed or caused to be executed this Agreement as of the date first written above.
| STOCKHOLDER | ||
| By: | ||
| Name: | ||
| Title: | ||
| Shares of Common Stock: _________________ | |
| Notice to Stockholder: | |
| [Name] | |
| [Address] | |
| [Address] | |
| [Attention] | |
| [Email] | |
| With a copy (which does not constitute notice) to: | |
| [Name] | |
| [Address] | |
| [Address] | |
| [Attention] | |
| [Email] |
[Signature Page to Voting Agreement]
Attachment 1
Binding LOI
See attached.
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
FIRST AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
This First Amendment to Executive Employment Agreement (“Amendment”) is hereby entered into by and between Robertson Barrett (“Executive”) and The Arena Group Holdings, Inc. (“Company”). This First Amendment amends the Executive Employment Agreement between Executive and Company (the “Agreement”). The Effective Date of this Amendment shall be August 1, 2023 (“Effective Date”). Until the Effective Date, the Agreement shall remain in full force and effect in its current form. Unless otherwise defined herein, capitalized terms used herein shall have the meanings given to such terms in the Agreement.
In consideration of the mutual covenants and agreements set forth in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Executive and Company agree as follows.
Amendments.
1. The first sentence of Section 1.2(a) shall be removed and replaced in its entirety with the following new sentence:
From the Effective Date, the Executive shall receive an annualized salary of $500,000 (“Annual Salary”).
2. A new Section 1.2(b)(iv) shall be added as follows:
Signing Bonus. The Executive shall receive a signing bonus in the amount of $150,000 (less applicable taxes and withholdings), which $100,000 shall be paid on or before August 15, 2023 and the balance of $50,000 shall be paid on or before October 15, 2023.
3. Section 1.2(c) shall be removed and replaced in its entirety with the following new Section 1.2(c):
Stock Option Grant. Company will grant to Executive options to purchase shares of Company’s Common Stock, restricted stock units or restricted stock awards (collectively, “New Options”) pursuant to Company’s 2019 Equity Incentive Plan (the “Plan”) subject to the conditions described therein. The type and number of New Options and the terms associated with vesting and accelerated vesting of the New Options shall be upon agreement by the Board and CEO.
No Other Modifications.
Except as expressly provided in this Amendment, each of the terms and provisions of the Agreement shall remain in full force and effect. The Amendment set forth herein is limited precisely as written and shall not be deemed to be an amendment or waiver to any other term or condition of the Agreement or any of the documents referred to therein. From and after the Effective Date, all references in the Agreement to this “Agreement” shall be deemed to be references to the Agreement, as amended.
Counterparts.
This Amendment may be executed in counterparts, each of which shall be deemed to be an original, and all of which taken together shall constitute one instrument.
Please sign below to indicate the parties’ agreement with the terms and conditions set forth in this Amendment.
| ROBERTSON BARRETT | ||||
| By: | /s/ Robertson Barrett | Date: | ||
| Robertson Barrett | ||||
| THE ARENA GROUP HOLDINGS, INC. | ||||
| By: | /s/ Ross Levinsohn | Date: | ||
| Ross Levinsohn | ||||
| Chief Executive Officer | ||||
| 2 |
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKEDBY [*], HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELYCAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED
SIDE LETTER
TO
LICENSING AGREEMENT
THIS SIDE LETTER TO THE LICENSING AGREEMENT (this “September 1st Letter”) is effective as of September 1, 2023 (the “Effective Date”), and is entered into by and between ABG-SI LLC (“Licensor”) and The Arena Group Holdings, Inc. (f/k/a TheMaven, Inc., “Licensee”) concerning that certain Licensing Agreement dated as of June 14, 2019, as amended by Amendment No. 1 to the Licensing Agreement effective as of September 1, 2019, Amendment No. 2 to the Licensing Agreement effective as of April 1, 2020, Amendment No. 3 to the Licensing Agreement effective as of July 28, 2020, Amendment No. 4 to the Licensing Agreement effective as of June 4, 2021, that certain side letter agreement dated June 4, 2021 (the “June 4th Letter”), Amendment No. 5 to the Licensing Agreement effective as of September 16, 2022 (“Amendment No. 5”), and from time to time (collectively, the “License Agreement”). All capitalized terms used and not specifically defined herein shall have the meanings ascribed to them in the License Agreement.
In consideration of the mutual covenants and agreements hereinafter contained on the part of each of the parties hereto to be kept, observed and performed, and for such other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto covenant and agree as follows:
| 1. | Payment Terms. |
| (a) | Notwithstanding the terms of Section 7(a)(i) of the License Agreement, as of the payment that would otherwise be due on October 1, 2023, the GMR shall be payable by Licensee to Licensor in equal monthly payments of [*] ($[*]), due upon the first day of October, November, and December (each a “Monthly Payment”) in 2023 only. | |
| (b) | Should Licensee fail to timely make a Monthly Payment and such failure is not cured within ten (10) days, Licensor may, at its sole discretion, by written notice to Licensee accelerate the full amount of any remaining GMR payment for the applicable Contract Quarter, which shall become due and payable immediately, and Section 1(a) above will be of no further effect. | |
| (c) | Licensor and Licensee acknowledge and agree that Licensee has signed a binding letter of intent with Simplify Inventions, LLC and its founder, Manoj Bhargava, to enter into that certain transaction that is described in greater detail in the ‘News Release’ attached hereto as Exhibit A of this September 1st Letter (the “Transaction”). Should the Transaction close at any time prior to any Monthly Payment becoming due under Section 1(a) above, then the full amount of any remaining GMR payment for the applicable Contract Quarter (e.g., each and every Monthly Payment that has not yet been paid by Licensee to Licensor), shall become due and payable immediately, and Section 1(a) above will be of no further effect. |
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have entered into this September 1st Letter effective as of the Effective Date.
| Licensor: | Licensee: | |||
| ABG-SI LLC | The Arena Group Holdings, Inc. | |||
| (f/k/a TheMaven, Inc.) | ||||
| By: | /s/ Jay Dubliner | By: | /s/ Andrew Q. Kraft |
|
| Print: | Jay Dubliner | Print: | Andrew Q. Kraft |
|
| Title: | Chief Legal Officer | Title: | Chief Operating Officer |
|
| Date: | 10/1/2023 | Date: | 9/30/2023 |
|
| 2 |
Exhibit A
See attached.
| 3 |
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, Ross Levinsohn, 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: November 14, 2023 | /s/ Ross Levinsohn |
| Ross Levinsohn | |
| 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: November 14, 2023 | /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, Ross Levinsohn, 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 September 30, 2023, 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: November 14, 2023 | /s/ Ross Levinsohn |
| Ross Levinsohn | |
| 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 September 30, 2023, 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: November 14, 2023 | /s/ Douglas B. Smith |
| Douglas B. Smith | |
| Chief Financial Officer | |
| (Principal Financial Officer) |