Attached files
file | filename |
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EX-32.2 - theMaven, Inc. | ex32-2.htm |
EX-32.1 - theMaven, Inc. | ex32-1.htm |
EX-31.2 - theMaven, Inc. | ex31-2.htm |
EX-31.1 - theMaven, Inc. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number 1-12471
THEMAVEN, INC.
(Exact name of registrant as specified in its charter)
Delaware | 68-0232575 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
225 Liberty Street, 27th Floor New York, New York |
10281 | |
(Address of principal executive offices) | (Zip Code) |
(775) 600-2765
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer [ ] | Accelerated filer [ ] | |
Non-accelerated filer [X] | Smaller reporting company [X] | |
Emerging growth company [ ] |
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] or No [X]
As of May 5, 2021, the Registrant had 230,287,723 shares of common stock outstanding.
2 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Quarterly Report”) of theMaven, Inc. (the “Company,” “we,” “our,” and “us”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning our business strategy, future revenues, market growth, capital requirements, product introductions, and expansion plans and the adequacy of our funding. Other statements contained in this Quarterly Report that are not historical facts are also forward-looking statements. We have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and other comparable terminology.
We caution investors that any forward-looking statements presented in this Quarterly Report, or that we may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information currently available to, us. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements, which are based only on known results and trends at the time they are made, to anticipate future results or trends. Other risks are detailed by us in our public filings with the Securities and Exchange Commission (the “SEC”), including in Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2019. The discussion in this Quarterly Report should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2019.
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.
This Quarterly Report is being filed for the quarter ended September30, 2020, as a late report to comply with the reporting obligations applicable to us under the Exchange Act. Unless specifically required to provide information for the three and nine months ended September 30, 2020, by the rules and regulations of the SEC, the discussion of our business reflects our current assets and current operations. Where the information relates to the three and nine months ended September 30, 2020, we have made a reasonable effort herein to make that clear. Also, to be clear, the financial information in the consolidated financial statements and footnotes accompanying this Quarterly Report and the other financial information and management’s discussion and analysis about the condensed consolidated financial statements relate to the historical period for the three and nine months ended September 30, 2020.
3 |
PART I – FINANCIAL INFORMATION
THEMAVEN, INC. AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements
4 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2020 (unaudited) | December 31, 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,733,783 | $ | 8,852,281 | ||||
Restricted cash | 1,000,809 | 620,809 | ||||||
Accounts receivable, net | 11,674,370 | 16,233,955 | ||||||
Subscription acquisition costs, current portion | 9,983,633 | 3,142,580 | ||||||
Royalty fees, current portion | 15,000,000 | 15,000,000 | ||||||
Prepayments and other current assets | 3,983,647 | 4,310,735 | ||||||
Total current assets | 46,376,242 | 48,160,360 | ||||||
Property and equipment, net | 1,110,498 | 661,277 | ||||||
Operating lease right-of-use assets | 18,787,195 | 3,980,649 | ||||||
Platform development, net | 7,163,700 | 5,892,719 | ||||||
Royalty fees, net of current portion | 15,000,000 | 26,250,000 | ||||||
Subscription acquisition costs, net of current portion | 7,629,479 | 3,417,478 | ||||||
Acquired and other intangible assets, net | 77,101,315 | 91,404,144 | ||||||
Other long-term assets | 1,461,429 | 1,085,287 | ||||||
Goodwill | 16,139,377 | 16,139,377 | ||||||
Total assets | $ | 190,769,235 | $ | 196,991,291 | ||||
Liabilities, mezzanine equity and stockholders’ deficiency | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 8,665,099 | $ | 9,580,186 | ||||
Accrued expenses and other | 13,998,676 | 16,483,201 | ||||||
Line of credit | 3,328,431 | - | ||||||
Unearned revenue | 52,806,699 | 32,163,087 | ||||||
Subscription refund liability | 2,974,479 | 3,144,172 | ||||||
Operating lease liabilities | 1,303,013 | 2,203,474 | ||||||
Liquidated damages payable | 9,568,091 | 8,080,514 | ||||||
Convertible debt | 1,030,640 | 741,197 | ||||||
Warrant derivative liabilities | 1,779,110 | 1,644,200 | ||||||
Embedded derivative liabilities | 11,328,000 | 13,501,000 | ||||||
Total current liabilities | 106,782,238 | 87,541,031 | ||||||
Unearned revenue, net of current portion | 13,493,566 | 31,179,211 | ||||||
Operating lease liabilities, net of current portion | 20,160,277 | 2,616,132 | ||||||
Other long-term liability | 242,310 | 242,310 | ||||||
Officer promissory notes | 324,590 | 319,351 | ||||||
Convertible debt, net of current portion | 16,662,095 | 12,497,765 | ||||||
Long-term debt | 62,985,459 | 44,009,745 | ||||||
Total liabilities | 220,650,535 | 178,405,545 | ||||||
Commitments and contingencies (Note 13) | ||||||||
Mezzanine equity: | ||||||||
Series G redeemable and convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 1,800 shares designated; aggregate liquidation value: $168,496; Series G shares issued and outstanding: 168,496; common shares issuable upon conversion: 188,791 at September 30, 2020 and December 31, 2019 | 168,496 | 168,496 | ||||||
Series H convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 23,100 shares designated; aggregate liquidation value: $19,208,000 and $19,399,250; Series H shares issued and outstanding: 19,208 and 19,400; common shares issuable upon conversion: 58,206,061 and 58,787,879 at September 30, 2020 and December 31, 2019, respectively | 17,858,496 | 18,045,496 | ||||||
Series I convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 25,800 shares designated; aggregate liquidation value: $23,100,000; Series I shares issued and outstanding: 23,100; common shares issuable upon conversion: 46,200,000 at September 30, 2020 and December 31, 2019 | 19,699,742 | 19,699,742 | ||||||
Series J convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 25,000 shares designated; aggregate liquidation value: $30,500,000 and $20,000,000; Series J shares issued and outstanding: 30,500 and 20,000; common shares issuable upon conversion: 43,584,500 and 28,571,428 at September 30, 2020 and December 31, 2019, respectively | 23,739,996 | 17,739,996 | ||||||
Total mezzanine equity | 61,466,730 | 55,653,730 | ||||||
Stockholders’ deficiency: | ||||||||
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 40,548,203 and 37,119,117 shares at September 30, 2020 and December 31, 2019, respectively | 405,481 | 371,190 | ||||||
Common stock to be issued | 14,805 | 39,383 | ||||||
Additional paid-in capital | 48,475,391 | 35,562,766 | ||||||
Accumulated deficit | (140,243,707 | ) | (73,041,323 | ) | ||||
Total stockholders’ deficiency | (91,348,030 | ) | (37,067,984 | ) | ||||
Total liabilities, mezzanine equity and stockholders’ deficiency | $ | 190,769,235 | $ | 196,991,291 |
See accompanying notes to condensed consolidated financial statements.
5 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | $ | 32,089,993 | $ | 7,586,020 | $ | 85,593,786 | $ | 19,630,266 | ||||||||
Cost of revenue (includes amortization for of developed technology and platform development for nine months ended 2020 and 2019 of $6,348,619 and $4,310,072, respectively) | 24,708,941 | 7,612,585 | 76,321,953 | 18,752,322 | ||||||||||||
Gross profit (loss) | 7,381,052 | (26,565 | ) | 9,271,833 | 877,944 | |||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 9,928,901 | 2,059,820 | 27,698,182 | 4,660,213 | ||||||||||||
General and administrative | 7,172,175 | 7,262,496 | 24,852,891 | 17,358,764 | ||||||||||||
Depreciation and amortization | 4,053,184 | 349,604 | 12,276,990 | 565,581 | ||||||||||||
Total operating expenses | 21,154,260 | 9,671,920 | 64,828,063 | 22,584,558 | ||||||||||||
Loss from operations | (13,773,208 | ) | (9,698,485 | ) | (55,556,230 | ) | (21,706,614 | ) | ||||||||
Other (expense) income | ||||||||||||||||
Change in valuation of warrant derivative liabilities | (517,405 | ) | (666,075 | ) | (134,910 | ) | (1,207,845 | ) | ||||||||
Change in valuation of embedded derivative liabilities | (2,370,000 | ) | (5,621,000 | ) | 2,173,000 | (9,400,000 | ) | |||||||||
Interest expense | (4,253,180 | ) | (3,701,310 | ) | (12,169,315 | ) | (6,878,572 | ) | ||||||||
Interest income | 1,116 | 7,749 | 4,499 | 10,983 | ||||||||||||
Liquidated damages | (319,903 | ) | - | (1,487,577 | ) | (17,740 | ) | |||||||||
Other (expense) income | (31,851 | ) | - | (31,851 | ) | 126 | ||||||||||
Total other expense | (7,491,223 | ) | (9,980,636 | ) | (11,646,154 | ) | (17,493,048 | ) | ||||||||
Loss before income taxes | (21,264,431 | ) | (19,679,121 | ) | (67,202,384 | ) | (39,199,662 | ) | ||||||||
Income taxes | - | - | - | - | ||||||||||||
Net loss | (21,264,431 | ) | (19,679,121 | ) | (67,202,384 | ) | (39,199,662 | ) | ||||||||
Deemed dividend on Series H convertible preferred stock | (132,663 | ) | - | (132,663 | ) | - | ||||||||||
Net loss attributable to common shareholder | $ | (21,397,094 | ) | $ | (19,679,121 | ) | $ | (67,335,047 | ) | $ | (39,199,662 | ) | ||||
Basic and diluted net loss per common share | $ | (0.55 | ) | $ | (0.54 | ) | $ | (1.72 | ) | $ | (1.10 | ) | ||||
Weighted average number of common shares outstanding – basic and diluted | 39,186,432 | 36,240,837 | 39,177,864 | 35,562,878 |
See accompanying notes to condensed consolidated financial statements.
6 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Nine Months Ended September 30, 2020
Common Stock | Common Stock to be Issued | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||||||||
Balance at January 1, 2020 | 37,119,117 | $ | 371,190 | 3,938,287 | $ | 39,383 | $ | 35,562,766 | $ | (73,041,323 | ) | $ | (37,067,984 | ) | ||||||||||||||
Issuance of restricted stock units in connection with the acquisition of LiftIgniter | - | - | - | - | 500,000 | - | 500,000 | |||||||||||||||||||||
Issuance of restricted stock awards to the board of directors | 562,500 | 5,625 | - | - | (5,625 | ) | - | - | ||||||||||||||||||||
Common stock withheld for taxes | (206,881 | ) | (2,069 | ) | - | - | (167,412 | ) | - | (169,481 | ) | |||||||||||||||||
Stock-based compensation | - | - | - | - | 3,930,172 | - | 3,930,172 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (22,776,624 | ) | (22,776,624 | ) | |||||||||||||||||||
Balance at March 31, 2020 | 37,474,736 | $ | 374,746 | 3,938,287 | 39,383 | 39,819,901 | (95,817,947 | ) | (55,583,917 | ) | ||||||||||||||||||
Issuance of common stock in connection with the acquisition of Say Media | 1,350,394 | 13,504 | (1,350,394 | ) | (13,504 | ) | - | - | - | |||||||||||||||||||
Common stock withheld for taxes | (234,767 | ) | (2,348 | ) | - | - | (109,992 | ) | - | (112,340 | ) | |||||||||||||||||
Stock-based compensation | - | - | - | - | 4,283,066 | - | 4,283,066 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (23,161,329 | ) | (23,161,329 | ) | |||||||||||||||||||
Balance at June 30, 2020 | 38,590,363 | 385,902 | 2,587,893 | 25,879 | 43,992,975 | (118,979,276 | ) | (74,574,520 | ) | |||||||||||||||||||
Issuance of common stock in connection with the merger of Say Media | 1,107,378 | 11,074 | (1,107,378 | ) | (11,074 | ) | - | - | - | |||||||||||||||||||
Issuance of common stock upon conversion of Series H convertible preferred stock | 909,090 | 9,091 | - | - | 290,909 | - | 300,000 | |||||||||||||||||||||
Common stock withheld for taxes | (58,628 | ) | (586 | ) | - | - | (40,371 | ) | - | (40,957 | ) | |||||||||||||||||
Beneficial conversion feature on Series H convertible preferred stock | - | - | - | - | 132,663 | - | 132,663 | |||||||||||||||||||||
Deemed dividend on Series H convertible preferred stock | - | - | - | - | (132,663 | ) | - | (132,663 | ) | |||||||||||||||||||
Stock-based compensation | - | - | - | - | 4,231,878 | - | 4,231,878 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (21,264,431 | ) | (21,264,431 | ) | |||||||||||||||||||
Balance at September 30, 2020 | 40,548,203 | $ | 405,481 | 1,480,515 | $ | 14,805 | $ | 48,475,391 | $ | (140,243,707 | ) | $ | (91,348,030 | ) |
7 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Nine Months Ended September 30, 2019
Common Stock | Common Stock to be Issued | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Capital |
Deficit | (Deficiency) | ||||||||||||||||||||||
Balance at January 1, 2019 | 35,768,619 | $ | 357,685 | 5,127,167 | $ | 51,272 | $ | 23,413,077 | $ | (34,539,954 | ) | $ | (10,717,920 | ) | ||||||||||||||
Issuance of common stock in connection with the merger of Say Media | 1,188,880 | 11,889 | (1,188,880 | ) | (11,889 | ) | - | - | - | |||||||||||||||||||
Forfeiture of restricted stock | (120,000 | ) | (1,200 | ) | - | - | 1,200 | - | - | |||||||||||||||||||
Issuance of restricted stock awards to the board of directors | 833,333 | 8,333 | - | - | (8,333 | ) | - | - | ||||||||||||||||||||
Cashless exercise of common stock options | 15,341 | 154 | - | - | (154 | ) | - | - | ||||||||||||||||||||
Stock-based compensation | - | - | - | - | 1,487,575 | - | 1,487,575 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (8,934,980 | ) | (8,934,980 | ) | |||||||||||||||||||
Balance at March 31, 2019 | 37,686,173 | 376,861 | 3,938,287 | 39,383 | 24,893,365 | (43,474,934 | ) | (18,165,325 | ) | |||||||||||||||||||
Forfeiture of restricted stock | (580,000 | ) | (5,800 | ) | - | - | 5,800 | - | - | |||||||||||||||||||
Common stock withheld for taxes | (167,246 | ) | (1,672 | ) | - | - | (73,588 | ) | - | (75,260 | ) | |||||||||||||||||
Stock-based compensation | - | - | - | - | 3,044,620 | - | 3,044,620 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (10,585,561 | ) | (10,585,561 | ) | |||||||||||||||||||
Balance at June 30, 2019 | 36,938,927 | 369,389 | 3,938,287 | 39,383 | 27,870,197 | (54,060,495 | ) | (25,781,526 | ) | |||||||||||||||||||
Forfeiture of restricted stock | (125,000 | ) | (1,250 | ) | - | - | 1,250 | - | - | |||||||||||||||||||
Cashless exercise of common stock warrants | 539,331 | 5,393 | - | - | 729,793 | - | 735,186 | |||||||||||||||||||||
Stock-based compensation | - | - | - | - | 3,404,873 | - | 3,404,873 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (19,679,121 | ) | (19,679,121 | ) | |||||||||||||||||||
Balance at September 30, 2019 | 37,353,258 | $ | 373,532 | 3,938,287 | $ | 39,383 | $ | 32,006,113 | $ | (73,739,616 | ) | $ | (41,320,588 | ) |
See accompanying notes to condensed consolidated financial statements.
8 |
THEMAVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (67,202,384 | ) | $ | (39,199,662 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation of property and equipment | 536,729 | 125,188 | ||||||
Amortization of platform development and intangible assets | 18,088,880 | 4,750,465 | ||||||
Loss on disposition of property and equipment | 105,123 | - | ||||||
Amortization of debt discounts | 4,899,625 | 3,060,772 | ||||||
Change in valuation of warrant derivative liabilities | 134,910 | 1,207,845 | ||||||
Change in valuation of embedded derivative liabilities | (2,173,000 | ) | 9,400,000 | |||||
Accrued interest | 6,832,376 | 2,439,798 | ||||||
Liquidated damages | 1,487,577 | 17,740 | ||||||
Stock-based compensation | 11,185,953 | 6,951,074 | ||||||
Other | (296,019 | ) | 14,793 | |||||
Change in operating assets and liabilities net of effect of business combination: | ||||||||
Accounts receivable | 4,893,512 | 10,513,462 | ||||||
Factor receivables | - | (6,130,674 | ) | |||||
Subscription acquisition costs | (11,053,054 | ) | 17,056 | |||||
Royalty fees | 11,250,000 | (45,000,000 | ) | |||||
Prepayments and other current assets | 327,088 | (285,199 | ) | |||||
Other long-term assets | (376,142 | ) | (150,327 | ) | ||||
Accounts payable | (968,581 | ) | (2,266,032 | ) | ||||
Accrued expenses and other | (2,484,525 | ) | 1,314,037 | |||||
Unearned revenue | 2,871,080 | 638,119 | ||||||
Subscription refund liability | (169,693 | ) | - | |||||
Operating lease liabilities | 1,837,138 | (164,420 | ) | |||||
Net cash used in operating activities | (20,273,407 | ) | (52,745,965 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (1,085,392 | ) | (77,222 | ) | ||||
Capitalized platform development | (2,885,788 | ) | (1,744,340 | ) | ||||
Payments for acquisition of business, net of cash | (315,289 | ) | (16,000,000 | ) | ||||
Net cash used in investing activities | (4,286,469 | ) | (17,821,562 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from delayed draw term note | 6,000,000 | - | ||||||
Proceeds from long-term debt | 5,702,725 | 71,000,000 | ||||||
Repayments of long-term debt | - | (17,307,364 | ) | |||||
Payment of debt issuance costs | - | (7,162,382 | ) | |||||
Proceeds from issuance of Series H convertible preferred stock | 113,000 | - | ||||||
Proceeds from 12% senior convertible debentures | - | 2,000,000 | ||||||
Investor liability related to proceeds received in advance of issuance of Series J convertible preferred stock | - | 875,000 | ||||||
Proceeds from issuance of Series J convertible preferred stock | 6,000,000 | - | ||||||
Proceeds from issuance of Series I convertible preferred stock | - | 23,100,000 | ||||||
Payment of issuance costs of Series I convertible preferred stock | - | (1,406,000 | ) | |||||
Borrowings (repayments) under line of credit, net | 3,328,431 | (22,700 | ) | |||||
Payment for taxes related to repurchase of restricted common stock | (322,778 | ) | (75,260 | ) | ||||
Repayment of officer promissory notes | - | (366,842 | ) | |||||
Net cash provided by financing activities | 20,821,378 | 70,634,452 | ||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | (3,738,498 | ) | 66,925 | |||||
Cash, cash equivalents, and restricted cash – beginning of period | 9,473,090 | 2,527,289 | ||||||
Cash, cash equivalents, and restricted cash – end of period | $ | 5,734,592 | $ | 2,594,214 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 437,314 | $ | 1,383,644 | ||||
Cash paid for income taxes | - | - | ||||||
Noncash investing and financing activities | ||||||||
Reclassification of stock-based compensation to platform development | $ | 1,259,163 | $ | 985,994 | ||||
Debt discount on delayed draw term note | 913,865 | - | ||||||
Restricted stock units issued in connection with acquisition of LiftIgniter | 500,000 | - | ||||||
Assumption of liabilities in connection with acquisition of LiftIgniter | 140,381 | - | ||||||
Deemed dividend on Series H convertible preferred stock | 132,663 | - | ||||||
Discount on 12% senior convertible debentures allocated to embedded derivative liabilities | - | 1,074,000 | ||||||
Exercise of warrants for issuance common stock | - | 735,186 | ||||||
Liquidated damages liability recorded against cash proceeds for 12% senior convertible debentures | - | 84,000 | ||||||
Liquidated damages liability recorded against cash proceeds for Series I convertible preferred stock | - | 1,940,400 |
See accompanying notes to condensed consolidated financial statements.
9 |
THEMAVEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of TheMaven, Inc. and its wholly owned subsidiaries (“Maven” or the “Company”), after eliminating all significant intercompany balances and transactions. The Company does not have any off-balance sheet arrangements.
The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. These condensed consolidated financial statements have been prepared in accordance with the United States generally accepted accounting principles (“US GAAP”) for interim financial information, the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in Maven’s Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2019, filed with the SEC on April 9, 2021.
The condensed consolidated financial statements as of September 30, 2020, and for the three and nine months ended September 30, 2020 and 2019, 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, 2019, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year.
Liquidity
The Company performed an annual reporting period going concern assessment. Management is required to assess its ability to continue as a going concern. The 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. These condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company has a history of recurring losses. The Company’s recurring losses from operations and net capital deficiency have been evaluated by management to determine if the significance of those conditions or events would limit its ability to meet its obligations when due. The operating loss realized for the nine months ended September 30, 2020 was primarily a result of a marketing investment in customer growth, together with investments in people and technology as the Company continued to expand its operations. The operating loss realized in fiscal 2019 was primarily a result of investments in people, infrastructure for the Company’s technology platform, and operations expanding during fiscal 2019 with the acquisition of TheStreet, Inc. (“TheStreet”) and the licensing agreement for certain Sports Illustrated brands, along with continued costs based on the strategic growth plans in other verticals.
As reflected in these condensed consolidated financial statements, the Company had revenues of $85,593,786 for the nine months ended September 30, 2020, and experienced recurring net losses from operations, negative working capital, and negative operating cash flows. During the nine months ended September 30, 2020, the Company incurred a net loss of $67,202,384, utilized cash in operating activities of $20,273,407, and as of September 30, 2020, had an accumulated deficit of $140,243,707. The Company has financed its working capital requirements since inception through the issuance of debt and equity securities.
Additionally, as a result of the novel coronavirus (“COVID-19”) pandemic, the Company experienced a decline in traffic and advertising revenue in the first and second quarters of 2020. The Company implemented cost reduction measures in an effort to offset these declines. Since May 2020, there has been a steady recovery in the advertising market in both pricing and volume, which coupled with the return of professional and college sports yielded steady growth in revenues through the balance of 2020 and start of 2021. The Company expects a continued growth in advertising revenue back toward pre-pandemic levels, however, such growth depends on future developments, including the duration of COVID-19, future sport event advisories and restrictions, and the extent and effectiveness of containment actions taken.
Management has evaluated whether relevant conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. Substantial doubt exists when conditions and events, considered in the aggregate, indicate it is probable that a company will not be able to meet its obligations as they become due within one year after the issuance date of its financial statements. Management’s assessment is based on the relevant conditions that are known or reasonably knowable as of the date these condensed consolidated financial statements were issued or were available to be issued.
Management’s assessment of the Company’s ability to meet its future obligations is inherently judgmental, subjective, and susceptible to change. The factors that the Company considered important in its going concern analysis, include, but are not limited to, its fiscal 2021 cash flow forecast and its fiscal 2021 operating budget. Management also considered the Company’s ability to repay its obligations through future equity and the implementation of cost reduction measures in effect to offset revenue and earnings declines from COVID-19. These factors consider information including, but not limited to, the Company’s financial condition, liquidity sources, obligations due within one year after the issuance date of these condensed consolidated financial statements, the funds necessary to maintain operations and financial conditions, including negative financial trends or other indicators of possible financial difficulty.
In particular, the Company’s plan for the: (1) 2021 cash flow forecast, considered the use of its working capital line with FastPay (as described in Note 5) to fund changes in working capital, where the Company has available credit of approximately $10.1 million as of the issuance date of these condensed consolidated financial statements for the nine months ended September 30, 2020, and that the Company does not anticipate the need for any further borrowings that are subject to the holders approval, from its Delayed Draw Term Note (as described in Note 8) where the Company may be permitted to borrow up to an additional $5,000,000; and (2) 2021 operating budget, considered that approximately sixty-five percent of the Company’s revenue is from recurring subscriptions, generally paid in advance, and that digital subscription revenue, that accounts for approximately thirty percent of subscription revenue, grew approximately thirty percent during 2020 demonstrating the strength of its premium brand, and the plan to continue to grow its subscription revenue from its acquisition of TheStreet and the launch of premium digital subscriptions from its Sports Illustrated licensed brands.
The Company has considered both quantitative and qualitative factors as part of the assessment that are known or reasonably knowable as of the date these condensed consolidated financial statements were issued or were available to be issued and concluded that conditions and events considered in the aggregate, do not raise substantial doubt about the Company’s ability to continue as a going concern for a one-year period following the financial statement issuance date.
Reclassifications
Certain prior year amounts have been reclassified to conform to the fiscal 2020 presentation with no impact to previously reported earnings.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the allowance for credit losses, fair values of financial instruments, capitalization of platform development, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, fair value of assets acquired and liabilities assumed in the business acquisitions, determination of the fair value of stock-based compensation and valuation of derivatives liabilities and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Contract Modifications
The Company occasionally enters into amendments to previously executed contracts that constitute contract modifications. The Company assesses each of these contract modifications to determine:
● | if the additional services and goods are distinct from the services and goods in the original arrangement; and | |
● | if the amount of consideration expected for the added services or goods reflects the stand-alone selling price of those services and goods. |
A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either a prospective basis as a termination of the existing contract and the creation of a new contract, or a cumulative catch-up basis (see Note 3 and Note 12).
Recently Adopted Accounting Standards
In June 2016, the FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces a new model for recognizing credit losses for certain financial instruments, including loans, accounts receivable and debt securities. The new model requires an estimate of expected credit losses over the life of exposure to be recorded through the establishment of an allowance account, which is presented as an offset to the related financial asset. The expected credit loss is recorded upon the initial recognition of the financial asset. On January 1, 2020, the Company adopted ASU 2016-13 using the modified retrospective approach with no material impact to its condensed consolidated financial statements.
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In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies how an entity is required to test goodwill for impairment. The amendments require goodwill impairment to be measured using the difference between the carrying amount and the fair value of the reporting unit and require the loss recognized to not exceed the total amount of goodwill allocated to that reporting unit. On January 1, 2020, the Company adopted ASU 2017-04 on a prospective basis with no material impact to its condensed consolidated financial position, results of operations or cash flows.
Loss per Common Share
Basic loss per share is computed using the loss available to common stockholders over 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 is 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 circumstance under which those shares would not be issued. Diluted loss per common share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.
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 income loss per common share, as their effect would have been anti-dilutive.
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Series G Preferred Stock | 188,791 | 188,791 | ||||||
Series H Preferred Stock | 58,206,061 | 58,787,879 | ||||||
Series I Preferred Stock | 46,200,000 | 46,200,000 | ||||||
Series J Preferred Stock | 43,584,500 | - | ||||||
Indemnity shares of common stock | 412,500 | 825,000 | ||||||
Restricted Stock Awards | 1,274,999 | 3,574,997 | ||||||
Financing Warrants | 2,882,055 | 2,882,055 | ||||||
ABG Warrants | 21,989,844 | - | ||||||
Channel Partner Warrants | 789,541 | 939,540 | ||||||
Restricted Stock Units | 2,399,997 | 2,399,997 | ||||||
Common Stock Awards | 8,033,936 | 9,047,892 | ||||||
Common Equity Awards | 82,400,952 | 52,606,476 | ||||||
Outside Options | 2,982,111 | 3,732,667 | ||||||
Total | 271,345,287 | 181,185,294 |
2. Acquisitions
On March 9, 2020, the Company entered into an asset purchase agreement with Petametrics Inc., dba LiftIgniter, a Delaware corporation (“LiftIgniter”), where it purchased substantially all the assets, including the intellectual property and excluding certain accounts receivable, and assumed certain liabilities. The purchase price consisted of: (1) cash payment of $184,087 on February 19, 2020, in connection with the repayment of all outstanding indebtedness, (2) at closing a cash payment of $131,202, (3) collections of certain accounts receivable, (4) on the first anniversary date of the closing issuance of restricted stock units for an aggregate of up to 312,500 shares of the Company’s common stock, and (5) on the second anniversary date of the closing issuance of restricted stock units for an aggregate of up to 312,500 shares of the Company’s common stock.
11 |
The composition of the preliminary purchase price is as follows:
Cash | $ | 315,289 | ||
Indemnity restricted stock units for shares of common stock | 500,000 | |||
Total purchase consideration | $ | 815,289 |
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:
Accounts receivable | $ | 37,908 | ||
Developed technology | 917,762 | |||
Accounts payable | (53,494 | ) | ||
Unearned revenue | (86,887 | ) | ||
Net assets acquired | $ | 815,289 |
The useful life for the developed technology is five years (5.0 years).
3. Balance Sheet Components
The components of certain balance sheet amounts are as follows:
Accounts Receivable – Accounts receivable are presented net of allowance for doubtful accounts. The allowance for doubtful accounts as of September 30, 2020 and December 31, 2019 was $600,148 and $304,129, respectively.
Subscription Acquisition Costs – Subscription acquisition costs include the incremental costs of obtaining a contract with a customer, paid to external parties, if it expects to recover those costs. The current portion of the subscription acquisition costs as of September 30, 2020 and December 31, 2019 was $9,983,633 and $3,142,580, respectively. The noncurrent portion of the subscription acquisition costs as of September 30, 2020 and December 31, 2019 was $7,629,479 and $3,417,478, respectively.
Certain contract amendments resulted in a modification to the subscription acquisition costs that will be recognized on a prospective basis in the same proportion as the revenue that has not yet been recognized (further details are provided in Note 12).
Platform Development – Platform development costs are summarized as follows:
As of | ||||||||
September 30, 2020 | December 31, 2019 | |||||||
Platform development | $ | 14,812,843 | $ | 10,678,692 | ||||
Less accumulated amortization | (7,649,143 | ) | (4,785,973 | ) | ||||
Net platform development | $ | 7,163,700 | $ | 5,892,719 |
A summary of platform development activity for the nine months ended September 30, 2020 and year ended December 31, 2019 is as follows:
As of | ||||||||
September 30, 2020 | December 31, 2019 | |||||||
Platform development beginning of period | $ | 10,678,692 | $ | 6,833,900 | ||||
Payroll-based costs capitalized during the period | 2,885,788 | 2,537,402 | ||||||
Total capitalized costs | 13,564,480 | 9,371,302 | ||||||
Stock-based compensation | 1,259,163 | 1,307,390 | ||||||
Dispositions | (10,800 | ) | - | |||||
Platform development end of period | $ | 14,812,843 | $ | 10,678,692 |
Amortization expense for the three months ended September 30, 2020 and 2019 was $909,631 and $670,023, respectively. Amortization expense for the nine months ended September 30, 2020 and 2019 was $2,868,289 and $1,881,312, respectively.
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Intangible Assets – Intangible assets subject to amortization consisted of the following:
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||||||||||
Carrying Amount | Accumulated Amortization | Net Carrying Amount |
Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Developed technology | $ | 20,055,866 | $ | (7,570,689 | ) | $ | 12,485,177 | $ | 19,138,104 | $ | (4,090,359 | ) | $ | 15,047,745 | ||||||||||
Noncompete agreement | 480,000 | (432,000 | ) | 48,000 | 480,000 | (252,000 | ) | 228,000 | ||||||||||||||||
Trade name | 3,328,000 | (433,692 | ) | 2,894,308 | 3,328,000 | (224,745 | ) | 3,103,255 | ||||||||||||||||
Subscriber relationships | 73,458,799 | (14,475,740 | ) | 58,983,059 | 73,458,799 | (3,587,837 | ) | 69,870,962 | ||||||||||||||||
Advertiser relationships | 2,240,000 | (273,046 | ) | 1,966,954 | 2,240,000 | (94,635 | ) | 2,145,365 | ||||||||||||||||
Database | 1,140,000 | (436,183 | ) | 703,817 | 1,140,000 | (151,183 | ) | 988,817 | ||||||||||||||||
Subtotal amortizable intangible assets | 100,702,665 | (23,621,350 | ) | 77,081,315 | 99,784,903 | (8,400,759 | ) | 91,384,144 | ||||||||||||||||
Website domain name | 20,000 | - | 20,000 | 20,000 | - | 20,000 | ||||||||||||||||||
Total intangible assets | $ | 100,722,665 | $ | (23,621,350 | ) | $ | 77,101,315 | $ | 99,804,903 | $ | (8,400,759 | ) | $ | 91,404,144 |
Amortization expense for the three months ended September 30, 2020 and 2019 was $5,093,076 and $1,199,353, respectively. Amortization expense for the nine months September 30, 2020 and 2019 was $15,220,591 and $2,869,153, respectively. No impairment charges have been recorded during the nine months September 30, 2020 and 2019.
4. Leases
The Company’s leases are primarily comprised of real estate leases for the use of office space, with certain lease arrangements that contain equipment. The Company determines whether an arrangement contains a lease at inception. Lease assets and liabilities are recognized upon commencement of the lease based on the present value of the future minimum lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. Substantially all of the leases are long-term operating leases for facilities with fixed payment terms between 1.5 and 12.8 years.
The table below presents supplemental information related to operating leases:
Nine Months Ended September 30, 2020 | ||||
Operating cash flows for operating leases | $ | 2,015,612 | ||
Noncash lease liabilities arising from obtaining operating leased assets during the period | $ | 16,617,790 | ||
Weighted-average remaining lease term | 11.18 years | |||
Weighted-average discount rate | 13.52 | % |
The Company generally utilizes its incremental borrowing rate based on information available at the commencement of the lease in determining the present value of future payments since the implicit rate for most of the Company’s leases is not readily determinable.
Variable lease expense includes rental increases that are not fixed, such as those based on amounts paid to the lessor based on cost or consumption, such as maintenance and utilities.
Operating lease costs recognized for the three months ended September 30, 2020 and 2019 were $982,414 and $297,750, respectively. Operating lease costs recognized for the nine months ended September 30, 2020 and 2019 were $3,082,499 and $559,653, respectively.
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Maturities of operating lease liabilities as of September 30, 2020 are summarized as follows:
Years Ending December 31, | ||||
2020 (remaining three months of the year) | $ | 1,173,373 | ||
2021 | 3,804,853 | |||
2022 | 3,525,158 | |||
2023 | 3,528,696 | |||
2024 | 3,526,406 | |||
Thereafter | 27,563,572 | |||
Minimum lease payments | 43,122,058 | |||
Less imputed interest | (21,658,768 | ) | ||
Present value of operating lease liabilities | $ | 21,463,290 | ||
Current portion of operating lease liabilities | $ | 1,303,013 | ||
Long-term portion of operating lease liabilities | 20,160,277 | |||
Total operating lease liabilities | $ | 21,463,290 |
Future minimum lease payments under operating leases as of December 31, 2019, were as follows:
Payments due by Year | ||||||||||||||||||||||||||||
Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | ||||||||||||||||||||||
Operating leases | $ | 6,132,252 | $ | 2,579,924 | $ | 685,111 | $ | 472,084 | $ | 486,247 | $ | 500,834 | $ | 1,408,052 |
Further details as of the date these condensed financial statements were issued or were available to be issued are provided under the heading Leases in Note 14).
5. Line of Credit
FastPay Credit Facility – On February 27, 2020, the Company entered into a financing and security agreement with FPP Finance LLC (“FastPay”), pursuant to which FastPay extended a $15,000,000 line of credit for working capital purposes secured by a first lien on all of the Company’s cash and accounts receivable and a second lien on all other assets. Borrowings under the facility bear interest at the LIBOR Rate plus 8.50% and have a final maturity of February 6, 2022. The balance outstanding as of September 30, 2020 was approximately $3,328,431. As of the date these condensed consolidated financial statements were issued or were available to be issued the balance outstanding was approximately $4.9 million.
SallyPort Credit Facility – During November 2018, the Company entered into a factoring note agreement with Sallyport Commercial Finance, LLC (“Sallyport”) to increase working capital through accounts receivable factoring. As of December 31, 2019, Sallyport collected accounts receivable in excess of the balance outstanding under the note, therefore, the Company was due $626,532 from Sallyport which was reflected within accounts receivable on the condensed consolidated balance sheet. Effective January 30, 2020, the Company’s factoring facility with Sallyport was closed and funds were no longer available for advance.
6. Fair Value Measurements
The Company estimates the fair value of financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts the Company would realize upon disposition.
The fair value hierarchy consists of three broad levels of inputs that may be used to measure fair value, which are described below:
● | Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
● | Level 2 Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and | |
● | 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. |
14 |
The Company accounts for certain warrants (as described under the heading Common Stock Warrants in Note 9) and the embedded conversion features of the 12% senior convertible debentures (the “12% Convertible Debentures”) as derivative liabilities, which required the Company to carry such amounts on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end.
These warrants and the embedded conversion features are classified as Level 3 within the fair-value hierarchy. Inputs to the valuation model include the Company’s publicly quoted stock price, the stock volatility, the risk-free interest rate, the remaining life of the warrants, notes and debentures, the exercise price or conversion price, and the dividend rate. The Company uses the closing stock price of its common stock over an appropriate period of time to compute stock volatility.
Warrant Derivative Liabilities
The following table presents the assumptions used for the warrant derivative liabilities under the Black-Scholes option-pricing model:
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||
Strome Warrants | B. Riley Warrants | Strome Warrants | B. Riley Warrants | |||||||||||||
Expected life | 2.70 | 5.05 | 3.45 | 5.80 | ||||||||||||
Risk-free interest rate | 0.16 | % | 0.28 | % | 1.62 | % | 1.76 | % | ||||||||
Volatility factor | 143.00 | % | 137.91 | % | 144.54 | % | 127.63 | % | ||||||||
Dividend rate | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Transaction date closing market price | $ | 0.89 | $ | 0.89 | $ | 0.80 | $ | 0.80 | ||||||||
Exercise price | $ | 0.50 | $ | 1.00 | $ | 0.50 | $ | 1.00 |
The following table represents the carrying amounts and change in valuation for the Company’s warrants accounted for as a derivative liability and classified within Level 3 of the fair-value hierarchy:
As of and for the Nine Months Ended September 30, 2020 | As of and for the Nine Months Ended September 30, 2019 | |||||||||||||||||||||||||||
Carry Amount at Beginning of Period | Change in Valuation | Carrying Amount at End of Period | Carry Amount at Beginning of Period | Change in Valuation | Exercise of Warrants | Carrying Amount at End of Period | ||||||||||||||||||||||
L2 Warrants | $ | - | $ | - | $ | - | $ | 418,214 | $ | 316,972 | $ | (735,186 | ) | $ | - | |||||||||||||
Strome Warrants | 1,036,687 | 63,160 | 1,099,847 | 587,971 | 572,548 | - | 1,160,519 | |||||||||||||||||||||
B. Riley Warrants | 607,513 | 71,750 | 679,263 | 358,050 | 318,325 | - | 676,375 | |||||||||||||||||||||
Total | $ | 1,644,200 | $ | 134,910 | $ | 1,779,110 | $ | 1,364,235 | $ | 1,207,845 | $ | (735,186 | ) | $ | 1,836,894 |
For the three months ended September 30, 2020 and 2019, the change in valuation of warrant derivative liabilities recognized as other expense on the condensed consolidated statements of operations was $517,405 and $666,075, respectively. For the nine months ended September 30, 2020 and 2019, the change in valuation of warrant derivative liabilities recognized as other expense on the condensed consolidated statements of operations, as described in the above table, was $134,910 and $1,207,845, respectively.
15 |
Embedded Derivative Liabilities
The carrying amount for the conversion option features, buy-in features, and default remedy features under the 12% Convertible Debentures accounted for as embedded derivative liabilities and classified within Level 3 of the fair-value hierarchy were $11,328,000 and $13,501,000 as of September 30, 2020 and December 31, 2019, respectively.
For the three months ended September 30, 2020 and 2019, the change in valuation of embedded derivative liabilities recognized as other expense on the condensed consolidated statements of operations was $2,370,000 and $5,621,000, respectively. For the nine months ended September 30, 2020 and 2019, the change in valuation of embedded derivative liabilities recognized as other income (expense) on the condensed consolidated statements of operations was $2,173,000 and ($9,400,000), respectively.
7. Convertible Debt
12% Convertible Debentures
During 2018 and 2019, the Company had various financings through the issuance of the 12% Convertible Debentures which were due and payable on December 31, 2020. Interest accrued at the rate of 12% per annum, payable on the earlier of conversion or December 31, 2020. The Company’s obligations under the 12% Convertible Debentures are secured by a security agreement, dated as of October 18, 2018, by and among the Company and each investor thereto. The 12% Convertible Debentures were subject to the Company receiving stockholder approval to increase its authorized shares of common stock before conversion. Principal on the 12% Convertible Debentures were convertible into shares of the Company’s common stock, at the option of the investor at any time prior to December 31, 2020, at either a per share conversion price of $0.33 (with respect to the 12% Convertible Debentures issued in 2018) or $0.40 (with respect to the 12% Convertible Debentures issued in 2019), subject to adjustment for stock splits, stock dividends and similar transactions, and certain beneficial ownership blocker provisions.
The 12% Convertible Debentures were issued and convertible into shares of the Company’s common stock as follows: (1) gross proceeds of $13,091,528 on December 12, 2018, convertible into 39,671,297 shares; (2) gross proceeds of $1,696,000 on March 18, 2019, convertible into 4,240,000 shares; (3) gross proceeds of $318,000 on March 27, 2019, convertible into 795,000 shares; and (4) gross proceeds of $100,000 on April 8, 2019, convertible into 250,000 shares. Upon issuance of the various financings, the Company accounted for the embedded conversion option feature, buy-in feature, and default remedy feature as embedded derivative liabilities, which required the Company to carry such amount on its condensed consolidated balance sheets as a liability at fair value, as adjusted at each period-end (see Note 6). The Company also incurred additional debt issuance cost. The embedded derivative liabilities and debt issuance cost were treated as a debt discount and amortized over the term of the debt.
16 |
The following table summarizes the convertible debt:
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||||||||||
Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | |||||||||||||||||||
12% Convertible Debentures, due on December 31, 2020 | $ | 18,691,148 | $ | (998,413 | ) | $ | 17,692,735 | $ | 17,119,571 | $ | (3,880,609 | ) | $ | 13,238,962 |
As of December 31, 2020, there was no longer any principal or accrued but unpaid interest outstanding under the 12% Convertible Debentures. Certain holders converted the debt into shares of the Company’s common stock and certain holders were paid in cash (further details are provided under the heading 12% Convertible Debentures in Note 14).
8. Long-term Debt
12% Second Amended Senior Secured Note
Below is a summary of the various amended and restated notes, as well as various amendments thereto, to the 12% senior secured note that was originally issued on June 10, 2019, where the Company received gross proceeds of $20,000,000, due July 31, 2019. The transactions leading up to the 12% second amended and restated note that is outstanding as of September 30, 2020 consisted of:
● | Amended and restated note issued on June 14, 2019, where the Company received gross proceeds of $48,000,000, together with the $20,000,000 gross proceeds received on June 10, 2019 for total gross proceeds of $68,000,000, due June 14, 2022; | |
● | First amendment to the amended and restated note issued on August 27, 2019, where the Company received gross proceeds of $3,000,000; | |
● | Second amendment to the amended and restated note issued on February 27, 2020, where the Company issued a $3,000,000 letter of credit to the Company’s landlord for leased premises; and | |
● | Second amended and restated note issued on March 24, 2020, where the Company was permitted to enter into a 15.0% delayed draw term note, in the aggregate principal amount of $12,000,000. |
Collectively the amended and restated notes and amendments thereto are referred to as the 12% Second Amended Senior Secured Note, with all borrowings collateralized by substantially all assets of the Company. Pursuant to the 12% Second Amended Senior Secured Note, interest on amounts outstanding with respect to (i) interest that was payable on March 31, 2020 and June 30, 2020, and (ii) at the Company’s option, with the consent of requisite purchasers, interest that was payable on September 30, 2020 and December 31, 2020, in lieu of the payment in cash of all or any portion of the interest due on such dates, would be payable in-kind in arrears on the last day of such applicable fiscal quarter (further details as of the date these condensed consolidated financial statements were issued or were available to be issued are provided under the heading 12% Second Amended Senior Secured Note in Note 14).
Delayed Draw Term Note
On March 24, 2020, the Company entered into a 15% delayed draw term note (the “Delayed Draw Term Note”) pursuant to the second amended and restated note purchase agreement, in the aggregate principal amount of $12,000,000.
17 |
On March 24, 2020, the Company drew down $6,913,865 under the Delayed Draw Term Note, and after payment of commitment and funding fees paid of $793,109, and other of its legal fees and expenses that were incurred, the Company received net proceeds of $6,000,000. The net proceeds were used for working capital and general corporate purposes. Additional borrowings under the Delayed Draw Term Note requested by the Company may be made at the option of the purchasers, subject to certain conditions. Up to $8,000,000 in principal amount under the note was originally due on March 31, 2021. Interest on amounts outstanding under the note was payable in-kind in arrears on the last day of each fiscal quarter (further details as of the date these condensed consolidated financial statements were issued or were available to be issued are provided under the heading Delayed Draw Term Note in Note 14).
Payroll Protection Program Loan
On April 6, 2020, the Company entered into a note agreement with JPMorgan Chase Bank, N.A. under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (“SBA”) in the principal amount of $5,702,725 pursuant to Title 1 of the CARES Act (the “PPP Loan”).
The PPP Loan proceeds were used to pay for payroll costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leaves; rent; utilities; and interest on certain other outstanding debt. The amount that will be forgiven will be calculated in part with reference to the Company’s full time headcount during the 24 week period following the funding of the PPP Loan.
The note is scheduled to mature on April 6, 2022. The interest rate on the note is a fixed rate of 0.98% per annum. To the extent that the amounts owed under the PPP Loan, or a portion of them, are not forgiven, the Company will be required to make principal and interest payments in monthly installments.
The following table summarizes the long-term debt:
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||||||||||
Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | Principal Balance (including accrued interest) | Unamortized Discount and Debt Issuance Costs | Carrying Value | |||||||||||||||||||
12% Second Amended Senior Secured Note, as amended, due on December 31, 2022 | $ | 54,621,045 | $ | (4,122,636 | ) | $ | 50,498,409 | $ | 49,921,345 | $ | (5,911,600 | ) | $ | 44,009,745 | ||||||||||
Delayed Draw Term Note, as amended, due on March 31, 2022 | 7,469,724 | (685,399 | ) | 6,784,325 | - | - | - | |||||||||||||||||
Payroll Protection Program Loan, scheduled to mature April 6, 2022 | 5,702,725 | - | 5,702,725 | - | - | - | ||||||||||||||||||
Total | $ | 67,793,494 | $ | (4,808,035 | ) | $ | 62,985,459 | $ | 49,921,345 | $ | (5,911,600 | ) | $ | 44,009,745 |
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9. Preferred Stock
Series H Preferred Stock – On August 19, 2020, the Company entered into additional securities purchase agreements for the sale of “Series H Convertible Preferred Stock” (“Series H Preferred Stock”) with accredited investors, pursuant to which the Company issued 108 shares (after it rescinded the issuance of 2,145 shares (issued between August 14, 2020 and August 20, 2020) that were deemed null and void and the purchase price was repaid to certain holders on October 28, 2020), at a stated value of $1,000 per share, which shares were initially convertible into 327,273 shares of the Company’s common stock at a conversion rate equal to the stated value divided by the conversion price of $0.33 per share, for aggregate gross proceeds of $130,896. The proceeds were used for working capital and general corporate purposes. The number of shares issuable upon conversion of the Series H Preferred Stock will be adjusted in the event of stock splits, stock dividends, combinations of shares and similar transactions. Each Series H Preferred Stock shall vote on an as-if-converted to common stock basis, subject to beneficial ownership blocker provisions and other certain conditions.
The shares of Series H Preferred Stock were subject to limitations on conversion into shares of the Company’s common stock until the date an amendment to the Company’s Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), was filed and accepted with the State of Delaware that increases the number of authorized shares of its common stock to at least a number permitting all the Series H Preferred Stock to be converted in full (further details are provided under the heading Amendment to Certificate of Incorporation in Note 14).
The securities purchase agreements also included a provision that requires the Company to maintain its periodic filings with the SEC in order to satisfy the public information requirements under Rule 144(c) of the Securities Act. If the Company fails for any reason to satisfy the current public information requirement commencing from the six (6) month anniversary date of issuance of the Series H Preferred Shares, then the Company will be obligated to pay Public Information Failure Damages (as further described in Note 14 to the audited consolidated financial statements for the year ended December 31, 2019) to each holder, consisting of a cash payment equal to 1% of the amount invested as partial liquidated damages, up to a maximum of six months, subject to interest at the rate of 1% per month until paid in full.
On August 19, 2020, in connection with the issuance of 108 Series H Preferred Stock, the Company recorded a beneficial conversion feature in the amount of $132,663 for the underlying common shares since the nondetachable conversion feature was in-the-money (the conversion price of $0.33 was lower than the Company’s common stock trading price of $0.86) at the issuance date. The beneficial conversion feature was recognized as a deemed dividend.
On September 21, 2020, an investor converted 300 shares of Series H Preferred Stock into 909,090 shares of the Company’s common stock.
Series J Preferred Stock – On September 4, 2020, the Company closed on an additional “Series J Convertible Preferred Stock” (“Series J Preferred Stock”) issuance with two accredited investors, pursuant to which we issued an aggregate of 10,500 shares of Series J Preferred Stock at a stated value of $1,000 per share, initially convertible into 15,013,072 shares of our common stock at a conversion rate equal to the stated value divided by the conversion price of $0.70, for aggregate gross proceeds of $6,000,000, which was used for working capital and general corporate purposes. The number of shares issuable upon conversion of the Series J Preferred Stock will be adjusted in the event of stock splits, stock dividends, combinations of shares and similar transactions. Each share of Series J Convertible Preferred Stock shall vote on an as-if-converted to common stock basis, subject to certain conditions.
All of the shares of the Series J Preferred Stock converted automatically into shares of the Company’s common stock on December 18, 2020, the date the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate of Incorporation, which Certificate of Amendment increased the number of authorized shares of the Company’s common stock to at least a number that permitted all the Series J Preferred Stock, the “Series K Convertible Preferred Stock” (the “Series K Preferred Stock”), the “Series I Convertible Preferred Stock” (“Series I Preferred Stock”), and the Series H Preferred Stock, to be converted in full (further details are provided under the heading Amendment to Certificate of Incorporation in Note 14).
Pursuant to a registration rights agreement entered into in connection with the securities purchase agreements, the Company agreed to register the shares issuable upon conversion of the Series J Preferred Stock for resale by the investors. The Company committed to file the registration statement by no later than the 30th calendar day following the date the Company files its (a) Annual Reports on Form 10-K for the fiscal year ended December 31, 2018 and December 31, 2019, (b) all its required Quarterly Reports on Form 10-Q since the quarter ended September 30, 2018, through the quarter ended September 30, 2020, and (c) any Form 8-K Reports that the Company is required to file with the SEC; but in no event later than April 30, 2021 (the “Series J Filing Date”). The Company also committed to cause the registration statement to become effective by no later than 60 days after the Series J Filing Date (or, in the event of a full review by the staff of the SEC, 120 days following the Series J Filing Date). The registration rights agreement provides for Registration Rights Damages (as further described in Note 14 to the audited consolidated financial statements for the year ended December 31, 2019) upon the occurrence of certain events up to a maximum amount of 6% of the aggregate amount invested.
The securities purchase agreements also included a provision that requires the Company to maintain its periodic filings with the SEC in order to satisfy the public information requirements under Rule 144(c) of the Securities Act. If the Company fails for any reason to satisfy the current public information commencing from the six (6) month anniversary date of issuance of the Series J Preferred Shares, then the Company will be obligated to pay Public Information Failure Damages (as further described in Note 14 to the audited consolidated financial statements for the year ended December 31, 2019) to each holder, consisting of a cash payment equal to 1% of the amount invested as partial liquidated damages, up to a maximum of six months, subject to interest at the rate of 1% per month until paid in full.
Further details with respect to preferred stock as of the date these condensed consolidated financial statements were issued or were available to be issued are provided under the heading Preferred Stock in Note 14)
10. Stockholders’ Equity
Common Stock
The Company has the authority to issue 1,000,000,000 shares of common stock, $0.01 par value per share (further details as of the date of these financial statement were issued or were available to be issued are provided under the heading Amendment to Certificate of Incorporation in Note 13).
Common Stock Warrants
The Company issued warrants to purchase shares of the Company’s common stock to MDB Capital Group, LLC (the “MDB Warrants”), L2 Capital, LLC (the “L2 Warrants”), Strome Mezzanine Fund LP (the “Strome Warrants”), and B. Riley Financial, Inc. (the “B. Riley Warrants”) in connection with various financing transactions (collectively, the “Financing Warrants”).
The Financing Warrants outstanding and exercisable as of September 30, 2020 are summarized as follows:
Outstanding | ||||||||||||||||||
Exercise | Expiration | Classified as Derivative Liabilities | Classified within Stockholders’ Equity | Total Exercisable | ||||||||||||||
Price | Date | (Shares) | (Shares) | (Shares) | ||||||||||||||
MDB Warrants | $ | 0.20 | November 4, 2021 | - | 327,490 | 327,490 | ||||||||||||
Strome Warrants | 0.50 | June 15, 2023 | 1,500,000 | - | 1,500,000 | |||||||||||||
B. Riley Warrants | 1.00 | October 18, 2025 | 875,000 | - | 875,000 | |||||||||||||
MDB Warrants | 1.15 | October 19, 2022 | - | 119,565 | 119,565 | |||||||||||||
MDB Warrants | 2.50 | October 19, 2022 | - | 60,000 | 60,000 | |||||||||||||
Total outstanding and exercisable | 2,375,000 | 507,055 | 2,882,055 |
The intrinsic value of exercisable but unexercised in-the-money stock warrants as of September 30, 2020 was $810,968, based on a fair market value of the Company’s common stock of $0.89 per share on September 30, 2020.
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11. Compensation Plans
The Company provides stock-based compensation in the form of (a) stock awards to employees and directors, comprised of restricted stock awards and restricted stock units (collectively referred to as the “Restricted Stock Awards”), (b) stock option grants to employees directors and consultants (referred to as the “Common Stock Awards”) (c) stock option awards, restricted stock awards, unrestricted stock awards, and stock appreciation rights to employees, directors and consultants (collectively the “Common Equity Awards”), (d) stock option awards outside the 2016 Stock Incentive Plan and 2019 Equity Incentive Plan to certain officers, directors and employees (referred to as the “Outside Options”), (e) common stock warrants to the Company’s channel partners (referred to as the “Channel Partner Warrants”), and (f) common stock warrants to ABG-SI, LLC (referred to as the “ABG Warrants”).
Stock-based compensation and equity-based expense charged to operations or capitalized during the three months and nine months ended September 30, 2020 and 2019 are summarized as follows:
Restricted | Common | Common | Channel | |||||||||||||||||||||||||
Stock | Stock | Equity | Outside | Partner | ABG | |||||||||||||||||||||||
Awards | Awards | Awards | Options | Warrants | Warrants | Totals | ||||||||||||||||||||||
During the Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
Cost of revenue | $ | 35,610 | $ | 53,149 | $ | 1,178,276 | $ | 2,471 | $ | 992 | $ | - | $ | 1,270,498 | ||||||||||||||
Selling and marketing | 323,164 | 42,695 | 734,391 | 43,900 | - | - | 1,144,150 | |||||||||||||||||||||
General and administrative | 80,306 | 127,786 | 855,390 | - | - | 364,248 | 1,427,730 | |||||||||||||||||||||
Total costs charged to operations | 439,080 | 223,630 | 2,768,057 | 46,371 | 992 | 364,248 | 3,842,378 | |||||||||||||||||||||
Capitalized platform development | 88,619 | 32,680 | 267,013 | 1,188 | - | - | 389,500 | |||||||||||||||||||||
Total stock-based compensation | $ | 527,699 | $ | 256,310 | $ | 3,035,070 | $ | 47,559 | $ | 992 | $ | 364,248 | $ | 4,231,878 | ||||||||||||||
During the Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||
Cost of revenue | $ | 30,564 | $ | 6,644 | $ | 231,936 | $ | 150 | $ | 15,959 | $ | - | $ | 285,253 | ||||||||||||||
Selling and marketing | - | 26,237 | 139,921 | 55,685 | - | - | 221,843 | |||||||||||||||||||||
General and administrative | 553,866 | 426,594 | 1,094,017 | 45,328 | - | 364,248 | 2,484,053 | |||||||||||||||||||||
Total costs charged to operations | 584,430 | 459,475 | 1,465,874 | 101,163 | 15,959 | 364,248 | 2,991,149 | |||||||||||||||||||||
Capitalized platform development | 130,445 | 55,394 | 225,804 | 2,081 | - | - | 413,724 | |||||||||||||||||||||
Total stock-based compensation | $ | 714,875 | $ | 514,869 | $ | 1,691,678 | $ | 103,244 | $ | 15,959 | $ | 364,248 | $ | 3,404,873 | ||||||||||||||
During the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
Cost of revenue | $ | 108,936 | $ | 150,915 | $ | 3,261,542 | $ | 5,644 | $ | 36,654 | $ | - | $ | 3,563,691 | ||||||||||||||
Selling and marketing | 920,566 | 102,206 | 2,114,595 | 142,767 | - | - | 3,280,134 | |||||||||||||||||||||
General and administrative | 238,558 | 437,614 | 2,430,553 | 150,577 | - | 1,084,826 | 4,342,128 | |||||||||||||||||||||
Total costs charged to operations | 1,268,060 | 690,735 | 7,806,690 | 298,988 | 36,654 | 1,084,826 | 11,185,953 | |||||||||||||||||||||
Capitalized platform development | 234,611 | 154,445 | 864,656 | 5,451 | - | - | 1,259,163 | |||||||||||||||||||||
Total stock-based compensation | $ | 1,502,671 | $ | 845,180 | $ | 8,671,346 | $ | 304,439 | $ | 36,654 | $ | 1,084,826 | $ | 12,445,116 | ||||||||||||||
During the Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||
Cost of revenue | $ | 92,465 | $ | 33,828 | $ | 362,993 | $ | 1,428 | $ | 34,868 | $ | - | $ | 525,582 | ||||||||||||||
Selling and marketing | 34,393 | 74,177 | 259,957 | 132,936 | - | - | 501,463 | |||||||||||||||||||||
General and administrative | 2,128,725 | 1,226,111 | 2,026,302 | 111,336 | - | 431,555 | 5,924,029 | |||||||||||||||||||||
Total costs charged to operations | 2,255,583 | 1,334,116 | 2,649,252 | 245,700 | 34,868 | 431,555 | 6,951,074 | |||||||||||||||||||||
Capitalized platform development | 462,754 | 128,179 | 390,834 | 4,227 | - | - | 985,994 | |||||||||||||||||||||
Total stock-based compensation | $ | 2,718,337 | $ | 1,462,295 | $ | 3,040,086 | $ | 249,927 | $ | 34,868 | $ | 431,555 | $ | 7,937,068 |
Unrecognized compensation expense related to the stock-based compensation awards and equity-based awards as of September 30, 2020 was as follows:
Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
Restricted Stock Awards | Common Stock Awards | Common Equity Awards | Outside Options | Channel Partner Warrants | ABG Warrants | Totals | ||||||||||||||||||||||
Unrecognized compensation expense | $ | 537,147 | $ | 974,519 | $ | 22,961,004 | $ | 416,750 | $ | - | $ | 3,578,350 | $ | 28,467,770 | ||||||||||||||
Weighted average period expected to be recognized (in years) | 0.50 | 0.65 | 2.04 | 1.43 | - | 2.63 | 2.03 |
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12. Revenue Recognition
Disaggregation of Revenue
The following table provides information about disaggregated revenue by product line, geographical market and timing of revenue recognition:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue by product line: | ||||||||||||||||
Advertising | $ | 9,409,031 | $ | 5,456,555 | $ | 28,788,631 | $ | 17,264,621 | ||||||||
Digital subscriptions | 8,469,943 | 1,891,702 | 20,096,640 | 1,999,636 | ||||||||||||
Magazine circulation | 12,874,574 | - | 34,041,272 | - | ||||||||||||
Other | 1,336,445 | 237,763 | 2,667,243 | 366,009 | ||||||||||||
Total | $ | 32,089,993 | $ | 7,586,020 | $ | 85,593,786 | $ | 19,630,266 | ||||||||
Revenue by geographical market: | ||||||||||||||||
United States | $ | 29,964,150 | $ | 7,386,753 | $ | 81,295,916 | $ | 19,430,999 | ||||||||
Other | 2,125,843 | 199,267 | 4,297,870 | 199,267 | ||||||||||||
Total | $ | 32,089,993 | $ | 7,586,020 | $ | 85,593,786 | $ | 19,630,266 | ||||||||
Revenue by timing of recognition: | ||||||||||||||||
At point in time | $ | 23,620,050 | $ | 5,694,318 | $ | 65,497,146 | $ | 17,630,630 | ||||||||
Over time | 8,469,943 | 1,891,702 | 20,096,640 | 1,999,636 | ||||||||||||
Total | $ | 32,089,993 | $ | 7,586,020 | $ | 85,593,786 | $ | 19,630,266 |
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.
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The following table provides information about contract balances:
As of | ||||||||
September 30, 2020 | December 31, 2019 | |||||||
Unearned revenue (short-term contract liabilities): | ||||||||
Digital subscriptions | $ | 13,137,506 | $ | 8,634,939 | ||||
Magazine circulation | 39,669,193 | 23,528,148 | ||||||
$ | 52,806,699 | $ | 32,163,087 | |||||
Unearned revenue (long-term contract liabilities): | ||||||||
Digital subscriptions | $ | 1,460,756 | $ | 478,557 | ||||
Magazine circulation | 11,832,810 | 30,478,154 | ||||||
Other | 200,000 | 222,500 | ||||||
$ | 13,493,566 | $ | 31,179,211 |
Unearned Revenue – Unearned revenue, also referred to as contract liabilities, include payments received in advance of performance under the contracts and are recognized as revenue over time. The Company records contract liabilities as unearned revenue on the consolidated balance sheets. Digital subscription and magazine circulation revenue of $25,359,975 was recognized during the nine months ended September 30, 2020 from unearned revenue at the beginning of the year.
During January and February of 2020, the Company modified certain digital and magazine subscription contracts that prospectively changed the frequency of the related issues required to be delivered on a yearly basis. The Company determined that the remaining digital content and magazines to be delivered are distinct from the digital content or magazines already provided under the original contract. As a result, the Company in effect established a new contract that included only the remaining digital content or magazines. Accordingly, the Company allocated the remaining performance obligations in the contracts as consideration from the original contract that has not yet been recognized as revenue.
13. Commitments and Contingencies
Revenue Guarantees
On a select basis, the Company has provided revenue share guarantees to certain independent publishers that transition their publishing operations from another platform to theMaven.net or maven.io. These arrangements generally guarantee the publisher a monthly amount of income for a period of 12 to 24 months from inception of the publisher contract that is the greater of (a) a fixed monthly minimum, or (b) the calculated earned revenue share. For the three months ended September 30, 2020 and 2019, the Company recognized Channel Partner guarantees of $2,539,055 and $1,674,382, respectively. For the nine months ended September 30, 2020 and 2019, the Company recognized Channel Partner guarantees of $7,541,619 and $4,045,014, respectively.
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.
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14. 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.
Compensation Plans
On December 15, 2020, the Company entered into an amendment for certain restricted stock awards and restricted stock units. Pursuant to the amendment:
● | the restricted stock awards would cease to vest and all unvested shares would be deemed unvested and forfeited, leaving an aggregate of 1,064,549 shares vested; | |
● | the restricted stock units would be modified to vest on December 31, 2020 and as of the close of business on December 31, 2020, each restricted stock unit was terminated and deemed forfeited, with no shares vesting thereunder; and | |
● | subject to certain conditions, the Company agreed to purchase from certain key personnel the vested restricted stock awards, at a price of $4.00 per share in 24 equal monthly installments on the second business day of each calendar month beginning on January 4, 2021. |
On January 8, 2021, the board of directors (the “Board”) approved an amendment to certain option awards granted under the 2019 Equity Incentive Plan (the “2019 Plan”) to remove certain vesting conditions for the performance-based awards. In general, pursuant to the amendment:
● | the common stock options would vest with respect to one-third of the grant when the option holder completes one year of continuous service beginning on the grant date; and | |
● | the remaining common stock options would vest monthly over twenty-four months when the option holder completes each month of continuous service thereafter. |
On February 18, 2021, the Board approved an amendment to the Company’s 2019 Plan to increase the number of shares of the Company’s common stock, available for issuance under the 2019 Plan from 85,000,000 shares to 185,000,000 shares.
On February 18, 2021, the Board approved up to an aggregate amount of 26,200,000 stock options to be made on or before March 18, 2021 for shares of the Company’s common stock to certain executive officers of the Company under the 2019 Plan. A total of 11,158,049 stock options were granted and designated as a non-qualified stock options, subject to certain terms and conditions.
On February 18, 2021, the Board approved the issuance of restricted stock units to certain executive officers of the Company under the 2019 Plan. A total of 26,048,781 restricted stock units were granted, subject to certain terms and conditions.
From October 2020 through the date these condensed consolidated financial statements were issued or were available to be issued, the Company granted common stock options, restricted stock units and restricted stock awards totaling 77,157,799 (includes 11,158,049 stock options and 26,048,781 restricted stock units issued on February 28, 2021 as described above), of which 77,157,799 remain outstanding.
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12% Convertible Debentures
On December 31, 2020, certain holders converted the 12% Convertible Debentures representing an aggregate of $18,104,949 of the then-outstanding principal and accrued but unpaid interest into 53,887,470 shares of the Company’s common stock at effective conversion per-share prices ranging from $0.33 to $0.40. Further, the Company repaid an aggregate of $1,130,903 of the 12% Convertible Debentures, including the then-outstanding principal and accrued interest in cash. As of December 31, 2020, there was no longer any principal or accrued but unpaid interest outstanding under the 12% Convertible Debentures. As a result of the conversion of certain 12% Convertible Debentures into shares of the Company’s common stock, the Company will no longer have an embedded derivative liability related to the conversion option features, buy-in features, and default remedy features and will recognize the fair value of such amount upon conversion as additional paid-in capital. Further, with respect to the conversion of the accrued interest into shares of the Company’s common stock, the Company will recognize a loss on conversion, as deemed appropriate, at the time of conversion.
12% Second Amended Senior Secured Note
On October 23, 2020, the Company entered into Amendment No. 1 to the second amended and restated note purchase agreement (“Amendment 1”), pursuant to which the maturity date of the 12% Second Amended Senior Secured Note was changed to December 31, 2022, subject to certain acceleration conditions. Pursuant to Amendment 1, interest payable on the 12% Second Amended Senior Secured Note on September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 will be payable in-kind in arrears on the last day of such fiscal quarter. Alternatively, at the option of the holder, such interest amounts originally could have been paid in shares of “Series K Convertible Preferred Stock” (“Series K Preferred Stock”); however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, all such interest amounts can be paid in shares of the Company’s common stock based upon the conversion rate specified for the Series K Preferred Stock (or $0.40).
The balance outstanding under the 12% Second Amended Senior Secured Note as of the date these condensed consolidated financial statements were issued or were available to be issued was approximately $56.3 million, which included outstanding principal of approximately $48.8 million, payment of in-kind interest of approximately $4.2 million that the Company was permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately $3.3 million.
Delayed Draw Term Note
On October 23, 2020, pursuant to the terms of Amendment 1, the maturity date of the Delayed Draw Term Note was changed from March 31, 2021 to March 31, 2022. Amendment 1 also provided that the holder, could originally elect, in lieu of receipt of cash for payment of all or any portion of the interest due or cash payments up to a certain conversion portion (as further described in Amendment 1) of the Delayed Draw Term Note, to receive shares of Series K Preferred Stock; however, after December 18, 2020, the date the Series K Preferred Stock converted into shares of the Company’s common stock, the holder may elect, in lieu of receipt of cash for such amounts, shares of the Company’s common stock based upon the conversion rate specified for the Series K Preferred Stock (or $0.40).
As of the date these condensed consolidated financial statements were issued or were available to be issued, $3,367,000, including $3,295,505 of principal amount of the Delayed Draw Term Note and $71,495 of accrued interest, had been converted into shares of our Series K Preferred Stock. The aggregate principal amount outstanding under the Delayed Draw Term Note as of the date these condensed consolidated financial statements were issued or were available to be issued was approximately $4.3 million (including payment of in-kind interest of approximately $0.7 million, which was added to the outstanding Delayed Draw Term Note balance).
Preferred Stock
Series H Preferred Stock – On October 31, 2020, the Company issued 389 shares of Series H Preferred Stock to James Heckman at the stated value of $1,000, convertible into 1,178,787 shares of the Company’s common stock, at the option of the holder subject to certain limitations at a conversion rate equal to the stated value divided by the conversion price of $0.33 per share. The shares of Series H Preferred Stock were issued in connection with the cancellation of promissory notes payable to Mr. Heckman in the aggregate outstanding principal amount of $389,000.
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Series K Preferred Stock – On October 22, 2020, 20,000 authorized shares of the Company’s preferred stock were designated the Series K Preferred Stock. Between October 23, 2020 and November 11, 2020, the Company closed on several securities purchase agreements with accredited investors, pursuant to which the Company issued an aggregate of 18,042 shares of Series K Preferred Stock at a stated value of $1,000, initially convertible into 45,105,000 shares of the Company’s common stock at a conversion rate equal to the stated value divided by the conversion price of $0.40 per share, for aggregate gross proceeds of $18,042,000. The number of shares issuable upon conversion of the Series K Preferred Stock will be adjusted in the event of stock splits, stock dividends, combinations of shares and similar transactions. Each Series K Preferred Stock votes on an as-if-converted to common stock basis, subject to certain conditions.
In consideration for its services as placement agent, the Company paid B. Riley FBR, Inc. (“B. Riley FBR”) a cash fee of $560,500. The Company used approximately $3.4 million of the net proceeds from the financing to partially repay the Delayed Draw Term Note and used approximately $2.6 million for payment on a prior investment, with the remainder of approximately $11.5 million for working capital and general corporate purposes.
All of the shares of the Series K Preferred Stock converted automatically into shares of the Company’s common stock on December 18, 2020, the date the Company filed a the Certificate of Amendment to the Certificate of Incorporation, which Certificate of Amendment increased the number of authorized shares of the Company’s common stock to at least a number that permitted all the Series J Preferred Stock, the Series K Preferred Stock, the Series I Preferred Stock, and the Series H Preferred Stock, to be converted in full (further details are provided under the heading Amendment to Certificate of Incorporation).
Pursuant to a registration rights agreement entered into in connection with the securities purchase agreements, the Company agreed to register the shares issuable upon conversion of the Series K Preferred Stock for resale by the investors. The Company committed to file the registration statement by no later than the 30th calendar day following the date the Company files its (a) Annual Reports on Form 10-K for the fiscal year ended December 31, 2018 and December 31, 2019, (b) all its required Quarterly Reports on Form 10-Q since the quarter ended September 30, 2018, through the quarter ended September 30, 2020, and (c) any Form 8-K Reports that the Company is required to file with the SEC; provided, however, if such 30th calendar day is on or after February 12, 2021, then such 30th calendar date shall be tolled until the 30th calendar day following the date that the Company files its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Series K Filing Date”). The Company also committed to cause the registration statement to become effective by no later than 90 days after the Series K Filing Date (or, in the event of a full review by the staff of the SEC, 120 days following the Series K Filing Date). The registration rights agreement provides for Registration Rights Damages (as further described in Note 14 to the audited consolidated financial statements for the year ended December 31, 2019) upon the occurrence of certain events up to a maximum amount of 6% of the aggregate amount invested.
The securities purchase agreements also included a provision that requires the Company to maintain its periodic filings with the SEC in order to satisfy the public information requirements under Rule 144(c) of the Securities Act. If the Company fails for any reason to satisfy the current public information requirement commencing from the six (6) month anniversary date of issuance of the Series K Preferred Shares, then the Company will be obligated to pay Public Information Failure Damages (as further described in Note 14 to the audited consolidated financial statements for the year ended December 31, 2019) to each holder, consisting of a cash payment equal to 1% of the amount invested as partial liquidated damages, up to a maximum of six months, subject to interest at the rate of 1% per month until paid in full.
Series L Preferred Stock – On May 4, 2021, the Special Finance & Governance Committee (the “Special Committee”) of the Board of the Company adopted a Rights Agreement (i) to ensure that all stockholders of the Company receive fair and equal treatment in the event of a proposed takeover of the Company, (ii) to guard against two-tier or partial tender offers, open market accumulations, creeping stock accumulation programs and other tactics designed to gain control of the Company without paying all stockholders a fair and adequate price, including a sufficient premium for such controlling interest, (iii) to protect the Company and its stockholders from efforts to capitalize on market volatility and macroeconomic conditions to obtain control of the Company on terms that the Board determines are not in the best interests of the Company and its stockholders and (iv) to enhance the Board’s ability to negotiate with a prospective acquirer.
Also on May 4, 2021, the Special Committee declared a dividend of one preferred stock purchase right (each a “Right”) to be paid to the stockholders of record at the close of business on May 14, 2021 for (i) each outstanding share of the Company’s common stock and (ii) each share of the Company’s common stock issuable upon conversion of each share of the Company’s Series H Preferred Stock. Each Right entitles the registered holder to purchase, subject to the Rights Agreement, from the Company one one-thousandth of a share of the Company’s newly created Series L Junior Participating Preferred Stock, par value $0.01 per share (the “Series L Preferred Stock”), at a price of $4.00, subject to certain adjustments. The Series L Preferred Stock will be entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share or (ii) 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions paid to the holders of the Company’s Common Stock. The Series L Preferred Stock will be entitled to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. In the event of any merger, consolidation or other transaction in which shares of the Company’s common stock are converted or exchanged, the Series L Preferred Stock will be entitled to receive 1,000 times the amount received per one share of the Company’s common stock.
Leases
On October 30, 2020, the Company entered into a surrender agreement pursuant to which the Company effectively surrendered certain property located in New York, New York back to the landlord. Pursuant to the surrender agreement, the security deposit of $500,000 held by the landlord and reflected within restricted cash on the condensed consolidated balance sheets was applied to the balance in arrears. In addition, the Company agreed to pay $68,868 per month from January 1, 2021 through June 1, 2022 to satisfy the remaining outstanding balance of $1,239,624 owed to the landlord. The landlord agreed not to charge any late fees, interest charges, or other penalties relating to the surrender of the property.
Amendment to Certificate of Incorporation
On December 18, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation to increase the number of authorized shares of its common stock from 100,000,000 shares to 1,000,000,000 shares. As a result, as of December 18, 2020, the Company has a sufficient number of authorized but unissued shares of its common stock available for issuance required under all of its securities that are convertible into shares of its common stock.
As a result of the increase in authorized and unissued shares of the Company’s common stock on December 18, 2020, all of the Series I Preferred Stock, Series J Preferred Stock (including shares issued subsequent to September 30, 2020 as described above) and Series K Preferred Stock (including shares issued subsequent to September 30, 2020 as described above), were converted into shares of the Company’s common stock, accordingly, the Company will recognize a beneficial conversion feature, as deemed appropriate, at the time of conversion.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2020 and 2019 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, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 9, 2021. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those set forth above. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Forward-Looking Statements.”
Overview
We operate a best-in-class technology platform empowering premium publishers who impact, inform, educate and entertain. We operate the media businesses for Sports Illustrated (“Sports Illustrated”) and TheStreet, and power more than 250 independent brands including History, Maxim, and Biography. Our platform (the “Maven Platform”) provides digital publishing, distribution and monetization capabilities to our own Sports Illustrated and TheStreet media businesses as well as to the coalition of independent, professionally managed online media publishers (referred to as the “Channel Partners”). Generally, the Channel Partners are independently owned strategic partners who receive a share of revenue from the interaction with their content. They also benefit from our membership marketing and management systems to further 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 Channel Partners or by acquiring publishers as owned and operated entities. By adding premium content brands, we will further expand the scale of the Maven Platform, improve monetization effectiveness in both advertising and subscription revenues, and enhance the attractiveness to consumers and advertisers.
Liquidity and Capital Resources
As of September 30, 2020, our principal sources of liquidity consisted of cash of approximately $4.7 million. As of the issuance date of our accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2020, we had also raised funds from the issuance of convertible preferred stock of approximately $14.7 million, in addition to the use of additional proceeds from our working capital facility with FastPay, all of which are discussed in greater detail below in the section entitled “Future Liquidity.”
We continued to be focused on growing our existing operations and seeking accretive and complementary strategic acquisitions as part of our growth strategy. We believed, that with additional sources of liquidity and the ability to raise additional capital or incur additional indebtedness to supplement our then internal projections, we would be able to execute our growth plan and finance our working capital requirements.
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, 2020 and December 31, 2019 was as follows:
As of | ||||||||
September 30, 2020 | December 31, 2019 | |||||||
Current assets | $ | 46,376,242 | $ | 48,160,360 | ||||
Current liabilities | (106,782,238 | ) | (87,541,031 | ) | ||||
Working capital deficit | (60,405,996 | ) | (39,380,671 | ) |
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As of September 30, 2020, we had a working capital deficit of approximately $60.1 million, as compared to approximately $39.4 million as of December 31, 2019, consisting of approximately $46.4 million in total current assets and approximately $106.8 million in total current liabilities. Included in current assets as of September 30, 2020, was approximately $1.0 million of restricted cash. Also included in our working capital deficit are non-cash current liabilities, consisting of approximately $1.8 million of warrant derivative liabilities and approximately $11.3 million of embedded derivative liabilities, leaving a working capital deficit that requires cash payments of approximately $48.3 million.
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Net cash used in operating activities | $ | (20,273,407 | ) | $ | (52,745,965 | ) | ||
Net cash used in investing activities | (4,286,469 | ) | (17,821,562 | ) | ||||
Net cash provided by financing activities | 20,821,378 | 70,634,452 | ||||||
Net (decrease) increase in cash, cash equivalents, and restricted cash | $ | (3,738,498 | ) | $ | 66,925 | |||
Cash, cash equivalents, and restricted cash, end of period | $ | 5,734,592 | $ | 2,594,214 |
For the nine months ended September 30, 2020, net cash used in operating activities was approximately $20.3 million, consisting primarily of: (i) approximately $82.1 million of cash received from customers (including payments received in advance of performance obligations); less (ii) less approximately $102.4 million of cash paid to employees, channel partners, suppliers, vendors, and for revenue share arrangements and professional services; and less (iii) approximately $0.4 million of cash paid for interest; as compared to the nine months ended September 30, 2019, where net cash used in operating activities was approximately $52.7 million, consisting primarily of: (i) approximately $24.7 million of cash received from customers (including payments received in advance of performance obligations); less (ii) approximately $77.4 million of cash paid to employees, channel partners, suppliers, vendors, and for revenue share arrangements, advance of royalty fees and professional services; and less (iii) approximately $1.4 million of cash paid for interest.
For the nine months ended September 30, 2020, net cash used in investing activities was approximately $4.3 million, consisting primarily of (i) approximately $0.3 million for the acquisition of a business; (ii) approximately $1.1 million for purchases of property and equipment; and (iii) approximately $2.9 million for capitalized costs for our Maven Platform; as compared to the nine months ended September 30, 2019, where net cash used in investing activities was approximately $17.8 million, consisting primarily of (i) approximately $16.0 million for the acquisition of a business; (ii) approximately $0.1 million for purchases of property and equipment; (iii) and $1.7 million for capitalized costs for our Maven Platform.
For the nine months ended September 30, 2020, net cash provided by financing activities was approximately $20.8 million, consisting primarily of: (i) approximately $6.1 million in net proceeds from the issuance of Series H Preferred Stock and Series J Preferred Stock; (ii) approximately $11.7 million in net proceeds from the Delayed Draw Term Note and the Payroll Protection Program Loan; less (iii) approximately $3.3 million in repayments of our line of credit; and (iv) approximately $0.3 million in payments for taxes relating to repurchase of restricted shares; as compared to the nine months ended September 30, 2019, where net cash provided by financing activities was approximately $70.6 million, consisting primarily of: (i) approximately $22.6 million in net proceeds from the issuance of Series I Preferred Stock and Series J Preferred Stock; (ii) approximately $2.0 million in gross proceeds from the 12% Convertible Debentures; (iii) approximately $46.5 million in proceeds from the issuance of long-term debt (12% Amended Senior Secured Notes) net of repayments and debt issuance costs; and less (iv) approximately $0.1 million in payments for taxes related to repurchase of restricted common stock; and (v) approximately $0.4 million in repayment of officer promissory note.
Future Liquidity
From October 1, 2020 to the issuance date of our accompanying condensed consolidated financial statements for the nine months ended September 30, 2020, we continued to incur operating losses and negative cash flow from operating and investing activities. We have raised approximately $14.7 million in net proceeds pursuant to the sale and issuances of Series K Preferred Stock. Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2020 was approximately $2.4 million.
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Results of Operations
Three Months Ended September 30, 2020 and 2019
Three Months Ended September 30, | 2020 versus 2019 | |||||||||||||||
2020 | 2019 | $ Change | % Change | |||||||||||||
Revenue | $ | 32,089,993 | $ | 7,586,020 | $ | 24,503,973 | 323.0 | % | ||||||||
Cost of revenue | 24,708,941 | 7,612,585 | 17,096,356 | 224.6 | % | |||||||||||
Gross profit (loss) | 7,381,052 | (26,565 | ) | 7,407,617 | -27,884.9 | % | ||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 9,928,901 | 2,059,820 | 7,869,081 | 382.0 | % | |||||||||||
General and administrative | 7,172,175 | 7,262,496 | (90,321 | ) | -1.2 | % | ||||||||||
Depreciation and amortization | 4,053,184 | 349,604 | 3,703,580 | 1,059.4 | % | |||||||||||
Total operating expenses | 21,154,260 | 9,671,920 | 11,482,340 | 118.7 | % | |||||||||||
Loss from operations | (13,773,208 | ) | (9,698,485 | ) | (4,074,723 | ) | 42.0 | % | ||||||||
Total other expense | (7,491,223 | ) | (9,980,636 | ) | 2,489,413 | -24.9 | % | |||||||||
Loss before income taxes | (21,264,431 | ) | (19,679,121 | ) | (1,585,310 | ) | 8.1 | % | ||||||||
Income taxes | - | - | - | 0.0 | % | |||||||||||
Net loss | (21,264,431 | ) | (19,679,121 | ) | (1.585,310 | ) | 8.1 | % | ||||||||
Deemed dividend on Series H convertible preferred stock | (132,663 | ) | - | (132,663 | ) | 100.0 | % | |||||||||
Net loss attributable to common shareholders | $ | (21,397,094 | ) | $ | (19,679,121 | ) | $ | (1,717,973 | ) | $ | 8.7 | % | ||||
Basic and diluted net loss per common share | $ | (0.55 | ) | $ | (0.54 | ) | $ | (0.01 | ) | 1.9 | % | |||||
Weighted average number of shares outstanding – basic and diluted | 39,186,432 | 36,240,837 | 2,945,595 | 8.1 | % |
For the three months ended September 30, 2020, the total net loss was approximately $21.4 million. The total net loss increased by approximately $1.7 million as compared to the three months ended September 30, 2019 which had a net loss of approximately $19.7 million. Despite the fact that our operations continued to rapidly expand during the three months ended September 30, 2020, we did not have a significant net loss change, from the comparable period in 2019. In particular, during the three months ended September 30, 2020 we operated our Sports Illustrated media business that we acquired after September 30, 2019. For the three months ended September 30, 2019, we operated our legacy business and also our previously acquired businesses that included HubPages, Inc. (“HubPages”) and Say Media, Inc. (“Say Media”). The basic and diluted net loss per common share for the three months ended September 30, 2020 of $0.55 decreased from $0.54 for the three months ended September 30, 2019, primarily because of our net loss per common share decrease along with the increase of the daily weighted average shares outstanding to 39,186,432 shares from 36,240,837 shares.
Our growth strategy is principally focused on adding new publisher partners to our Maven Platform. In addition, if the right opportunity exists, we would consider also acquiring related online media, publishing and technology businesses by merger or acquisition transactions. This combined growth strategy expanded the scale of unique users interacting on our Maven Platform with increased revenues during the three months ended September 30, 2020. We expect revenues increases in subsequent periods will come from organic growth in operations, addition of more publisher partners, and mergers and acquisitions.
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Revenue
The following table sets forth revenue, cost of revenue, and gross profit (loss):
Three Months Ended September 30, | 2020 versus 2019 | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | |||||||||||||||||||||
(percentage reflect cost of revenue as a percentage of total revenue) | ||||||||||||||||||||||||
Revenue | $ | 32,089,993 | 100.0 | % | $ | 7,586,020 | 100.0 | % | $ | 24,503,973 | 323.0 | % | ||||||||||||
Cost of revenue | 24,708,941 | 77.0 | % | 7,612,585 | 100.4 | % | 17,096,356 | 224.6 | % | |||||||||||||||
Gross profit (loss) | $ | 7,381,052 | 23.0 | % | $ | (26,565 | ) | -0.4 | % | $ | 7,407,617 | -27,884.9 | % |
For the three months ended September 30, 2020, we had revenue of approximately $32.1 million, as compared to revenue of approximately $7.6 million for the nine months ended September 30, 2019.
The following table sets forth revenue by product line and the corresponding percent of total revenue:
Three Months Ended September 30, | 2020 versus 2019 | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | |||||||||||||||||||||
(percentages reflect product line as a percentage of total revenue) | ||||||||||||||||||||||||
Advertising | $ | 9,409,031 | 29.3 | % | $ | 5,456,555 | 71.9 | % | $ | 3,952,476 | 52.1 | % | ||||||||||||
Digital subscriptions | 8,469,943 | 26.4 | % | 1,891,702 | 24.9 | % | 6,578,241 | 86.7 | % | |||||||||||||||
Magazine circulation | 12,874,574 | 40.1 | % | - | 0.0 | % | 12,874,574 | 169.7 | % | |||||||||||||||
Other | 1,336,445 | 4.2 | % | 237,763 | 3.1 | % | 1,098,682 | 14.5 | % | |||||||||||||||
Total revenue | $ | 32,089,993 | 100.0 | % | $ | 7,586,020 | 100.0 | % | $ | 24,503,973 | 323.0 | % |
For the three months ended September 30, 2020, the primary sources of revenue were as follows: (i) advertising of approximately $9.4 million; (ii) digital subscriptions of approximately $8.5 million; (iii) magazine circulation of approximately $12.9 million; and (iv) approximately $1.3 million from other revenue. Our advertising revenue increased by approximately $4.0 million, due to additional revenue of approximately $0.4 million generated by TheStreet, approximately $4.3 million generated by our Sports Illustrated media business, and an approximate $0.8 million decrease in our legacy business. Our digital subscriptions increased by approximately $6.6 million, due to additional revenue of approximately $4.7 million generated by TheStreet and approximately $1.7 million generated by our Sports Illustrated media business. Our magazine circulation contributed approximately $12.9 million as a result of the Sports Illustrated media business acquired during the fourth quarter of 2019. Our other revenue increased by approximately $1.1 million; due to additional revenue of approximately $0.7 million generated by our Sports Illustrated media business and approximately $0.4 million from our legacy business.
Cost of Revenue
For the three months ended September 30, 2020 and 2019, we recognized cost of revenue of approximately $24.7 million and approximately $7.6 million, respectively. The increase of approximately $17.1 million in cost of revenue is primarily from: (i) our Channel Partner guarantees and revenue share payments of approximately $1.4 million; (ii) payroll, stock based compensation, and related expenses for customer support, technology maintenance, and occupancy costs of related personnel of approximately $6.3 million; (iii) amortization of our Maven Platform of approximately $0.5 million (which includes our Maven Platform spending and amortization related to acquired developed technology from our acquisitions); (iv) royalty fees of approximately $3.8 million; (v) hosting, bandwidth, and software licensing fees of approximately $0.3 million; (vi) printing, distribution, and fulfillment costs of approximately $3.7 million and (vii) other costs of revenue of approximately $1.1 million.
For the three months ended September 30, 2020, we capitalized costs related to our Maven Platform of approximately $1.2 million, as compared to approximately $1.2 million for the three months ended September 30, 2019. For the three months ended September 30, 2020, the capitalization of our Maven Platform consisted of approximately $0.8 million in payroll and related expenses, including taxes and benefits, approximately $0.4 million in stock-based compensation for related personnel, and amortization of approximately $2.1 million.
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Operating Expenses
The following table sets forth operating expenses and the corresponding percentage of total revenue:
Three Months Ended September 30, | 2020 versus 2019 | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | |||||||||||||||||||||
(percentages reflect expense as a percentage of total revenue) | ||||||||||||||||||||||||
Selling and marketing | $ | 9,928,901 | 30.9 | % | $ | 2,059,820 | 27.2 | % | $ | 7,869,081 | 81.4 | % | ||||||||||||
General and administrative | 7,172,175 | 22.4 | % | 7,262,496 | 95.7 | % | (90,321 | ) | -0.9 | % | ||||||||||||||
Depreciation and amortization | 4,053,184 | 12.6 | % | 349,604 | 4.6 | % | 3,703,580 | 38.3 | % | |||||||||||||||
Total operating expenses | $ | 21,154,260 | $ | 9,671,920 | $ | 11,482,340 | 118.7 | % |
Selling and Marketing. For the three months ended September 30, 2020, we incurred selling and marketing costs of approximately $9.9 million, as compared to approximately $2.1 million for the three months ended September 30, 2019. The increase in selling and marketing cost of approximately $7.9 million is primarily from payroll of selling and marketing account management support teams, along with the related benefits and stock based compensation of approximately $2.3 million; circulation costs of approximately $3.6 million; advertising costs of approximately $1.4 million; and other selling and marketing related costs of approximately $0.4 million.
General and Administrative. For the three months ended September 30, 2020, we incurred general and administrative costs of approximately $7.2 million from payroll and related expenses, professional services, occupancy costs, stock based compensation of related personnel, depreciation and amortization, and other corporate expense, as compared to approximately $7.3 million for the three months ended September 30, 2019. The increase in general and administrative expenses of approximately $0.8 million is primarily from our increase in professional services, including accounting, legal and insurance of approximately $1.2 million; other general corporate expenses of approximately $0.7 million; less a decrease in payroll, along with the related benefits and stock-compensation of approximately $1.5 million.
Other (Expense) Income
The following table sets forth other (expense) income:
Three Months Ended September 30, | 2020 versus 2019 | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | |||||||||||||||||||||
(percentages reflect other expense (income) as a percentage of the total) | ||||||||||||||||||||||||
Change in valuation of warrant derivative liabilities | $ | (517,405 | ) | 6.9 | % | $ | (666,075 | ) | 6.7 | % | $ | 148,670 | -1.5 | % | ||||||||||
Change in valuation of embedded derivative liabilities | (2,370,000 | ) | 31.6 | % | (5,621,000 | ) | 56.3 | % | 3,251,000 | -32.6 | % | |||||||||||||
Interest expense | (4,253,180 | ) | 56.8 | % | (3,701,310 | ) | 37.1 | % | (551,870 | ) | 5.5 | % | ||||||||||||
Interest income | 1,116 | 0.0 | % | 7,749 | -0.1 | % | (6,633 | ) | 0.1 | % | ||||||||||||||
Liquidated damages | (319,903 | ) | 4.3 | % | - | 0.0 | % | (319,903 | ) | 3.2 | % | |||||||||||||
Other income | (31,851 | ) | 0.4 | % | - | 0.0 | % | (31,851 | ) | 0.3 | % | |||||||||||||
Total other (expense) | $ | (7,491,223 | ) | 100.0 | % | $ | (9,980,636 | ) | 100.0 | % | $ | 2,489,413 | -24.9 | % |
Change in Valuation of Warrant Derivative Liabilities. The change in valuation of warrant derivative liabilities for the three months ended September 30, 2020 was the result of the increase in the fair value of the warrant liabilities as of September 30, 2020, as compared to the change in the valuation of the three months ended September 30, 2019 where the change was from an increase in the fair value of the warrant derivative liabilities as of September 30, 2019.
Change in Valuation of Embedded Derivative Liabilities. The change in valuation of embedded derivative liabilities for the three months ended September 30, 2020 was the result of the increase in the fair value of the embedded derivative liabilities as of September 30, 2020, as compared to the change in the valuation of the three months ended September 30, 2019 where the change was from an increase in the fair value of the embedded derivative liabilities as of September 30, 2019.
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Interest Expense. We incurred interest expense of approximately $4.3 million for the three months ended September 30, 2020, primarily from approximately $1.7 million from amortization of debt discount on notes payable; approximately $2.4 million of accrued interest; and approximately $0.2 million of other interest, as compared to approximately $3.7 million for the three months ended September 30, 2019, primarily from approximately $1.5 million from amortization of debt discount on notes payable; and approximately $2.2 million of accrued interest.
Liquidated Damages. We recorded liquidated damages of approximately $0.3 million for the three months ended September 30, 2020, primarily from issuance of our 12% Convertible Debentures, Series I Preferred Stock, and Series J Preferred Stock issued during 2019. The liquidated damages were recognized because we determined that: (i) registration statements covering the shares of common stock issuable upon conversion under the aforementioned instruments would not be declared effective within the requisite time frame; and (ii) that we would not be able to file our periodic reports in the requisite time frame with the SEC in order to satisfy the public information requirements under the securities purchase agreements.
Nine Months Ended September 30, 2020 and 2019
Nine Months Ended September 30, | 2020 versus 2019 | |||||||||||||||
2020 | 2019 | $ Change | % Change | |||||||||||||
Revenue | $ | 85,593,786 | $ | 19,630,266 | $ | 65,963,520 | 336.0 | % | ||||||||
Cost of revenue | 76,321,953 | 18,752,322 | 57,569,631 | 307.0 | % | |||||||||||
Gross profit | 9,271,833 | 877,944 | 8,393,889 | 956.1 | % | |||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 27,698,182 | 4,660,213 | 23,037,969 | 494.4 | % | |||||||||||
General and administrative | 24,852,891 | 17,358,764 | 7,494,127 | 43.2 | % | |||||||||||
Depreciation and amortization | 12,276,990 | 565,581 | 11,711,409 | 2,070.7 | % | |||||||||||
Total operating expenses | 64,828,063 | 22,584,558 | 42,243,505 | 187.0 | % | |||||||||||
Loss from operations | (55,556,230 | ) | (21,706,614 | ) | (33,849,616 | ) | 155.9 | % | ||||||||
Total other expense | (11,646,154 | ) | (17,493,048 | ) | 5,846,894 | -33.4 | % | |||||||||
Loss before income taxes | (67,202,384 | ) | (39,199,662 | ) | (28,002,722 | ) | 71.4 | % | ||||||||
Income taxes | - | - | - | 0.0 | % | |||||||||||
Net loss | (67,202,384 | ) | (39,199,662 | ) | (28,002,722 | ) | 71.4 | % | ||||||||
Deemed dividend on Series H convertible preferred stock |