THEMAVEN This Annual Report includes the business and financial information for the Fiscal Year Period (i.e., the year endedDecember 31, 2020 ). Therefore, this Management's Discussion and Analysis of Financial Condition and Results of Operations provides an analysis of the financial condition and results of operations for the Fiscal Year Period. The following discussion should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.
Please see "Our Future Business" and "Future Liquidity" for additional important information.
28 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 and TheStreet, and power more than 250 independent brands. The Maven Platform provides digital publishing, distribution and monetization capabilities to our own Sports Illustrated and TheStreet media businesses as well as to the Publisher Partners. Generally, the Publisher 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 Publisher 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 ofDecember 31, 2020 , our principal sources of liquidity consisted of cash of approximately$9.0 million . In addition, we had the use of additional proceeds from our working capital facility withFPP Finance LLC ("FastPay"), As of the issuance date of our consolidated financial statements for the year endedDecember 31, 2020 , we had also received proceeds from a private placement of our common stock of approximately$20.0 million , which is 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
As of December 31,
2020 2019
Current assets $ 73,846,465 $ 48,160,360 Current liabilities (107,562,825 ) (87,541,031 ) Working capital deficit (33,716,360 ) (39,380,671 )
As ofDecember 31, 2020 , we had a working capital deficit of approximately$33.7 million , as compared to approximately$39.4 million as ofDecember 31, 2019 , consisting of approximately$73.8 million in total current assets and approximately$107.6 million in total current liabilities. Included in current assets as ofDecember 31, 2020 , was approximately$0.5 million of restricted cash. Also included in our working capital deficit is approximately$1.1 million of warrant derivative liabilities, leaving a working capital deficit that requires cash payments of approximately$32.6 million . We had a working capital deficit as ofDecember 31, 2019 , consisting of approximately$48.2 million in total current assets and approximately$87.5 million in total current liabilities. 29 Our cash flows during the years endedDecember 31, 2020 and 2019 consisted of the following: Years EndedDecember 31, 2020 2019
Net cash used in operating activities$ (32,294,587 ) $ (56,954,306 ) Net cash used in investing activities (4,927,833 ) (19,019,191 ) Net cash provided by financing activities 37,284,011
82,919,298
Net (decrease) increase in cash, cash equivalents, and restricted cash$ 61,591 $ 6,945,801 Cash, cash equivalents, and restricted cash, end of year$ 9,534,681 $ 9,473,090
For the year endedDecember 31, 2020 , net cash used in operating activities was approximately$32.3 million , consisting primarily of: approximately$116.0 million of cash received from customers (including payments received in advance of performance obligations); less (i) approximately$148.3 million of cash paid (a) to employees, Publisher Partners, Expert Contributors, suppliers, and vendors, and (b) for revenue share arrangements and professional services; and (ii) approximately$0.6 million of cash paid for interest; as compared to the year endedDecember 31, 2019 , where net cash used in operating activities was approximately$57.0 million , consisting primarily of: approximately$47.4 million of cash received from customers (including payments received in advance of performance obligations); less (y) approximately$104.4 million of cash paid (a) to employees, Publisher Partners, suppliers, and vendors, and (b) for revenue share arrangements, advance of royalty fees and professional services; and (z) approximately$2.9 million of cash paid for interest. For the year endedDecember 31, 2020 , net cash used in investing activities was approximately$4.9 million , consisting primarily of (i) approximately$0.3 million for the acquisition of a business; (ii) approximately$1.2 million for purchases of property and equipment; (iii) approximately$3.8 million for capitalized costs for our Maven Platform; and (iv) approximately$0.4 million from proceeds for the sale of intangible assets; as compared to the year endedDecember 31, 2019 , where net cash used in investing activities was approximately$19.0 million , consisting primarily of (x) approximately$16.3 million for the acquisition of a business; (y) approximately$0.2 million for purchases of property and equipment; and (z) approximately$2.5 million for capitalized
costs for our Maven Platform. For the year endedDecember 31, 2020 , net cash provided by financing activities was approximately$37.3 million , consisting primarily of: (i) approximately$20.6 million in net proceeds from the issuance of Series H Convertible Preferred Stock (the "Series H Preferred Stock"), Series J Convertible Preferred Stock ("Series J Preferred Stock"), and Series K Convertible Preferred Stock ("Series K Preferred Stock"); (ii) approximately$7.2 million in borrowings under our line of credit; (iii) approximately$11.1 million in net proceeds from long-term debt consisting of the 15% delayed draw term note (the "Term Note") and the Paycheck Protection Program Loan issued under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"); less (iv) approximately$1.1 million in repayments under the 12% senior secured subordinated convertible debentures (referred to herein as the "12% convertible debentures") (for additional information, see Note 18, Convertible Debt, in our accompanying consolidated financial statements); and (v) approximately$0.5 million in payments for tax withholdings on the net settlement of share awards; as compared to the year endedDecember 31, 2019 , where net cash provided by financing activities was approximately$82.9 million , consisting primarily of: (i) approximately$36.1 million in net proceeds from the issuance of Series I Convertible Preferred Stock ("Series I Preferred Stock") and Series J Preferred Stock; (ii) approximately$2.0 million in gross proceeds from the sale of the 12% convertible debentures; and (iii) approximately$46.5 million in net proceeds from the issuance of long-term debt (the "12% Amended Senior Secured Notes"), less repayments of other long-term debt; offset by (x) approximately$0.3 million in payments for tax withholdings on the net settlement of share awards; (y) approximately$1.0 million in repayments under our line of credit; and (z) approximately$0.4 million in the repayment of officer promissory notes. During the year endedDecember 31, 2020 , we received aggregate gross proceeds of approximately$20.8 million from the issuance of our Series H Preferred Stock, Series K Preferred Stock and Series J Preferred Stock (as further described in Note 20, Preferred Stock, in our accompanying consolidated financial statements). All of the shares of Series K Preferred Stock and Series J Preferred Stock automatically converted into shares of our common stock on or aboutDecember 18, 2020 , the date on which we filed a Certificate of Amendment to our Restated Certificate of Incorporation, as amended (the "Certificate of Amendment"), to increase the number of authorized shares of our common stock to at least a number permitting such preferred stock shares to be converted in full. As ofDecember 31, 2020 , we had no shares of Series K or Series J Preferred Stock outstanding. For additional information, see Note 20, Preferred Stock, in our accompanying consolidated financial statements. 30 Debt Financings
Net proceeds from our debt financings (see Note 14, Line of Credit, and Note 19, Long-term Debt, in our accompanying consolidated financial statements for additional information) consisted of the following:
FastPay Credit Facility. OnFebruary 6, 2020 , we entered into a financing and security agreement with FastPay, pursuant to which FastPay extended a$15.0 million line of credit for working capital purposes secured by a first lien on all of our 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 ofFebruary 6, 2022 . This line of credit was amended by that certain first amendment to financing and security agreement datedMarch 24, 2020 to permit us to amend and restate the 12% senior secured notes. The aggregate principal amount outstanding, plus accrued and unpaid interest, as of the issuance date of our accompanying consolidated financial statements for the year endedDecember 31, 2020 was approximately$6.5 million . Amended and Restated 12% Senior Secured Notes. OnFebruary 27, 2020 , we entered into a second amendment to the amended and restated note purchase agreement (the "Second Amendment to A&R NPA"), which further amended the amended and restated note purchase agreement, dated as ofJune 14, 2019 (the "A&R NPA"), with one accredited investor,BRF Finance Co., LLC ("BRF Finance"), an affiliated entity of B. Riley Financial, Inc. ("B. Riley"). The Second Amendment to A&R NPA further amended the amended and restated 12% senior secured note dueJune 14, 2022 . Pursuant to the Second Amendment to A&R NPA, we replaced our previous$3.5 million working capital facility withSallyport Commercial Finance, LLC with a new$15.0 million working capital facility with FastPay; and (ii) BRF Finance issued a letter of credit in the amount of approximately$3.0 million to our landlord for our lease of the premises located at225 Liberty Street , 27th Floor,New York, New York 10281. All borrowings under the amended and restated 12% senior secured notes are collateralized by substantially all of our assets. OnMarch 24, 2020 , we entered into a second amended and restated note purchase agreement (the "Second A&R NPA") with BRF Finance, an affiliated entity ofB. Riley , in its capacity as agent for the purchasers, which further amended and restated the Second Amendment to A&R NPA. Pursuant to the Second A&R NPA, interest on amounts outstanding under the existing 12% senior secured notes with respect to (i) interest that was payable on such notes onMarch 31, 2020 andJune 30, 2020 , and (ii) at our option, with the consent of requisite purchasers, interest that was payable onSeptember 30, 2020 andDecember 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.
OnOctober 23, 2020 , we entered into Amendment No. 1 to the Second A&R NPA with BRF Finance ("Amendment 1"), pursuant to which the maturity date of the 12% senior secured notes was changed toDecember 31, 2022 or an earlier date if the obligations have been accelerated pursuant to and in accordance with the terms of Amendment 1. Pursuant to Amendment 1, interest payable on the existing 12% senior secured notes onSeptember 30, 2020 ,December 31, 2020 ,March 31, 2021 ,June 30, 2021 ,September 30, 2021 , andDecember 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 Preferred Stock; however, afterDecember 18, 2020 , the date the Series K Preferred Stock converted into shares of common stock, all such interest amounts can be paid in shares of our common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock, subject to certain adjustments. OnMay 19, 2021 , we entered into an amendment to the Second A&R NPA ("Amendment 2") with BRF Finance, an affiliated entity ofB. Riley , in its capacity as agent for the purchasers and as purchaser, which further amended the 12% senior secured notes. Pursuant to Amendment 2: (i) the interest rate on the 12% senior secured notes decreased from a rate of 12% per annum to a rate of 10% per annum; (ii) the interest rate on the Term Note decreased from a rate of 15% per annum to a rate of 10% per annum; and (iii) we agreed that within one (1) business day after receipt of cash proceeds from any issuance of equity interests, we would prepay the certain obligations in an amount equal to such cash proceeds, net of underwriting discounts and commissions; provided, that, this mandatory prepayment obligation did not apply to any proceeds that we received from the sale and issuance of shares of our common stock pursuant to the securities purchase agreement during the 90-day period commencing onMay 20, 2021 . The balance outstanding under our amended and restated 12% senior secured notes as of the issuance date of our consolidated financial statements for the year endedDecember 31, 2020 was$59.6 million , which included outstanding principal of approximately$48.8 million , payment of in-kind interest of approximately$7.5 million that we were permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately$0.4 million ). 31
Delayed Draw Term Note. Pursuant to the Second A&R NPA, we agreed to issue, at BRF Finance's option, the Term Note, in the aggregate principal amount of$12.0 million to the investor. OnMarch 24, 2020 , we drew down approximately$6.9 million under the Term Note, and after payment of commitment and funding fees paid to BRF Finance in the amount of approximately$0.7 million , and other of its legal fees and expenses that we incurred, we received net proceeds of$6.0 million . The net proceeds were used by us for working capital and general corporate purposes. Additional borrowings under the Term Note requested by us may be made at the option of the purchasers. Up to$8.0 million in principal amount under the Term Note was originally due onMarch 31, 2021 . Interest on amounts outstanding under the Term Note was payable in-kind in arrears on the last day of each fiscal quarter. Pursuant to the terms of Amendment 1, the maturity date was changed fromMarch 31, 2021 toMarch 31, 2022 . Amendment 1 also provided that BRF Finance, as 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 the Conversion Portion (as defined in Amendment 1) of the Term Note, to receive shares of Series K Preferred Stock; however, afterDecember 18, 2020 , the date the Series K Preferred Stock converted into shares of our common stock, the holder may elect, in lieu of receipt of cash for such amounts, shares of our common stock based upon the conversion rate specified in the Certificate of Designation for the Series K Preferred Stock, subject to certain adjustments. OnOctober 23, 2020 , approximately$3.4 million , including approximately$3.3 million of principal amount of the Term Note and approximately$0.7 million of accrued interest, had been converted into shares of our Series K Preferred Stock. The aggregate principal amount outstanding under the Term Note as of the issuance date of our consolidated financial statements for the year endedDecember 31, 2020 was approximately$4.7 million (including payment of in-kind interest of approximately$1.1 million , which was added to the outstanding
Term Note balance).
Pursuant to the terms of Amendment 2, the interest rate on the Term Note decreased from a rate of 15% per annum to a rate of 10% per annum.
Paycheck Protection Program Loan. OnApril 6, 2020 , we issued a note in favor ofJPMorgan Chase Bank, N.A ., pursuant to the recently enacted CARES Act administered by theU.S. Small Business Administration ("SBA"). We received total proceeds of approximately$5.7 million under the note. In accordance with the requirements of the CARES Act, we used the proceeds from the note primarily for payroll costs. The note was scheduled to mature onApril 6, 2022 , had a 0.98% interest rate and was subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act. The balance outstanding as ofDecember 31, 2020 was approximately$5.7 million . Pursuant to the CARES Act, the note was eligible for partial forgiveness for the principal amounts that were used for the limited purposes that qualified for forgiveness under SBA requirements. In order to obtain forgiveness, we requested such forgiveness, provided the requisite documentation in accordance with the SBA requirements, and certified that the amounts we were requesting to be forgiven qualified under those requirements. OnJune 22, 2021 , we received notification from the SBA that our loan was fully forgiven. 12% Convertible Debentures. OnDecember 31, 2020 , noteholders converted the 12% convertible debentures representing an aggregate of approximately$18.1 million of the then-outstanding principal and accrued but unpaid interest into 53,887,470 shares of our common stock at effective conversion per-share prices ranging from$0.33 to$0.40 . Despite the terms of the 12% convertible debentures, the noteholders agreed to allow us to repay accrued but unpaid interest in shares of our common stock. The remaining 12% convertible debentures representing an aggregate of approximately$1.1 million of outstanding principal and accrued interest were not converted and, instead, such amounts were repaid in cash to the noteholders. 32 Future Liquidity
Our consolidated financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We had revenues of approximately$128.0 million during fiscal 2020 and have experienced recurring net losses from operations and negative operating cash flows. Consequently, we were dependent upon continued access to funding and capital resources from both new investors and related parties. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our growth plan and plan of operations. These financings may include terms that may be highly dilutive to existing stockholders. FromJanuary 1, 2021 to the issuance date of our accompanying consolidated financial statements for the year endedDecember 31, 2020 , we continued to incur operating losses and negative cash flow from operating and investing activities. We have raised$20.0 million in net proceeds pursuant to the sale of shares of our common stock. Our cash balance as of the date our accompanying consolidated financial statements for the year endedDecember 31, 2020 were issued or were available to be issued was approximately$13.9 million . Net proceeds from issuances of our common stock (as further described in Note 27, Subsequent Events, in our accompanying consolidated financial statements) consisted of
the following:
OnMay 20 and 25, 2021, we entered into securities purchase agreements with several accredited investors, pursuant to which we sold an aggregate of 21,435,718 shares of our common stock, at a per share price of$0.70 , for aggregate gross proceeds of approximately$15.0 million in a private placement. OnJune 2, 2021 , we entered into a securities purchase agreement with an accredited investor, pursuant to which we sold an aggregate of 7,142,857 shares of our common stock, at a per share price of$0.70 , for gross proceeds of approximately$5.0 million in a private placement that was in addition to the two earlier closing that occurred onMay 20 and 25, 2021. We intend to use the proceeds for general corporate purposes. Going Concern We performed an annual reporting period going concern assessment. Management is required to assess our ability to continue as a going concern. This Annual Report has been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Our accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. We have had a history of recurring losses. Our 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 our ability to meet its obligations when due. The operating loss realized in fiscal 2020 was primarily a result of the impact on our business from the COVID-19 pandemic and the related shut down of most professional and collegiate sports, which reduced user traffic and advertising revenue. The operating loss realized in fiscal 2019 was primarily a result of a marketing investment in customer growth, together with investment in people and technology as we continued to expand our operations, and operations rapidly expanding during fiscal 2019 with the TheStreet Merger and the Sports Illustrated Licensing Agreement. As reflected in our accompanying consolidated financial statements, we had revenues of approximately$128.0 million for the year endedDecember 31, 2020 , and have experienced recurring net losses from operations, negative working capital and negative operating cash flows. During the year endedDecember 31, 2020 , we incurred a net loss attributable to common stockholders of approximately$104.7 million , utilized cash in operating activities of approximately$32.3 million , and as ofDecember 31, 2020 , had an accumulated deficit of approximately$162.1 million . We have financed our working capital requirements since inception through the issuance of debt and equity securities. 33 The negative impact from the COVID-19 pandemic during 2021 has been to a lesser extent than in 2020. Beginning in 2021, restrictions on non-essential work activity have begun to lift and sporting and other events have begun to be held, with attendance closer to pre-pandemic levels, which has resulted in an increase in traffic to the Maven Platform and, thereby an increase in advertising revenue. The ultimate extent of the impact on our operational and financial performance will depend on future developments, including the duration and spread of the COVID-19 pandemic, whether related group gathering and sports event advisories and restrictions will be put in place again, and the extent and effectiveness of containment and other actions taken, including the percentage of the population that receives COVID-19 vaccinations, all of which remain uncertain at the time of issuance of our accompanying consolidated financial statements.
Management has evaluated whether relevant conditions or events, considered in the aggregate, raise substantial doubt about our 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 our accompanying consolidated financial statements for the year endedDecember 31, 2020 were issued or were available to be issued. Management's assessment of our ability to meet our future obligations is inherently judgmental, subjective and susceptible to change. The factors that we considered important in its going concern analysis, include, but are not limited to, our fiscal 2021 cash flow forecast and our fiscal 2021 operating budget. Management also considered our implementation of additional measures, if required, related to potential revenue and earnings declines from COVID-19. These factors consider information including, but not limited to, our financial condition, liquidity sources, obligations due within one year after the issuance date of our accompanying 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, our plan for the: (1) 2021 cash flow forecast, considered the use of our working capital line with FastPay (as described in Note 19, Long-term Debt, in our accompanying consolidated financial statements) to fund changes in working capital, under which we have available credit of approximately$8.5 million as of the issuance date of these consolidated financial statements for the year endedDecember 31, 2020 , and that we do not anticipate the need for any further borrowings that are subject to the approval of the holders of the Term Note (as described in Note 19, Long-term Debt, in our accompanying consolidated financial statements), under which we may be permitted to borrow up to an additional$5 million ; and (2) 2021 operating budget, considered that approximately fifty-eight percent of our 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 in 2020 demonstrating the strength of our premium brand, and the plan to continue to grow our subscription revenue from our acquisition of TheStreet in 2019 (as described in Note 3, Acquisitions, in our accompanying consolidated financial statements) and to grow premium digital subscriptions from our Sports Illustrated Licensed Brands (as described in Note 3, Acquisitions, in our accompanying consolidated financial statements), which were launched inFebruary 2021 . We have considered both quantitative and qualitative factors as part of the assessment that are known or reasonably knowable as of the date our accompanying consolidated financial statements for the year endedDecember 31, 2020 were issued or were available to be issued, and concluded that conditions and events considered in the aggregate, do not raise substantial doubt about our ability to continue as a going concern for a one-year period following the financial statement issuance date. 34 Results of Operations
Comparison of Fiscal 2020 to Fiscal 2019
Years Ended December 31, 2020 versus 2019
2020 2019 $ Change % Change
Revenue $ 128,032,397 $ 53,343,310 $ 74,689,087 140.0 %
Cost of revenue 103,063,445 47,301,175 55,762,270 117.9 %
Gross profit (loss) 24,968,952 6,042,135 18,926,817 313.2 %
Operating expenses
Selling and marketing 43,589,239 12,789,056 30,800,183 240.8 %
General and administrative 36,007,238 29,511,204 6,496,034
22.0 %
Depreciation and
amortization 16,280,475 4,551,372 11,729,103 257.7 %
Total operating expenses 95,876,952 46,851,632 49,025,320 104.6 %
Loss from operations (70,908,000 ) (40,809,497 ) (30,098,503 ) 73.8 %
Total other (expenses)
income (18,113,131 ) (17,232,999 ) (880,132 ) 5.1 %
Loss before income taxes (89,021,131 ) (58,042,496 ) (30,978,635 ) 53.4 %
Income taxes (210,832 ) 19,541,127 (19,751,959 ) -100.1 %
Net loss (89,231,963 ) (38,501,369 ) (50,730,594 ) 131.8 %
Deemed dividend on
convertible preferred stock (15,642,595 ) - (15,642,595 ) 0.0 %
Net loss attributable to
common stockholders $ (104,874,558 ) $ (38,501,369 ) $ (66,373,189 ) 172.4 %
Basic and diluted net loss
per common share $ (2.28 ) $ (1.04 ) $ (1.22 ) 119.2 %
Weighted average number of
shares outstanding - basic
and diluted 45,981,029 37,080,784 8,900,245 24.0 %
For the year ended December 31, 2020 , the net loss attributable to common
shareholders was approximately $104.9 million . The total net loss attributable
to common stockholders increased by approximately $66.4 million from the year
ended December 31, 2019 net loss of approximately $38.5 million . The primary
reasons for the increase in the total net loss is that our operations continued
to rapidly expand during the year ended December 31, 2020 as they did in 2019.
In particular, during the year ended December 31, 2020 we operated our Sports
Illustrated media business that we acquired during the fourth quarter of 2019.
The basic and diluted net loss per common share for the year ended December 31,
2020 of $2.28 increased from $1.04 for the year ended December 31, 2019
primarily because of: (i) the weighted average basic and diluted shares
increased as the net loss per common share increased along with the calculation
of the daily weighted average shares outstanding increase to 45,981,029 shares
from 37,080,784 shares; (ii) the deemed dividend on the convertible preferred
stock of approximately $15.6 million ; and (iii) the other expenses of
approximately $18.1 million .
Our growth strategy is principally focused on adding new publisher partners to
our Maven Platform. In addition, if the right opportunity exists, we may also
acquire related online media, publishing, and technology businesses. This
combined growth strategy has expanded the scale of unique users interacting on
our Maven Platform with increased revenues during 2020. We expect revenues
increases in subsequent years will come from organic growth in operations,
addition of more publisher partners, and mergers and acquisitions.
35
Revenue
The following table sets forth revenue, cost of revenue, and gross profit:
Years Ended December 31, 2020 versus 2019
2020 2019 Change % Change
(percentage reflect cost of revenue as a percentage of total
revenue)
Revenue $ 128,032,397 100.0 % $ 53,343,310 100.0 % $ 74,689,087 140.0 %
Cost of revenue 103,063,445 80.5 % 47,301,175
88.7 % 55,762,270 117.9 %
Gross profit $ 24,968,952 19.5 % $ 6,042,135 11.3 % $ 18,926,817 313.2 %
For the year ended
The following table sets forth revenue by product line and the corresponding
percent of total revenue:
Years Ended December 31, 2020 versus 2019
2020 2019 Change % Change
(percentages reflect product line as a percentage of total revenue)
Advertising $ 44,359,822 34.6 % $ 35,918,370 67.3 % $ 8,441,452 15.8 %
Digital subscriptions 28,495,676 22.3 % 6,855,038 12.9 % 21,640,638 40.6 %
Magazine circulation 50,580,213 39.5 % 9,046,473 17.0 % 41,533,740 77.9 %
Other 4,596,686 3.6 % 1,523,429 2.9 % 3,073,257 5.8 %
Total revenue $ 128,032,397 100.0 % $ 53,343,310 100.0 % $ 74,689,087 140.0 %
For the year ended December 31, 2020 , the primary sources of revenue were as
follows: (i) advertising of approximately $44.4 million ; (ii) digital
subscriptions of approximately $28.5 million ; (iii) magazine circulation of
approximately $50.6 million ; and (iv) other revenue of approximately $4.6
million . Our advertising revenue increased by approximately $8.4 million , due to
additional revenue of approximately $3.2 million generated as a result of
TheStreet, which we acquired during the second quarter of 2019, and
approximately $11.5 million generated as a result of the Sports Illustrated
media business, which we acquired during the fourth quarter of 2019, offset by
an approximately $6.2 million decrease in revenue from our legacy business. Our
digital subscriptions increased by approximately $21.6 million due to additional
revenue of approximately $16.8 million generated as a result of TheStreet, which
we acquired during the second quarter of 2019 and approximately $4.3 million
generated as a result of the Sports Illustrated media business, which we
acquired during the fourth quarter of 2019. Our magazine circulation contributed
approximately $41.5 million as a result of the Sports Illustrated media business
acquired during the fourth quarter of 2019. Our other revenue increased by
approximately $3.1 million due to additional revenue of approximately $0.3
million generated as a result of TheStreet, which we acquired during the second
quarter of 2019, approximately $0.4 million generated as a result of the Sports
Illustrated media business, which we acquired during the fourth quarter of 2019,
and approximately $2.3 million generated by our legacy business.
36
Cost of Revenue
For the years ended December 31, 2020 and 2019, we recognized cost of revenue of
approximately $103.1 million and approximately $47.3 million , respectively. The
increase of approximately $55.8 million in cost of revenue is primarily from:
(i) our Publisher Partner guarantees and revenue share payments of approximately
$4.8 million ; (ii) payroll, stock based compensation, and related expenses for
customer support, technology maintenance, and occupancy costs of related
personnel of approximately $19.1 million ; (iii) amortization of our Maven
Platform of approximately $2.4 million (which includes our Maven Platform
spending and amortization related to acquired developed technology from our
acquisitions); (iv) royalty fees of approximately $11.3 million ; (v) hosting,
bandwidth, and software licensing fees of approximately $1.3 million ; (vi)
printing, distribution, and fulfillment costs of approximately $9.5 million ;
(vii) fees paid for data analytics and to other outside services providers of
approximately $3.7 million and (vii) other costs of revenue of approximately
$3.8 million .
For the year ended December 31, 2020 , we capitalized costs related to our Maven
Platform of approximately $5.4 million , as compared to approximately $3.8
million for the year ended December 31, 2019 . In fiscal 2020, the capitalization
of our Maven Platform development consisted of approximately $3.8 million in
payroll and related expenses, including taxes and benefits, approximately $1.6
million in stock-based compensation for related personnel, and amortization of
approximately $8.6 million . In fiscal 2019, the capitalization of our Maven
Platform development consisted of approximately $2.5 million in payroll and
related expenses, including taxes and benefits, approximately $1.3 million in
stock-based compensation for related personnel, and amortization of
approximately $6.2 million .
Operating Expenses
The following table sets forth operating expenses and the corresponding
percentage of total revenue:
Years Ended December 31, 2020 versus 2019
2020 2019 Change % Change
(percentages reflect expense as a percentage of total revenue)
Selling and
marketing $ 43,589,239 34.0 % $ 12,789,056 24.0 % $ 30,800,183 65.7 %
General and
administrative 36,007,238 28.1 % 29,511,204 55.3 % 6,496,034 13.9 %
Depreciation and
amortization 16,280,475 12.7 % 4,551,372 8.5 % 11,729,103 25.0 %
Total operating
expenses $ 95,876,952 $ 46,851,632 $ 49,025,320 104.6 %
Selling and Marketing. For the year ended December 31, 2020 , we incurred selling
and marketing costs of approximately $43.6 million , as compared to approximately
$12.8 million for the year ended December 31, 2019 . The increase in selling and
marketing cost of approximately $30.8 million is primarily from payroll costs
for the selling and marketing account management support teams, along with the
related benefits and stock based compensation of approximately $8.2 million ;
circulation costs of approximately $14.2 million ; office and occupancy costs of
approximately $0.7 million ; advertising costs of approximately $5.9 million ; and
other selling and marketing related costs of approximately $1.7 million .
General and Administrative. For the year ended December 31, 2020 , we incurred
general and administrative costs of approximately $36.0 million from payroll and
related expenses, professional services, occupancy costs, stock based
compensation of related personnel, depreciation and amortization, and other
corporate expense, as compared to approximately $29.5 million for the year ended
December 31, 2019 . The increase in general and administrative expenses of
approximately $6.5 million is primarily from our increase in professional
services, including accounting, legal and insurance of approximately $4.8
million ; facilities costs of approximately $1.1 million ; and other general
corporate expenses of approximately $2.0 million .
37
Other (Expenses) Income
The following table sets forth other (expenses) income:
Years Ended December 31, 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 $ 496,305 -2.7 % $ (1,015,151 ) 5.9 % $ 1,511,456 -8.8 %
Change in valuation
of embedded
derivative
liabilities 2,571,004 -14.2 % (5,040,000 ) 29.2 % 7,611,004 -44.2 %
Loss on conversion
of convertible
debentures (3,297,539 ) 18.2 % - 0.0 % (3,297,539 ) 19.1 %
Interest expense (16,497,217 ) 91.1 % (10,463,570 ) 60.7 % (6,033,647 ) 35.0 % Interest income
381,026 -2.1 % 13,976 -0.1 % 367,050 -2.1 %
Liquidated damages (1,487,577 ) 8.2 % (728,516 ) 4.2 % (759,061 ) 4.4 %
Other (expense)
income (279,133 ) 1.5 % 262 0.0 % (279,396 ) 1.6 %
Total other expenses $ (18,113,131 ) 100.0 % $ (17,232,999 ) 100.0 % $ (880,132 ) 5.1 %
Change in Valuation of Warrant Derivative Liabilities. The change in valuation
of warrant derivative liabilities for the year ended December 31, 2020 was the
result of the decrease in the fair value of the warrant derivative liabilities
as of December 31, 2020 , as compared to the change in the valuation for the year
ended December 31, 2019 where the change was from an increase in the fair value
of the warrant derivative liabilities as of December 31, 2019 .
Change in Valuation of Embedded Derivative Liabilities. The change in valuation
of embedded derivative liabilities for the year ended December 31, 2020 was the
result of the decrease in the fair value of the embedded derivative liabilities
as of December 31, 2020 , as compared to the change in the valuation for the year
ended December 31, 2019 where the change was from an increase in the fair value
of the embedded derivative liabilities as of December 31, 2019 .
Interest Expense. We incurred interest expense of approximately $16.5 million
during the year ended December 31, 2020 , as compared to approximately $10.5
million for the year ended December 31, 2019 , primarily consisting of
approximately $6.6 million from amortization of debt discount on notes payable;
approximately $9.2 million of accrued interest; and approximately $0.6 million
of other interest. In fiscal 2019, interest expense primarily consisted of
approximately $4.5 million of amortization of accretion of original issue
discount and debt discount on notes payable; $3.1 million of accrued interest;
and $2.9 million of other interest.
Liquidated Damages. We recorded approximately $1.5 million of liquidating
damages, including the accrued interest thereon, during the year ended December
31, 2020 primarily from the issuance of our 12% convertible debentures, Series H
Preferred Stock, Series I Preferred Stock and Series J Preferred Stock in fiscal
2020 since we determined that: (1) the registration statements registering for
resale the shares of common stock issuable upon conversion of the 12%
convertible debentures, Series I Preferred Stock and Series J Preferred Stock
would not be declared effective within the requisite time frame; and (2) that we
would not be able to become current in our periodic filing obligations with the
SEC in order to satisfy the public information requirements under the applicable
securities purchase agreements. We recorded liquidated damages, including the
accrued interest thereon, of approximately $0.7 million in fiscal 2019 primarily
from issuance of our 12% convertible debentures, Series H Preferred Stock,
Series I Preferred Stock and Series J Preferred Stock, which liquidated damages
were based upon the reasons set forth above.
Deemed Dividend on Convertible Preferred Stock
Series H Preferred Stock. During fiscal 2020, in connection with the issuance of 108 shares (issued onAugust 19, 2020 ) and 389 shares (issued onOctober 31, 2020 ) of our Series H Preferred Stock, we recorded a beneficial conversion feature of approximately$0.1 million and approximately$0.4 million , respectively (totaling approximately$0.7 million ), for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the conversion price of$0.33 was lower than our common stock trading price of$0.86 and$0.77 at the issuance dates ofAugust 19, 2020 andOctober 31, 2020 , respectively). The beneficial conversion feature was recognized as a deemed
dividend. 38 Series I Preferred Stock. OnDecember 18, 2020 , all of the shares of our Series I Preferred Stock converted automatically into shares of our common stock as a result of the increase in the number of authorized shares of our common stock. Upon conversion, we recognized a beneficial conversion feature for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the conversion price of$0.50 was lower than our common stock trading price of$0.61 at the conversion date). The beneficial conversion feature was recognized as a deemed dividend. Series J Preferred Stock. OnDecember 18, 2020 , all of the shares of our Series J Preferred Stock converted automatically into shares of our common stock as a result of the increase in the number of authorized shares of our common stock. Upon conversion, we recognized a beneficial conversion feature for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the effective conversion price of$0.40 for the issuance of our Series J Preferred Stock onSeptember 4, 2020 (these shares were issued at a discount) was lower than our common stock trading price of$0.61 at the conversion date). The beneficial conversion feature was recognized as a deemed dividend. Series K Preferred Stock. OnDecember 18, 2020 , all of the shares of our Series K Preferred Stock converted automatically into shares of our common stock as a result of the increase in the number of authorized shares of our common stock. Upon conversion, we recognized a beneficial conversion feature for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the conversion price of$0.40 was lower than our common stock trading price of$0.61 at the conversion date). The beneficial conversion feature was recognized as a deemed dividend. Seasonality
We expect to experience typical media company advertising and membership sales seasonality, which is strong in the fiscal fourth quarter and slower in the fiscal first quarter.
Effects of Inflation
To date inflation has not had a material impact on our business or operating results.
Our Future Business
In 2021, we completed the following acquisition:
Acquisition of The Spun OnJune 4, 2021 , we entered into the CS Purchase Agreement with Maven Media, The Spun, the Seller Parties, and the representative, pursuant to which, on the same date, Maven Media acquired The Spun Stock. In exchange for The Spun Stock, Maven Media agreed to pay a purchase price, comprised of the Cash Payment of an aggregate of$11 million and the Stock Payment consisting of an aggregate of 4,285,714 restricted shares of our common stock, with one-half of the shares vesting on the first anniversary of the closing date and the remaining one-half of the shares vesting on the second anniversary of the closing date. The Cash Payment will be paid as follows: (i) on the closing date, a cash payment of$10 million ; (ii) on the first anniversary of the closing date, a cash payment of$500,000 ; and (iii) on the second anniversary of the closing date, a cash payment of$500,000 . The Cash Payment is subject to a customary working capital adjustment based on cash and accounts receivable targets of The Spun as of the closing. Further, the vesting of the Stock Payment held by Seller Parties is subject to the continued employment of certain senior executives of The Spun. 39
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles inthe United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, platform development, impairment of long-lived assets, and stock-based compensation. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2, Summary of Significant Accounting Policies, in our accompanying consolidated financial statements. Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements included elsewhere in this Report, which have been prepared in accordance with GAAP. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Revenue
In accordance with Accounting Standards Codification ("ASC") 606, Revenue from
Contracts with Customers, revenues are recognized when control of the promised
goods or services are transferred to our customers, in an amount that reflects
the consideration that we expect to receive in exchange for those goods or
services. We generate all of its revenue from contracts with customers. We
account for revenue on a gross basis, as compared to a net basis, in its
statement of operations. We made this determination based on it taking the
credit risk in its revenue-generating transactions and it also being the primary
obligor responsible for providing the services to the customer. Cost of revenues
is presented as a separate line item in the statement of operations.
The following is a description of the principal activities from which we generate revenue:
Advertising RevenueDigital Advertising . We recognize revenue from digital advertisements at the point when each ad is viewed. The quantity of advertisements, the impression bid prices, and revenue are reported on a real-time basis. We enter into contracts with advertising networks to serve display or video advertisements on the digital media pages associated with its various channels. Although reported advertising transactions are subject to adjustment by the advertising network partners, any such adjustments are known within a few days of month end. We owe our independent Publisher Partners a revenue share of the advertising revenue earned, which is recorded as service costs in the same period in which the associated advertising revenue is recognized.
Advertising revenue that is comprised of fees charged for the placement of advertising on the websites that we own and operate, is recognized as the advertising or sponsorship is displayed, provided that collection of the resulting receivable is reasonably assured.
Subscription Revenue Digital Subscriptions. We enter into contracts with internet users that subscribe to premium content on our owned and operated media channels and facilitate such contracts between internet users and our Publisher Partners. These contracts provide internet users with a membership subscription to access the premium content. For subscription revenue generated by our independent Publisher Partners' content, we owe our Publisher Partners a revenue share of the membership subscription revenue earned, which is initially deferred and recorded as deferred contract costs. We recognize deferred contract costs over the membership subscription term in the same pattern that the associated membership subscription revenue is recognized. 40 Digital subscription revenue generated from our websites that we own and operate are charged to customers' credit cards or are directly billed to corporate subscribers, and are generally billed in advance on a monthly, quarterly or annual basis. We calculate net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the subscription periods. Unearned revenue relates to payments for subscription fees for which revenue has not been recognized because services have not yet been provided. Circulation Revenue
Circulation revenues include magazine subscriptions and single copy sales at newsstands.
Print Subscriptions. Revenue from magazine subscriptions are deferred and recognized proportionately as products are distributed to subscribers.
Newsstand. Single copy revenue is recognized on the publication's on-sale date, net of provisions for estimated returns. We base our estimates for returns on historical experience and current marketplace conditions. Licensing Revenue
Content licensing-based revenues are accrued generally monthly or quarterly based on the specific mechanisms of each contract. Generally, revenues are accrued based on estimated sales and adjusted as actual sales are reported by partners. These adjustments are typically recorded within three months of the initial estimates and have not been material. Any minimum guarantees are typically earned evenly over the fiscal year. Contract Modifications
We occasionally enter into amendments to previously executed contracts that constitute contract modifications. We assess 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. Cost of Revenue Our cost of revenue represents the cost of providing our digital media network channels and advertising and membership services. The cost of revenue that we have incurred in the periods presented primarily include: ? Publisher Partner guarantees and revenue share payments; ? amortization of developed technology and platform development; ? royalty fees; ? hosting, bandwidth and software license fees; ? printing, distribution, and fulfillment costs;
? payroll and related expenses for customer support, technology maintenance, and
occupancy costs of related personnel;
? fees paid for data analytics and to other outside service providers; and
? stock-based compensation of related personnel. 41
Platform Development For the years presented, substantially all of our technology expenses are development costs for the Maven Platform that were capitalized as intangible costs. Technology costs are expensed as incurred or capitalized into property and equipment in accordance with theFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 350, Intangibles -Goodwill and Other. This ASC requires that costs incurred in the preliminary project and post-implementation stages of an internal use software project be expensed as incurred and that certain costs incurred in the application development stage of a project be capitalized. We capitalize internal labor costs, including compensation, benefits and payroll taxes, incurred for certain capitalized platform development projects. Our policy with respect to capitalized internal labor stipulates that labor costs for employees working on eligible internal use capital projects are capitalized as part of the historical cost of the project when the impact, as compared to expensing such labor costs, is material. Maven Platform development capitalized during the application development stage of a project include: ? payroll and related expenses for personnel; and ? stock-based compensation of related personnel. Selling and Marketing
Selling and marketing consist primarily of expenses incurred in selling and marketing our products. Our selling and marketing expenses include:
? payroll and employee benefits of selling and marketing account management
support teams;
? professional marketing services;
? office and occupancy costs;
? circulation costs;
? advertising costs; and
? stock-based compensation of related personnel.
General and Administrative
General and administrative expenses consist primarily of:
? payroll and employee benefits for executive and administrative personnel;
? professional services, including accounting, legal and insurance; ? office and occupancy costs; ? conferences; ? other general corporate expenses; and ? stock-based compensation of related personnel. Leases We have various lease arrangements for certain equipment and its offices. Leases are recorded as an operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets. At inception, we determine whether an arrangement that provides control over the use of an asset is a lease. When it is reasonably certain that we will exercise the renewal period, we include the impact of the renewal in the lease term for purposes of determining total future lease payments. Rent expense is recognized on a straight-line basis over the lease term. 42 InFebruary 2016 , FASB issued Accounting Standards Update ("ASU")ASU 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior GAAP. We adopted ASU 2016-02 onJanuary 1, 2019 which resulted in the recognition of right-of-use assets of approximately$1.7 million , lease liabilities for operating leases of approximately$1.8 million , with no cumulative effect adjustment on retained earnings on our consolidated balance sheets, with no material impact to our consolidated statements of (as further described in Note 7, Leases, in our accompanying consolidated financial statements).Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets of businesses acquired in a business combination.Goodwill is not amortized but rather is tested for impairment at least annually onDecember 31 , or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. We adopted ASU 2017-04 (as further described in Note 2, Summary of Significant Accounting Policies, in our accompanying consolidated financial statements) during the first quarter of 2020 which eliminated Step 2 from the goodwill impairment test. We operate as one reporting unit, therefore, the impairment test is performed at the consolidated entity level by comparing the estimated fair value of the Company to its carrying value. We have elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of its single reporting unit is less than its carrying amount as a basis of determining whether it is necessary to perform the quantitative goodwill impairment test. If we determine that it is more likely than not that its fair value is less than its carrying amount, then the quantitative goodwill impairment test will be performed. The quantitative goodwill impairment test identifies goodwill impairment and measures the amount of goodwill impairment loss to be recognized by comparing the fair value of our single reporting unit with its carrying amount. If the fair value exceeds the carrying amount, no further analysis is required; otherwise, any excess of the goodwill carrying amount over the implied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair
value. Stock-Based Compensation We provide stock-based compensation in the form of (a) stock awards to employees and directors, comprised of restricted stock awards and restricted stock units, (b) stock option grants to employees, directors and consultants, (c) common stock warrants to Publisher Partners (as further described in Note 22, Stock-Based Compensation, in our accompanying consolidated financial statements), and (d) common stock warrants to ABG (as further described in Note 22, Stock-Based Compensation, in our accompanying consolidated financial statements). We account for stock awards and stock option grants to employees, directors, and consultants by measuring the cost of services received in exchange for the stock-based payments as compensation expense in our consolidated financial statements. Stock awards and stock option grants to employees which are time-vested are measured at fair value on the grant date, and charged to operations ratably over the vesting period. Stock awards and stock option grants to employees which are performance-vested are measured at fair value on the grant date and charged to operations when the performance condition is satisfied. Prior to the adoption of ASU 2018-07 (as further described in Note 22, Stock-Based Compensation, in our accompanying consolidated financial statements), we accounted for stock-based payments to certain directors and consultants, and Publisher Partners (collectively the "non-employee awards") by determining the value of the stock compensation based upon the measurement date at either (a) the date at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments is complete, resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards. After adoption of ASU 2018-07, the measurement date for non-employee awards is the later of the adoption date of ASU 2018-07, or the date of grant, without change in the fair value of the award. There was no cumulative effect of adoption of ASU 2018-07 onJanuary 1, 2019 . For stock-based awards granted to non-employees subject to graded vesting that only contain service conditions, we have elected to recognize stock-based compensation expense using the straight-line recognition method. 43
The fair value measurement of equity awards and grants used for stock-based compensation is as follows: (1) restricted stock awards and restricted stock units which are time-vested are determined using the quoted market price of the Company's common stock at the grant date; (2) stock option grants which are time-vested and performance-vested are determined utilizing the Black-Scholes option-pricing model at the grant date; (3) restricted stock awards which provide for performance-vesting and a true-up provision are determined through consultants with our independent valuation firm using the binomial pricing model at the grant date; (4) stock option grants which provide for market-based vesting with a time-vesting overlay are determined through consultants with our independent valuation firm using theMonte Carlo model at the grant date; (5) Publisher Partner Warrants are determined utilizing the Black-Scholes option-pricing model; and (6) ABG Warrants are determined utilizing theMonte Carlo model (as further described in Note 22, Stock-Based Compensation, in our accompanying consolidated financial statements). Fair value determined under the Black-Scholes option-pricing model andMonte Carlo model is affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option or warrants, as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award. Estimated volatility is based on the historical volatility of our common stock and is evaluated based upon market comparisons. The risk-free interest rate is based on theU.S. Treasury yield curve in effect at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of our common stock. The fair value of the stock options granted were probability weighted effectiveJanuary 1, 2019 under the Black-Scholes option-pricing model orMonte Carlo model as determined through consultants with our independent valuation firm since the value of the units or options, among other things, depend on the volatility of the underlying shares of our common stock, under the following two scenarios: (1) scenario one assumes that our common stock will be up-listed on a national stock exchange (the "Exchange") on a certain listing date (the "Up-list Date"); and (2) scenario two assumes that our common stock is not up-listed on the Exchange prior to the final vesting date of the grants (the "No Up-list"), collectively referred to as the "Probability Weighted Scenarios". We classify stock-based compensation expense in our consolidated statements of operations in the same manner in which the award recipient's cash compensation costs are classified. Income Taxes We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in results of operations in the period that includes the enactment date.
Impairment of Long-Lived Assets
We periodically evaluate the carrying value of long-lived assets to be held and used when events or circumstances warrant such a review. The carrying value of a long-lived asset to be held and used is considered impaired when the anticipated separately identifiable undiscounted cash flows from such an asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily by reference to the anticipated cash flows discounted at a rate commensurate with the risk involved.
Recently Issued Accounting Pronouncements
Note 2, Summary of Significant Accounting Policies, in our accompanying consolidated financial statements appearing elsewhere in this Annual Report includes Recently Issued Accounting Pronouncements.
44
Off-Balance Sheet Arrangements
As of
Strome Warrants. OnJune 15, 2018 , we modified the two securities purchase agreements datedJanuary 4, 2018 andMarch 30, 2018 withStrome Mezzanine Fund LP ("Strome"). Strome was also granted observer rights on our Board. As consideration for such modification, we issued warrants to Strome to purchase up to 1,500,000 shares of our common stock, exercisable at price of$0.50 per share (as amended) (as further described in Note 21, Stockholders' Equity, in our accompanying consolidated financial statements), which are carried on our consolidated balance sheets as a derivative liability at fair value, as adjusted at each period-end since, among other criteria, delivery of unregistered shares is precluded upon exercise The warrants are exercisable for a period of five years, subject to customary anti-dilution adjustments, and may, in the event there is no effective registration statement covering the resale of the warrant shares, be exercised on a cashless basis in certain circumstances. Warrants exercisable for up to 1,500,000 shares of our common stock were outstanding as ofDecember 31, 2020 , with a derivative liability fair value of$704,707 . In the event Strome decided to exercise these warrants, since shares of our common stock were available to settle the instrument, there would be no impact to
our cash resources. B. Riley Warrants. OnOctober 18, 2018 , we issued warrants toB. Riley to purchase up to 875,000 shares of our common stock, with an exercise price of$1.00 per share (as further described in Note 21, Stockholders' Equity, in our accompanying consolidated financial statements), which are carried on the consolidated balance sheets as a derivative liability at fair value, as adjusted at each period-end since, among other criteria, delivery of unregistered shares is precluded upon exercise. The warrants are exercisable for a period of seven years, subject to customary anti-dilution adjustments, and may, if at any time after the six-month anniversary of the issuance of the warrants there is no effective registration statement covering the re-sale of the shares of common stock underlying the warrants, be exercised on a cashless basis. Warrants exercisable for up to 875,000 shares of our common stock were outstanding as ofDecember 31, 2020 , with a derivative liability fair value of$443,188 . In the eventB. Riley decided to exercise these warrants (which are subject to certain contractual exercise limitations), since shares of our common stock were available to settle the instrument after considering the contractual exercise limitations, there would be no impact to our cash resources. Contractual Obligations
The following table sets forth our principal cash operating obligations and
commitments as of
Payments due by Year
Total 2021 2022 2023 2024 2025 Thereafter
Operating leases $ 41,948,685 $ 3,804,853 $ 3,525,158 $ 3,528,696 $ 3,526,406 $ 3,740,591 $ 23,822,981
Employment contracts 2,375,000 1,461,842 913,158 - - - -
Consulting agreement 5,146,499 4,554,399 592,100 - - - -
Total $ 49,470,184 $ 9,821,094 $ 5,030,416 $ 3,528,696 $ 3,526,406 $ 3,740,591 $ 23,822,981 © Edgar Online, source
