Arena (AREN) - 2018 Q4 - Annual Report

Part I Item 1. Business TheMaven operates a technology platform for premium publishers, including Sports Illustrated and TheStreet, providing digital publishing, distribution, and monetization capabilities, with growth through acquisitions and coalition expansion - TheMaven operates a technology platform for premium publishers, including Sports Illustrated and TheStreet, and over 250 independent brands, offering digital publishing, distribution, and monetization capabilities[13][42] - The company's growth strategy involves expanding its coalition of independent publishers and acquiring entities with premium branded content to enhance scale and monetization[41][43] - Key acquisitions include HubPages (August 2018), Say Media (December 2018), and TheStreet (August 2019), alongside a 100-year licensing agreement for Sports Illustrated media business (October 2019)[17][19][20][25][43] - The Maven Platform offers comprehensive services including content management, video publishing, analytics, advertising solutions, and user account management[34][36] - The company holds seven patent registrations in the U.S. for its technology and numerous trademark registrations for its brands like MAVEN, MAVEN COALITION, THE STREET, and HUBPAGES across multiple countries[50][51][53][55] - The company expects typical media company advertising and membership sales seasonality, with strong performance in Q4 and slower in Q1[57][206] - The digital media industry is highly competitive, with numerous niche and general media companies, content management software providers, social platforms, and affiliate networks vying for audience and ad revenue[58][60] - The company's operations are subject to evolving U.S. federal and state laws, and foreign regulations concerning privacy, data protection (e.g., CCPA, CPRA, GDPR), content, and intellectual property, which could impact business and incur compliance costs[62][64][66][68][69][70][71] Item 1A. Risk Factors The company faces significant risks including the adverse impact of COVID-19, a history of losses, material weaknesses in internal controls, operational challenges, and legal and investment-related market volatility - The COVID-19 pandemic has materially and adversely affected business operations, leading to declines in revenue and earnings, particularly due to sports event cancellations and decreased traffic[75][76] - The company has incurred losses since inception, with an accumulated deficit of approximately $34.5 million as of December 31, 2018, and relies on capital funding or borrowings to finance operations[81][183] - Material weaknesses in internal control over financial reporting were identified at December 31, 2018, and are expected for 2019 and 2020, posing risks of financial misstatements and adverse impact on stock price[82][266] - Business success is highly dependent on retaining and growing its user base and engagement, which is challenged by intense competition, the need for continuous innovation, and potential technical issues or negative publicity[85][87] - The company relies on its ability to collect and disclose data for advertisers, and any restrictions on this could seriously harm advertising revenue, which has also been impacted by the COVID-19 pandemic[91][93] - Dependence on key executive officers and management, as well as third-party cloud platforms and software, poses risks if services are lost or systems experience interruptions, errors, or cybersecurity attacks[95][97][99][101][102] - Inability to protect intellectual property rights, maintain brand awareness, or defend against infringement claims could adversely affect business and growth prospects[104][105][107] - The company is subject to various U.S. and foreign laws and regulations concerning privacy, data protection, content, and intellectual property, with potential for new obligations, penalties, or litigation[109][110][111][112][116][117] - Investment in the company's securities carries risks due to a potentially illiquid market, high stock price volatility, and compliance with 'penny stock' rules that may limit trading activity[119][123][124] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - Not Applicable[125] Item 2. Properties The company's executive offices are in New York, with software development and operations in California and Seattle, managing various office leases and subleases, some acquired through business transactions - Executive offices are at 225 Liberty Street, New York, with software development and operations in California and Seattle[31] - Key property changes include: sublease of 7,457 sq ft in Seattle (April 2018, assumed entire lease March 2020), membership agreement for San Francisco office (Sept 2018, terminated Oct 2020), assumed Portland lease (Dec 2018, expired June 2020), assumed 35,000 sq ft Wall Street, NY lease (Aug 2019, surrendered Oct 2020)[126][127][129][130] - New leases include 5,258 sq ft in Santa Monica, CA (Oct 2019, 5-year term) and 40,868 sq ft in New York, NY (Feb 2020, lease payments commence Nov 2020, expiring Nov 2032)[131][132] Item 3. Legal Proceedings The company is not currently involved in any legal proceedings expected to materially adversely affect its business, financial condition, or operations - The company is not currently subject to any pending or threatened legal proceedings that are expected to have a material adverse effect on its business, financial condition, results of operations or cash flows[133] Item 4. Mine Safety Disclosure This item is not applicable to the company - Not applicable[133] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock (MVEN) is quoted on the OTC Pink Market, exhibiting volatility, with 175.6 million shares outstanding as of December 31, 2020, and no history or plans for cash dividends - The company's common stock (MVEN) is quoted on the OTC Markets Group Inc.'s Pink Open Market since December 1, 2016[136] Common Stock High and Low Bid Prices (2017-2020) | Year | Quarter | High ($) | Low ($) | |:---|:---|:---|:---| | 2020 | First Quarter | 0.99 | 0.31 | | | Second Quarter | 0.80 | 0.30 | | | Third Quarter | 1.12 | 0.50 | | | Fourth Quarter | 0.90 | 0.50 | | 2019 | First Quarter | 0.75 | 0.40 | | | Second Quarter | 0.70 | 0.37 | | | Third Quarter | 1.00 | 0.50 | | | Fourth Quarter | 0.94 | 0.56 | | 2018 | First Quarter | 2.57 | 1.26 | | | Second Quarter | 1.75 | 1.00 | | | Third Quarter | 1.30 | 0.43 | | | Fourth Quarter | 0.81 | 0.25 | | 2017 | First Quarter | 1.38 | 0.80 | | | Second Quarter | 2.00 | 1.00 | | | Third Quarter | 1.68 | 1.01 | | | Fourth Quarter | 2.22 | 1.05 | - As of December 31, 2020, there were approximately 200 holders of record and 175,597,695 shares of Common Stock outstanding[138] - The company has never paid cash dividends and plans to retain future earnings to support operations and business growth[139] - No issuer purchases of equity securities or recent sales of unregistered securities (not previously reported) occurred[140] Item 6. Selected Financial Data This section is not applicable as the company qualifies as a 'smaller reporting company' under SEC Regulation S-K - Not applicable to a "smaller reporting company" as defined in Item 10(f)(1) of SEC Regulation S-K[140] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition, operational results, and future outlook, covering its business model, growth strategy, liquidity, COVID-19 impact, going concern assessment, and key accounting policies Overview The company operates a technology platform for premium publishers, including Sports Illustrated and TheStreet, with a growth strategy focused on expanding its publisher coalition and acquiring high-quality brands - The company operates a best-in-class technology platform empowering premium publishers, including Sports Illustrated and TheStreet, and over 250 independent brands[142] - The growth strategy is to expand by adding new premium publishers and acquiring entities with high-quality brands and content to increase user scale and monetization effectiveness[143] Liquidity and Capital Resources As of December 31, 2018, the company had $2.4 million in cash, a $12.3 million working capital deficit, and relied on equity and debt financings, with operating activities using $7.4 million and investing activities using $23.6 million - As of December 31, 2018, principal liquidity sources included $2,406,596 in cash, approximately $2.5 million available under a factoring facility, and anticipated $2.1 million from convertible debenture financing[144] - The company has financed working capital requirements since inception through equity securities issuances and various debt financings[145] Working Capital (2018 vs. 2017) | Indicator | As of Dec 31, 2018 ($) | As of Dec 31, 2017 ($) | |:---|:---|:---| | Current assets | 9,533,342 | 3,860,967 | | Current liabilities | (21,849,647) | (416,444) | | Working (deficit) capital | (12,316,305) | 3,444,523 | Cash Flows (2018 vs. 2017) | Cash Flow Activity | 2018 ($) | 2017 ($) | |:---|:---|:---| | Net cash used in operating activities | (7,417,680) | (4,194,392) | | Net cash used in investing activities | (23,589,027) | (2,039,599) | | Net cash provided by financing activities | 29,914,747 | 9,254,946 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | (1,091,960) | 3,020,955 | | Cash, cash equivalents, and restricted cash, end of year | 2,527,289 | 3,619,249 | - Net cash used in operating activities in 2018 was primarily due to $7.08 million in general and administrative expenses[148] - Net cash used in investing activities in 2018 was mainly for business acquisitions ($18.04 million), promissory notes receivable ($3.37 million), and capitalized platform development ($2.16 million)[149] - Net cash provided by financing activities in 2018 included $12.32 million from Series H preferred stock, $1.25 million from common stock private placement, and $16.64 million from various debt issuances[150] Future Liquidity From January 2019 to the financial statement issuance date, the company raised approximately $150.7 million in net proceeds from equity and debt, with a cash balance of $9.4 million as of January 4, 2021, and all Series I, J, and K Preferred Stock converting to common stock by December 2020 - From January 1, 2019, to the financial statement issuance date, the company raised approximately $150.7 million in net proceeds ($64.7 million from equity, $85.9 million from debt)[154] - Cash balance as of January 4, 2021, was approximately $9.4 million[154] - Debt financings included 12% Convertible Debentures (converted to common stock or repaid in cash by Dec 31, 2020), Amended and Restated 12% Senior Secured Notes ($56.3 million outstanding as of issuance date), a $15 million FastPay Credit Facility (approx. $7.18 million outstanding as of Dec 31, 2020), a 15% Delayed Draw Term Note (approx. $4.29 million outstanding as of Dec 31, 2020), and a $5.7 million Payroll Protection Program Loan (expected 100% forgiveness)[155][157][159][163][164][166][169][170][171] - Equity raises included Series H Preferred Stock ($2.73 million gross proceeds), Series I Preferred Stock ($23.1 million gross proceeds), Series J Preferred Stock ($20 million + $6 million gross proceeds), and Series K Preferred Stock ($18.04 million gross proceeds)[173][174][176][178][179] - All outstanding shares of Series I, J, and K Preferred Stock automatically converted into common stock by December 18, 2020, following an increase in authorized common shares[175][178][180] Going Concern The company has a history of recurring losses, negative working capital, and operating cash flows, with a $44.1 million net loss in 2018, but management concluded no substantial doubt about its going concern ability for one year, supported by cash flow forecasts and a 2021 operating budget - The company has a history of recurring losses, negative working capital, and negative operating cash flows, with a net loss attributable to common stockholders of $44,113,379 and an accumulated deficit of $34,539,954 in 2018[183][446] - The COVID-19 pandemic caused a decline in traffic, advertising revenue, and earnings in early March 2020, partially offset by cost reduction measures and growth in digital subscriptions[185][447] - Management's going concern assessment for 2021 considered the use of an $8 million FastPay working capital line, potential additional $5 million borrowings from 12% Amended Senior Secured Notes, and a 2021 operating budget with 65% recurring subscription revenue[188][451] - Digital subscription revenue, accounting for approximately 30% of total subscription revenue, grew approximately 30% in 2020, demonstrating brand strength and plans for continued growth from TheStreet acquisition and Sports Illustrated licensed brands[188][451] - Based on quantitative and qualitative factors, management concluded that conditions and events do not raise substantial doubt about the company's ability to continue as a going concern for a one-year period from the financial statement issuance date[189][452] Results of Operations Net loss significantly increased to $26.1 million in 2018 from $6.3 million in 2017, despite revenue surging over 7,300% to $5.7 million, primarily due to rapid operational expansion, increased cost of revenue, and higher operating and other expenses - Total net loss increased by $19,783,570 to $26,067,883 in 2018 from $6,284,313 in 2017, primarily due to rapid operational expansion and a deemed dividend on Series H Preferred Stock[191] Key Financial Performance (2018 vs. 2017) | Metric | 2018 ($) | 2017 ($) | $ Change | % Change | |:---|:---|:---|:---|:---| | Revenue | 5,700,199 | 76,995 | 5,623,204 | 7,303.3% | | Cost of revenue | 7,641,684 | 1,590,636 | 6,051,048 | 380.4% | | Gross loss | (1,941,485) | (1,513,641) | (427,844) | 28.3% | | Total operating expenses | 12,072,387 | 4,835,697 | 7,236,690 | 149.7% | | Loss from operations | (14,013,872) | (6,349,338) | (7,664,534) | 120.7% | | Total other (expense) income | (12,145,644) | 65,025 | (12,210,669) | -18,778.4% | | Net loss | (26,067,883) | (6,284,313) | (19,783,570) | 314.8% | | Deemed dividend on Series H preferred stock | (18,045,496) | - | (18,045,496) | 100.0% | | Net loss attributable to common shareholders | (44,113,379) | (6,284,313) | (37,829,066) | 602.0% | | Basic and diluted net loss per common share | (1.69) | (0.42) | | | | Weighted average common shares outstanding | 26,128,796 | 14,919,232 | | | - Revenue in 2018 was $5,700,199, primarily from advertising ($5,614,953) and membership subscriptions ($85,246), significantly up from $76,995 in 2017, driven by new online media channels and acquisitions of HubPages and Say Media[194] - Cost of revenue increased by $6,051,048 to $7,641,684 in 2018, mainly due to Channel Partners' guarantee payments ($896,928), payroll and benefits ($450,366), amortization of capitalized platform development ($1,324,373), amortization of acquired developed technology ($558,423), and revenue share payments ($2,247,453)[196] - Research and development expenses increased to $1,179,944 in 2018 from $114,873 in 2017, driven by payroll, stock-based compensation, and other R&D costs[198] - General and administrative expenses rose by $6,171,619 to $10,892,443 in 2018, primarily due to increased headcount (from 24 to 87), additional senior executives, stock-based compensation, and professional fees[199] - Other expenses in 2018 included a $2,971,694 loss from embedded derivative liabilities, a $1,344,648 true-up termination fee, $3,366,031 for settlement of promissory notes receivable, $2,508,874 in interest expense, and $2,940,654 in liquidated damages[200][202][203][204] Our Future Business In 2019-2020, the company pursued strategic growth through acquisitions, including TheStreet for $16.5 million, a 100-year Sports Illustrated licensing agreement with a $45 million prepaid royalty, and LiftIgniter for content personalization - In 2019, the company completed the acquisition of TheStreet, Inc. for $16.5 million in cash, funded through debt financing[209][210][212] - A content agreement with Jim Cramer and Cramer Digital was established, involving a revenue share, an annualized guarantee payment of $3 million, and issuance of stock options[211][212] - In June 2019, the company entered a 100-year exclusive licensing agreement with ABG-SI LLC to operate the Sports Illustrated media business in multiple territories, including a $45 million prepaid royalty and issuance of 21,989,844 common stock warrants[214][215][216][218][220] - In March 2020, the company acquired substantially all assets of LiftIgniter, a machine learning platform for content personalization, for cash payments and restricted stock units[221][804] Critical Accounting Policies and Estimates Critical accounting estimates include revenue recognition, platform development, impairment of long-lived assets, and stock-based compensation, with specific policies for recognizing advertising and subscription revenue, capitalizing development costs, and expensing stock-based awards - Critical accounting estimates include revenue recognition, platform development, impairment of long-lived assets, and stock-based compensation[222] - Revenue is recognized when control of promised goods or services is transferred to customers. Advertising revenue is recognized in real-time, and membership subscription revenue is recognized over the subscription term[224][226][227][464][465] - Cost of revenue includes channel partner guarantees and revenue share, amortization of developed technology and platform development, hosting fees, and stock-based compensation[228][469] - Platform development costs are capitalized during the application development stage and amortized on a straight-line basis over three years[231][480][481] - Stock-based compensation for employees, directors, and consultants is measured at fair value on the grant date and expensed over the vesting period, using the Black-Scholes model for options and warrants[233][236][499][501] - The company uses the asset and liability method for income taxes and periodically evaluates the carrying value of long-lived assets for impairment[238][239][485][506] - A sequencing policy is adopted for reclassification of contracts from equity to assets or liabilities if sufficient authorized shares are unavailable, with earliest grants receiving first allocation[240][512] Recently Issued Accounting Pronouncements The company adopted ASC 606 and ASU 2016-18 with no material impact, and plans future adoptions of ASU 2016-02, 2016-13, 2017-04, 2017-11, 2018-07, 2020-06, and 2020-08, with ongoing evaluation of their financial impact - Adopted ASU 2014-09 (Revenue from Contracts with Customers) in Q3 2017 and ASU 2016-18 (Statement of Cash Flows) in Q1 2018, with no material impact[513][515] - Intends to adopt ASU 2016-02 (Leases) in Q1 2019, expecting no material impact on results of operations or cash flows[516] - Will adopt ASU 2016-13 (Credit Losses) and ASU 2017-04 (Goodwill Impairment) in Q1 2020, and ASU 2017-11 (Down Round Features) and ASU 2018-07 (Nonemployee Share-Based Payment) in Q1 2019[518][519][520][521] - Will adopt ASU 2020-06 (Debt with Conversion and Other Options) and ASU 2020-08 (Receivables – Nonrefundable Fees and Other Costs) in Q1 2021[522][523] Off-Balance Sheet Arrangements As of December 31, 2018, off-balance sheet arrangements included $1.36 million in warrant derivative liabilities and $7.39 million in embedded derivative liabilities from 12% Convertible Debentures, both carried at fair value due to specific features - As of December 31, 2018, off-balance sheet arrangements included warrant derivative liabilities ($1,364,235) and embedded derivative liabilities ($7,387,000)[245][251][575][584] - Warrant derivative liabilities (L2, Strome, B. Riley Warrants) were carried at fair value due to reset provisions or restrictions on delivering unregistered shares upon exercise[245][246][248][571][572] - Embedded derivative liabilities from 12% Convertible Debentures were carried at fair value due to conversion options, buy-in features, and default remedy features[249][251][606][607] Contractual Obligations As of December 31, 2018, total principal cash operating obligations and commitments amounted to $1,871,106, primarily comprising operating leases, employment contracts, and a consulting agreement, with most due in 2019 - As of December 31, 2018, total principal cash operating obligations and commitments were $1,871,106[253][254] Contractual Obligations as of December 31, 2018 | Category | Total ($) | 2019 Payments ($) | 2020 Payments ($) | 2021 Payments ($) | |:---|:---|:---|:---|:---| | Operating leases | 1,100,689 | 526,027 | 347,845 | 226,817 | | Employment contracts | 297,917 | 297,917 | - | - | | Consulting agreement | 472,500 | 465,300 | 7,200 | - | | Total | 1,871,106 | 1,289,244 | 355,045 | 226,817 | Item 7A. Quantitative and Qualitative Disclosures about Market Risk This section is not applicable as the company qualifies as a 'smaller reporting company' under SEC Regulation S-K - Not applicable to a "smaller reporting company" as defined in Item 10(f)(1) of SEC Regulation S-K[255] Item 8. Financial Statements and Supplementary Data This item refers to the consolidated financial statements and supplementary data, including auditor reports, balance sheets, statements of operations, equity, cash flows, and notes, located in Part IV of this Annual Report - All information required by this item is listed in the Index to Financial Statements in Part IV, Item 15(a)1 of this Annual Report[256] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company experienced changes in its independent registered public accounting firm, dismissing Gumbiner Savett Inc. and BDO USA, LLP, and engaging Marcum LLP, with no reported disagreements except for Gumbiner's going concern and material weaknesses observations - Gumbiner Savett Inc. was dismissed as the independent registered public accounting firm on February 5, 2018[256] - Gumbiner's report for 2016 contained an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern and noted material weaknesses in internal control over financial reporting[257] - BDO USA, LLP was engaged on February 5, 2018, and subsequently dismissed on September 28, 2018[258] - Marcum LLP was engaged as the new independent registered public accounting firm on January 9, 2019[260] - No disagreements on accounting principles or practices were reported with Gumbiner or BDO, except for the going concern and material weaknesses noted by Gumbiner[257][258][260] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were ineffective as of December 31, 2018, due to material weaknesses, with remediation efforts underway and expected completion by March 31, 2021 - Management concluded that disclosure controls and procedures were not effective as of December 31, 2018[262] - Management concluded that internal control over financial reporting was not effective as of December 31, 2018, based on COSO framework[266] - Material weaknesses identified include lack of monitoring over accounting records and IT systems, ineffective period-end financial disclosure, inadequate segregation of duties, and a history of untimely SEC filings[266] - Remediation plans include engaging external CPAs, utilizing accounting experience from TheStreet Merger, Audit Committee oversight, updating control documentation, and implementing segregation of duties, with expected completion by March 31, 2021[267][268] - This Annual Report does not include an attestation report from the registered public accounting firm regarding internal control over financial reporting, as permitted for smaller reporting companies[269] Item 9B. Other Information There is no other information to report - None[270] Part III Item 10. Directors, Executive Officers and Corporate Governance This section details current and former executive officers and directors, including their biographical information, delinquent Section 16(a) reports, Code of Ethics, and Audit Committee composition, noting three independent directors Current Officers and Directors | Name | Age | Current Title | Dates in Position or Office | |:---|:---|:---|:---| | Ross Levinsohn | 57 | Chief Executive Officer and Director | August 26, 2020 – Present | | Paul Edmondson | 46 | President | October 10, 2019 – Present | | Douglas B. Smith | 60 | Chief Financial Officer and Secretary | May 3, 2019 – Present | | Andrew Kraft | 47 | Chief Operating Officer | October 1, 2020 – Present | | Avi Zimak | 46 | Chief Revenue & Strategy Officer | December 19, 2019 – Present | | Jill Marchisotto | 48 | Chief Marketing Officer | October 1, 2020 – Present | | John Fichthorn | 47 | Chairman of our Board | August 23, 2018 – Present | | Peter Mills | 65 | Director | September 20, 2006 - Present | | Todd Sims | 51 | Director | August 23, 2018 – Present | | Rinku Sen | 54 | Director | November 3, 2017 – Present | | David Bailey | 30 | Director | January 28, 2018 – Present | | Joshua Jacobs | 50 | Director | May 31, 2017 – Present | Former Officers and Directors (Fiscal 2018) | Name | Age | Current Title | Dates in Position or Office | |:---|:---|:---|:---| | James C. Heckman | 55 | Chief Executive Officer and Director | November 4, 2016 – August 26, 2020 | | Martin Heimbigner | 62 | Chief Financial Officer | March 20, 2017 – May 3, 2019 | | William Sornsin | 58 | Chief Operating Officer | November 4, 2016 – August 23, 2018; December 9, 2019 – September 4, 2020 | | Benjamin Joldersma | 42 | Chief Technology Officer | November 4, 2016 – September 30, 2020 | - Several reporting persons, including John Fichthorn, Ross Levinsohn, Peter Mills, Joshua Jacobs, Rinku Sen, David Bailey, Todd Sims, Paul Edmondson, Douglas B. Smith, James C. Heckman, Benjamin Joldersma, Avi Zimak, and William Sornsin, had delinquent Section 16(a) reports for transactions between 2017 and 2020[297][298] - A Code of Ethics, applicable to executive officers and employees, was approved and adopted by the Board on January 1, 2020[299] - The Audit Committee, formed September 14, 2018, consists of Peter Mills (Chairman and 'audit committee financial expert') and John Fichthorn. Three board members (Mr. Mills, Ms. Sen, Mr. Bailey) qualify as 'independent'[301][383] Item 11. Executive Compensation Executive compensation for 2018 included base salaries and stock options for named executive officers, with total compensation for Mr. Heckman at $1.36 million, Mr. Jacobs at $1.67 million, and Mr. Joldersma at $0.50 million; director compensation also included cash and equity awards Summary Compensation Table for Named Executive Officers (2018 vs. 2017) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($) | All Other Compensation ($) | Total Compensation ($) | |:---|:---|:---|:---|:---|:---|:---| | James C. Heckman, CEO | 2018 | 300,000 | - | 1,057,500 | - | 1,357,500 | | | 2017 | 300,003 | - | - | - | 300,003 | | Joshua Jacobs, President | 2018 | 300,000 | 18,947 | 1,347,000 | - | 1,665,947 | | | 2017 | 137,769 | 17,500 | 303,520 | - | 458,789 | | Benjamin Joldersma, CTO | 2018 | 272,917 | 10,000 | 212,910 | - | 495,827 | | | 2017 | 250,001 | - | - | - | 250,001 | - James C. Heckman's employment agreement (Nov 2016) included a $300,000 annual salary and severance provisions. He resigned Aug 2020 and entered a one-year consulting agreement for approx. $29,200/month[308][321] - Joshua Jacobs' amended employment agreement (Jan 2018) increased his annual base salary to $300,000 and included performance-based bonuses. He resigned as President in Oct 2019 but remains a director, receiving $20,000/month for consulting services from May 2020[312][313][322] - Benjamin Joldersma's employment agreement (Nov 2016) included an annual base salary (increased to $275,000 in 2018) and three months' severance. He resigned as CTO in Sept 2020 and received approx. $111,000 in severance[315][323] Director Compensation (2018) | Name of Director | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | All other compensation ($) | Total ($) | |:---|:---|:---|:---|:---|:---| | Peter B. Mills | 18,750 | 29,167 | 73,350 | - | 121,267 | | David Bailey | 16,944 | 12,500 | 80,850 | - | 110,294 | | Rinku Sen | 12,500 | 12,500 | 73,350 | 6,250 | 104,630 | | Christopher A. Marlett | - | - | 73,350 | - | 73,350 | | Todd D. Sims | - | 33,334 | - | - | 33,334 | | John A. Fichthorn | - | 33,334 | - | - | 33,334 | - Director compensation policies were updated in August and September 2018, shifting from cash compensation to restricted stock awards (valued at $50,000) for non-employee directors, with additional stock option awards for committee chairpersons[319][320] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of December 31, 2018, 12.8 million securities were issuable under equity plans at a $0.82 weighted average exercise price; post-2018, the 2019 Stock Incentive Plan authorized 85 million shares, and significant beneficial owners of common and Series H Preferred Stock were identified as of December 31, 2020 Securities Authorized for Issuance Under Equity Compensation Plans (as of Dec 31, 2018) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |:---|:---|:---|:---| | Equity compensation plans approved by security holders | 3,000,000 | 1.48 | - | | Equity compensation plans not approved by security holders | 9,836,681 | 0.61 | 982,860 | | Total | 12,836,681 | 0.82 | 982,860 | - The 2016 Stock Incentive Plan, approved by stockholders, authorized up to 10,000,000 shares for awards. The Channel Partner Warrant Program, not approved by stockholders, authorized up to 2,000,000 shares (later increased to 5,000,000 and then modified)[332][333][337][341][342] - Post-2018, the 2019 Stock Incentive Plan was approved for up to 85,000,000 shares, and warrants to acquire 21,989,844 shares were granted to ABG in connection with the Sports Illustrated licensing agreement[343][344][347] Beneficial Ownership of Common Stock (as of Dec 31, 2020) | Name and Address of Beneficial Owner | Beneficial Ownership () | % Class | |:---|:---|:---| | Five Percent Stockholders | | | | B. Riley FBR, Inc. | 32,858,214 | 18.61% | | 180 Degree Capital Corp. | 22,928,571 | 12.76% | | Warlock Partners LLC | 20,714,286 | 11.79% | | Athletes First Media LLC | 15,000,000 | 8.54% | | Directors and Named Executive Officers | | | | James C. Heckman | 8,010,758 | 4.46% | | Benjamin Joldersma | 2,412,271 | 1.37% | | Ross Levinsohn | 3,023,212 | ** | | John Fichthorn | 1,986,473 | ** | | Todd Sims | 642,858 | ** | | Rinku Sen | 242,605 | ** | | Peter Mills | 686,875 | ** | | David Bailey | 215,898 | ** | | Joshua Jacobs | 1,493,550 | ** | | Total Executive Officers and Directors, as a group (12 persons) | 12,617,818 | 7.13% | Beneficial Ownership of Series H Preferred Stock (as of Dec 31, 2020) | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership () | Percent of Class (%) | |:---|:---|:---| | Five Percent Stockholders | | | | Mark E. Strome | 6,400 | 32.7 | | B. Riley FBR, Inc. | 4,245 | 21.7 | | 180 Degree Capital Corp. | 1,320 | 6.7 | | Warlock Partners LLC | 1,320 | 6.7 | | Directors and Named Executive Officers | | | | James C. Heckman | 689 | 3.5 | | Peter Mills | 33 | ** | | Joshua Jacobs | 30 | ** | | Total Executive Officers and Directors, as a group (12 persons) | 66 | ** | - As of December 18, 2020, all outstanding shares of Series I, J, and K Preferred Stock automatically converted into common stock following an increase in authorized common shares[357] Item 13. Certain Relationships and Related Transactions, and Director Independence The company engaged in numerous financing transactions with related parties, including MDB Capital, Strome Mezzanine Fund, and B. Riley FBR, involving private placements and debt, with key executives also participating; the board has three independent directors, but John Fichthorn and Todd D. Sims are not considered independent - The company completed multiple private placements of common stock, convertible debentures, and preferred stock between 2017 and 2020, involving related parties such as MDB Capital Group, LLC, Strome Mezzanine Fund LP, and B. Riley FBR, Inc[358][359][361][362][364][365][366][367][368][369][371][372][373][375][376][377][378] - Christopher Marlett (former director) was CEO of MDB, which acted as placement agent for several common stock private placements, receiving cash and equity[358][359][361][642][643][645] - Strome Mezzanine Fund LP (an affiliate of Mark Strome, a >10% stockholder) invested significantly in 10% OID convertible debentures and Series H Preferred Stock, and received warrants[362][363][364][367][376][717][718][719] - B. Riley FBR, Inc. (an affiliate of B. Riley) acted as placement agent for numerous debt and equity financings, receiving fees and equity. John A. Fichthorn (Chairman of the Board) and Todd D. Sims (Director) have affiliations with B. Riley[364][365][366][367][369][371][372][373][375][376][377][378][384][385][723] - Key executives James C. Heckman (former CEO) and Joshua Jacobs (former President) also invested in convertible debentures and received Series H Preferred Stock[362][364][717][719] - The Cramer Agreement (August 2019) with Jim Cramer and Cramer Digital involves content services, revenue share, an annualized guarantee payment of $3 million, stock options, and reimbursement for office space[380][381] - Officer promissory notes were issued to James C. Heckman in May 2018 for advancing funds to meet operating needs, totaling $680,399 (including interest) as of December 31, 2018[382][726] - The board has three independent directors (Peter B. Mills, Rinku Sen, David Bailey). John A. Fichthorn and Todd D. Sims are not considered independent due to their affiliations with B. Riley[383][384][385][723] Item 14. Principal Accountant Fees and Services The company incurred $1,195,671 in fees from Marcum LLP in 2018, primarily for audit and tax services, and $157,878 from BDO USA, LLP in 2017 for audit services, with the Audit Committee pre-approving all services to ensure independence Principal Accountant Fees and Services (2018 vs. 2017) | Category | 2018 Marcum ($) | 2017 BDO ($) | |:---|:---|:---| | Audit Fees | 1,158,047 | 157,878 | | Audit-related Fees | - | - | | All Other Fees | - | - | | Tax Fees | 37,624 | - | | Total | 1,195,671 | 157,878 | - Audit fees for 2018 were $1,158,047 (Marcum) and for 2017 were $157,878 (BDO)[389] - No audit-related or other fees were billed or paid in fiscal 2018 and 2017[390][391] - Tax fees for 2018 were $37,624 (Marcum)[392] - The Audit Committee pre-approves all audit and non-audit services to ensure auditor independence[393][395] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all documents filed as part of the Annual Report, including the Index to Consolidated Financial Statements, auditor reports, balance sheets, statements of operations, equity, cash flows, notes, and a comprehensive list of exhibits - The section includes the Index to Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firms (Marcum LLP and BDO USA, LLP)[396][397] - Consolidated financial statements include Balance Sheets, Statements of Operations, Stockholders' Equity (Deficiency), and Cash Flows for the years ended December 31, 2018 and 2017, along with Notes to Consolidated Financial Statements[397] - A detailed list of exhibits is provided, covering merger agreements, certificates of incorporation, bylaws, stock incentive plans, securities purchase agreements, licensing agreements, employment agreements, and various certifications[398][400][401][403][404][405][406][407][408] Item 16. Form 10–K Summary There is no Form 10-K Summary provided - None[408]