The following discussion and analysis of our financial condition and results of operations for the three and nine months endedSeptember 30, 2022 and 2021 should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and notes thereto for the year endedDecember 31, 2021 included in the Form 10-K filed with theSEC onApril 1, 2022 . The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those set forth above. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see the section above under the heading "Forward-Looking Statements."
All dollar figures are presented in thousands unless otherwise stated.
Overview We are a tech-powered media company that focuses on building deep content verticals powered by a best-in-class digital media platform (the "Platform") empowering premium publishers who impact, inform, educate, and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports and finance), and where we can leverage the strength of our core brands to grow our audience and increase monetization both within our core brands as well as our media publishers (each, a "Publisher Partner"). Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize audience reach, improve engagement, and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our 40 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated (the "Sports Illustrated media business"), own and operateTheStreet, Inc. ("TheStreet"),College Spun Media Incorporated ("The Spun"), andAthlon Holdings, Inc. ("Athlon"), and power more than 200 independent Publisher Partners, including Biography, History, and the many sports team sites that comprise FanNation, among others. Each Publisher Partner joins the Platform by invitation-only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization, social media, subscription marketing and ad monetization, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While they benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management. 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. 33 Key Operating Metrics We monitor and review the key operating metrics described below as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods, including an 81% increase year-over-year from 2020 to 2021 and a 90% increase in the nine months endedSeptember 30, 2022 as compared to the same period in fiscal 2021. Management monitors and reviews these metrics because such metrics are readily measurable in real time and can provide valuable insight into the performance of and trends related to our digital advertising revenue and our overall business. We consider only those key operating metrics described here to be material to our financial condition, results of operations and future prospects.
Our key operating metrics are identified below:
? Revenue per page view ("RPM") - represents the advertising revenue earned per
1,000 pageviews. It is calculated as our advertising revenue during a period
divided by our total page views during that period and multiplied by
and
? Monthly average pageviews - represents the total number of pageviews in a
given month or the average of each month's pageviews in a fiscal quarter or
year, which is calculated as the total number of page views recorded in a quarter or year divided by three months or 12 months, respectively. For pricing indicators, we focus on RPM as it is the pricing metric most closely aligned with monthly average pageviews. RPM is an indicator of yield and pricing driven by both advertising density and demand from our advertisers. Monthly average pageviews are measured across all properties hosted on the Arena Platform and provide us with insight into volume, engagement and effective page management and are therefore our primary measure of traffic. We utilize a third-party source,September 30, 2022 our RPM was$18.08 and$15.77 , respectively. For the three and nine months endedSeptember 30, 2022 our monthly average pageviews were 498,031,050 and 515,104,614, respectively. For the three and nine months endedSeptember 30, 2021 our RPM was$16.46 and$13.59 , respectively. For the three and nine months endedSeptember 30, 2021 our monthly average pageviews were 378,714,372 and 325,391,284, respectively.
Liquidity and Capital Resources
Cash and Working Capital Facility
As ofSeptember 30, 2022 , our principal sources of liquidity consisted of cash of$13,303 . In addition, as ofSeptember 30, 2022 , we had$6,526 available for additional use, subject to eligible accounts receivable, under our working capital facility withFPP Finance LLC ("FastPay"). As ofSeptember 30, 2022 , the outstanding balance of the FastPay working capital facility was$18,474 . We also had accounts receivable, net of our advances from FastPay of$15,188 as ofSeptember 30, 2022 . Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements is$10,934 . 34
Material Contractual Obligations
We have material contractual obligations that arise in the normal course of business primarily consisting of employment contracts, consulting agreements, leases, liquidated damages, debt and related interest payments. Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months. See Notes 4, 7 and 9 in our accompanying condensed consolidated financial statements for amounts outstanding as ofSeptember 30, 2022 , related to leases, liquidated damages and long-term debt, respectively. There have been no material changes during the nine months endedSeptember 30, 2022 to our contractual obligations as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Contingent Liability We may have a contingent liability arising out of possible violations of the Securities Act in connection with an investor presentation, which we furnished as Exhibit 99.2 to our Current Report on Form 8-K and Current Report on Form 8-K/A filed onJanuary 31, 2022 andFebruary 1, 2022 , respectively. Specifically, the furnishing of the investor presentation publicly may have constituted an "offer to sell" as described in Section 5(b)(1) of the Securities Act and the investor presentation may be deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon such investor presentation that may have constituted a potential violation of Section 5 of the Securities Act. If a claim were brought by any such 'recipients' of such investor presentation and a court were to conclude that the public disclosure of such investor presentation constituted a violation of Section 5 of the Securities Act, we could be required to repurchase the shares sold to the investors who reviewed such investor presentation at the original purchase price, plus statutory interest. We could also incur considerable expense in contesting any such claims. As of the date of the filing of this Quarterly Report, no legal proceedings or claims have been made or threatened by any investors in our offering. Such payments and expenses, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, or force us to raise additional funding, which funding may not be available on favorable terms, if at all. Working Capital
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 September 30, 2022 December 31, 2021 Current assets $ 74,245 $ 77,671 Current liabilities (117,242 ) (116,413 ) Working capital deficit (42,997 ) (38,742 ) As ofSeptember 30, 2022 , we had a working capital deficit of$42,997 , as compared to$38,742 as ofDecember 31, 2021 , consisting of$74,245 in total current assets and$117,242 in total current liabilities. As ofDecember 31, 2021 , our working capital deficit consisted of$77,671 in total current assets and$116,413 in total current liabilities. Our cash flows during the nine months endedSeptember 30, 2022 and 2021 consisted of the following: Nine Months Ended September 30, 2022 2021
Net cash used in operating activities$ (14,676 ) $ (8,262 ) Net cash used in investing activities (12,315 ) (10,674 ) Net cash provided by financing activities 30,945
18,130
Net increase (decrease) in cash, cash equivalents, and restricted cash $ 3,954 $ (806 ) Cash, cash equivalents, and restricted cash, end of period $ 13,805 $ 8,729 35 For the nine months endedSeptember 30, 2022 , net cash used in operating activities was$14,676 , consisting primarily of$184,858 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services; and$7,209 of cash paid for interest, offset by$177,391 of cash received from customers. For the nine months endedSeptember 30, 2021 , net cash used in operating activities was$8,262 , consisting primarily of$132,422 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services; and$902 of cash paid for interest, offset by$125,062 of cash received from customers. For the nine months endedSeptember 30, 2022 , net cash used in investing activities was$12,315 , consisting primarily of$10,331 for the acquisition of a business;$3,990 for capitalized costs for our Platform; and$444 for property and equipment, offset by$2,450 from the sale of an equity investment. For the nine months endedSeptember 30, 2021 , net cash used in investing activities was$10,674 , consisting primarily of$7,357 for the acquisition of businesses;$3,017 for capitalized costs for our Platform; and$300 for property and equipment. For the nine months endedSeptember 30, 2022 , net cash provided by financing activities was$30,945 , consisting primarily of$30,490 (net of issuance costs paid of$1,568 ) in net proceeds from a public offering of common stock;$6,486 from advancements of our FastPay line of credit; and$94 from exercises of common stock options, offset by$3,520 for tax payments relating to the withholding of shares of common stock for certain employees;$2,152 related to payments of restricted stock liabilities; and$453 payment for The Spun deferred cash payment. For the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$18,130 consisting primarily of$19,838 (net of issuance cost paid of$167 ) in net proceeds from a private placement of common stock, offset by$1,165 related to payments of restricted stock liabilities;$473 from repayments of our FastPay line of credit; and$70 for tax payments relating to the withholding of shares of common stock for certain employees. Results of Operations
Three Months Ended
Three Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Revenue $ 66,706$ 59,575 $ 7,131 12.0 % Cost of revenue 40,504 32,215 8,289 25.7 % Gross profit 26,202 27,360 (1,158 ) -4.2 % Operating expenses Selling and marketing 20,103 22,892 (2,789 ) -12.2 % General and administrative 13,847 14,557 (710 ) -4.9 % Depreciation and amortization 4,478 4,055 423 10.4 % Loss on lease termination - 7,345 (7,345 ) -100.0 % Loss impairment of assets 209 904 (695 ) -76.9 % Total operating expenses 38,637 49,753 (11,116 ) -22.3 % Loss from operations (12,435 ) (22,393 ) 9,958 -44.5 % Total other (expense) (3,523 ) (2,544 ) (979 ) 38.5 % Loss before income taxes (15,958 ) (24,937 ) 8,979 -36.0 % Income taxes (547 ) 230 (777 ) -337.8 % Net loss $ (16,505 )$ (24,707 ) $ (8,202 ) -33.2 % Basic and diluted net loss per common share $ (0.90 )$ (2.15 ) $ 1.25 -58.1 % Weighted average number of common shares outstanding - basic and diluted 18,284,670 11,491,412 6,793,258 59.1 % 36 Net Loss For the three months endedSeptember 30, 2022 , as referenced in the above table, net loss was$16,505 , as compared to$24,707 for the three months endedSeptember 30, 2021 , which represents a decrease of$8,202 . The primary driver for the decrease in net loss was an increase of$7,131 in revenue, with a decrease in operating expenses of$11,116 during the three months endedSeptember 30, 2022 . Revenue
The following table sets forth revenue by product line and the corresponding percent of total revenue:
Three Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Digital revenue Digital advertising$ 28,513 $ 18,325 $ 10,188 55.6 % Digital subscriptions 4,629 7,699 (3,070 ) -39.9 % Other revenue 4,848 4,221 627 14.9 % Total digital revenue 37,990 30,245 7,745 25.6 % Print revenue Print advertising 12,541 3,356 9,185 273.7 % Print subscriptions 16,175 25,974 (9,799 ) -37.7 % Total print revenue 28,716 29,330 (614 ) -2.1 % Total revenue$ 66,706 $ 59,575 $ 7,131 12.0 % For the three months endedSeptember 30, 2022 , as referenced in the above table, total revenue increased$7,131 or 12.0% from$59,575 to$66,706 . The majority of the revenue driver was derived from total digital revenue which increased$7,745 , or 25.6%, from the prior year period primarily due to an increase in digital advertising revenue of$10,188 , or 55.6%. The increase in digital advertising revenue was mainly driven by a 32% increase in monthly average pageviews and a 10% increase in revenue per pageview with 86% of the total increase driven by organic growth and the remainder due to the acquisition of Athlon. Other revenue increased by$627 , or 15%, despite the fact that theSports Illustrated Swim magazine ("SI Swim") launch added$3,033 of revenue to the third quarter of 2021 but was launched in the second quarter of 2022. Total print revenue decreased$614 , or 2.1%, from$29,330 for the three months endedSeptember 30, 2021 to$28,716 for the three months endedSeptember 30, 2022 primarily related to a planned decrease from the Sports Illustrated media business as we reduced the rate base from 1.7 million to 1.2 million to focus on more profitable subscriptions. This was largely offset by the addition of the Athlon publications, which were acquired during the second quarter of 2022.
Cost of Revenue
The following table sets forth cost of revenue by category:
Three Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Publisher Partner revenue share payments $ 4,471 $ 4,913$ (442 ) -9.0 % Technology, Platform and software licensing fees 4,851 2,363 2,488 105.3 % Royalty fees 3,750 3,750 - 0.0 % Content and editorial expenses 11,057 11,943 (886 ) -7.4 % Printing, distribution and fulfillment costs 11,058 5,240 5,818 111.0 % Amortization of developed technology and platform development 2,413 2,242 171 7.6 % Stock-based compensation 2,772 1,732 1,040 60.0 % Other cost of revenue 132 32 100 312.5 % Total cost of revenue$ 40,504 $ 32,215 $ 8,289 25.7 % 37 For the three months endedSeptember 30, 2022 , as referenced in the above table, we recognized cost of revenue of$40,504 , as compared to$32,215 for the three months endedSeptember 30, 2021 , which represents an increase of$8,289 or 25.7%. Cost of revenue for the third quarter of 2022, was impacted by increases in printing, distribution, and fulfillment costs of$5,818 , primarily due to the Athlon acquisition, which was acquired in the second quarter of 2022. We announced that we would be shutting down the Parade print business as ofNovember 13, 2022 , eliminating unprofitable aspects of the business. Operating Expenses Selling and Marketing
The following table sets forth selling and marketing expenses by category:
Three Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Payroll and employee benefits of selling and marketing account management support teams $ 5,025 $ 3,004$ 2,021 67.3 % Stock-based compensation 810 1,421 (611 ) -43.0 % Professional marketing services 550 882 (332 ) -37.6 % Circulation costs 1,808 1,056 752 71.2 % Subscription acquisition costs 9,778 13,013 (3,235 ) -24.9 % Advertising costs 1,474 2,344 (870 ) -37.1 % Other selling and marketing expenses 658 1,172 (514 ) -43.9 % Total selling and marketing$ 20,103 $ 22,892 $ (2,789 ) -12.2 % For the three months endedSeptember 30, 2022 , as referenced in the above table, we incurred selling and marketing expenses of$20,103 as compared to$22,892 for the three months endedSeptember 30, 2021 , a decrease of$2,789 or 12.2% from the prior period. The decrease in selling and marketing expenses of$2,789 was primarily due to decreases in subscription acquisition costs of$3,235 ; advertising costs of$870 ; stock-based compensation of$611 ; and other selling and marketing expenses$514 . Offsetting these decreases, payroll and employee benefits of selling and marketing account management support teams increased$2,021 and circulation costs grew by$752 , both of which were a result of the addition of the Athlon properties, which were acquired in the second quarter of 2022. General and Administrative The following table sets forth general and administrative expenses by category: Three Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Payroll and related expenses for executive and administrative personnel $ 4,573 $ 3,586 $ 987 27.5 % Stock-based compensation 4,729 5,322 (593 ) -11.1 % Professional services, including accounting, legal and insurance 3,166 4,090 (924 ) -22.6 % Other general and administrative expenses 1,379 1,559
(180 ) -11.5 % Total general and administrative$ 13,847 $ 14,557 $ (710 ) -4.9 % 38 For the three months endedSeptember 30, 2022 , as referenced in the above table, we incurred general and administrative expenses of$13,847 as compared to$14,557 for the three months endedSeptember 30, 2021 , a decrease of$710 or 4.9% from the prior period. The decrease is primarily related to professional services of$924 ; and stock-based compensation of$593 , offset by an increase in payroll and related expenses of$987 . Other (Expenses) Income
The following table sets forth other (expense) income:
Three Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Change in valuation of warrant derivative liabilities $ - $ 802$ (802 ) -100.0 % Interest expense (3,184 ) (2,512 ) (672 ) 26.8 % Liquidated damages (339 ) (834 ) 495 -59.4 % Total other expenses$ (3,523 ) $ (2,544 ) $
(979 ) 38.5 % Change in Valuation of Warrant Derivative Liabilities. The change of$802 in the valuation of warrant derivative liabilities for the three months endedSeptember 30, 2021 was the result no longer having any warrant derivative liabilities
as ofSeptember 30, 2022 . Interest Expense. We incurred interest expense of$3,184 for the three months endedSeptember 30, 2022 , as compared to$2,512 for the three months endedSeptember 30, 2021 . The increase in interest expense of$672 was primarily from additional cash paid interest from our debt.
Liquidated Damages. We recorded liquidated damages of
39
Nine Months Ended
Nine Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Revenue$ 180,024 $ 127,936 $ 52,088 40.7 % Cost of revenue 115,730 83,264 32,466 39.0 % Gross profit 64,294 44,672 19,622 43.9 % Operating expenses Selling and marketing 56,626 54,232 2,394 4.4 % General and administrative 43,325 37,587 5,738 15.3 % Depreciation and amortization 13,124 11,982 1,142 9.5 % Loss on lease termination - 7,345 (7,345 ) -100.0 % Loss on impairment of assets 466 904 (438 ) -48.5 % Total operating expenses 113,541 112,050 1,491 1.3 % Loss from operations (49,247 ) (67,378 ) 18,131 -26.9 % Total other (expense) (9,149 ) (3,679 ) (5,470 ) 148.7 % Loss before income taxes (58,396 ) (71,057 ) 12,661 -17.8 % Income taxes 1,235 230 1,005 437.0 % Net loss$ (57,161 ) $ (70,827 ) $ 13,666 -19.3 % Basic and diluted net loss per common share $ (3.30 )$ (6.38 ) $ 3.08 -48.3 % Weighted average number of common shares outstanding - basic and diluted 17,339,882 11,100,416 6,239,466 56.2 % Net loss For the nine months endedSeptember 30, 2022 , as referenced in the above table, net loss was$57,161 , as compared to$70,827 for the nine months endedSeptember 30, 2021 , which represents an improvement of$13,666 . The primary driver for the improvement in net loss was due to an$52,088 increase in revenue, which was partially offset by an increase in cost of revenue of$32,466 ; and an increase in operating expenses of$1,491 during the nine months endedSeptember 30 ,
2022. Revenue The following table sets forth revenue by product line and the corresponding percent of total revenue: Nine Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Digital revenue Digital advertising $ 74,852 $ 39,397$ 35,455 90.0 % Digital subscriptions 16,580 22,474 (5,894 ) -26.2 % Other revenue 13,193 5,834 7,359 126.1 % Total digital revenue 104,625 67,705 36,920 54.5 % Print revenue Print advertising 27,697 6,904 20,793 301.2 % Print subscriptions 47,702 53,327 (5,625 ) -10.5 % Total print revenue 75,399 60,231 15,168 25.2 % Total revenue$ 180,024 $ 127,936 $ 52,088 40.7 % 40 For the nine months endedSeptember 30, 2022 , as referenced in the above table, total revenue increased$52,088 , or 40.7% from$127,936 to$180,024 . Total digital revenue increased$36,920 , or 54.5%, from the prior year period, primarily due to an increase in digital advertising revenue of$35,455 , or 90.0%. The increase in digital advertising revenue was mainly due to a 58% increase in average pageviews and a 16% increase in revenue per pageview for the nine months endedSeptember 30, 2022 , as compared to the same period in the prior year with 95% of the total increase driven by organic growth and the remainder due to the acquisition of Athlon. Other revenue increased by$7,359 , or 126%, as we added new licensing and syndication relationships and by expanding existing ones to leverage our content with increased monetization. Total print revenue increased$15,168 , or 25.2%, from$60,231 for the nine months endedSeptember 30, 2021 to$75,399 for the nine months endedSeptember 30, 2022 primarily related to$26,988 fromAthlon magazine circulations, which was acquired during the second quarter of 2022, offset by a decrease of$11,820 from the Sports Illustrated media business. Cost of Revenue
The following table sets forth cost of revenue by category:
Nine Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Publisher Partner revenue share payments $ 14,242$ 15,759 $ (1,517 ) -9.6 % Technology, Platform and software licensing fees 12,561 7,579 4,982 65.7 % Royalty fees 11,250 11,250 - 0.0 % Content and editorial expenses 36,104 25,864 10,240 39.6 % Printing, distribution and fulfillment costs 26,602 11,171 15,431 138.1 % Amortization of developed technology and platform development 7,099 6,566 533 8.1 % Stock-based compensation 7,602 4,930 2,672 54.2 % Other cost of revenue 270 145 125 86.2 % Total cost of revenue$ 115,730 $ 83,264 $ 32,466 39.0 % For the nine months endedSeptember 30, 2022 , as referenced in the above table, we recognized cost of revenue of$115,730 , as compared to$83,264 for the nine months endedSeptember 30, 2021 , which represents an increase of$32,466 or 39.0%. Cost of revenue for the nine months endedSeptember 30, 2022 was impacted by increases in printing, distribution and fulfillment costs of$15,431 ; and content and editorial expenses of$10,240 , with both increases primarily due to the Athlon acquisition, which occurred in the second quarter of 2022; technology, Platform and software licensing fees of$4,982 ; stock-based compensation of$2,672 ; and amortization of developed technology and platform development of$533 ; partially offset by a decrease in Publisher Partner revenue share payments of$1,517 . 41 Operating Expenses Selling and Marketing
The following table sets forth selling and marketing expenses by category:
Nine Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Payroll and employee benefits of selling and marketing account management support teams$ 13,276 $ 8,518$ 4,758 55.9 % Stock-based compensation 2,149 4,059 (1,910 ) -47.1 % Professional marketing services 2,390 1,895 495 26.1 % Circulation costs 3,613 2,831 782 27.6 % Subscription acquisition costs 28,463 28,539 (76 ) -0.3 % Advertising costs 4,591 5,503 (912 ) -16.6 % Other selling and marketing expenses 2,144 2,887 (743 ) -25.7 % Total selling and marketing$ 56,626 $ 54,232 $ 2,394 4.4 % For the nine months endedSeptember 30, 2022 , as referenced in the above table, we incurred selling and marketing expenses of$56,626 , as compared to$54,232 for the nine months endedSeptember 30, 2021 , an increase of$2,394 or 4.4% from the prior year period. The increase in selling and marketing expenses of$2,394 is primarily related to increase in payroll of selling and marketing account management support teams of$4,758 , of which$3,355 was related to the addition of the Athlon business. General and Administrative The following table sets forth general and administrative expenses by category: Nine Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Payroll and related expenses for executive, sales and administrative personnel$ 13,501 $ 11,018 $ 2,483 22.5 % Stock-based compensation 15,026 12,700 2,326 18.3 % Professional services, including accounting, legal and insurance 10,043 10,125 (82 ) -0.8 % Other general and administrative expenses 4,755 3,744 1,011 27.0 % Total general and administrative$ 43,325 $ 37,587 $ 5,738 15.3 % For the nine months endedSeptember 30, 2022 , as referenced in the above table, we incurred general and administrative expenses of$43,325 , as compared to$37,587 for the nine months endedSeptember 30, 2021 , an increase of$5,738 or 15.3% from the prior year period. The increase was primarily related to payroll and related expenses for executive and administrative personnel of$2,483 ; stock-based compensation of$2,326 ; and other general and administrative expenses of$1,011 . 42 Other (Expenses) Income
The following table sets forth other (expense) income:
Nine Months Ended September 30, 2022 versus 2021 2022 2021 $ Change % Change Change in valuation of warrant derivative liabilities $ - $ 497$ (497 ) -100.0 % Interest expense (8,510 ) (7,695 ) (815 ) 10.6 % Liquidated damages (639 ) (2,198 ) 1,559 -70.9 % Gain upon debt extinguishment - 5,717 (5,717 ) -100.0 % Total other expenses$ (9,149 ) $ (3,679 ) $ (5,470 ) 148.7 % Change in Valuation of Warrant Derivative Liabilities. The change of$497 in the valuation of warrant derivative liabilities for the nine months endedSeptember 30, 2021 was the result of no longer having any warrant derivative liabilities as ofSeptember 30, 2022 . Interest Expense. We incurred interest expense of$8,510 for the nine months endedSeptember 30, 2022 , as compared to$7,695 for the nine months endedSeptember 30, 2021 . The increase in interest expense of$815 was primarily from additional cash paid interest from our debt. Liquidated Damages. We recorded liquidated damages of$639 for the nine months endedSeptember 30, 2022 , as compared to$2,198 for the nine months endedSeptember 30, 2021 . The decrease of$1,559 primarily resulted from no further liquidated damages assessed under certain corresponding agreements and only recording interest expense related to the previous liquidated damages assessed. Gain Upon Debt Extinguishment. We recorded a gain upon debt extinguishment of$5,717 (including accrued interest) pursuant to the forgiveness of the Paycheck Protection Program Loan for the nine months endedSeptember 30, 2021 .
Use of Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles inthe United States of America ("GAAP"); however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We believe Adjusted EBITDA provides visibility to the underlying continuing operating performance by excluding the impact of certain items that are noncash in nature or not related to our core business operations. We calculate Adjusted EBITDA as net loss, adjusted for (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in derivative valuations, (vi) liquidated damages, (vii) gain upon extinguishment of debt, (viii) loss on lease termination, (ix) loss on impairment of assets, (x) professional and vendor fees, and (xi) employee restructuring payments. Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by other companies, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP Adjusted EBITDA as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are that Adjusted EBITDA:
? does not reflect interest expense, or the cash required to service our debt,
which reduces cash available to us;
? does not reflect deferred income taxes, which is a noncash expense;
? does not reflect depreciation and amortization expense and, although this is a
noncash expense, the assets being depreciated may have to be replaced in the
future, increasing our cash requirements;
? does not reflect stock-based compensation and, therefore, does not include all
of our compensation costs;
? does not reflect the change in derivative valuations and, although this is a
noncash expense, the change in the valuations each reporting period are not
impacted by our actual business operations but is instead strongly tied to the
change in the market value of our common stock; 43
? does not reflect liquidated damages and, therefore, does not include future
cash requirements if we repay the liquidated damages in cash instead of shares
of our common stock (which the investor would need to agree to);
? does not reflect any gains upon debt extinguishment, which we do not consider
in our evaluation of our business operations;
? does not reflect any losses on termination of our leases, which is a noncash
operating expense;
? does not reflect any losses from the impairment of assets, which is a noncash
operating expense;
? does not reflect the professional and vendor fees incurred by us for services
provided by consultants, accountants, lawyers, and other vendors, which
services were related to certain types of events that are not reflective of
our business operations; and
? does not reflect payments related to employee restructuring changes for the
former Chief Financial Officer of Athlon and our former Chief Executive Officer. The following table presents a reconciliation of Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net loss$ (16,505 ) $ (24,707 ) $ (57,161 ) $ (70,827 ) Add: Interest expense (1) 3,184 2,512 8,510 7,695 Deferred income taxes 547 (230 ) (1,235 ) (230 )
Depreciation and amortization (2) 6,891 6,297 20,223
18,548
Stock-based compensation (3) 8,311 8,475 24,777
21,689
Change in derivative valuations - (802 ) - (497 ) Liquidated damages (4) 339 834 639
2,198
Gain upon debt extinguishment (5) - - - (5,717 ) Loss on lease termination (6) - 7,345 -
7,345
Loss on impairment of assets (7) 209 904 466
904
Professional and vendor fees (8) - 2,124 -
5,152
Employee restructuring payments (9) - 513 679
580 Adjusted EBITDA$ 2,976 $ 3,265 $ (3,102 ) $ (13,160 )
(1) Represents interest expense (net of interest income) of
for the three months ended
interest expense (net of interest income) of
months ended
related to our capital structure. Interest expense varies over time due to a
variety of financing transactions. Interest expense includes
for amortization of debt discounts for the three months ended
2022 and 2021, respectively, and
discounts for the nine months ended
presented in our condensed consolidated statements of cash flows, which are
a noncash item. Investors should note that interest expense will recur in
future periods.
(2) Represents depreciation and amortization related to our developed technology
and Platform included within cost of revenues of
three months ended
depreciation and amortization included within operating expenses of
and
respectively. Represents depreciation and amortization related to our
developed technology and Platform included within cost of revenues of
and
respectively, and depreciation and amortization included within operating
expenses of
and 2021, respectively. We believe (i) the amount of depreciation and
amortization expense in any specific period may not directly correlate to
the underlying performance of our business operations and (ii) such expenses
can vary significantly between periods as a result of new acquisitions and
full amortization of previously acquired tangible and intangible assets.
Investors should note that the use of tangible and intangible assets
contributed to revenue in the periods presented and will contribute to
future revenue generation and should also note that such expense will recur
in future periods. 44
(3) Represents noncash costs arising from the grant of stock-based awards to
employees, consultants and directors. We believe that excluding the effect
of stock-based compensation from Adjusted EBITDA assists management and
investors in making period-to-period comparisons in our operating
performance because (i) the amount of such expenses in any specific period
may not directly correlate to the underlying performance of our business
operations, and (ii) such expenses can vary significantly between periods as
a result of the timing of grants of new stock-based awards, including grants
in connection with acquisitions. Additionally, we believe that excluding
stock-based compensation from Adjusted EBITDA assists management and
investors in making meaningful comparisons between our operating performance
and the operating performance of other companies that may use different
forms of employee compensation or different valuation methodologies for
their stock-based compensation. Investors should note that stock-based
compensation is a key incentive offered to employees whose efforts
contributed to the operating results in the periods presented and are
expected to contribute to operating results in future periods. Investors
should also note that such expenses will recur in the future.
(4) Represents damages (or interest expense related to accrued liquidated
damages) we owe to certain of our investors in private placements offerings
conducted in fiscal years 2018 through 2020, pursuant to which we agreed to
certain covenants in the respective securities purchase agreements and
registration rights agreements, including the filing of resale registration
statements and becoming current in our reporting obligations, which we were
not able to timely meet.
(5) Represents a gain upon extinguishment of the Paycheck Protection Program
Loan.
(6) Represents our loss related to the surrender and termination of our lease of
office space located in
office space.
(7) Represents our impairment of certain assets that no longer are useful.
(8) Represents one-time, non-recurring third party professional and vendor fees
recorded in connection with services provided by consultants, accountants,
lawyers, and other vendors (these fees are collectively referred to as
"Professional Fees") related to (i) the preparation of periodic reports in
order for us to become current on our Exchange Act reporting obligations,
(ii) up-list to a national exchange, (iii) contemplated and completed
acquisitions, (iv) public and private offerings of our securities and other
financings, and (v) stockholder disputes and the implementation of our
Rights Agreement. The table below summarizes the costs defined above that we incurred during fiscal 2021: Three Months Ended Nine Months Ended September 30, September 30, Category 2022 2021 2022 2021
(i) Catch-up periodic reports $ -$ 1,654 $
-$ 3,795 (ii) Up-list - 61 - 93 (iii) M&A - 89 - 338 (iv) Public & private offerings and other financings - 120 - 388 (v) Stockholder disputes/Rights Agreement - 200 - 538 Totals $ -$ 2,124 $ -$ 5,152
We incurred the majority of the Professional Fees during the three and nine months endedSeptember 30, 2021 for preparation of our Exchange Act periodic reports, and because these costs were incurred for multiple reporting periods over several years simultaneously, the invoices received from our vendors itemized the services that each vendor provided for each respective reporting obligation (i.e., a quarterly or annual audit by year). As such, we were able to reasonably estimate the cost of a normal year's compliance with Exchange Act reporting requirements related to periodic reports. Therefore, we did not adjust for (or add back) such normal year's fees in calculating Adjusted EBITDA. Management believes that these Professional Fees represent non-recurring, infrequent and unusual expenses and does not expect to incur such expenses
in the future.
(9) Represents severance payments to the former Chief Financial Officer of
Athlon and our former Chief Executive Officer for the three and nine months
ended
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