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Stockholders' Equity

6 Months Ended

Jun. 30, 2018

9. Stockholders’ Equity

The total number of shares that the Company has the authority to issue is 101,000,000, consisting of 100,000,000 shares of common stock, $0.01 par value per share, and 1,000,000 shares of preferred stock, $0.01 par value per share. As of June 30, 2018 and December 31, 2017, there were 10,270 authorized shares of preferred stock originally designated as series A through E with designations subsequently eliminated, 2,000 authorized shares of preferred stock designated as “Series F Convertible Preferred Stock”, none of which were outstanding, and 1,800 authorized shares of preferred stock designated as “Series G Convertible Preferred Stock”, of which 168.496 shares were outstanding (see “Note 8. Redeemable Series G Convertible Preferred Stock”).

Series H Convertible Preferred Stock

Information with respect to Series H Convertible Preferred Stock is provided in “Note 13. Subsequent Events”.

Series I Convertible Preferred Stock

Information with respect to Series I Convertible Preferred Stock is provided in “Note 13. Subsequent Events”.

Common Stock

On January 4, 2018, the Company issued an aggregate of 1,200,000 shares of its common stock to an investor in a private placement at a price of $2.50 per share. The Company received gross proceeds of $3,000,000 from the private placement, which was received prior to December 31, 2017, and was therefore classified as restricted cash and as a private placement advance in the consolidated balance sheet at December 31, 2017. Upon completion of the private placement on January 4, 2018, the funds were reclassified to cash and stockholders’ equity.

In connection with the January 4, 2018 closing of the private placement, MDB Capital Group LLC (“MDB”), as the placement agent, was entitled to receive 60,000 shares of the Company’s common stock valued at $150,000 ($2.50 per share) based on the transaction price. In addition, MDB was also entitled to receive warrants to purchase 60,000 shares of the Company’s common stock at an exercise price of $2.50 per share.

On March 30, 2018, the Company issued an aggregate of 500,000 shares of its common stock to the same investor as in the January 4, 2018 private placement in a second closing of the private placement at a price of $2.50 per share. The Company received gross proceeds of $1,250,000 from the private placement. No costs were incurred in connection with the March 30, 2018 closing of the private placement.

In addition, the Company entered into a Registration Rights Agreement with the investor dated January 4, 2018, pursuant to which the Company agreed to register for resale the shares of common stock purchased pursuant to the placement. The Company was also committed to register the 60,000 shares issued to MDB. The Company committed to file the registration statement no later than 200 days after the closing and to cause the registration statement to become effective no later than the earlier of (i) seven business days after the SEC informs the Company that no review of the registration statement will be made or that the SEC has no further comments on the registration statement. The Registration Rights Agreement provides for liquidated damages upon the occurrence of certain events, including the Company’s failure to file the registration statement or to cause it to become effective by the deadlines set forth above. The amount of liquidated damages payable to an investor is 1.0% of the aggregate amount invested by such investor for each 30-day period, or pro rata portion thereof, during which the default continues, up to a maximum amount of 5.0% of the aggregate amount invested by an investor pursuant to the purchase agreement or the value of the securities registered by the Placement Agent. The purchaser of the shares of common stock waived the liquidated damages when the purchaser converted their investment into Series H Convertible Preferred Stock in August 2018. The Company recognized a registration rights penalty of $15,001 for the three and six months ended June 30, 2018, with respect to its registration rights obligation for the common shares issued to MDB in conjunction with the January 4, 2018 placement.

The Company entered into a Registration Rights Agreement with the investor dated March 30, 2018, pursuant to which the Company agreed to register for resale the shares of common stock purchased pursuant to the placement. The Company committed to file the registration statement no later than 270 days after the closing and to cause the registration statement to become effective no later than the earlier of (i) seven business days after the SEC informs the Company that no review of the registration statement will be made or that the SEC has no further comments on the registration statement. The Registration Rights Agreement provides for liquidated damages upon the occurrence of certain events, including the Company’s failure to file the registration statement or to cause it to become effective by the deadlines set forth above. The amount of liquidated damages payable to an investor is 1.0% of the aggregate amount invested by such investor for each 30-day period, or pro rata portion thereof, during which the default continues, up to a maximum amount of 5.0% of the aggregate amount invested by an investor pursuant to the purchase agreement. The purchaser of the shares of common stock converted their investment into Series H Convertible Preferred Stock in August 2018 prior to the registration rights penalty becoming effective.

See “Common Stock Warrants – Financing” for additional information with respect to a warrant to that was issued in connection with the January 4, 2018 private placement.

Information with respect to the issuance of common stock in connection with acquisition of subsidiaries is provided in “Note 13. Subsequent Events”.

Restricted Stock Awards

On August 11, 2016, management and employees of Amplify, in conjunction with the incorporation of Amplify on July 22, 2016, were issued 12,209,677 shares of common stock, as adjusted for the Recapitalization Exchange Ratio of 4.13607. The shares are subject to a Company option to buy back the shares at the original cash consideration paid, which totals $2,952 or approximately $0.0002 per share. Pursuant to the achievement of the Unique User Performance Condition, as defined, the employees vest their ownership in the shares over a three-year period beginning August 1, 2016, with one-third vesting on August 1, 2017 and the balance monthly over the remaining two years. Because these shares require continued service to the Company, the estimated fair value of these shares is being recognized as compensation expense over the vesting period of the award.

During October 2016, management and employees of Amplify were issued an additional 307,475 shares of common stock in connection with this arrangement.

As of December 31, 2017, the Unique User Performance Condition was determined based on 4,977,144 unique users accessing TheMaven channels in November 2017. Based on this level of unique users, 2,453,362 of the shares or 56% subject to the performance condition were released and 1,927,641 of the escrow shares or 44% were subject to the Company’s buy-back right. The Company’s Board of Directors made a determination on March 12, 2018 to waive the buy-back right. This waiver of the buy-back right related to 1,927,641 shares was determined to be a modification of the terms of the restricted stock awards and resulted in incremental compensation cost of $2,756,527 that will be recognized over a period of approximately 1.45 years, with a total of $2,148,811 to be recognized in 2018, of which $226,978 and $1,768,253 was recognized in the three months and six months ended June 30, 2018.

A summary of restricted stock award activity during the six months ended June 30, 2018 is as follows:

						Weighted
	Number of Shares					Average
	Unvested			Vested		Price

Restricted stock awards outstanding at December 31, 2017		6,979,596			5,537,556	$	0.41
Vested		(2,088,739	)		2,088,739
Forfeited		—			—
Restricted stock awards outstanding at June 30, 2018		4,890,857			7,626,295	$	0.72

At June 30, 2018, total compensation cost, including the effect of the waiver of the buy-back right, related to restricted stock awards but not yet recognized was $2,741,137. This cost will be recognized over a period of approximately 1.1 years with a total of $1,586,698 remaining to be recognized before December 31, 2018.

Common Stock Options

On March 28, 2018, the Board of Directors approved an increase in the number of shares of the Company’s common stock reserved for grant pursuant to the 2016 Stock Incentive Plan (the “Plan”) from 3,000,000 shares to 5,000,000 shares. The Plan is administered by the Board of Directors, and there were no grants prior to the formation of the Plan. Shares of common stock that are issued under the Plan or subject to outstanding incentive awards will be applied to reduce the maximum number of shares of common stock remaining available for issuance under the Plan, provided, however, that shares subject to an incentive award that expire will automatically become available for issuance. Options issued under the Plan may have a term of up to ten years and may have variable vesting provisions.

As of June 30, 2018, options to acquire 3,883,003 shares of the Company’s common stock had been granted under the Plan, and options to acquire 1,116,997 shares of common stock remain available for future grant.

In conjunction with the Recapitalization, the Company assumed 175,000 fully-vested options having an exercise price of $0.17 per share and an expiration date of May 15, 2019. Of those options, 125,000 were exercised in June 2018 on a cashless basis resulting in the issuance of 106,154 net shares of common stock,

The estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award. The fair value of restricted stock awards is determined based on the number of shares granted and the quoted price of the Company’s common stock on the date of grant. The fair value of stock option awards is estimated at the grant date as calculated using the Black-Scholes option-pricing model. The Black-Scholes model requires various highly judgmental assumptions including expected volatility and option life.

The fair value of stock options granted during the six months ended June 30, 2018 were calculated using the Black-Scholes option-pricing model utilizing the following assumptions:

Risk-free interest rate	2.60% to 2.77	%
Expected dividend yield	0	%
Expected volatility	108.59% to 113.87	%
Expected life	6 years

Information with respect to the expensing and capitalization stock options and other stock-based compensation is provided in “Note 10. Stock-Based Compensation”.

A summary of stock option activity, including options issued in the form of warrants, during the six months ended June 30, 2018 is as follows:

						Weighted
						Average
				Weighted		Remaining
	Number			Average		Contractual
	of			Exercise		Life
	Shares			Price		(in Years)

Stock options outstanding at December 31, 2017		2,176,637		$	1.25
Granted		2,021,250			1.74
Exercised		(125,000	)		0.17
Forfeited		(189,884	)		1.43
Expired		—			—
Stock options outstanding at June 30, 2018		3,883,003		$	1.49		9.29

Stock options exercisable at June 30, 2018		937,271		$	1.25		8.78

The aggregate grant date fair value of stock options granted during the six months ended June 30, 2018 was $2,953,964.

The exercise prices of common stock options, including options issued in the form of warrants, outstanding and exercisable are as follows at June 30, 2018:

	Options		Options
Exercise	Outstanding		Exercisable
Price	(Shares)		(Shares)

Under $1.01		25,000		25,000
$1.01 to $1.25		1,766,753		717,354
$1.26 to $1.50		125,000		1,949
$1.51 to $1.75		665,000		105,000
$1.76 to $2.00		1,055,000		87,968
$2.01 to $2.25		205,000		—
Over $2.25		41,250		—
		3,883,003		937,271

Outstanding stock options to acquire 2,945,732 shares of the Company’s common stock had not vested at June 30, 2018.

As of June 30, 2018, there was approximately $3,312,000 of total unrecognized compensation expense related to stock options granted which is expected to be recognized over a weighted-average period of approximately 2.18 years.

The intrinsic value of exercisable but unexercised in-the-money stock options at June 30, 2018 was approximately $65,100, based on a fair market value of $1.20 per share on June 30, 2018.

Common Stock Warrants – Channel Partner Program

On December 19, 2016, the Company’s Board of Directors approved a program to be administered by management that authorized the Company to issue up to 5,000,000 common stock warrants to provide equity incentive to its Channel Partners to motivate and reward them for their services to the Company and to align the interests of the Channel Partners with those of stockholders of the Company. On August 23, 2018, the Board of Directors approved a reduction of the number of Warrant Reserve Shares from 5,000,000 to 2,000,000.

A summary of Channel Program common stock warrant activity during the six months ended June 30, 2018 is as follows:

						Weighted
						Average
				Weighted		Remaining
	Number			Average		Contractual
	of			Exercise		Life
	Shares			Price		(in Years)

Channel Program warrants outstanding at January 1, 2018		1,303,832		$	1.48
Issued		295,000			1.74
Exercised		—			—
Forfeited		(182,200	)		1.33
Expired		—			—
Channel Program warrants outstanding at June 30, 2018		1,416,633		$	1.49		4.11

Channel Program warrants exercisable at June 30, 2018		252,125		$	1.46		4.06

During the six months ended June 30, 2018, the Company issued 295,000 common stock warrants to fourteen of the Channel Partners. The warrants have a performance condition and once earned vest over three years and expire five years from issuance. The exercise prices range from $1.32 to $2.25 per share with a weighted average price of $1.74 per share. The performance conditions are generally based on the average number of unique visitors on the channel operated by the Channel Partner generated during the six-month period from the launch of the Channel Partner’s operations on TheMaven platform or the revenue generated during the period from issuance date through December 31, 2021. Equity grants with performance conditions that do not have sufficiently large disincentive for non-performance are measured at fair value that is not fixed until performance is complete. The Company recognizes expense for these equity-based payments as the services are received. The Company has specific objective criteria for determination of the period over which services are received and expense is recognized.

Additional information with respect to stock-based compensation related to the Channel partner Program warrants is provided at “Note 10. Stock-Based Compensation”.

Common Stock Warrants – Financing

On November 4, 2016, in accordance with the Investment Banking Advisory Agreement more fully described in “Note 11. Related Party Transactions”, Integrated issued warrants to MDB to purchase 1,169,607 shares of the Company’s common stock in conjunction with the Recapitalization.

On April 30, 2018, the holders exercised 842,117 warrants under the cashless exercise provisions and received 736,853 shares of common stock upon the exercise when the stock price was $1.60 per share. A total of 327,490 warrants remain outstanding as of June 30, 2018. The warrants have an exercise price of $0.20 per share and expire on November 4, 2021. The aggregate intrinsic value of the 327,490 warrants at June 30, 2018 was approximately $328,000.

On October 19, 2017, the Company, in connection with a private placement of its common stock, issued 119,565 common stock warrants to MDB, which acted as placement agent. The warrants have an exercise price of $1.15 per share and expire on October 19, 2022.

In connection with the January 4, 2018 private placement closing, MDB, as the placement agent, was issued warrants to purchase 60,000 shares of the Company’s common stock. The warrants have an exercise price of $2.50 per share and expire on October 19, 2022.

In connection with the 8% convertible notes issued on June 11, 2018 and June 15, 2018, (see “Note 7. Convertible Notes Payable”), the Company also issued warrants to purchase 216,120 shares and 210,438 shares, respectively, representing a total of 426,558 shares of the Company’s common stock, provided, that at the time of the funding of each additional tranche under the related note, if any, the number of shares issuable under the related warrant shall increase by the quotient of 50% of the face value of the respective tranche and 110% multiplied by the VWAP of the Company’s common stock on the trading day immediately prior to the funding date of the respective tranche. The warrants are exercisable for a period of five years at an exercise price equal to 110% of the VWAP of the Company’s common stock on the trading day immediately prior to the funding date of the respective tranche, subject to customary anti-dilution adjustments, and may, in the event there is no effective registration statement covering the re-sale of the warrant shares, be exercised on a cashless basis. The 216,120 warrants and the 210,438 warrants are exercisable at $1.30 and $1.20 per share, respectively. Effective as of August 3, 2018, pursuant to the anti-dilution provision, the Company adjusted the exercise price to $0.50 per share and the number of warrants to purchase 561,912 shares and 505,051 shares, representing a total of 1,066,963 shares of the Company’s common stock

On January 4, 2018 and March 30, 2018, the Company sold 1,200,000 shares and 500,000 shares of common stock, respectively, to Strome Mezzanine Fund LP (“Strome”) at $2.50 per share, representing a total of 1,700,000 shares of common stock for gross proceeds of $4,250,000.

The January 4, 2018 financing transaction did not include any true-up or make-good provisions, nor did it contain any lock-up provisions.

The March 30, 2018 financing transaction included a true-up provision and a lock-up provision. The true-up provision required the Company to issue additional shares of common stock if Strome sold shares on a national securities exchange or the OTC marketplace or in an arm’s-length unrelated third-party private sale in the 90-day period beginning one year after March 30, 2018 at less than $2.50 per share, up to a maximum of one share for each share originally sold to Strome. In addition, the Company entered into a separate agreement with Strome dated March 30, 2018 that extended the true-up provisions to the shares of common stock sold in the January 4, 2018 financing. Accordingly, under this true-up provision, which became effective March 30, 2018, the Company was obligated to issue up to an additional 1,700,000 shares of common stock to Strome without any further consideration under certain conditions in the future. As a result, the maximum number of shares issuable in these transactions and the floor on the price per share were 3,400,000 shares and $1.25 per share, respectively.

On June 15, 2018, the Company entered into a securities purchase agreement with four investors to sell $4,775,000 principal amount of 10% Senior Convertible Debentures. Strome purchased $3,000,000 of such amount and two senior executives of the Company and another investment fund purchased the remaining $1,775,000 of such amount.

On June 15, 2018, the Company also modified the two securities purchase agreements dated January 4, 2018 and March 30, 2018 with Strome to eliminate the true-up provision under which the Company was committed to issue up to 1,700,000 shares of common stock in certain circumstances as described above. As consideration for such modification, the Company issued a warrant to Strome to purchase 1,500,000 shares of common stock, exercisable at an initial price of $1.19 per share for a period of 5 years. The common shares underlying the warrant have certain registration rights. If the underlying common shares are registered, the warrant is exercisable only for cash, and if they are not registered, the warrant may also be exercised on a cashless basis. Strome was also granted observer rights on the Company’s Board of Directors.

At June 30, 2018, the Company accounted for the warrants as a derivative liability, as the Company was required to adjust downward the exercise price of the warrants under certain circumstances, which required that the Company carry such amounts in its consolidated balance sheet as liabilities at fair value, as adjusted at each period-end.

The estimated fair value of this warrant on the June 15, 2018 issuance date of $1,344,648, calculated pursuant to the Black-Scholes option-pricing model, was charged to operations as true-up termination fee during the three months ended June 30, 2018. This warrant also had a downward reset provision with a floor of $0.50 per share that required it to be accounted for as a derivative, as a result of which the Company recognized a derivative liability of $1,344,648 at the June 15, 2018 issuance date and at June 30, 2018. As a result of the triggering of this reset provision on August 3, 2018, the Company subsequently reduced the exercise price of the warrant from $1.19 per share to $0.50 per share. As a result of the warrant exercise price being reduced to the floor exercise price on August 3, 2018, the warrant was no longer considered a derivative liability at September 30, 2018.

A summary of common stock financing warrant activity during the six months ended June 30, 2018 is as follows:

						Weighted
						Average
				Weighted		Remaining
	Number			Average		Contractual
	of			Exercise		Life
	Shares			Price		(in Years)

Financing warrants outstanding at December 31, 2017		1,289,172		$	0.29
Issued		1,986,558			1.24
Exercised		(842,117	)		0.20
Forfeited		—			—
Expired		—			—
Financing warrants outstanding at June 30, 2018		2,433,613		$	1.10		4.70

Financing warrants exercisable at June 30, 2018		2,433,613		$	1.10		4.70

The aggregate issue date fair value of financing warrants issued during the six months ended June 30, 2018 was $2,505,132.

The exercise prices of common stock financing warrants outstanding and exercisable are as follows at June 30, 2018:

	Financing		Financing
	Warrants		Warrants
Exercise	Outstanding		Exercisable
Price	(Shares)		(Shares)

$0.20		327,490		327,490
$1.15		119,565		119,565
$1.19		1,500,000		1,500,000
$1.20		210,438		210,438
$1.30		216,120		216,120
$2.50		60,000		60,000
		2,433,613		2,433,613

The intrinsic value of exercisable but unexercised in-the-money stock warrants at June 30, 2018 was approximately $350,000, based on a fair market value of $1.20 per share on June 30, 2018.