What changed in this filing

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Item 1. Financial Statements

2021-05-24 compared with 2020-11-13 · 181 added, 304 removed, 326 unchanged (60% of the section changed)

1 unchanged sentence

MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

OPERATING EXPENSES:

2 unchanged sentences

Depreciation and amortization

Loss on disposal of assets

Gain on disposal of assets

Total operating expenses

2 unchanged sentences

Interest expense

INCOME (LOSS) BEFORE INCOME TAXES

PROVISION (BENEFIT) FOR INCOME TAXES

CONSOLIDATED NET INCOME (LOSS)

LOSS BEFORE INCOME TAXES

(BENEFIT) PROVISION FOR INCOME TAXES

CONSOLIDATED NET LOSS

PREFERRED STOCK DIVIDENDS

NET INCOME (LOSS)

Basic and diluted income (loss) per share attributable to common shareholders

Basic and diluted loss per share attributable to common shareholders

Basic and diluted weighted average number of common shares outstanding

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

MEDIACO HOLDING INC.

1 unchanged sentence

(In thousands, except share data)

September 30,

CURRENT ASSETS:

7 unchanged sentences

OTHER ASSETS:

Deferred tax assets

Operating lease right of use assets

1 unchanged sentence

Total other assets

LIABILITIES AND EQUITY (DEFICIT)

LIABILITIES AND DEFICIT

CURRENT LIABILITIES:

9 unchanged sentences

ASSET RETIREMENT OBLIGATIONS

DEFERRED INCOME TAXES

OTHER NONCURRENT LIABILITIES

3 unchanged sentences

220,000 SHARES ISSUED AND OUTSTANDING

EQUITY (DEFICIT):

Class A common stock, $0.01 par value;

authorized 170,000,000 shares;

issued and outstanding 1,666,667 shares and 1,785,880 shares at December 31, 2019, and September 30, 2020, respectively

issued and outstanding 1,785,880 shares and 2,437,550 shares at December 31, 2020, and March 31, 2021, respectively

Class B common stock, $0.01 par value;

authorized 50,000,000 shares;

issued and outstanding 5,359,753 shares and 5,413,197 shares at December 31, 2019, and September 30, 2020, respectively

issued and outstanding 5,413,197 shares at December 31, 2020, and March 31, 2021

Class C common stock, $0.01 par value;

2 unchanged sentences

Accumulated deficit

Total equity (deficit)

Total liabilities and equity (deficit)

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

Total deficit

Total liabilities and deficit

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

(In thousands, except share data)

1 unchanged sentence

Class B Common Stock

Net Parent Investment

Accumulated Deficit

BALANCE, DECEMBER 31, 2019

Net distributions to Emmis Communications Corp.

BALANCE, MARCH 31, 2019

Net distributions to Emmis Communications Corp.

BALANCE, JUNE 30, 2019

Net distributions to Emmis Communications Corp.

BALANCE, SEPTEMBER 30, 2019

BALANCE, DECEMBER 31, 2019

Adjustments related to distribution of common shares

1 unchanged sentence

BALANCE, MARCH 31, 2020

Preferred stock dividends

BALANCE, JUNE 30, 2020

BALANCE, DECEMBER 31, 2020

Issuance of class A to employees, officers and directors

Preferred stock dividends

BALANCE, SEPTEMBER 30, 2020

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

BALANCE, MARCH 31, 2021

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities -

Adjustments to reconcile net loss to net cash provided by (used in) operating activities -

Depreciation and amortization

Amortization of debt discount

Noncash lease expense

Provision for bad debts

Accretion of asset retirement obligation

Provision for deferred income taxes

(Benefit) provision for deferred income taxes

Noncash compensation

Loss on sale of property and equipment

Loss (gain) on sale of property and equipment

Changes in assets and liabilities -

7 unchanged sentences

Purchases of property and equipment

Proceeds from the sale of property and equipment

Net cash used in investing activities

3 unchanged sentences

Payments for debt-related costs

Net transactions with Emmis Communications Corp.

Net cash (used in) provided by financing activities

Settlement of tax withholding obligations

Net cash provided by (used in) financing activities

INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

4 unchanged sentences

Cash paid for interest

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

MEDIACO HOLDING INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS UNLESS INDICATED OTHERWISE, EXCEPT SHARE DATA)

September 30, 2020

March 31, 2021

Summary of Significant Accounting Policies

MediaCo Holding Inc.

(“MediaCo” or the “Company”) is an Indiana corporation formed in 2019 by Emmis Communications Corporation (“Emmis”) to facilitate the sale of a controlling interest in Emmis’ radio stations WQHT-FM and WBLS-FM (the “Stations”) to SG Broadcasting LLC (“SG Broadcasting”), an affiliate of Standard General L.P.

(“Standard General”) pursuant to an agreement entered into on June 28, 2019.

The sale (the “Transaction”) closed on November 25, 2019.

On November 26, 2019, the Company’s Form 10 was declared effective and the Company became subject to SEC periodic filing requirements.

As of December 31, 2019, all of the Company’s Class A common stock was held by Emmis and all the Company’s Class B common stock was held by SG Broadcasting.

On January 17, 2020, Emmis distributed the Class A common stock pro rata to Emmis’ shareholders, making MediaCo a publicly traded company listed on the Nasdaq Capital Market.

Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo after giving effect to the contribution of the Stations by Emmis, as well as to the Stations while they were wholly owned by Emmis and other businesses owned by MediaCo.

Prior to November 25, 2019, MediaCo had not conducted any business as a separate company and had no assets or liabilities.

The operations of the Stations contributed to us by Emmis on November 25, 2019, are presented as if they were our operations for all historical periods described and at the carrying value of such assets and liabilities reflected in Emmis’ books and records.

On December 9, 2019, the Company’s Board approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC (“Fairway Outdoor”) from Fairway Outdoor Advertising Group, LLC (the “Fairway Acquisition”).

Closing of the transaction occurred on December 13, 2019.

FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia.

(“MediaCo” or the “Company”) is an Indiana corporation formed in 2019, focused on radio and outdoor advertising.

Our assets consist of two radio stations, WQHT-FM and WBLS-FM, which serve the New York City metropolitan area, as well as approximately 3,500 outdoor advertising displays in the Southeast (Valdosta) region and Mid-Atlantic (Kentucky) region of the United States.

We derive our revenues primarily from radio and outdoor advertising sales, but we also generate revenues from events, including sponsorships and ticket sales.

On October 25, 2019, in order to more closely align our operations and internal controls with standard market practice, our Board of Directors approved the change in our fiscal year end from the last day in February to December 31.

Basis of Presentation and Combination

Our condensed consolidated and combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo and its subsidiaries.

Basis of presentation

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

All significant intercompany balances and transactions have been eliminated.

In the opinion of management, all adjustments necessary for fair presentation (including normal recurring adjustments) have been included.

For the nine months ended September 30, 2019, MediaCo was 100% owned by Emmis.

Our financial statements for this period are derived from the books and records of Emmis and were carved-out from Emmis at a carrying value reflective of historical cost in Emmis’ records.

Our historical combined financial results include an allocation of expense related to certain Emmis corporate functions, including executive oversight, legal, finance, human resources, and information technology.

These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis of revenue, headcount and other measures.

We consider this expense allocation methodology and results thereof to be reasonable.

However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for all periods presented.

It is impracticable to estimate what the standalone costs of MediaCo would have been in the historical periods.

The equity balance in the condensed consolidated and combined financial statements prior to the Transaction represents the excess of total assets over total liabilities.

All transactions between the Stations and Emmis were considered to be effectively settled in the condensed consolidated and combined financial statements at the time the intercompany transaction was recorded.

The total net effect of the settlement of these intercompany transactions is reflected in the condensed consolidated and combined statements of cash flow as a financing activity and in the condensed consolidated and combined statements of changes in equity as net parent company investment.

Upon consummation of the Transaction, the debt which the Company assumed in connection with transactions between shareholders was recorded to equity, and the total amount of net parent company investment was reclassified to additional paid in capital in the accompanying condensed consolidated and combined financial statements.

Summary of Significant Accounti ng Policies

Allocation Policies

The following allocation policies were established by management of Emmis for the three and nine-month periods ended September 30, 2019.

In the opinion of management, the methods for allocating these costs were reasonable.

It is not practicable to estimate the costs that would have been incurred by us if we had been operated on a stand‑alone basis.

(i) Specifically Identifiable Operating Expenses

Costs which related entirely to the operations of the Stations were attributed entirely to the Stations.

These expenses consisted of costs of personnel who are 100% dedicated to the operations of the Stations, all costs associated with locations that conducted only the business of the Stations and amounts paid to third parties for services rendered to the Stations.

In addition, any costs incurred by Emmis, which were specifically identifiable to the operations of the Stations, were attributed to the Stations.

(ii) Shared Operating Expenses

Emmis incurred the cost of certain corporate general and administrative services and shared services that benefited all of its entities, including the Stations.

These shared services included radio executive management, legal, accounting, information services, telecommunications, human resources, insurance, and intellectual property compliance and maintenance.

These costs were allocated to the Stations based on one of the following allocation methods:

(1) percentage of Company revenues, (2) percentage of Company’s radio revenues, (3) headcount, and (4) pro rata portion based on the number of stations owned by Emmis.

Management determined which allocation method was appropriate based on the nature of the shared service being provided.

The Stations' allocated share of the consolidated Emmis federal tax provision was determined using the separate return method.

Under the separate return method, tax expense or benefit was calculated as if the Stations were subject to their own tax returns.

State income taxes generally were allocated in a similar manner.

Deferred tax assets and liabilities were determined based on differences between the financial reporting and tax bases of assets and liabilities carried by the Stations, and were measured using the enacted tax rates that are expected to be in effect in the period in which these differences were expected to reverse.

The principal components of deferred taxes related to tax amortization of indefinite-lived intangibles, namely FCC licenses, which are not amortized (but subject to impairment testing) for financial reporting purposes.

(iv) Allocated Charges

Allocations of Emmis’ costs were included in the condensed consolidated and combined statements of operations of the Stations as follows:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Station operating expenses, excluding depreciation and amortization expense

Noncash compensation

Allocated charges from Emmis

Intercompany accounts between the Stations and Emmis were included in combined equity.

Cash and Cash Equivalents

9 unchanged sentences

We have no assets or liabilities for which fair value is measured on a recurring basis using Level 3 inputs.

The Company has certain assets that are measured at fair value on a non-recurring basis under ci rcumstances and events that include those described in Note 5 , Intangible Assets, and are adjusted to fair value only when the carrying values are more than the fair values.

The Company has certain assets that are measured at fair value on a non-recurring basis under circumstances and events that include those described in Note 3, Intangible Assets, and are adjusted to fair value only when the carrying values are more than the fair values.

The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value (see Note 3 for more discussion).

The Company’s long-term debt is not actively traded and is considered a Level 3 measurement.

The Company believes the current carrying value of its long-term debt approximates its fair value.

Use of Estimates

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Furthermore, some of our advertisers have seen a material decline in their businesses and may not be able to pay amounts owed to us when they come due.

If the spread of COVID-19 continues, or is suppressed but later reemerges, and public and private entities continue to implement restrictive measures, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.

The preparation of condensed consolidated and combined financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period.

If the spread of COVID-19 continues, or is suppressed but later reemerges as a variant strain, and public and private entities continue to implement restrictive measures, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.

The preparation of con densed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period.

Due to the uncertain future impacts of the COVID-19 pandemic and the related economic disruptions, actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions reasonably available to the Company .

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The accounting matters assessed included, but were not limited to, allowance for doubtful accounts, our ability to realize our deferred tax assets, and the carrying value of goodwill, FCC licenses and other long-lived assets.

As discussed in Note 9, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic and the significant operating losses expected in 2020, we were unable to conclude that it was more likely than not that we would be able to realize our deferred tax assets as of June 30, 2020;

accordingly, we recorded a $15.6 million valuation allowance against these assets.

The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material changes to the estimates and material impacts to the Company’s condensed consolidated and combined financial statements in future reporting periods.

As discussed in Note 7, during the year ended December 31, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic, the Company determined that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a $18.8 million valuation allowance against these assets through an increase to our provision for income taxes.

Per Share Data

3 unchanged sentences

During periods of undistributed losses however, no effect is given to our participating securities since they are not contractually obligated to share in the losses.

We did not have any participating securities for the three and nine-month periods ended September 30, 2019, as the preferred stock only became convertible to common stock on May 25, 2020.

For the three and nine-month periods ended September 30, 2019, only the Class A shares issued to Emmis at the close of the Transaction have been assumed to be outstanding.

We did not have any participating securities for the three-month period ended March 31, 2020, as the preferred stock only became convertible to common stock on May 25, 2020.

The following is a reconciliation of basic and diluted net loss per share attributable to Class A and Class B common shareholders:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Net income (loss)

Ended March 31,

Preferred dividends

Net income (loss) attributable to common shareholders

Net loss attributable to common shareholders

Basic and diluted weighted average Class A shares outstanding

Net income (loss) per share attributable to Class A shareholders

Net loss per share attributable to Class A shareholders

Basic and diluted weighted average Class B shares outstanding

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The following convertible equity shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive.

There were no potentially dilutive shares for the three and nine-month periods ended September 30, 2019 as neither the convertible promissory notes issued to Emmis and SG Broadcasting described in Note 7, nor the Series A convertible preferred stock, were convertible until May 25, 2020.

There were no potentially dilutive shares for the three-month period ended March 31, 2020 as neither the convertible promissory notes issued to Emmis and SG Broadcasting described in Note 5, nor the Series A convertible preferred stock, were convertible until May 25, 2020.

The Company did not issue any restricted stock awards until the three months ended September 30, 2020.

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

Convertible Emmis promissory note

1 unchanged sentence

Series A convertible preferred stock

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Pursuant to ASC Topic 205-40, “ Going Concern ,” the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period.

In evaluating the Company’s ability to continue as a going concern for this reporting period, management evaluated the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date of the filing of these financial statements (November 13, 2020).

Management considered the Company’s ability to forecast future cash flows, current financial condition, sources of liquidity and debt service obligations due on or before November 13, 2021.

The Company has been and continues to be negatively impacted by COVID-19, which the Company expects to negatively impact revenues and profitability for an undetermined period of time.

Management has considered these circumstances in assessing the Company’s liquidity over the next year.

Liquidity is a measure of an entity’s ability to meet potential cash requirements, maintain its assets, fund its operations, and meet the other general cash needs of its business.

The Company’s liquidity is impacted by general economic, financial, competitive, and other factors beyond its control.

The Company’s liquidity requirements consist primarily of funds necessary to pay its expenses, principally debt service and operational expenses, such as labor costs, and other related expenditures.

The Company generally satisfies its liquidity needs through cash provided by operations.

In addition, the Company has taken steps to enhance its ability to fund its operational expenses by reducing various costs and is prepared to take additional steps as necessary.

The Company has debt service obligations of approximately $7.7 million due under its Senior Credit Facility from November 13, 2020, the date of issuance of these financial statements, through November 13, 2021.

The Company expects its revenues and profitability will continue to be adversely impacted by the COVID-19 pandemic.

Because the duration and severity of the impact is unknown as of the filing of this Form 10-Q, management is unable to determine with certainty that the Company will be able to meet its liquidity needs for the next twelve months with cash and cash equivalents on hand, projected cash flows from operations, and/or additional borrowings.

Under the terms of its Senior Credit Facility, the amount of debt outstanding thereunder is limited to a formula based on 60% of the fair value of the Company’s FCC licenses plus a multiple of the Company’s Billboard Cash Flow (as defined in the Senior Credit Facility).

Management is also unable to determine whether the Company will be in compliance with its debt covenants and the limits of its borrowing base for the next twelve months.

If necessary, management intends to request a waiver or amendment to its Senior Credit Facility and seek additional borrowings from Standard General.

While the Company has been successful in obtaining waivers and amendments under its Senior Credit Facility and has also received additional liquidity from Standard General in the past, no assurances can be made that the Company will be successful or receive such liquidity in the future.

Accordingly, there is substantial doubt about our ability to continue as a going concern through November 13, 2021.

depending on the duration and severity of the impact the COVID-19 pandemic has on our businesses, we may record impairments of assets in the future .

Restricted stock awards

Recent Accounting Pronouncements Not Yet Implemented

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This standard will be effective for us as of January 1, 2023.

We are currently evaluating the impact that the adoption of the new standard will have on our condensed consolidated and combined financial statements.

We are currently evaluating the impact that the adoption of the new standard will have on our condensed consolidated financial statements.

Share Based Payments

The amounts recorded as share based compensation expense consist of a restricted stock award issued to an officer that vests in three equal installments.

The amounts recorded as share based compensation expense consist of restricted stock awards issued to employees and directors.

Awards to officers are typically made pursuant to employment agreements.

Restricted stock awards are granted out of the Company’s 2020 Equity Compensation Plan.

The following table presents a summary of the Company’s restricted stock grants outstanding at September 30, 2020, and restricted stock activity during the nine months ended September 30, 2020 (“Price” reflects the weighted average share price at the date of grant):

The following table presents a summary of the Company’s restricted stock grants outstanding at March 31, 2021, and restricted stock activity during the three months ended March 31, 2021 (“Price” reflects the weighted average share price at the date of grant):

Grants outstanding, beginning of period

1 unchanged sentence

Recognized Non-Cash Compensation Expense

The following table summarizes stock-based compensation expense recognized by the Company during the three and nine months ended September 30, 2019 and 2020.

The following table summarizes stock-based compensation expense recognized by the Company during the three months ended March 31, 2020 and 2021.

The Company did not recognize any tax benefits related to stock-based compensation during the periods presented below.

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Operating expenses, excluding depreciation and amortization

1 unchanged sentence

Share-based compensation expense

As of March 31, 2021, there was $2.2 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested share-based compensation arrangements.

The cost is expected to be recognized over a weighted average period of approximately 1.4 years.

Intangible Assets

As of December 31, 2020 and March 31, 2021, intangible assets consisted of the following:

As of December 31, 2020

As of March 31, 2021

Indefinite-lived intangible assets

Definite-lived intangible assets

Programming contract

Customer list

Valuation of Indefinite-lived Broadcasting Licenses

1 unchanged sentence

therefore, they are not subject to amortization, but are tested for impairment at least annually as discussed below.

The carrying amounts of the Company’s FCC licenses were $63.3 million as of December 31, 2019 and September 30, 2020.

Pursuant to our accounting policy, stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under an LMA with another broadcaster.

The stations have historically performed an annual impairment test of indefinite-lived intangibles as of December 1 of each year.

In connection with our change in fiscal years from one that ends in February to a traditional calendar year end, we plan to perform our annual impairment test of indefinite-lived intangible assets as of October 1 of each year.

The carrying amounts of the Company’s FCC licenses were $63.3 million as of December 31, 2020 and March 31, 2021.

Pursuant to our accounting policy, stations in a geographic market cluster are considered a single unit of accounting.

The stations perform an annual impairment test of indefinite-lived intangibles as of October 1 of each year.

When indicators of impairment are present, we will perform an interim impairment test.

Due to the impact the COVID-19 pandemic has had on our radio operations, we considered the need to perform an interim impairment test during the quarter ended September 30, 2020.

However, given the cushion that exists between the most recently-available fair market values and current carrying values, the Company concluded no interim impairment testing was required.

There have been no indicators of impairment since we performed our annual

impairment assessment as of October 1, 2020 and therefore there has been no need to perform an interim impairment asset.

Future impairment tests may result in additional impairment charges in subsequent periods .

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In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license.

Major assumptions involved in this analysis include market

revenue, market revenue growth rates, unit of accountin g audience share, unit of accounting revenue share and discount rate.

Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may b e beyond our control.

Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate.

The projections incorporated into our license valuations take into consideration then current economic conditions.

1 unchanged sentence

When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by ASC Topic 350-30-35.

In our case, radio stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under an LMA.

In our case, radio stations in a geographic market cluster are considered a single unit of accounting.

Valuation of Goodwill

As a result of the Fairway Acquisition discussed in Note 1 and the initial purchase price allocation, goodwill of $11.4 million was recognized in December 2019.

We made a number of purchase price allocation adjustments during the nine months ended September 30, 2020, resulting in an increase to goodwill of $1.7 million from the initial valuation.

The purchase price allocation of the Fairway Acquisition is preliminary and subject to adjustment.

Any adjustment to the purchase price allocation may directly impact the value of goodwill.

The goodwill relating to this acquisition accounts for all goodwill on the condensed consolidated balance sheets as of December 31, 2019 and September 30, 2020.

ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually.

While the COVID-19 pandemic has negatively affected our outdoor operations, as of September 30, 2020, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired.

The Company will conduct its impairment test on October 1 of each fiscal year, unless indications of impairment exist during an interim period.

Under ASC 350 we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test.

Given the macroeconomic environment as a result of the COVID-19 pandemic we have elected not to perform the qualitative assessment.

When performing a quantitative assessment for impairment, the Company uses a market approach to determine the fair value of the reporting unit.

Management determines the fair value for the reporting unit by multiplying the cash flows of the reporting unit by an estimated market multiple.

Management believes this methodology for valuing outdoor advertising businesses is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons, analyst reports, and market transactions.

To corroborate the fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit.

If the carrying value of a reporting unit’s goodwill exceeds its fair value, the Company recognizes an impairment charge equal to the difference in the statement of operations.

All goodwill on the condensed consolidated balance sheets as of December 31, 2020 and March 31, 2021 is assigned to our Outdoor Advertising segment.

While the COVID-19 pandemic has negatively affected our outdoor operations, as of March 31, 2021, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired.

The Company conducts its impairment test as of October 1 of each year, unless indications of impairment exist during an interim period.

Valuation of Trade Name

As a result of the Fairway Acquisition, the Company acquired the trade name “Fairway”.

As a result of the purchase of our outdoor advertising segment, the Company acquired the trade name “Fairway”.

The trade name is well known in the industry and is being retained for continued market use following the acquisition.

3 unchanged sentences

The value of the trade name is determined by discounting the inherent after-tax royalty savings associated with ownership or possession of the trade name.

The preliminary valuation assigned to the trade name as a result of the purchase price accounting was $0.7 million.

The valuation assigned to the trade name as a result of the purchase price accounting was $0.7 million.

The trade name is an indefinite-lived intangible asset based on our intention to renew it when legally required and to utilize it going forward.

We will assess the trade name annually for impairment on October 1 of each year, unless indications of impairment exist during an interim period.

We assess the trade name annually for impairment as of October 1 of each year, unless indications of impairment exist during an interim period.

Definite-lived intangibles

The following table presents the weighted-average useful life at September 30, 2020, and the gross carrying amount and accumulated amortization for our definite-lived intangible assets at December 31, 2019, and September 30, 2020:

The following table presents the weighted-average useful life at March 31, 2021, and the gross carrying amount and accumulated amortization for our definite-lived intangible assets at December 31, 2020, and March 31, 2021:

As of December 31, 2020

As of September 30, 2020

As of March 31, 2021

(in 000's, except years)

4 unchanged sentences

In accordance with Accounting Standards Codification paragraph 360-10, the Company performs an analysis to (i) determine if indicators of impairment of a long-lived asset are present, (ii) test the long-lived asset for recoverability by comparing undiscounted cash flows of the long-lived asset to its carrying value and (iii) measure any potential impairment by comparing the long-lived asset's fair value to its current carrying value.

Total amortization expense from definite-lived intangibles for the nine-month periods ended September 30, 2019 and 2020 was less than $0.1 million and $1.0 million, respectively.

Total amortization expense from definite-lived intangibles for the three-month periods ended March 31, 2020 and 2021 was $0.4 million and $0.3 million, respectively.

The following table presents the Company's estimate of future amortization expense for definite-lived intangibles:

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We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Advertising revenues presented in the condensed consolidated and combined financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.

Advertising revenues presented in the condensed consolidated financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.

Radio Advertising

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This network revenue is recognized as we broadcast the advertisements.

In connection with certain outdoor advertising arrangements, the customer may request that the Company produce the billboard wrap (commonly printed on a vinyl material) displaying the customer’s advertisement on our outdoor structure.

In connection with certain outdoor advertising arrangements, the customer

may request that the Company produce the billboard wrap (common ly printed on a vinyl material) displaying the customer’s advertisement on our outdoor structure.

This production revenue is recognized as the deliverable is made available to the customer or attached to our outdoor structure.

Other revenue also includes the management fee received from Billboards LLC (See Note 11.)

Disaggregation of revenue

The following table presents the Company's revenues disaggregated by revenue source:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Revenue by Source:

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Total net revenues

The decline in nontraditional revenues in the nine months ended September 30, 2020 is due to the cancellation of our largest concert, Summer Jam, due to the pandemic.

(1) A substantial portion of this revenue is from lessor revenue derived from operating leases accounted for under ASC 842, “ Leases .”

Long Term Debt

Long-term debt was comprised of the following at December 31, 2019, and September 30, 2020:

September 30,

Long-term debt was comprised of the following at December 31, 2020, and March 31, 2021:

Senior credit facility

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Total long-term debt, net of current portion and debt discount

Senior Credit Facility

On November 25, 2019, the Company entered into a $50.0 million, five-year senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC, a Delaware limited liability company, as administrative agent and collateral agent, which included one tranche of additional borrowings of $25.0 million.

The Senior Credit Facility provided for initial borrowings of up to $50.0 million, of which net proceeds of $48.3 million after debt discount of $1.7 million, were paid concurrently to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company.

Senior secured term loan agreement

The Company has a five-year senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC, (“GACP”) a Delaware limited liability company, as administrative agent and collateral agent.

The Senior Credit Facility bears interest at a rate equal to the London Interbank Offered Rate ("LIBOR"), plus 7.5%, with a 2.0% LIBOR floor.

Prior to subsequent amendments discussed below, the Senior Credit Facility required interest payments on the first business day of each calendar month, and quarterly payments on the principal in an amount equal to one and one quarter percent of the initial aggregate principal amount were due on the last day of each calendar quarter.

The Senior Credit Facility includes covenants pertaining to, among other things, the ability to incur indebtedness, restrictions on the payment of dividends, minimum Liquidity of $2.0 million for the period from the effective date until November 25, 2020, $2.5 million for the period from November 26, 2020 until November 25, 2021, and $3.0 million for the period thereafter, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio of 1.10:1.00, and other customary restrictions.

The Company borrowed $23.4 million of the remaining available borrowings to fund the Fairway Acquisition on December 13, 2019.

Proceeds received were $22.6 million, net of a debt discount of $0.8 million.

On February 28, 2020, the Company entered into Amendment No.

1 to its Senior Credit Facility, in order to, among other things, increase the maximum aggregate principal amount issuable under the SG Broadcasting Promissory Note to $10.3 million.

On March 27, 2020, the Company entered into Amendment No.

2 (“Amendment No.

2”) to its Senior Credit Facility, in order to, among other things, (i) reduce the required Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) to 1.00x from June 30, 2020 to December 31, 2020, (ii) reduce the minimum Liquidity (as defined in the Senior Credit Facility) requirement to $1.0 million through September 30, 2020, (iii) permit equity contributions and loans during calendar year 2020 under the SG Broadcasting Promissory Note and any amendments thereto to count toward Consolidated EBITDA (as defined in the Senior Credit Facility) for purposes of the Consolidated Fixed Charge Coverage Ratio calculation, and (iv) increase the maximum aggregate principal amount issuable under the Second Amended and Restated SG Broadcasting Promissory Note (as defined below) from $10.3 million to $20.0 million.

In connection with Amendment No.

2, the Company incurred an amendment fee of approximately $0.2 million, which was added to the principal amount of the Senior Credit Facility then outstanding.

On August 28, 2020, the Company entered into Amendment No.

3 (“Amendment No.

3”) to its Senior Credit Facility, in order, among other things, (i) to modify certain provisions relating to the repayment of the Term Loan (as defined in the Senior Credit Facility) such that no quarterly payments shall be required beginning with the fiscal quarter ending September 30, 2020 through and including the fiscal quarter ending June 30, 2021 and (ii) to suspend the testing of the Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) from July 1, 2020 through and including June 30, 2021.

In connection with Amendment No.

the Company incurred an amendment fee of approximately $0.1 million, which was added to the principal amount of the Senior C redit Facility then outstanding.

The Senior Credit Facility is carried net of a total unamortized discount of $2.3 million at September 30, 2020.

Notes Payable to Emmis

On November 25, 2019, as part of the consideration owed to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company , the Company issued to Emmis the Emmis Convertible Promissory Note in the amount of $5.0 million.

Prior to subsequent amendments discussed below, and in Note 12, Subsequent Event, the Senior Credit Facility required interest payments on the first business day of each calendar month, and quarterly payments on the principal in an amount equal to one and one quarter percent of the initial aggregate principal amount were due on the last day of each calendar quarter.

At its inception, the Senior Credit Facility included covenants pertaining to, among other things, the ability to incur indebtedness, restrictions on the payment of dividends, minimum liquidity requirements, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio of 1.10:1.00, and other customary restrictions.

As of March 31, 2021, a number of amendments had been entered into by the Company and GACP to modify, among other things, certain provisions relating to the repayment of the Term Loan (as defined in the Senior Credit Facility) such that no quarterly payments are required beginning with the fiscal quarter ending September 30, 2020 through and including the fiscal quarter ending June 30, 2021 and the testing of the Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) is suspended through and including June 30, 2021.

The Senior Credit Facility currently requires us to maintain Minimum Liquidity (as defined in the Senior Credit Facility) of $2.5 million until November 25, 2021, and $3.0 million for the period thereafter.

In addition, the Senior Credit Facility includes a loan to value calculation, whereby the amount of debt outstanding thereunder is limited to a formula based on 60% of the fair value of the Company’s FCC licenses plus a multiple of the Company’s Billboard Cash Flow (as defined in the Senior Credit Facility).

There is $71.0 million outstanding and the Senior Credit Facility is carried net of a total unamortized discount of $2.0 million at March 31, 2021.

See Note 12, Subsequent Event, for a discussion of Amendment No.

4 to the Senior Credit Facility, executed on May 19, 2021.

Emmis Convertible Promissory Note

The Emmis Convertible Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, plus an additional 1.0% on any payment of interest in kind and, without regard to whether the Company pays such interest in kind, an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter.

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The Emmis Convertible Promissory Note matures on November 25, 2024.

Notes Payable to SG Broadcasting

On November 25, 2019, the Company issued the SG Broadcasting Promissory Note, a subordinated convertible promissory note payable by the Company to SG Broadcasting, in return for which SG Broadcasting contributed to MediaCo $6.3 million for working capital and general corporate purposes.

The SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter.

The SG Broadcasting Promissory Note matures on May 25, 2025.

Additionally, interest under the SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.

On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million.

Also on February 28, 2020, SG Broadcasting loaned an additional $2.0 million to the Company pursuant to the amended note for working capital purposes.

On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note (the “Second Amended and Restated SG Promissory Note”) such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million.

On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes.

On August 28, 2020, SG Broadcasting loaned an additional $8.7 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes.

Consequently, the principal amount outstanding under the Second Amended and Restated SG Broadcasting Promissory Note as of September 30, 2020 was $20.0 million.

On September 30, 2020, SG Broadcasting loaned an additional $0.3 million to the Company pursuant to an additional SG Broadcasting Promissory Note (the “Additional SG Broadcasting Promissory Note”) for working capital purposes.

As of March 31, 2021, the principal balance outstanding under the Emmis Convertible Promissory Note is $5.5 million.

Second Amended and Restated SG Broadcasting Promissory Note and Additional SG Broadcasting Promissory Note

The Second Amended and Restated SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter.

The Second Amended and Restated SG Broadcasting Promissory Note matures on May 25, 2025.

Additionally, interest under the Second Amended SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.

The Additional SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter.

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Additionally, interest under the Additional SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.

Based on amounts outstanding at September 30, 2020, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:

As of March 31, 2021, there was a total of $21.4 million outstanding under the Second Amended and Restated SG Broadcasting Promissory Note and the Additional SG Broadcasting Promissory Note.

See Note 12, Subsequent Event, for discussion of an additional contribution from Standard General in the form of subordinated debt subsequent to March 31, 2021, on May 19, 2021.

Based on amounts outstanding at March 31, 2021, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:

Year ended December 31,

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In the opinion of management of the Company, however, there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.

As discussed in Note 3, our provision for income taxes for the three and nine-month periods ended September 30, 2019 in these condensed consolidated and combined financial statements has been calculated using the separate return basis, as if we filed separate tax returns.

The effective tax rate for the nine months ended September 30, 2019 and 2020 was 32%, and (154)% respectively.

During the nine-month period ended September 30, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic and the significant operating losses expected in 2020, the Company was not able to conclude that it was more likely than not that it would be able to realize its deferred tax assets and recorded a $15.6 million valuation allowance against these assets through an increase to our provision for income taxes.

The effective tax rate for the three months ended March 31, 2020 and 2021 was (29)%, and 3% respectively.

During the year ended December 31, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic, the Company determined that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a $18.8 million valuation allowance against these assets through an increase to our provision for income taxes.

Our effective tax rate for the three months ended March 31, 2021 differs from the statutory tax rate due to the recognition of additional valuation allowance.

We determine if an arrangement is a lease at inception.

We have operating leases for office space, tower space, equipment and automobiles expiring at various dates through October 2049.

We have operating leases for office space, sites upon which advertising structures are built, tower space, equipment and automobiles expiring at various dates through October 2049.

Some leases have options to extend and some have options to terminate.

Beginning March 1, 2019, operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and noncurrent operating lease liabilities in our condensed consolidated balance sheet.

Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and noncurrent operating lease liabilities in our condensed consolidated balance sheet.

Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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Our lease terms may include options to extend or terminate the lease, which we treat as exercised when it is reasonably certain and there is a significant economic incentive to exercise that option.

Our outdoor advertising segment treats evergreen leases as though they will be automatically renewed at the end of each term.

Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term.

Variable lease payments, which represent lease payments that vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time, are expensed in the period in which the obligation for these payments was incurred.

Variable lease expense recognized in the nine months ended September 30, 2020 was not material.

Variable lease expense recognized in the three months ended March 31, 2021 was not material.

We elected not to apply the recognition requirements of Accounting Standards Codification 842, “ Leases” , to short-term leases, which are deemed to be leases with a lease term of twelve months or less.

Instead, we recognized lease payments in the condensed consolidated and combined statements of operations on a straight-line basis over the lease term and variable payments in the period in which the obligation for these payments was incurred.

Instead, we recognized lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term and variable payments in the period in which the obligation for these payments was incurred.

We elected this policy for all classes of underlying assets.

Short-term lease expense recognized in the nine months ended September 30, 2020, was not material.

Short-term lease expense recognized in the three months ended March 31, 2021, was not material.

The impact of operating leases to our condensed consolidated financial statements was as follows:

Nine Months Ended

September 30,

Three Months Ended

Operating lease cost

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Weighted average discount rate - operating leases

As of September 30, 2020 , the annual minimum lease payments of our operating lease liabilities were as follows:

As of March 31, 2021, the annual minimum lease payments of our operating lease liabilities were as follows:

Year ending December 31,

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Total recorded lease liabilities

Our outdoor advertising business generates lessor revenue derived from operating leases accounted for under ASC 842, “Leases.” Minimum fixed lease consideration under non-cancelable operating leases for each of the next five years and thereafter, excluding variable lease consideration, as of September 30, 2020, is as follows:

Year ending December 31,

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Balance at December 31, 2020

Purchase price allocation adjustment

Accretion expense

Liabilities settled

Balance at September 30, 2020

On December 9, 2019, the Company’s Board approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC from Fairway Outdoor Advertising Group, LLC for a purchase price of $43.1 million, subject to customary working capital adjustments.

Closing of the transaction occurred on December 13, 2019.

FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia.

The acquisition was funded through $23.4 million of additional borrowings under the Senior Credit Facility as described in Note 7, which were net of a debt discount of $0.8 million, resulting in $22.6 million of proceeds.

The remainder was financed by SG Broadcasting through $22.0 million of newly-issued Series A Convertible Preferred Stock.

The terms of the Series A convertible preferred stock are described in Note 14.

The Company believes this is a highly-scalable business model with attractive operative leverage.

As of September 30 2020, our fair value allocation of the assets acquired and liabilities assumed from Fairway Outdoor is considered preliminary and is subject to revision, which may result in adjustments to this allocation .

A number of purchase price adjustments were made in the nine -month period ended September 30 , 2020 which resulted in an increase to goodwill of $ 1.

The allocations presented in the table below are based upon management’s estimate of the fair value using valuation techniques including income, cost and market approaches.

The most significant asset acquired, property, plant and equipment, was valued usi ng the cost approach.

The preliminary purchase price allocation was as follows:

Cash consideration

Due from Seller

Total Consideration

Accounts receivable

Other current assets

Property, plant and equipment

Operating lease, right-of-use assets

Intangibles (Note 5)

Deferred tax asset

Assets Acquired

Accounts payable

Accrued expenses and other current liabilities

Current portion of operating lease liabilities

Operating lease liabilities, less current portion

Asset retirement obligations (Note 11)

Deferred revenue

Other noncurrent liabilities

Liabilities Assumed

Net Assets Acquired

The Fairway Acquisition was accounted for under the acquisition method of accounting, and, accordingly, the accompanying consolidated and combined financial statements include the results of operations of each acquired entity from the date of acquisition.

The following unaudited pro forma financial information for the Company gives effect to the Fairway Acquisition as if it had occurred on January 1, 2019.

These pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on such date or to project the Company’s results of operations for any future period.

Nine Months Ended September 30, 2019

Net income attributable to common shareholders

Goodwill of $13.1 million was recognized as a result of the purchase which represented the excess of the purchase price over the identifiable acquired assets , $10.7 million of which is deductible for tax purposes.

The goodwill acquired is assigned to the outdoor advertising segment.

Balance at March 31, 2021

Segment Information

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The Company’s segments operate exclusively in the United States.

The accounting policies as described in the summary of significant accounting policies included in the Company’s Annual Report filed on Form 10-K for the ten months ended December 31, 2019, and in Note 1 to these condensed consolidated and combined financial statements, are applied consistently across segments.

Three Months Ended September 30, 2020

The accounting policies as described in the summary of significant accounting policies included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2020, and in Note 1 to these condensed consolidated financial statements, are applied consistently across segments.

Three Months Ended March 31, 2021

Outdoor Advertising

Operating expenses excluding and depreciation and amortization expense

Operating expenses excluding depreciation and amortization expense

Corporate expenses

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Operating income (loss)

Three Months Ended September 30, 2019

Outdoor Advertising

Operating expenses excluding depreciation and amortization expense

Depreciation and amortization

Operating income

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2020

Outdoor Advertising

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Depreciation and amortization

Loss on disposal of assets

Operating income (loss)

Nine Months Ended September 30, 2019

Outdoor Advertising

Operating expenses excluding depreciation and amortization expense

Depreciation and amortization

Operating income

Outdoor Advertising

As of December 31, 2020

As of September 30, 2020

As of March 31, 2021

Related Party Transactions

Corporate Overhead and Share-Based Compensation

For the three and nine months ended September 30, 2019, MediaCo was 100% owned by Emmis.

Our financial statements for this period are derived from the books and records of Emmis.

As described below, Emmis provides us certain services, including executive oversight, legal, finance, human resources and information technology.

Our condensed consolidated and combined financial statements reflect an allocation of these costs.

When specific identification is not practicable, these costs have been allocated on a pro rata basis of revenue, headcount and other measures.

In addition, our employees participated in Emmis share-based compensation plans, the costs of which have been allocated to us.

Transaction Agreement with Emmis and SG Broadcasting

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The common stock of MediaCo acquired by Standard General is entitled to ten votes per share and the common stock acquired by Emmis and distributed to Emmis’ shareholders is entitled to one vote per share.

Emmis will continue to

provide management services to the Sta tions under a Management Agreement, subject to the direction of the MediaC o board of directors which currently consist s of four directors appointed by Standard General and three directors appointed by Emmis.

MediaCo pays Emmis an annual management fee of $ 1.25 million, plus reimbursement of certain expenses directly re lated to the operation of MediaC o’s business.

The sale closed on November 25 , 2019 , at which time Media Co and Emmis also entered into the management agreement (the “Management Agreement”) , an employee leasing agreement (the “Employee Leasing Agreement”) and certain other ancillary agreements.

For the three and nine months ended September 30, 2020, MediaCo recorded $ 0.3 million and $0.9 million of management fee expense, respectively, which is included in corporate expenses in the accompanying condensed consolidated and combined statements of operations.

$0.1 million was unpaid as of September 30, 2020 and is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

Under the Employee Leasing Agreement, the employees of the Stations will remain employees of Emmis and we reimburse Emmis for the cost of these employees, including health and benefit costs.

The initial term of the Employee Leasing Agreement ends December 31, 2020.

In accordance with the Employee Leasing Agreement, as of January 1, 2021, we will hire all of the leased employees and assume employment and collective bargaining agreements related to those employees.

Expense related to the Employee Leasing Agreement, which is included in operating expenses, was $2.5 million and $7.0 million for the three and nine months ended September 30, 2020, respectively.

Approximately $0.2 million of this expense remains unpaid as of September 30, 2020.

Emmis will continue to provide management services to the Stations under a Management Agreement, subject to the direction of the MediaCo board of directors which currently consists of four directors appointed by Standard General and three directors appointed by Emmis.

MediaCo pays Emmis an annual management fee of $1.25 million, plus reimbursement of certain expenses directly related to the operation of MediaCo’s business.

The sale closed on November 25, 2019, at which time MediaCo and Emmis also entered into the management agreement (the “Management Agreement”), an employee leasing agreement (the “Employee Leasing Agreement”) and certain other ancillary agreements.

For the three months ended March 31, 2020 and 2021, MediaCo recorded $ 0.3 million of management fee expense, which is included in corporate expenses in the accompanying condensed consolidated statements of operations.

$0.1 million was unpaid as of March 31, 2021 and December 31, 2020 and is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

Emmis has informed us that it does not intend to extend the Management Agreement beyond the initial term which expires in November 2021, but has not yet given formal notice to that effect.

Under the Employee Leasing Agreement, the employees of the Stations remained employees of Emmis and we reimbursed Emmis for the cost of these employees, including health and benefit costs.

Expense related to the Employee Leasing Agreement, which is included in operating expenses, was $3.1 million for the three months ended March 31, 2020.

No amount of expense related to the Employee Leasing Agreement remained unpaid as of December 31, 2020.

Effective January 1, 2021, the Employee Leasing Agreement was terminated, and the Company hired all of the leased employees and assumed the employment and collective bargaining agreements related to leased employees.

The Employee Leasing Agreement was terminated at the expiration of the initial term, so no early termination penalties were incurred.

Convertible Promissory Notes

As a result of the Transaction, on November 25, 2019, we issued convertible promissory notes to both Emmis and SG Broadcasting in the amounts of $5.0 million and $6.3 million, respectively.

As a result of the transaction described above, on November 25, 2019, we issued convertible promissory notes to both Emmis and SG Broadcasting in the amounts of $5.0 million and $6.3 million, respectively.

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On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes.

On August 28, 2020, SG Broadcasting loaned an additional $8.7 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes.

Consequently, the principal amount outstanding under the Second Amended and Restated SG Broadcasting Promissory Note as of September 30, 2020 was $20.0 million.

On August 28, 2020, SG Broadcasting loaned an additional $8.7 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes, bringing the total principal amount outstanding to $20.0 million.

On September 30, 2020, SG Broadcasting loaned an additional $0.3 million to the Company pursuant to the Additional SG Broadcasting Promissory Note for working capital purposes.

On November 25, 2020, annual interest of $0.5 million and $1.1 million was paid in kind and added to the principal balances of the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Note, respectively.

Consequently, the principal amount outstanding under the Emmis Convertible Promissory Note and the two SG Broadcasting Promissory Notes as of March 31, 2021 was $5.5 million and $21.4 million, respectively.

The Company recognized interest expense of $0.1 million related to the Emmis Convertible Promissory Note for the three months ended March 31, 2020 and March 31, 2021.

The Company recognized interest expense of $0.2 million and $0.5 million related to the SG Promissory Notes for the three months ended March 31, 2020 and March 31, 2021, respectively.

The terms of these notes are described in Note 5.

See Note 12, Subsequent Event, for discussion of an additional contribution from Standard General in the form of subordinated debt subsequent to March 31, 2021, on May 19, 2021.

Convertible Preferred Stock

On December 13, 2019, in connection with the Fairway Acquisition, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock.

On December 13, 2019, in connection with the purchase of our outdoor advertising segment, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock.

MediaCo Series A Preferred Shares rank senior in preference to the MediaCo Class A common stock, MediaCo Class B common stock, and the MediaCo Class C common stock.

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Issued and outstanding shares of MediaCo Series A Preferred Shares shall accrue cumulative dividends, payable in kind, at an annual rate equal to the interest rate on any senior debt of the Company (see Note 5), or if no senior debt is outstanding, 6%, plus additional increases of 1% on December 12, 2020 and each anniversary thereof.

The current rate in effect at March 31, 2021 is 10.5%.

MediaCo Series A Preferred Shares are redeemable for cash at the option of SG Broadcasting at any time on or after June 12, 2025, and so the shares are classified outside of permanent equity.

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The Series A Preferred Shares are considered participating securities for the purposes of calculating earnings per share under the two-class method.

Loan Proceeds Participation Agreement

See Note 15 for a description of the Loan Proceeds Participation Agreement entered into with Emmis during the quarter ended June 30, 2020.

On December 13, 2020, $2.1 million of dividends were paid in kind.

The payment in kind increased the accrued value of the preferred stock and no additional shares were issued as part of this payment.

Dividends on Series A Convertible Preferred Stock held by SG Broadcasting were $0.5 million and $0.6 million for the three months ended March 31, 2020 and 2021, respectively.

As of December 31, 2020, and March 31, 2021, unpaid cumulative dividends were $0.1 million and $0.8 million, and included in the balance of preferred stock in the accompanying condensed consolidated balance sheets.

Loan Proceeds Participation Agreement

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As of the date of these financial statements, Emmis believes that the loan will be forgiven as Emmis believes it has spent the proceeds on qualifying expenditures.

Accordingly, $1.5 million of leased employee expense was waived by Emmis during the nine months ended September 30, 2020.

Management Agreement for Billboards LLC

On August 11, 2020, the board of directors of the Company unanimously authorized the entry into a certain Management Agreement (the “Billboard Agreement”) between Fairway Outdoor LLC (a subsidiary of the Company, “Fairway”) and Billboards LLC (an affiliate of Standard General, “Billboards”).

Under the Billboard Agreement, Fairway will manage the billboard business of Billboards in exchange for payments of $25 thousand per quarter and reimbursement of all out-of-pocket expenses incurred by Fairway in the performance of its duties under the Billboard Agreement.

The Billboard Agreement has an effective date of August 1, 2020, has a term of three years, and has customary provisions on limitation of liability and indemnification.

$25 thousand of income was recognized in the three months ended March 31, 2021 in relation to the Billboard Agreement, all of which was outstanding as of March 31, 2021.

Additionally, Fairway incurred $49 thousand of out-of-pocket expenses for the period, none of which has been reimbursed as of March 31, 2021.

Subsequent Event

On May 19, 2021, the Company entered into Amendment No.

4 to its Senior Credit Facility.

Under the terms of Amendment No.

SG Broadcasting agreed to contribute up to $7.0 million to the Company in the form of subordinated debt, with $3.0 million contributed at closing, $1.0 million to be contributed by June 1, 2021, and up to an additional $3.0 million to be contributed through June 30, 2022, if necessary, to satisfy certain conditions described in Amendment No.

the Company made a principal payment of $3.0 million to reduce borrowings outstanding under the Senior Credit Facility;

no quarterly scheduled principal payments are required through and including the quarter ending March 31, 2022;

the Minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) was reduced to 1.00:1.00 from April 1, 2020 through and including December 31, 2022, with it increasing to 1.10:1.00 on and after January 1, 2023;

for purposes of calculating compliance with the Minimum Consolidated Fixed Charge Coverage Ratio, Consolidated EBITDA (as defined in the Senior Credit Facility) includes certain amounts contributed by SG Broadcasting in the form of subordinated debt or equity, including those described above;

for purposes of calculating the Company’s borrowing base under the Senior Credit Facility, the multiple applied to Billboard Cash Flow (as defined in the Senior Credit Facility) increased from 3.5 to 5.0 and the advance rate applied to the radio stations’ FCC licenses increased from 60% to 70%;

at any time the multiple applied to Billboard Cash Flow exceeds 3.5 or the advance rate applied to the radio stations’ FCC licenses exceeds 60%, an incremental annual interest rate of 1% applies and is paid in kind monthly;

certain specified events of default were waived;

an amendment fee of $0.4 million was paid in cash.

Also on May 19, 2021, the Company issued to SG Broadcasting a subordinated convertible promissory note (the “May 2021 SG Broadcasting Promissory Note”), in return for which SG Broadcasting contributed $3.0 million to the Company to make the prepayment of Senior Credit Facility debt required under Amendment No.

Up to $7.0 million may be borrowed pursuant to the May 2021 SG Broadcasting Promissory Note.

The May 2021 SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% on November 25, 2021 and additional annual increases of 1.0% following each successive anniversary thereafter.

The May 2021 SG Broadcasting Promissory Note matures on May 25, 2025 and interest is payable in kind through maturity.

Subject to prior shareholder approval of the issuance of the shares, the May 2021 SG Broadcasting Promissory Note is convertible into MediaCo Class A common stock at the option of SG Broadcasting at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.

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What changed 10-Q

Item 1. Financial Statements