Arena Group Holdings, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Overview For an overview of the Company, see the information above presented under the section labeled “Item 1. Business,” which is a portion of this Annual Report’s “Part I.” 26 Liquidity and Capital Resources Cash and Working Capital Facility As of December 31, 2021, our principal sources of liquidity consisted of cash of approximately $9.3 million. In addition, as of December 31, 2021, we had the use of additional proceeds from our working capital facility with FPP Finance LLC (“FastPay”) in the amount of approximately $13.0 million, subject to eligible accounts receivable. As of December 31, 2021, the outstanding balance of the FastPay working capital facility was approximately $12.0 million. We also had accounts receivable, net of our advances from FastPay of approximately $9.7 million as of December 31, 2021. Our cash balance as of the issuance date of our accompanying consolidated financial statements is approximately $23.0 million. Our accompanying consolidated financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We had revenues of approximately $189.1 million during fiscal 2021 and have experienced recurring net losses from operations and negative operating cash flows. Consequently, we were dependent upon continued access to funding and capital resources from both new investors and related parties. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our growth plan and plan of operations. These financings may include terms that may be highly dilutive to existing stockholders. We continue to be focused on growing our existing operations and seeking accretive and complementary strategic acquisitions as part of our growth strategy. We believe, that with additional sources of liquidity and the ability to raise additional capital or incur additional indebtedness to supplement our internal projections, we will be able to execute our growth plan and finance our working capital requirements both in the short-term and long-term. Going Concern Management performed an annual reporting period going concern assessment. We are required to assess our ability to continue as a going concern. Our accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Our accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Historically, we have recorded recurring losses from operations and have operated with a net capital deficiency. We considered these factors to determine if the significance of those conditions or events would limit our ability to meet our obligations when due. Most recently, operating losses realized in prior years had been impacted by the COVID-19 pandemic and the related shut down of most professional and collegiate sports, which reduced user traffic and advertising revenue. As we entered fiscal 2021, and the impact of COVID-19 on our operations began to dissipate, we invested heavily in marketing, customer growth, and people and technology as we expanded our operations, specifically related to TheStreet and the Sports Illustrated media business. As reflected in our accompanying consolidated financial statements, we recorded revenues of approximately $189.1 million and incurred a net loss attributable to common stockholders of approximately $89.9 million for the year ended December 31, 2021. We have historically financed our working capital requirements since inception through the issuance of debt and equity securities. Management has evaluated whether relevant conditions or events, considered in the aggregate, raise substantial doubt about our ability to continue as a going concern. The factors considered include, but are not limited to, our financial condition, liquidity sources, obligations due within one year after the issuance date of our accompanying consolidated financial statements, and the funds necessary to maintain operations, including negative financial trends or other indicators of possible financial difficulty. Substantial doubt exists when conditions and events, considered in the aggregate, indicate it is probable that a company will not be able to meet its obligations as they become due within one year after the issuance date of its financial statements. 27 Management’s assessment is based on the relevant conditions that are known or reasonably knowable as of the date our accompanying consolidated financial statements for the year ended December 31, 2021 were issued. In particular, management evaluated our: (1) 2022 cash flow forecast, which considered the use of our working capital line with FastPay (as described below) to fund changes in working capital, under which we have available credit of approximately $17.7 million, subject to eligible account receivables, as of the issuance date of our accompanying consolidated financial statements for the year ended December 31, 2021, as well as the additional capital we raised in a firm commitment underwritten public offering of $31.5 million after fees and expenses, which was completed subsequent to December 31, 2021; and (2) our 2022 operating budget, which considers that (i) more than half of our total revenue is derived from recurring digital and print subscriptions, which are generally paid in advance , and (ii) overall digital revenue, representing 53.4% of our total revenue, grew approximately 49.1% in fiscal 2021, which we believe demonstrates the strength of our brands. In addition, our firm commitment underwritten public offering, as described above, demonstrates our ability to access capital markets. Finally, management also considered our ability to implement additional measures, if required, related to potential revenue and earnings declines from continued COVID-19-related challenges. Management’s assessment of our ability to meet our future obligations is inherently judgmental, subjective and susceptible to change. As a result of these considerations and as a part of the quantitative and qualitative factors that are known or reasonably knowable as of the date our accompanying consolidated financial statements for the year ended December 31, 2021 were issued, we concluded that conditions and events considered in the aggregate, do not raise substantial doubt about our ability to continue as a going concern for a one-year period following the financial statement issuance date. Equity Financings In January 2022, we filed a registration statement on Form S-1 (File No. 333-262111), which the SEC declared effective on February 10, 2022. In February 2022, we closed a firm commitment underwritten public offering of our common stock and received total net proceeds of approximately $31.5 million, after deducting underwriting discounts and commissions and estimated offering expenses, which includes the underwriter’s overallotment option that was partially exercised in March 2022. Debt Financings and Obligations Net proceeds from our debt financings (see Note 14, Line of Credit , and Note 19, Long-term Debt , in our accompanying consolidated financial statements for additional information) consisted of the following: FastPay Credit Facility . We are party to a financing and security agreement with FastPay, pursuant to which FastPay extended a $15.0 million line of credit for working capital purposes secured by a first lien on all our cash and accounts receivable and a second lien on all other assets. The line of credit was increased to $25.0 million during fiscal 2021. Borrowings under the facility bear interest at the LIBOR Rate plus 6.00% and have a final maturity of February 28, 2024. The aggregate principal amount outstanding, plus accrued and unpaid interest, as of the issuance date of our accompanying consolidated financial statements for the year ended December 31, 2021 was approximately $7.3 million. Senior Secured Note . We are party to a second amended and restated note purchase agreement, as subsequently amended by Amendment No. 1, Amendment No. 2, Amendment No. 3, and Amendment No. 4 (collectively, the “Second A&R NPA”), with one accredited investor, BRF Finance Co., LLC (“BRF Finance”), an affiliated entity of B. Riley Financial, Inc. (“B. Riley”). The senior secured note bears interest at a rate of 10% per annum. Interest payments are payable at BRF Finance’s discretion either in cash quarterly in arrears on the last day of each quarter or by adding the interest to the outstanding principal amount. The senior secured note has a final maturity date of December 31, 2023, at which time the outstanding principal and all accrued but unpaid interest will be due. The balance outstanding under our senior secured note as of the issuance date of our consolidated financial statements for the year ended December 31, 2021 was approximately $64.3 million, which included outstanding principal of approximately $48.8 million, payment of in-kind interest of approximately $13.9 million that we were permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately $1.6 million. 28 Delayed Draw Term Note . Pursuant to the Second A&R NPA, we agreed to issue, at BRF Finance’s option, a delayed draw term note (the “Delayed Draw Term Note”), in the aggregate principal amount of $12.0 million to BRF Finance. On March 24, 2020, we drew down approximately $6.9 million under the Delayed Draw Term Note, and after payment of commitment and funding fees paid to BRF Finance in the amount of approximately $0.7 million, and other of its legal fees and expenses that we incurred, we received net proceeds of $6.0 million. The Delayed Draw Term Note bears interest at a rate of 10% per annum. Interest payments are payable, at BRF Finance’s discretion, either in cash quarterly in arrears on the last day of each fiscal quarter or in kind in arrears on the last day of each fiscal quarter. The Delayed Draw Term Note has a final maturity date of December 31, 2023, at which time the outstanding principal and accrued but unpaid interest will be due. There is approximately $5.4 million of principal payment due on the Delayed Draw Term Note on December 31, 2022, with the remaining principal balance due on December 31, 2023. The aggregate principal amount outstanding under the Delayed Draw Term Note as of the issuance date of our consolidated financial statements for the year ended December 31, 2021 was approximately $10.2 million, which included outstanding principal of approximately $8.7 million, and payment of in-kind interest of approximately $1.2 million that the Company was permitted to add to the aggregate outstanding principal balance, and unpaid accrued interest of approximately $0.3 million . Proposed Acquisition We entered into a non-binding letter of intent to acquire 100% of the issued and outstanding equity interests of Athlon Holdings, Inc. (“Athlon”) for an anticipated purchase price of $16.0 million, comprised of (i) a cash portion of $13.0 million, with $10.0 million to be paid at closing and $3.0 million to be paid post-closing and (ii) an equity portion of $3.0 million to be paid in shares of our common stock. The acquisition is subject to the preparation and negotiation of definitive documents, completion of due diligence, and the agreement of a certain number of key employees of Athlon to remain as employees post-closing, among other items. Material Contractual Obligations We have material contractual obligations that arise in the normal course of business primarily consisting of employment contracts, consulting agreements, leases, liquidated damages, debt and related interest payments. Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months. See Notes 7, 15 and 19 in our accompanying consolidated financial statements for amounts outstanding as of December 31, 2021, related to leases, liquidated damages and long-term debt. With respect to leases, we subleased our office space in Santa Monica, California in November 2021 and remain responsible to the original lessor for approximately $1.3 million through September 2024. Pursuant to the sublease, the sublessee will pay us an aggregate of approximately $0.6 million through September 2024. During 2021, we entered into a termination agreement of our sublease agreement for a property located in New York, New York and remain responsible for approximately $9.0 million in cash payments to the sublandlord through October 2024. Contingent Liability Finally, we may have a contingent liability arising out of possible violations of the Securities Act in connection with the Original PowerPoint, which we furnished as Exhibit 99.2 to our Current Report on Form 8-K and Current Report on Form 8-K/A filed on January 31, 2022 and February 1, 2022, respectively. Specifically, the furnishing of the Original PowerPoint publicly may have constituted an “offer to sell” as described in Section 5(b)(1) of the Securities Act and the Original PowerPoint may be deemed to be a prospectus that does not meet the requirements of Section 10 of the Securities Act, resulting in a potential violation of Section 5(b)(1) of the Securities Act. Any liability would depend upon the number of shares purchased by investors who reviewed and relied upon such Original PowerPoint that may have constituted a potential violation of Section 5 of the Securities Act. If a claim were brought by any such ‘recipients’ of such Original PowerPoint and a court were to conclude that the public disclosure of such PowerPoint constituted a violation of Section 5 of the Securities Act, we could be required to repurchase the shares sold to the investors who reviewed such Original PowerPoint at the original purchase price, plus statutory interest. We could also incur considerable expense in contesting any such claims. As of the date of this Annual Report, no legal proceedings or claims have been made or threatened by any investors in our offering. Such payments and expenses, if required, could significantly reduce the amount of working capital we have available for our operations and business plan, delay or prevent us from completing our plan of operations, or force us to raise additional funding, which funding may not be available on favorable terms, if at all. See also the “Risk Factor” entitled “We may have contingent liability arising out of a possible violation of the Securities Act, in connection with the Original PowerPoint which we furnished as Exhibit 99.2 to our Current Report on Form 8-K, and the Current Report on Form 8-K/A, filed with the SEC on January 31, 2022, and February 1, 2022, respectively” herein. 29 Working Capital Deficit We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of December 31, 2021 and 2020 was as follows: As of December 31, 2021 2020 Current assets $ 77,671,018 $ 73,846,465 Current liabilities (116,412,415 ) (107,562,825 ) Working capital deficit (38,741,397 ) (33,716,360 ) As of December 31, 2021, we had a working capital deficit of approximately $38.7 million, as compared to approximately $33.7 million as of December 31, 2020, consisting of approximately $77.7 million in total current assets and approximately $116.4 million in total current liabilities. Included in current assets as of December 31, 2021, was approximately $0.5 million of restricted cash, leaving a working capital deficit that requires cash payments of approximately $39.2 million. As of December 31, 2020, our working capital deficit consisted of approximately $73.8 million in total current assets and approximately $107.6 million in total current liabilities. Our cash flows during the years ended December 31, 2021 and 2020 consisted of the following: Years Ended December 31, 2021 2020 Net cash used in operating activities $ (14,729,389 ) $ (32,294,587 ) Net cash used in investing activities (13,145,958 ) (4,927,833 ) Net cash provided by financing activities 28,191,466 37,284,011 Net (decrease) increase in cash, cash equivalents, and restricted cash $ 316,119 $ 61,591 Cash, cash equivalents, and restricted cash, end of year $ 9,850,800 $ 9,534,681 For the year ended December 31, 2021, net cash used in operating activities was approximately $14.7 million, consisting primarily of approximately $172.6 million of cash received from customers (including payments received in advance of performance obligations) less (a) approximately $185.9 million of cash paid (i) to employees, Publisher Partners, Expert Contributors, suppliers, and vendors, and (ii) for revenue share arrangements and professional services; and (b) approximately $1.4 million of cash paid for interest. For the year ended December 31, 2020, net cash used in operating activities was approximately $32.3 million, consisting primarily of: approximately $116.0 million of cash received from customers (including payments received in advance of performance obligations) less (a) approximately $148.3 million of cash paid (i) to employees, Publisher Partners, suppliers, and vendors, and (ii) for revenue share arrangements, advance of royalty fees and professional services; and (b) approximately $0.6 million of cash paid for interest. For the year ended December 31, 2021, net cash used in investing activities was approximately $13.1 million, consisting primarily of: (i) approximately $8.0 million used to acquire a business; (ii) approximately $0.4 million for property and equipment; and (iii) approximately $4.8 million for capitalized costs for our Platform. For the year ended December 31, 2020, net cash used in investing activities was approximately $4.9 million consisting primarily of: (i) approximately $0.3 million used for the acquisition of a business; (ii) approximately $1.2 million for property and equipment; (iii) approximately $0.4 million from proceeds for the sale of intangible assets; and (iv) approximately $3.8 million for capitalized costs for our Platform. 30 For the year ended December 31, 2021, net cash used by financing activities was approximately $28.2 million, consisting primarily of: (i) approximately $19.8 million in net proceeds from the private placement issuance of common stock; (ii) approximately $5.1 million in net proceeds from the Delayed Draw Term Note; (iii) approximately $4.8 million from borrowing under our FastPay line of credit; less (iv) approximately $1.5 million in payments of restricted stock liabilities; and (v) approximately $0.1 million in payments for taxes relating to repurchase of restricted shares. For the year ended December 31, 2020, where net cash provided by financing activities was approximately $37.3 million, consisting primarily of: (i) approximately $20.8 million in net proceeds from the issuance of Series H Preferred Stock (the “Series H Preferred Stock”) and Series J Convertible Preferred Stock (the “Series J Preferred Stock”) and Series K Convertible Preferred Stock (“Series K Preferred Stock”); (ii) approximately $11.1 million in net proceeds from the Delayed Draw Term Note and the Payroll Protection Program Loan; and (iii) approximately $7.2 million in borrowings of our FastPay line of credit; less (iv) approximately $0.5 million in payments for taxes relating to the withholding of shares upon the repurchase of restricted shares of our common stock; and (v) approximately $1.1 million in repayments under the 12% senior secured subordinated convertible debentures (referred to herein as the “12% convertible debentures”). Results of Operations Comparison of Fiscal 2021 to Fiscal 2020 Years Ended December 31, 2021 versus 2020 2021 2020 $ Change % Change Revenue $ 189,140,334 $ 128,032,397 $ 61,107,937 47.7 % Cost of revenue 110,977,736 103,063,445 7,914,291 7.7 % Gross profit 78,162,598 24,968,952 53,193,646 213.0 % Operating expenses Selling and marketing 82,691,061 43,589,239 39,101,822 89.7 % General and administrative 54,400,720 36,007,238 18,393,482 51.1 % Depreciation and amortization 16,347,274 16,280,475 66,799 0.4 % Loss on disposition of assets 1,192,310 279,133 913,177 327.1 % Loss on impairment of lease 466,356 - 466,356 100.0 % Loss on termination of lease 7,344,655 - 7,344,655 100.0 % Total operating expenses 162,442,376 96,156,085 66,286,291 68.9 % Loss from operations (84,279,778 ) (71,187,133 ) (13,092,645 ) 18.4 % Total other expenses (7,334,309 ) (17,833,998 ) (10,499,689 ) -58.9 % Loss before income taxes (91,614,087 ) (89,021,131 ) (2,592,956 ) 2.9 % Income tax benefit (provision) 1,674,434 (210,832 ) 1,885,266 -894.2 % Net loss (89,939,653 ) (89,231,963 ) (707,690 ) 0.8 % Deemed dividend on convertible preferred stock - (15,642,595 ) 15,642,595 0.0 % Net loss attributable to common stockholders $ (89,939,653 ) $ (104,874,558 ) $ (14,934,905 ) -14.2 % Basic and diluted net loss per common share $ (7.87 ) $ (50.18 ) $ 42.31 -84.3 % Weighted average number of shares outstanding – basic and diluted 11,429,740 2,090,047 9,339,683 446.9 % 31 For the year ended December 31, 2021, the net loss attributable to common stockholders was approximately $89.9 million, as compared to $104.9 million in the prior year which represents an improvement of $14.9 million. The primary reason for the improvement in net loss attributable to common stockholders is a result of a $61.1 million increase in revenue which was offset by a combined increase in cost of revenue and operating expenses of $71.2 million during the year ended December 31, 2021. Operating expenses included a charge of $7.8 million related to a lease termination and the loss on a lease impairment and an increase in stock-based compensation of approximately $15.9 million during the year ended December 31, 2021. The increase in revenues was attributable to management’s decision to make a strategic shift to focus on premium content providers and reduced reliance on Partner Publisher guarantees in September 2020 as well as the addition of the results of The Spun, which was acquired in June 2021. Revenue The following table sets forth revenue, cost of revenue, and gross profit: Years Ended December 31, 2021 versus 2020 2021 2020 $ Change % Change Revenue $ 189,140,334 $ 128,032,397 $ 61,107,937 47.7 % Cost of revenue 110,977,736 103,063,445 7,914,291 7.7 % Gross profit $ 78,162,598 $ 24,968,952 $ 53,193,646 213.0 % For the year ended December 31, 2021, we had gross profit of approximately $78.2 million, as compared to gross profit of approximately $25.0 million for year ended December 31, 2020. The following table sets forth revenue by category: Years Ended December 31, 2021 versus 2020 2021 2020 $ Change % Change Digital revenue Digital advertising $ 62,864,924 $ 34,648,945 $ 28,215,979 81.4 % Digital subscriptions 29,628,355 28,495,676 1,132,679 4.0 % Other revenue 8,515,655 4,596,686 3,918,969 85.3 % Total digital revenue 101,008,934 67,741,307 33,267,627 49.1 % Print revenue Print advertising 9,050,671 9,710,877 (600,206 ) -6.8 % Print subscriptions 79,080,729 50,580,213 28,500,516 56.3 % Total print revenue 88,131,400 60,291,090 27,840,310 46.2 % Total revenue $ 189,140,334 $ 128,032,397 $ 61,107,937 47.7 % For the year ended December 31, 2021, the primary sources of revenue were as follows: (i) digital advertising of approximately $62.9 million; (ii) digital subscriptions of approximately $29.6 million; (iii) other digital revenue of approximately $8.5 million; (iv) print advertising of approximately $9.1 million and (iv) print subscriptions of approximately $79.1 million. Our digital advertising revenue increased by approximately $28.2 million, primarily due to additional revenue of approximately $14.1 million generated as a result of The Spun business, which was acquired during the second quarter of 2021, $9.9 million from Sports Illustrated due to an increase in advertising sponsorships, approximately $5.8 million generated from other business, all of which was partially offset by a $1.5 million decrease in revenue from TheStreet. Our digital subscriptions increased by approximately $1.1 million. Our other digital revenue, primarily consisting of licensing and e-commerce revenue, increased by approximately $3.9 million due to additional revenue for certain licensing agreements related to, SI Swim and other Sports Illustrated media businesses. Our print advertising decreased by approximately $0.7 million. Our print subscriptions increased by approximately $28.5 million reflecting a drive to increase subscribers in the fourth quarter of 2020 and the diminishing effect of acquisition accounting adjustments on the subscribers that existed when we began operating the Sports Illustrated media business. 32 Cost of Revenue The following table sets forth cost of revenue by category: Years Ended December 31, 2021 versus 2020 2021 2020 $ Change % Change Publisher Partner revenue share payments $ 21,566,904 $ 19,427,196 $ 2,139,708 11.0 % Hosting, bandwidth, and software licensing fees 2,163,417 2,419,143 (255,726 ) -10.6 % Fees paid for data analytics and to other outside services providers 3,083,405 3,222,869 (139,464 ) -4.3 % Royalty fees 15,000,000 15,000,000 - 0.0 % Content and editorial expenses 32,016,000 29,080,353 2,935,647 10.1 % Printing, distribution and fulfillment costs 14,203,907 15,706,519 (1,502,612 ) -9.6 % Amortization of developed technology and platform development 8,829,025 8,550,952 278,073 3.3 % Stock-based compensation 7,477,905 4,339,916 3,137,989 72.3 % Other cost of revenue 6,637,173 5,316,497 1,320,676 24.8 % Total cost of revenue $ 110,977,736 $ 103,063,445 $ 7,914,291 7.7 % For the year ended December 31, 2021, we recognized cost of revenue of approximately $111.0 million, which represented a 41.3% gross profit percentage, compared to approximately $103.1 million in the year ended December 31, 2020, representing a 19.5% gross profit percentage. The increase in the cost of revenue of approximately $7.9 million during the year ended December 31, 2021 is primarily from increases in: (i) stock-based compensation of approximately $3.1 million; (ii) content and editorial expense of approximately $2.9 million; (iii) our Publisher Partner revenue share payments of approximately $2.1 million; (iv) other costs of revenue related to SI Swim of approximately $1.3 million; less (v) printing, distribution, and fulfillment costs of approximately $1.5 million. The improvement in gross profit percentage was due to a decrease in Publisher Partner revenue shares from 56% of digital advertising revenue in fiscal 2020 to 34% in fiscal 2021 as a result of our strategic shift to eliminate most Publisher Partner guarantees near the end of fiscal 2020 and the high contribution margin of digital advertising. For the year ended December 31, 2021, we capitalized costs related to our Platform of approximately $6.9 million, as compared to approximately $5.4 million for the year ended December 31, 2020. For the year ended December 31, 2020, the capitalization of our Platform consisted of: (i) approximately $4.8 million in payroll and related expenses, including taxes and benefits; and (ii) approximately $2.0 million in stock-based compensation for related personnel. Operating Expenses The following table sets forth operating expenses: Years Ended December 31, 2021 versus 2020 2021 2020 $ Change % Change Selling and marketing $ 82,691,061 $ 43,589,239 $ 39,101,822 89.7 % General and administrative 54,400,720 36,007,238 18,393,482 51.1 % Depreciation and amortization 16,347,274 16,280,475 66,799 0.4 % Loss on disposition of assets 1,192,310 279,133 913,177 327.1 % Loss on impairment of lease 466,356 - 466,356 0.0 % Loss on termination of lease 7,344,655 - 7,344,655 0.0 % Total operating expenses $ 162,442,376 $ 96,156,085 $ 66,286,291 68.9 % 33 Selling and Marketing . For the year ended December 31, 2021, we incurred selling and marketing costs of approximately $82.7 million, as compared to approximately $43.6 million for the year ended December 31, 2020. The increase in selling and marketing costs of approximately $39.1 million is primarily from an increase in circulation costs of approximately $31.6 million; payroll of selling and marketing account management support teams, along with the related benefits and stock-based compensation of approximately $4.8 million; an increase in advertising costs of approximately $2.4 million; an increase in professional and marketing service costs of approximately $2.0 million; less a decrease in office, travel, conferences and occupancy costs of approximately $0.5 million and other selling and marketing related costs of approximately $1.2 million. General and Administrative . For the year ended December 31, 2021, we incurred general and administrative costs of approximately $54.4 million from payroll and related expenses, professional services, occupancy costs, stock-based compensation of related personnel, depreciation and amortization, and other corporate expense, as compared to approximately $36.0 million for the year ended December 31, 2020. The increase in general and administrative expenses of approximately $18.4 million is primarily from an increase in our payroll, along with the related benefits and stock-compensation of approximately $15.8 million; an increase in professional services, including accounting, legal and insurance of approximately $1.7 million; and an increase in other general corporate expenses of approximately $0.9 million. Other (Expenses) Income The following table sets forth other (expenses) income: Years Ended December 31, 2021 versus 2020 2021 2020 $ Change % Change Change in valuation of warrant derivative liabilities $ 34,492 $ 496,305 $ (461,813 ) 2.6 % Change in valuation of embedded derivative liabilities - 2,571,004 (2,571,004 ) 14.4 % Loss on conversion of convertible debentures - (3,297,539 ) 3,297,539 -18.5 % Interest expense (10,454,618 ) (16,497,217 ) 6,042,599 -33.9 % Interest income 6,484 381,026 (374,542 ) 2.1 % Liquidated damages (2,637,364 ) (1,487,577 ) (1,149,787 ) 6.4 % Gain upon debt extinguishment 5,716,697 - 5,716,697 -32.1 % Total other expenses $ (7,334,309 ) $ (17,833,998 ) $ 10,499,689 -58.9 % Change in Valuation of Warrant Derivative Liabilities . The change in valuation of warrant derivative liabilities for the year ended December 31, 2021 was the result of the decrease in the fair value of the warrant derivative liabilities as of December 31, 2021, as compared to the change in the valuation for the year ended December 31, 2020. The change in the valuation is not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock. Change in Valuation of Embedded Derivative Liabilities . The change in valuation of embedded derivative liabilities for the year ended December 31, 2021 was the result of the decrease in the fair value of the embedded derivative liabilities as of December 31, 2021, as compared to the change in the valuation for the year ended December 31, 2020. Loss on Conversion of Convertible Debentures . We recognized a loss on conversion of approximately $3.3 million for the year ended December 31, 2020 as the result of the conversion of accrued interest due and payable under the 12% convertible debentures into shares of our common stock. Interest Expense . We incurred interest expense of approximately $10.5 million for the year ended December 31, 2021, as compared to approximately $16.5 million for the year ended December 31, 2020. The decrease in interest expense of approximately $6.0 million is primarily due to an increase in cash paid interest of approximately $0.7 million offset by a $4.5 million decrease in amortization of debt discount on notes payable and a $2.3 million decrease in accrued interest. 34 Liquidated Damages . We recorded approximately $2.6 million of liquidated damages, including the accrued interest thereon, during the year ended December 31, 2021 primarily from the issuance of our 12% convertible debentures, Series H Preferred Stock, Series I Convertible Preferred Stock (“Series I Preferred Stock”), Series J Convertible Preferred Stock (“Series J Preferred Stock”) and Series K Convertible Preferred Stock (“Series K Preferred Stock”) in fiscal 2020 since we determined that: (i) the registration statements registering for resale the shares of our common stock issuable upon conversion of the 12% convertible debentures, Series I Preferred Stock, Series J Preferred Stock and Series K Preferred Stock would not be declared effective within the requisite time frame; and (ii) that we would not be able to become current in our periodic filing obligations with the SEC in order to satisfy the public information requirements under the applicable securities purchase agreements. We recorded liquidated damages, including the accrued interest thereon, of approximately $1.5 million in fiscal 2020 primarily from issuance of our 12% convertible debentures, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock, which liquidated damages were based upon the reasons set forth above. Gain Upon Debt Extinguishment . We recorded a gain upon debt extinguishment (including accrued interest) of approximately $5.7 million for the year ended December 31, 2021 pursuant to the forgiveness of the Payroll Protection Program Loan. Income Tax Benefit (Provision) Income Tax Benefit (Provision) . For the year ended December 31, 2021, the Company recorded a deferred income tax benefit of approximately $1.7 million primarily related to its acquired deferred tax liabilities from the acquisition of The Spun and change in valuation allowance as of year- end that was, in part, offset by the book to tax basis differences related to goodwill from certain prior year acquisitions. For the year ended December 31, 2020, the Company recorded a deferred income tax provision of approximately $0.2 million to account for the book to tax basis differences related to goodwill from certain prior year acquisitions. For further details refer to Note 24, Income Taxes , in our accompanying consolidated financial statements. Deemed Dividend on Convertible Preferred Stock Series H Preferred Stock . During fiscal 2020, in connection with the issuance of 108 shares (issued on August 19, 2020) and 389 shares (issued on October 31, 2020) of our Series H Preferred Stock, we recorded a beneficial conversion feature of approximately $0.1 million and approximately $0.4 million, respectively (totaling approximately $0.7 million), for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the per-share conversion price of $7.26 was lower than our per-share common stock trading price of $18.92 and $16.94 at the issuance dates of August 19, 2020 and October 31, 2020, respectively). The beneficial conversion feature was recognized as a deemed dividend. Series I Preferred Stock . On December 18, 2020, all of the shares of our Series I Preferred Stock converted automatically into shares of our common stock as a result of the increase in the number of authorized shares of our common stock. Upon conversion, we recognized a beneficial conversion feature for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the per-share conversion price of $11.00 was lower than our per-share common stock trading price of $13.42 at the conversion date). The beneficial conversion feature was recognized as a deemed dividend. Series J Preferred Stock . On December 18, 2020, all of the shares of our Series J Preferred Stock converted automatically into shares of our common stock as a result of the increase in the number of authorized shares of our common stock. Upon conversion, we recognized a beneficial conversion feature for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the effective per-share conversion price of $8.80 for the issuance of our Series J Preferred Stock on September 4, 2020 (these shares were issued at a discount) was lower than our per-share common stock trading price of $13.42 at the conversion date). The beneficial conversion feature was recognized as a deemed dividend. Series K Preferred Stock . On December 18, 2020, all of the shares of our Series K Preferred Stock converted automatically into shares of our common stock as a result of the increase in the number of authorized shares of our common stock. Upon conversion, we recognized a beneficial conversion feature for the underlying shares of our common stock since the nondetachable conversion feature was in-the-money (the per-share conversion price of $8.80 was lower than our common stock trading price of $13.42 at the conversion date). The beneficial conversion feature was recognized as a deemed dividend. Use of Non-GAAP Financial Measures We report our financial results in accordance with generally accepted accounting principles in the United States of America (“GAAP”); however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We believe Adjusted EBITDA provides visibility to the underlying continuing operating performance by excluding the impact of certain items that are noncash in nature or not related to our core business operations. We calculate Adjusted EBITDA as net loss, adjusted for (i) interest expense (net), (ii) income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in derivative valuations, (vi) liquidated damages, (vii) loss on disposition of assets, (viii) loss on impairment of lease, (ix) loss on lease termination, (x) gain upon debt extinguishment, (xi) professional and vendor fees, and (xii) employee restructuring payments. 35 Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by other companies, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP Adjusted EBITDA as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations is that Adjusted EBITDA: ● does not reflect stock-based compensation and, therefore, does not include all of our compensation costs; ● does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements; ● does not reflect interest expense and financing fees, or the cash required to service our debt, which reduces cash available to us; ● does not reflect deferred income tax benefit or provision, which is a noncash income or expense; ● does not reflect the change in derivative valuations and, although this is a noncash income or expense, the change in the valuations each reporting period are not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock; ● does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to); ● does not reflect any losses from the disposition of assets, which is a noncash operating expense; ● does not reflect any losses on impairment of leases, which is a noncash operating expense; ● does not reflect any losses on termination of our leases, which is a noncash operating expense; ● does not reflect any gains upon debt extinguishment, which we do not consider in our evaluation of our business operations; ● does not reflect the professional and vendor fees incurred by us for services provided by consultants, accountants, lawyers, and other vendors, which services were related to certain types of events that are not reflective of our business operations; and ● does not reflect payments related to employee restructuring changes in fiscal 2020 and 2021 related to COVID-19 workforce reductions, leadership changes, and settlement and severance payments, which were a significant cash expense but are not reflective of our business operations. The following table presents a reconciliation of Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, for the periods indicated: Years Ended December 31, 2021 2020 Net loss $ (89,939,653 ) $ (89,231,963 ) Add (deduct): Interest expense, net (1) 10,448,134 16,116,191 Income tax (benefit) provision (1,674,434 ) 210,832 Depreciation and amortization (2) 25,176,299 24,831,427 Stock-based compensation (3) 30,493,521 14,641,181 Change in derivative valuations (34,492 ) (3,067,309 ) Liquidated damages (4) 2,637,364 1,487,577 Loss on disposition of assets (5) 1,192,310 279,133 Loss on impairment of lease (6) 466,356 - Loss on termination of lease (7) 7,344,655 - Loss on conversion of convertible debt - 3,297,539 Gain upon debt extinguishment (8) (5,716,697 ) - Professional and vendor fees (9) 6,900,778 5,704,606 Employee restructuring payments (10) 645,200 2,536,989 Adjusted EBITDA $ (12,060,659 ) $ (23,193,797 ) 36 (1) Represents interest expense of approximately $10.5 million and approximately $16.5 million, less interest income of none and approximately $0.3 million for the years ended December 31, 2021 and 2020, respectively. Interest expense is related to our capital structure. Interest expense varies over time due to a variety of financing transactions. Investors should note that interest expense will recur in future periods. (2) Represents depreciation and amortization related to our developed technology and Platform included within cost of revenues of approximately $8.9 million and approximately $8.6 million and depreciation and amortization included within operating expenses of approximately $16.3 million and approximately $16.3 million for the years ended December 31, 2021 and 2020, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods. (3) Represents noncash costs arising from the grant of stock-based awards to employees, consultants and directors. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future. (4) Represents damages we owe to certain of our investors in private placements offerings conducted in fiscal years 2018 through 2020, pursuant to which we agreed to certain covenants in the respective securities purchase agreements and registration rights agreements, including the filing of resale registration statements and becoming current in our reporting obligations, which we were not able to timely meet. (5) Represents our disposition of certain assets related to the decision to no longer lease office space and other related disposition of assets that no longer are useful. (6) Represents the net loss for our right-of-use asset related to our lease in Santa Monica and related sublease of the office space based on our decision to no longer lease office space. (7) Represents our loss related to the surrender and termination of our lease of office space located in New York based on our decision to no longer lease office space. (8) Represents a gain upon extinguishment of the Payroll Protection Program Loan. (9) Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers, and other vendors related to (i) the preparation of periodic reports in order for us to become current in our reporting obligations (“Delinquent Reporting Obligations Services”), (ii) up-list to a national securities exchange, (iii) contemplated and completed acquisitions, (iv) public and private offerings of our securities and other financings, and (v) stockholder disputes and the implementation of our Rights Agreement. With respect to the Delinquent Reporting Obligations Services, we incurred professional and vendor fees in fiscal 2021 and 2020 related to the preparation of (x) our annual reports for fiscal years 2018, 2019 (which contained the financial information for the quarterly periods during fiscal 2019), and 2020, (y) our quarterly reports for the third quarter in fiscal 2018, the quarters in fiscal 2020, and the first and second quarters in fiscal 2021, and (z) our current reports with respect to certain acquisitions, all of which reports were filed during fiscal 2020 and 2021. The amount of fees incurred in connection with the Delinquent Reporting Obligations Services is adjusted based on our best estimate of the amount we expect we would ordinarily incur to meet our reporting obligations pursuant to the Exchange Act. (10) Represents (i) severance payments paid in connection with COVID-19 workforce reductions in fiscal 2020 and (ii) severance and other settlement payments paid in connection with employee and leadership changes in fiscal 2020 and 2021. 37 Critical Accounting Policies and Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, platform development, impairment of long-lived assets, and stock-based compensation. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2, Summary of Significant Accounting Policies , in our accompanying consolidated financial statements. Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements included elsewhere in this Annual Report, which have been prepared in accordance with GAAP. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. Revenue In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We generate all of its revenue from contracts with customers. We account for revenue on a gross basis, as compared to a net basis, in its statement of operations. We made this determination based on it taking the credit risk in its revenue-generating transactions and it also being the primary obligor responsible for providing the services to the customer. Cost of revenues is presented as a separate line item in the statement of operations. The following is a description of the principal activities from which we generate revenue: Advertising Revenue Digital Advertising . We recognize revenue from digital advertisements at the point when each ad is viewed. The quantity of advertisements, the impression bid prices, and revenue are reported on a real-time basis. We enter into contracts with advertising networks to serve display or video advertisements on the digital media pages associated with its various channels. Although reported advertising transactions are subject to adjustment by the advertising network partners, any such adjustments are known within a few days of month end. We owe our independent Publisher Partners a revenue share of the advertising revenue earned, which is recorded as service costs in the same period in which the associated advertising revenue is recognized. Advertising revenue that is comprised of fees charged for the placement of advertising on the websites that we own and operate, is recognized as the advertising or sponsorship is displayed, provided that collection of the resulting receivable is reasonably assured. Print Advertising . Advertising related revenues for print advertisements are recognized when advertisements are published (defined as an issue’s on-sale date), net of provisions for estimated rebates, rate adjustments, and discounts. Subscription Revenue Digital Subscriptions . We enter into contracts with internet users that subscribe to premium content on our owned and operated media channels and facilitate such contracts between internet users and our Publisher Partners. These contracts provide internet users with a membership subscription to access the premium content. For subscription revenue generated by our independent Publisher Partners’ content, we owe our Publisher Partners a revenue share of the membership subscription revenue earned, which is initially deferred and recorded as deferred contract costs. We recognize deferred contract costs over the membership subscription term in the same pattern that the associated membership subscription revenue is recognized. 38 Digital subscription revenue generated from our websites that we own and operate are charged to customers’ credit cards or are directly billed to corporate subscribers, and are generally billed in advance on a monthly, quarterly or annual basis. We calculate net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the subscription periods. Unearned revenue relates to payments for subscription fees for which revenue has not been recognized because services have not yet been provided. Print Revenue Print revenue includes magazine subscriptions and single copy sales at newsstands. Print Subscriptions . Revenue from magazine subscriptions is deferred and recognized proportionately as products are distributed to subscribers. Newsstand . Single copy revenue is recognized on the publication’s on-sale date, net of provisions for estimated returns. We base our estimates for returns on historical experience and current marketplace conditions. Licensing Revenue Content licensing-based revenues are accrued generally monthly or quarterly based on the specific mechanisms of each contract. Generally, revenues are accrued based on estimated sales and adjusted as actual sales are reported by partners. These adjustments are typically recorded within three months of the initial estimates and have not been material. Any minimum guarantees are typically earned evenly over the fiscal year. Contract Modifications We occasionally enter into amendments to previously executed contracts that constitute contract modifications. We assess each of these contract modifications to determine: ● if the additional services and goods are distinct from the services and goods in the original arrangement; and ● if the amount of consideration expected for the added services or goods reflects the stand-alone selling price of those services and goods. A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either a prospective basis as a termination of the existing contract and the creation of a new contract, or a cumulative catch-up basis. Platform Development For the years presented, substantially all of our technology expenses are development costs for our Platform that were capitalized as intangible costs. Technology costs are expensed as incurred or capitalized into property and equipment in accordance with the Financial Accounting Standards Board (“FASB”) ASC Topic 350, Intangibles – Goodwill and Other . ASC Topic 350 requires that costs incurred in the preliminary project and post-implementation stages of an internal use software project be expensed as incurred and that certain costs incurred in the application development stage of a project be capitalized. We capitalize internal labor costs, including compensation, benefits and payroll taxes, incurred for certain capitalized platform development projects. Our policy with respect to capitalized internal labor stipulates that labor costs for employees working on eligible internal use capital projects are capitalized as part of the historical cost of the project when the impact, as compared to expensing such labor costs, is material. Our Platform development capitalized during the application development stage of a project include: ● payroll and related expenses for personnel; and ● stock-based compensation of related personnel. 39 Goodwill Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets of businesses acquired in a business combination. Goodwill is not amortized but rather is tested for impairment at least annually on December 31, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. We adopted ASU 2017-04 (as further described in Note 2, Summary of Significant Accounting Policies, in our accompanying consolidated financial statements) during the first quarter of 2020 which eliminated Step 2 from the goodwill impairment test. We operate as one reporting unit, therefore, the impairment test is performed at the consolidated entity level by comparing the estimated fair value of the Company to its carrying value. We have elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of its single reporting unit is less than its carrying amount as a basis of determining whether it is necessary to perform the quantitative goodwill impairment test. If we determine that it is more likely than not that its fair value is less than its carrying amount, then the quantitative goodwill impairment test will be performed. The quantitative goodwill impairment test identifies goodwill impairment and measures the amount of goodwill impairment loss to be recognized by comparing the fair value of our single reporting unit with its carrying amount. If the fair value exceeds the carrying amount, no further analysis is required; otherwise, any excess of the goodwill carrying amount over the implied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. Stock-Based Compensation We provide stock-based compensation in the form of (a) stock awards to employees and directors, comprised of restricted stock awards and restricted stock units, (b) stock option grants to employees, directors and consultants, (c) common stock warrants to Publisher Partners (no warrants were issued during the years ended December 31, 2021 or 2020) (as further described in Note 22, Stock-Based Compensation, in our accompanying consolidated financial statements), and (d) common stock warrants to ABG (as further described in Note 22, Stock-Based Compensation, in our accompanying consolidated financial statements). We account for stock awards and stock option grants to employees, directors and consultants, and non-employee awards to certain directors and consultants by measuring the cost of services received in exchange for the stock-based payments as compensation expense in our consolidated financial statements. Stock awards and stock option grants to employees and non-employees which are time-vested, are measured at fair value on the grant date, and charged to operations ratably over the vesting period. Stock awards and stock option grants to employees and non-employees which are performance-vested, are measured at fair value on the grant date and charged to operations when the performance condition is satisfied or over the service. The fair value measurement of equity awards and grants used for stock-based compensation is as follows: (1) restricted stock awards and restricted stock units which are time-vested, are determined using the quoted market price of the our common stock at the grant date; (2) stock option grants which are time-vested and performance-vested, are determined utilizing the Black-Scholes option-pricing model at the grant date; (3) restricted stock units and stock option grants which provide for market-based vesting with a time-vesting overlay, are determined through consultants with our independent valuation firm using the Monte Carlo model at the grant date; (4) Publisher Partner warrants are determined utilizing the Black-Scholes option-pricing model; and (5) ABG warrants are determined utilizing the Monte Carlo model (as further described in Note 22, Stock-Based Compensation, in our accompanying consolidated financial statements). Fair value determined under the Black-Scholes option-pricing model and Monte Carlo model is affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option or warrants, as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award. Estimated volatility is based on the historical volatility of our common stock and is evaluated based upon market comparisons. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of common stock is determined by reference to the quoted market price of our common stock. 40 The fair value of the stock options granted are probability weighted under the Black-Scholes option-pricing model or Monte Carlo model as determined through consultants with our independent valuation firm since the value of the stock options, among other things, depend on the volatility of the underlying shares of our common stock, under the following two scenarios: (1) scenario one assumes that our common stock will be up-listed on a national stock exchange (the “Exchange”) on a certain listing date (the “Up-list”); and (2) scenario two assumes that our common stock is not up-listed on the Exchange prior to the final vesting date of the grants (the “No Up-list”), collectively referred to as the “Probability Weighted Scenarios”. We classify stock-based compensation cost on our consolidated statements of operations in the same manner in which the award recipient’s cash compensation cost is classified. Recently Issued Accounting Pronouncements Note 2, Summary of Significant Accounting Policies, in our accompanying consolidated financial statements appearing elsewhere in this Annual Report includes Recently Issued Accounting Pronouncements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K. Item 8. Financial Statements and Supplementary Data All information required by this item is listed in the Index to Financial Statements in Part IV, Item 15(a)(1) of this Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.