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. All dollar figures are presented in thousands unless otherwise stated. Overview For an overview of the Company, see the information above presented under the section labeled “Item 1. Business,” which is in “Part I” of this Annual Report. 26 Key Operating Metrics Our key operating metrics are: ● Revenue per page view (“RPM”) – represents the advertising revenue earned per 1,000 pageviews. It is calculated as our advertising revenue during a period divided by our total page views during that period and multiplied by $1,000; and ● Monthly average pageviews – represents the total number of pageviews in a given month or the average of each month’s pageviews in a fiscal quarter or year, which is calculated as the total number of page views recorded in a quarter or year divided by three months or 12 months, respectively. We monitor and review our key operating metrics as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods as indicated in the Results of Operations section below. Management monitors and reviews these metrics because such metrics are readily measurable in real time and can provide valuable insight into the performance of and trends related to our digital advertising revenue and our overall business. We consider only those key operating metrics described here to be material to our financial condition, results of operations and future prospects. For pricing indicators, we focus on RPM as it is the pricing metric most closely aligned with monthly average pageviews. RPM is an indicator of yield and pricing driven by both advertising density and demand from our advertisers. Monthly average pageviews are measured across all properties hosted on the Platform and provide us with insight into volume, engagement and effective page management and are therefore our primary measure of traffic. We utilize a third party source, Google Analytics, to confirm this traffic data. As described above, these key operating metrics are critical for management as they provide insights into our digital advertising revenue generation and overall business performance. This information also provides feedback on the content on our website and its ability to attract and engage users, which allows us to make strategic business decisions designed to drive more users to read or view more of our content and generate higher advertising revenue across all properties hosted on the Platform. For the years ended December 31, 2023 and 2022 our RPM was $23.95 and $18.17, respectively. The 32% increase in RPM reflects a significant increase in video advertising as a percentage of total digital advertising as digital video advertising is sold at a significantly higher price than digital display advertising. For the years ended December 31, 2023 and 2022 our monthly average pageviews were 464,261,595 and 489,659,595, respectively. The 5% decrease in monthly average pageviews reflects algorithmic changes at Google, Facebook and other platforms which subdued user click-throughs to the original content. Impact of Macroeconomic Conditions Uncertainty in the global economy presents significant risks to our business. Increases in inflation, rising interest rates, instability in the global banking system, geopolitical factors, including the ongoing conflicts in Ukraine and Israel and the responses thereto, and the remaining effects of the COVID-19 pandemic may have an adverse effect on our business. While we are closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside of our control and could exist for an extended period of time. As a result, we are subject to continuing risks and uncertainties. For more information regarding these risks and uncertainties, see the section titled “Risk Factors” in Part 1, Item 1A of this Annual Report on Form 10-K. 27 Liquidity and Capital Resources Cash and Working Capital Facility As of December 31, 2023, our principal sources of liquidity consisted of cash of $9,284 and accounts receivable, net of our advances under the Arena Credit Agreement of $25,202. As of December 31, 2023, the outstanding balance of the Arena Credit Agreement was $19,609. On March 13, 2024 the Arena Credit Agreement was refinanced with the Simplify Loan. As of the issuance date of our accompanying consolidated financial statements our cash balance is $4,151 and the balance outstanding under the Simplify Loan is $7,748, with the additional availability of $17,252. 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 $244,203 during fiscal 2023 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. Most recently, for the year ended December 31, 2023, we incurred a net loss from continuing operations of $55,582, had cash on hand of $9,284 and a working capital deficit of $145,622. Our net loss from continuing operations and working capital deficit have been evaluated by management to determine if the significance of those conditions or events would limit our ability to meet our obligations when due. Also, since our 2023 Notes, Senior Secured Notes, Delayed Draw Term Notes and 2022 Bridge Notes (as further described below) (collectively “our current debt”) are subject to a forbearance period through the earlier of the following: (a) April 30, 2024, (b) the closing of the Business Combination, and (c) the termination of the Business Combination (see Note 28, Subsequent Events , in our accompanying consolidated financial statements), unless we are able to refinance or modify the terms of our current debt we run the risk that our debt could be called, therefore, we may not be able to meet our obligations when due. In our evaluation, management determined there is substantial doubt about our ability to continue as a going concern for a one-year period following the financial statement issuance date, unless we are able to refinance or modify our current debt. We plan to refinance or modify the maturities of our current debt and complete the Business Combination to alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, however, there can be no assurance that we will be able to refinance or modify our current debt and complete the Business Combination. 28 Debt Financings and Obligations Net proceeds from our debt financings consisted of the following: Arena Credit Agreement . We were party to a financing and security agreement with SLR (the “Arena Credit Agreement”), as amended on December 15, 2022 and August 31, 2023, pursuant to which SLR extended a $40,000 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. Borrowings under the facility bore interest at the prime rate plus 4% per annum of the amount advanced and had a maturity date of December 31, 2025. The aggregate principal amount outstanding, plus accrued and unpaid interest as of December 31, 2023 was $19,609. On March 13, 2024, the Arena Credit Agreement was refinanced by the Simplify Loan, which bears interest at 10% per annum of the amount advanced and has a maturity date of March 13, 2026. 2023 Notes . Pursuant to the Third A&R NPA (as defined below) , on August 31, 2023, we issued $5,000 aggregate principal amount of notes with additional borrowings of $1,000 on September 29, 2023 and $2,000 on November 23, 2023 (the “2023 Notes”). On December 1, 2023, Renew, an affiliated entity of Simplify, in its capacity as agent for the purchasers and as purchaser, purchased the 2023 Notes from BRF Finance Co., LLC (“BRF Finance”), an affiliated entity of B. Riley Financial, Inc. (“B. Riley”). Borrowings under the 2023 Notes bore interest at 10% per annum. On December 29, 2023, we failed to make the interest payment due on the 2023 Notes resulting in an event of default with subsequent agreement to a forbearance period through the earlier of the following: (a) April 30, 2024; (b) the occurrence of the closing of the Business Combination and (c) the termination of the Business Combination prior to closing (further details are provided under the heading Arena Loan Agreement in Note 28, Subsequent Events in our accompanying consolidated financial statements). The balance outstanding under our 2023 Notes as of December 31, 2023 was $8,000. Bridge Notes . Pursuant to the Third A&R NPA (as defined below), on December 15, 2022, we issued $36,000 aggregate principal amount of senior secured notes (the “Bridge Notes”). On December 1, 2023, Renew, an affiliated entity of Simplify, in its capacity as agent for the purchasers and as purchaser, purchased the Bridge Notes from BRF Finance. We received net proceeds of $34,728, after the payment of $1,000 to B. Riley for an advisory fee and $272 for other legal costs, from the issuance of the Bridge Notes. Interest on the Bridge Notes was payable in cash at a rate of 10% per annum as amended on August 31, 2023, from 12% per annum quarterly, with an increase in the interest rate by 1.5% per annum on March 1, 2023, May 1, 2023 and July 1, 2023. On December 29, 2023, we failed to make the interest payment due on the Bridge Notes resulting in an event of default with subsequent agreement to a forbearance period through the earlier of the following: (a) April 30, 2024 ; (b) the occurrence of the closing of the Business Combination and (c) the termination of the Business Combination prior to closing (further details are provided under the heading Arena Loan Agreement in Note 28, Subsequent Events in our accompanying consolidated financial statements). The Bridge Notes are subject to certain mandatory prepayment requirements, including, but not limited to, a requirement that we apply the net proceeds from certain debt incurrences or equity offerings to repay the Bridge Notes. We may elect to prepay the Bridge Notes, at any time, at our option at 100% of the principal amount. The Bridge Notes are secured by liens on the same collateral that secures indebtedness under our outstanding Senior Secured Notes (as defined below) and are guaranteed by our subsidiaries that guarantee the Third A&R NPA. The Note Purchase Agreement contains covenants and events of default substantially similar to those contained in the note purchase agreement that governed the Third A&R NPA. The proceeds received were used for the acquisition of Men’s Journal and to repay $5,928 of our existing Delayed Draw Term Notes (as defined below). The balance outstanding under our Bridge Notes as of December 31, 2023 was $36,000. Senior Secured Notes . We are party to a third amended and restated note purchase agreement (the “Third A&R NPA”), with Renew, an affiliated entity of Simplify, where we issued senior secured notes (the “Senior Secured Notes”). On December 1, 2023, Renew purchased the Senior Secured Notes from BRF Finance. The Senior Secured Notes bear interest at a rate of 10% per annum. Interest payments are payable at Renew’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. On December 29, 2023, we failed to make the interest payment due on the Senior Secured Notes resulting in an event of default with subsequent agreement to a forbearance period through the earlier of the following: (a) April 30, 2024 ; (b) the occurrence of the closing of the Business Combination and (c) the termination of the Business Combination prior to closing (further details are provided under the heading Arena Loan Agreement in Note 28, Subsequent Events in our accompanying consolidated financial statements). The balance outstanding under our Senior Secured Notes as of December 31, 2023 was $62,691, which included outstanding principal of $48,791 and payment of in-kind interest of $13,900 that we were permitted to add to the aggregate outstanding principal balance. Delayed Draw Term Notes . Pursuant to the Third A&R NPA, we agreed to issue delayed draw term notes (the “Delayed Draw Term Notes”). On December 1, 2023, Renew, an affiliated entity of Simplify, in its capacity as agent for the purchasers and as purchaser, purchased the Delayed Draw Term Notes from BRF Finance. The Delayed Draw Term Notes bear interest at a rate of 10% per annum. Interest payments are payable, at Renew’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. On December 29, 2023, we failed to make the interest payment due on the Delayed Draw Term Notes resulting in an event of default with subsequent agreement to a forbearance period through the earlier of the following: (a) April 30, 2024 ; (b) the occurrence of the closing of the Business Combination and (c) the termination of the Business Combination prior to closing (further details are provided under the heading Arena Loan Agreement in Note 28, Subsequent Events in our accompanying consolidated financial statements). We paid $5,928 in principal on December 31, 2022. The Delayed Draw Term Notes have a maturity date of December 31, 2026. The balance outstanding under the Delayed Draw Term Notes as of December 31, 2023 was $4,000. 29 Acquisition On January 11, 2023, we entered into an asset purchase agreement with Teneology, Inc., pursuant to which we acquired certain assets (consisting of the RoadFood media business, including digital and television assets; the Moveable Feast media business, including digital and television assets; the Fexy-branded content studio business; and the MonkeySee YouTube Channel media business, collectively “Fexy Studios”), for a purchase price of $3,307. The purchase price consisted of the following: (1) $500 cash paid at closing; (2) $75 cash payments due in three equal installments of $25 on March 1, 2023 (paid), April 1, 2023 (paid) and May 1, 2023 (paid); (3) $200 deferred cash payment due on the first anniversary of the closing date, subject to certain indemnity provisions; and (4) the issuance of 274,692 shares of our common stock, subject to certain lock-up provisions, on the closing date with a fair value of $2,000 (fair value was determined based on an independent appraisal); and which is subject to a put option under certain conditions. The number of shares of the Company’s common stock issued was determined based on a $2,225 value using the common stock trading price on the day immediately preceding the January 11, 2023 closing date (on the closing date the common stock trading price was $7.94 per share). Off-Balance Sheet Arrangements None. 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 Note 7, Leases , Note 15, Liquidated Damages Payable , Note 18, Bridge Notes , and Note 19, Long-term Debt , in our accompanying consolidated financial statements for amounts outstanding as of December 31, 2023, related to leases, liquidated damages, bridge financing and long-term debt. During 2022, we assumed the lease from Men’s Journal for office space in Carlsbad, California, that expires in March 2025, and as of December 31, 2023 we remain responsible for $1,439 over the remaining lease term. The lease provides for fixed payments of $89 for three months, $92 for twelve months and $94 for twelve months, with an estimate of common expenses per month of $25 through the end of the lease term. Pursuant to two subleases entered into during 2023, the sublessees will pay us an aggregate of $312, net of security deposits, through March 2025. We also subleased our office space in Santa Monica, California in November 2021 and remain responsible to the original lessor for $373 through October 2024. Pursuant to the sublease, the sublessee will pay us an aggregate of $225 through October 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 $4,000 in cash payments to the sublandlord through October 2024. 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, 2023 and 2022 was as follows: As of December 31, 2023 2022 Current assets $ 90,399 $ 78,695 Current liabilities (236,021 ) (216,364 ) Working capital deficit (145,622 ) (137,669 ) As of December 31, 2023, we had a working capital deficit of $145,622, as compared to $137,669 as of December 31, 2022, consisting of $90,399 in total current assets and $236,021 in total current liabilities. As of December 31, 2022, our working capital deficit consisted of $78,695 in total current assets and $216,364 in total current liabilities. 30 Our cash flows during the years ended December 31, 2023 and 2022 consisted of the following: Years Ended December 31, 2023 2022 Net cash used in operating activities $ (24,772 ) $ (11,304 ) Net cash used in investing activities (3,212 ) (38,590 ) Net cash provided by financing activities 22,895 54,416 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (5,089 ) $ 4,522 Cash, cash equivalents, and restricted cash, end of year $ 9,284 $ 14,373 For the year ended December 31, 2023, net cash used in operating activities was $24,772, consisting primarily of $239,737 of cash paid to employees, Publisher Partners, Expert Contributors, suppliers, and vendors, and for revenue share arrangements and professional services, and $12,101 of cash paid for interest, offset by $227,066 of cash received from customers. For the year ended December 31, 2022, net cash used in operating activities was $11,304, consisting primarily of $219,282 of cash paid to employees, Publisher Partners, Expert Contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services, and $9,528 of cash paid for interest, offset by $219,407 of cash received from customers. For the year ended December 31, 2023, net cash used in investing activities was $3,212, consisting primarily of $3,773 for capitalized costs for our Platform and $500 for the acquisition of a business, offset by $1,061 from sale of assets. For the year ended December 31, 2022, net cash used in investing activities was $38,590, consisting primarily of $35,331 for the acquisition of a business, $5,179 for capitalized costs for our Platform, and $530 for property and equipment, offset by $2,450 from the sale of an equity investment. For the year ended December 31, 2023, net cash provided by financing activities was $22,895, consisting primarily of $11,333 (excluding accrued offering costs of $167) in net proceeds from the public offering of common stock, $5,517 from borrowings under our Arena Credit Agreement, $7,543 (excluding debt issuance costs of $457) in net proceeds from issuance of our 2023 Notes; offset by $1,423 tax payments relating to the withholding of shares of common stock for certain employees, and $75 payment of deferred cash payments for an acquisition. For the year ended December 31, 2022, net cash provided by financing activities was $54,416, consisting primarily of $30,490 (net of issuance costs paid of $1,568) in net proceeds from a public offering of common stock, $28,800 (net of issuance costs paid of $1,272 and payments of $5,928) in proceeds from long term-debt, $2,104 from advancements of our Arena Credit Agreement, and $95 from exercises of common stock options, offset by $4,468 for tax payments relating to the withholding of shares of common stock for certain employees, $2,152 related to payments of restricted stock liabilities, and $453 related to deferred cash payments for an acquisition. 31 Results of Operations Comparison of Fiscal 2023 to Fiscal 2022 Years Ended December 31, 2023 versus 2022 2023 2022 $ Change % Change Revenue $ 244,203 $ 220,935 $ 23,268 10.5 % Cost of revenue 142,240 132,923 9,317 7.0 % Gross profit 101,963 88,012 13,951 15.9 % Operating expenses Selling and marketing 74,245 72,489 1,756 2.4 % General and administrative 44,152 53,499 (9,347 ) -17.5 % Depreciation and amortization 18,924 17,650 1,274 7.2 % Loss on impairment of assets 119 257 (138 ) -53.7 % Loss on sale of assets 325 - 325 100.0 % Total operating expenses 137,765 143,895 (6,130 ) -4.3 % Loss from operations (35,802 ) (55,883 ) 20,081 -35.9 % Total other expenses (19,558 ) (12,568 ) (6,990 ) 55.6 % Loss before income taxes (55,360 ) (68,451 ) 13,091 -19.1 % Income tax benefit (222 ) 1,063 (1,285 ) -120.9 % Net loss from continuing operations (55,582 ) (67,388 ) 11,806 -17.5 % Net loss from discontinued operations, net of tax - (3,470 ) 3,470 -100.0 % Net loss $ (55,582 ) $ (70,858 ) $ 15,276 -21.6 % For the year ended December 31, 2023, the loss from operations improved $20,081 to $35,802 as compared to $55,883 during the year ended December 31, 2022 due to a $23,268 increase in revenue, with a $6,130 decrease in operating expenses. For the year ended December 31, 2023, the net loss was $55,582, a decrease of $15,276 as compared to a net loss of $70,858 for the year ended December 31, 2022 as the improvement in the loss from operations was partially offset by an increase in interest expense of $6,537 included in other expenses. Revenue The following table sets forth revenue, cost of revenue, and gross profit from continuing operations: Years Ended December 31, 2023 versus 2022 2023 2022 $ Change % Change Revenue $ 244,203 $ 220,935 $ 23,268 10.5 % Cost of revenue 142,240 132,923 9,317 7.0 % Gross profit $ 101,963 $ 88,012 $ 13,951 15.9 % For the year ended December 31, 2023 we had gross profit of $101,963, as compared to $88,012 for the year ended December 31, 2022, an increase of $13,951. Gross profit percentage for the year ended December 31, 2023 was 41.8%, as compared to 39.8% for the year ended December 31, 2022. The improvement in gross profit percentage was driven by an increase in total revenue of $23,268, or 10.5%, primarily as a result of increased digital advertising due to improved programmatic video inventory monetization. This increase is partially offset by an increase in cost of revenue of $9,317, or 7%, resulting from higher publisher partner revenue share along with increased technology, Platform and software licensing costs. 32 The following table sets forth revenue from continuing operations by category: Years Ended December 31, 2023 versus 2022 2023 2022 $ Change % Change Digital revenue: Digital advertising $ 135,376 $ 109,317 $ 26,059 23.8 % Digital subscriptions 12,764 21,156 (8,392 ) -39.7 % Licensing and syndication revenue 18,482 18,173 309 1.7 % Other digital revenue 5,384 1,166 4,218 361.7 % Total digital revenue 172,006 149,812 22,194 14.8 % Print revenue: Print advertising 9,881 10,214 (333 ) -3.3 % Print subscriptions 62,316 60,909 1,407 2.3 % Total print revenue 72,197 71,123 1,074 1.5 % Total revenue $ 244,203 $ 220,935 $ 23,268 10.5 % For the year ended December 31, 2023, total revenue increased $23,268 to $244,203 from $220,935 for the year ended December 31, 2022. The primary sources of revenue for the year ended December 31, 2023 were as follows: (i) digital advertising of $135,376, (ii) digital subscriptions of $12,764, (iii) licensing and syndication revenue and other digital revenue of $23,866, (iv) print advertising of $9,881 and (v) print subscriptions of $62,316 The primary driver of the increase in our total revenue is derived from digital advertising revenue which benefited from a 32% rise in RPMs due to the higher mix of higher priced digital video advertising in the year ended December 31, 2023 versus the prior year. Other digital revenue, which was mostly e-commerce revenue, increased by $4,218 to $5,384. These improvements were partially offset by a decrease in digital subscriptions of $8,392, resulting in a $22,194, or 14.8%, increase in total digital revenue for the year ended December 31, 2023 as compared to the prior year period. In addition, total print revenue increased by $1,074 as print advertising decreased by $333 and print subscriptions grew by $1,407. Cost of Revenue The following table sets forth cost of revenue from continuing operations by category: Years Ended December 31, 2023 versus 2022 2023 2022 $ Change % Change Publisher Partner revenue share payments $ 27,174 $ 20,108 $ 7,066 35.1 % Technology, Platform and software licensing fees 20,990 18,294 2,696 14.7 % Royalty fees 15,000 15,000 - 0.0 % Content and editorial expenses 48,250 44,669 3,581 8.0 % Printing, distribution and fulfillment costs 15,391 14,835 556 3.7 % Amortization of developed technology and platform development 8,782 9,459 (677 ) -7.2 % Stock-based compensation 6,562 10,235 (3,673 ) -35.9 % Other cost of revenue 91 323 (232 ) -71.8 % Total cost of revenue $ 142,240 $ 132,923 $ 9,317 7.0 % For the year ended December 31, 2023, we recognized cost of revenue of $142,240, as compared to $132,923 for the year ended December 31, 2022, representing an increase of $9,317. Cost of revenue for the year ended December 31, 2023 was impacted by increases in (i) Publisher Partner revenue share payments of $7,066, (ii) technology, Platform and software licensing fees of $2,696, (iii) content and editorial expenses of $3,581, and (iv) printing, distribution and fulfillment costs of $556; partially offset by a decrease in stock-based compensation of $3,673. 33 Operating Expenses Selling and Marketing The following table sets forth selling and marketing expenses from continuing operations by category: Years Ended December 31, 2023 versus 2022 2023 2022 $ Change % Change Payroll and employee benefits of selling and marketing account management support teams $ 19,106 $ 14,467 $ 4,639 32.1 % Stock-based compensation 1,659 2,772 (1,113 ) -40.2 % Professional marketing services 3,406 4,528 (1,122 ) -24.8 % Circulation costs 5,257 5,006 251 5.0 % Subscription acquisition costs 38,112 37,190 922 2.5 % Advertising costs 4,372 5,987 (1,615 ) -27.0 % Other selling and marketing expenses 2,333 2,539 (206 ) -8.1 % Total selling and marketing $ 74,245 $ 72,489 $ 1,756 2.4 % For the year ended December 31, 2023, we incurred selling and marketing costs of $74,245 as compared to $72,489 for the year ended December 31, 2022. The increase in selling and marketing costs of $1,756 is primarily related to increases in (i) payroll and employee benefits of $4,639, (ii) circulation costs of $251, and (iii) subscription acquisition costs of $922; partially offset by decreases in (i) professional marketing services costs of $1,122, (ii) advertising costs of $1,615 and (iii) stock-based compensation costs of $1,113. General and Administrative The following table sets forth general and administrative expenses from continuing operations by category: Years Ended December 31, 2023 versus 2022 2023 2022 $ Change % Change Payroll and related expenses for executive and administrative personnel $ 14,337 $ 15,800 $ (1,463 ) -9.3 % Stock-based compensation 10,839 18,338 (7,499 ) -40.9 % Professional services, including accounting, legal and insurance 12,229 13,364 (1,135 ) -8.5 % Other general and administrative expenses 6,747 5,997 750 12.5 % Total general and administrative $ 44,152 $ 53,499 $ (9,347 ) -17.5 % For the year ended December 31, 2023, we incurred general and administrative costs of $44,152 as compared to $53,499 for the year ended December 31, 2022. The $9,347 decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $7,499, payroll and related expenses of $1,463 and professional services of $1,135. 34 Other Expenses The following table sets forth other expenses: Years Ended December 31, 2023 versus 2022 2023 2022 $ Change % Change Change in fair value of contingent consideration $ (1,010 ) $ - $ (1,010 ) 100.0 % Interest expense, net (17,965 ) (11,428 ) (6,537 ) 57.2 % Liquidated damages (583 ) (1,140 ) 557 -48.9 % Total other expenses $ (19,558 ) $ (12,568 ) $ (6,990 ) 55.6 % Change in Fair Value of Contingent Consideration . The change in fair value of contingent consideration of $1,010 for the year ended December 31, 2023 represents the change in the put option on our common stock in connection with the acquisition of Fexy Studios. As part of that acquisition consideration, we issued 274,692 shares of our common stock, which was subject to a put option under certain conditions (as further described in Note 17, Fair Value Measurement in our accompanying consolidated financial statements). Interest Expense . We incurred interest expense, net of $17,965 for the year ended December 31, 2023, as compared to $11,428 for the year ended December 31, 2022. The increase in interest expense of $6,537 was primarily from additional interest from our debt. Liquidated Damages . We recorded liquidated damages of $583 for the year ended December 31, 2023, as compared to $1,140 for the year ended December 31, 2022. The decrease of $557 in liquidated damages recorded for the year ended December 31, 2023, is primarily because in 2022 we had an assessment under certain agreements as a result of filing a registration statement outside of the agreed upon filing deadline. Income Taxes Income Taxes . For the year ended December 31, 2023, we recorded an income tax provision of $222 primarily related to tax deductible goodwill. For the year ended December 31, 2022, we recorded an income tax benefit of $1,063 primarily from our acquired deferred tax liabilities from an acquisition during the year and change in valuation allowance as of year-end that was, in part, offset by certain previous acquisitions related to tax deductible goodwill. For further details refer to Note 24, Income Taxes , in our accompanying consolidated financial statements. 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 as adjusted for loss from discontinued operations, with additional adjustments for (i) interest expense (net), (ii) income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in valuation of contingent consideration, (vi) liquidated damages, (vii) loss on impairment of assets, (viii) loss on sale of assets; (ix) employee retention credit, (x) employee restructuring payments; and (xi) professional and vendor fees. 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 interest expense and financing fees, or the cash required to service our debt, which reduces cash available to us; 35 ● does not reflect income tax provision or benefit, which is a noncash income or expense; ● does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements; ● does not reflect stock-based compensation and, therefore, does not include all of our compensation costs; ● does not reflect the change in valuation of contingent consideration 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 impairment of assets, which is a noncash operating expense; ● does not reflect any losses from the sale of assets, which is a noncash operating expense ● does not reflect the employee retention credits recorded by us for payroll related tax credits under the CARES Act; ● does not reflect payments related to employee severance and employee restructuring changes for our former executives; and ● 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. 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, 2023 2022 Net loss $ (55,582 ) $ (70,858 ) Loss from discontinued operations, net of tax - 3,470 Loss from continuing operations (55,582 ) (67,388 ) Add (deduct): Interest expense, net (1) 17,965 11,428 Income tax provision (benefit) 222 (1,063 ) Depreciation and amortization (2) 27,706 27,109 Stock-based compensation (3) 19,060 31,345 Change in fair value of contingent consideration (4) 1,010 - Liquidated damages (5) 583 1,140 Loss on impairment of assets (6) 119 257 Loss on sale of assets (7) 325 - Employee retention credit (8) (6,868 ) - Employee restructuring expenses (9) 5,367 679 Professional and vendor fees (10) 1,194 - Adjusted EBITDA $ 11,101 $ 3,507 (1) Interest expense is related to our capital structure and varies over time due to a variety of financing transactions. Interest expense includes $2,378 and $1,581 for amortization of debt discounts for the years ended December 31, 2023 and 2022, respectively, as presented in our consolidated statements of cash flows, which are noncash items. Investors should note that interest expense will recur in future periods. 36 (2) Depreciation and amortization related to our developed technology and Platform is included within cost of revenue of $8,782 and $9,459, for the years ending December 31, 2023 and 2022, respectively, and depreciation and amortization is included within operating expenses of $18,924 and $17,650 for the years ending December 31, 2023 and 2022, 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) Stock-based compensation represents noncash costs arise 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) Change in fair value of contingent consideration represents the change in the put option on our common stock in connection with the acquisition of Fexy Studios. (5) Liquidated damages (or interest expense related to accrued liquidated damages) represents amounts 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. (6) Loss on impairment of assets represents certain assets that are no longer useful. (7) Loss on sale of assets represents non-recurring losses for sale of assets. (8) Employee retention credit represents payroll related tax credits under the CARES Act. (9) Employee restructuring payments represents severance payments to employees under employer restructuring arrangements and payments to our former Chief Executive Officer for the years ended December 31, 2023 and 2022, respectively. (10) Professional and vendor fees represents fees that are nonrecurring in connection with the Business Combination resulting in a change of control, including fees incurred by consultants, accountants, lawyers, and other vendors. 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 on Form 10-K, 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. 37 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 our revenue from contracts with customers. We account for revenue on a gross basis, as compared to a net basis, in our statement of operations. We have made this determination based on our control of the advertising inventory and the ability to monetize the advertising inventory or publications before transfer to the customer and because we are also the primary obligor responsible for providing the services to the customer. Cost of revenue is presented as a separate line item on the consolidated statements 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 our 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. 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. 38 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 and Syndication Revenue Content licensing-based revenues and syndication 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 expensed as incurred or capitalized as intangible costs. Technology costs are expensed as incurred or in accordance with applicable guidance that requires 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 Business Combinations We account for business combinations using the acquisition method of accounting. The acquisition method of accounting requires that the purchase price, including the fair value of contingent consideration, of the acquisition be allocated to the assets acquired and liabilities assumed using the estimated fair values determined by management as of the acquisition date. Goodwill is measured as the excess of consideration transferred and the net fair values of the assets acquired, and the liabilities assumed at the date of acquisition. While we use best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent we identified adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period, which may be up to one year from the acquisition date, or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. Additionally, we identify acquisition-related contingent payments and determine their respective fair values as of the acquisition date, which are recorded as accrued liabilities on the consolidated balance sheets. Subsequent changes in fair value of contingent payments are recorded on the consolidated statements of operations. We expense transaction costs related to the acquisition as incurred. 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 operate as one reporting unit, therefore, the impairment test is performed at the consolidated entity level. Recoverability of goodwill is determined by comparing the fair value of our reporting unit to the carrying value of the underlying net assets in the reporting unit. If the fair value of our reporting unit is determined to be less than the carrying value of our net assets, goodwill is deemed impaired, and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of our other assets and liabilities. 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, 2022 or 2021), and (d) common stock warrants to ABG (all 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 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 period. 40 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 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. 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 stock award, the exercise price of the stock option or warrant, as compared to the fair market value of our common stock on the grant date, and the estimated volatility of our common stock over the term of the stock award. Estimated volatility was determined under the (1) “Probability Weighted Scenarios” (prior to our reverse stock split on February 8, 2022) where one scenario assumes that our common stock will be up-listed on a national stock exchange (the “Exchange”) on a certain listing date (the “Up-list”) where the estimated volatility was based on evaluating the average historical volatility of a group of peer companies that are publicly traded and the second scenario assumes our common stock is not up-listed on the Exchange prior to the final vesting date of the grants (the “No Up-list”) where the historical volatility of our common stock was evaluated based upon market comparisons; and the (2) “Up-list Scenario” (after our reverse stock split on February 8, 2022) where our estimated volatility is based on evaluating the average historical volatility of a group of peer companies that are publicly traded after we up-listed to the NYSE American. 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. We have elected to recognize forfeitures as they occur and to recognize stock-based compensation cost on a straight-line basis over the total requisite service period for awards with graded vesting. 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 We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item. 41 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.