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 presented below are 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. 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 is our most significant revenue stream. As indicated in the Results of Operations section below for the year ended December 31, 2024, digital advertising revenue decreased by approximately 13%, as compared to the same period in fiscal 2023. 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. 28 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, 2024 and 2023, our RPM was $23.31 and $21.35, respectively. The 9% increase in RPM reflects an 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, 2024 and 2023, our monthly average pageviews were 332,913,662 and 394,441,158, respectively. The 16% decrease in monthly average pageviews is primarily driven by the cessation of publishing of FanNation sites in early 2024 . All dollar figures presented below are in thousands unless otherwise stated. Impact of Macroeconomic Conditions Uncertainty in the global economy presents significant risks to our business. Increases in inflation, instability in the global banking system, geopolitical factors, including the ongoing conflicts in Ukraine and Israel and the responses thereto impact, and the impact of tariffs on print production costs and the overall market for advertising 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. Liquidity and Capital Resources 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 consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. For the year ended December 31, 2024, we incurred a net loss from continuing operations of $7,667, and as of December 31, 2024, had cash on hand of $4,362. Management has evaluated our current and historical net losses from continuing operations to determine if the significance of those conditions or events would limit our ability to meet our obligations when due, including under the Loan Documents and Simplify Loan (see Notes 17 and 18). In its evaluation, management determined that substantial doubt exists about our ability to continue as a going concern for a one-year period following the financial statement issuance date due to the net loss from continued operations and working capital deficit. There can be no assurance that we will be able to execute plans to rectify the recurrence of net losses. If we are unable to execute these plans, it could lead to selling assets and further reducing costs and cash requirements. 29 Cash and Working Capital Facility As of December 31, 2024, our principal sources of liquidity consisted of cash of $4,362 and accounts receivable from continuing operations, net of our allowance for credit losses, of $31,115. In addition, as of December 31, 2024, we had $39,349 available for additional use under our working capital loan with Simplify. As of December 31, 2024, the outstanding balance of the Simplify working capital loan was $10,651. Our cash balance as of the issuance date of our accompanying consolidated financial statements was $3,556. Debt Financings and Obligations The following table summarizes information about our term debt: As of December 31, 2024 2023 Total debt obligations, gross $ 121,342 $ 130,300 Weighted-average interest rate 10.4 % 10.5 % Weighted-average term (in months) (1) 24 N/A Simplify Loan facility capacity (2) $ 50,000 $ - Simplify Loan facility availability $ 39,349 $ - (1) As of December 31, 2023, the term debt (further details are provided in our accompanying consolidated financial statements in Note 18, Term Debt ) was currently due as a result of an event of default that was subsequently resolved. (2) As of December 31, 2024, the Simplify Loan facility has a maturity date of December 1, 2026. Debt Activity – During the year ended December 31, 2024, we took steps to extend our debt maturities. Our debt activity during the year ended December 31, 2024 was as follows: ● On August 19, 2024, in connection with the March 13, 2024 amendment to the Simplify Loan facility, which bears interest at 10% per annum of the amount advanced, we entered into an Amended Promissory Note and a common stock purchase agreement (the “Common Stock Purchase Agreement”) with Simplify, whereby during the year ended December 31, 2024 we borrowed $25,651 under the Simplify Loan, of which $15,000 was exchanged for shares of our common stock in August 2024. As of December 31, 2024, the balance outstanding on the Simplify Loan was $10,651. ● We repaid $20,027 under our line of credit. Our debt activity during the year ended December 31, 2023 was as follows: ● We borrowed $8,000 under our Bridge Notes. ● We drew down $5,517 under our line of credit. Future Debt Obligations – As of December 31, 2024, our future contractual debt obligations were $121,342, with $10,651 maturing on December 1, 2026 and $110,691 maturing on December 31, 2026. Off-Balance Sheet Arrangements None. 30 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 14, Liquidated Damages Payable , and Note 18, Term Debt , in our accompanying consolidated financial statements for amounts outstanding as of December 31, 2024, related to leases, liquidated damages, bridge financing and long-term debt. During 2022, we assumed a lease for office space in Carlsbad, California, that expired in March 2025. As of December 31, 2024 we remained responsible for $360 for the remaining lease term. We entered into two subleases that will pay us an aggregate of $36, net of security deposits, through March 2025. 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, 2024 and 2023 was as follows: As of December 31, 2024 2023 Current assets $ 40,234 $ 90,399 Current liabilities (122,256 ) (236,021 ) Working capital deficit (82,022 ) (145,622 ) As of December 31, 2024, we had a working capital deficit of $82,022, as compared to $145,622 as of December 31, 2023, consisting of $40,234 in total current assets and $122,256 in total current liabilities. As of December 31, 2023, our working capital deficit consisted of $90,399 in total current assets and $236,021 in total current liabilities. Our cash flows during the years ended December 31, 2024 and 2023 consisted of the following: Years Ended December 31, 2024 2023 Net cash used in operating activities $ (16,076 ) $ (24,772 ) Net cash used in investing activities (5,175 ) (3,212 ) Net cash provided by financing activities 16,329 22,895 Net (decrease) in cash, cash equivalents, and restricted cash $ (4,922 ) $ (5,089 ) Cash, cash equivalents, and restricted cash, end of year $ 4,362 $ 9,284 For the year ended December 31, 2024, net cash used in operating activities was $16,076, consisting primarily of $147,507 of cash paid to employees, Publisher Partners, Expert Contributors, suppliers, and vendors, and for revenue share arrangements, professional services, and $17,837 of cash paid for interest, offset by $149,268 of cash received from customers. 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, advance of royalty fees 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, 2024, net cash used in investing activities was $5,175, consisting of (i) $54 for purchase of property and equipment and (ii) $5,121 for capitalized costs for our Platform. For the year ended December 31, 2023, net cash used in investing activities was $3,212, consisting of $3,773 for capitalized costs for our Platform and $500 for the acquisition of a business, offset by $1,061 from the sale of assets. 31 For the year ended December 31, 2024, net cash provided by financing activities was $16,329, primarily consisting of (i) $561 for the payment of the contingent consideration, (ii) $20,027 from repayment of our line of credit with SLR Digital Finance LLC (“SLR”) (iii) $534 for tax payments relating to the withholding of shares of common stock for certain employees and (iv) $200 payment of deferred cash payments for an acquisition, less (v) $12,000 in net proceeds from the common stock private placement, and (vi) $25,651 in net proceeds from our working capital loan with Simplify. 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 bridge 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. Results of Operations Comparison of Fiscal 2024 to Fiscal 2023 Years Ended December 31, 2024 versus 2023 2024 2023 $ Change % Change Revenue $ 125,907 $ 143,630 $ (17,723 ) -12.3 % Cost of revenue 70,189 88,357 (18,168 ) -20.6 % Gross profit 55,718 55,273 445 0.8 % Operating expenses Selling and marketing 12,548 24,263 (11,715 ) -48.3 % General and administrative 30,399 43,783 (13,384 ) -30.6 % Depreciation and amortization 3,704 4,243 (539 ) -12.7 % Loss on impairment of assets 1,198 119 1,079 906.7 % Loss on sale of assets - 325 (325 ) 100.0 % Total operating expenses 47,849 72,733 (24,884 ) -34.2 % Income (loss) from operations 7,869 (17,460 ) 25,329 -145.1 % Total other expenses (15,287 ) (19,558 ) 4,271 -21.8 % Loss before income taxes (7,418 ) (37,018 ) 29,600 -80.0 % Income tax benefit (249 ) (197 ) (52 ) 26.4 % Net loss from continuing operations (7,667 ) (37,215 ) 29,548 -79.4 % Net loss from discontinued operations, net of tax (93,043 ) (18,367 ) (74,676 ) 406.6 % Net loss $ (100,710 ) $ (55,582 ) $ (45,128 ) 81.2 % For the year ended December 31, 2024, the net loss from continuing operations improved $29,548 to $7,667, as compared to our prior period net loss of $37,215. This improvement was primarily due to a $24,884 decrease in operating expenses as a result of headcount and consulting spend reductions. Revenue and Gross Profit The following table sets forth revenue, cost of revenue, and gross profit from continuing operations: Years Ended December 31, 2024 versus 2023 2024 2023 $ Change % Change Revenue $ 125,907 $ 143,630 $ (17,723 ) -12.3 % Cost of revenue 70,189 88,357 (18,168 ) -20.6 % Gross profit $ 55,718 $ 55,273 $ 445 0.8 % For the year ended December 31, 2024, we had gross profit of $55,718, as compared to $55,273 for the year ended December 31, 2023, an increase of $445. Gross profit percentage for the year ended December 31, 2024 was 44.3%, as compared to 38.5% for the year ended December 31, 2023. 32 The increase in gross profit percentage was driven by a higher mix of revenue from video advertising as a percentage of total digital advertising, as digital video advertising is sold at a significantly higher price than digital display advertising in combination with headcount and consulting spend reductions. The following table sets forth revenue from continuing operations by category: Years Ended December 31, 2024 2023 Digital revenue: Digital advertising $ 93,008 $ 106,282 Digital subscriptions 7,800 11,956 Licensing and Publisher Revenue 7,914 10,941 Performance Marketing 10,927 3,449 Other digital revenue 5,185 1,495 Total digital revenue 124,834 134,123 Print revenue 1,073 9,507 Total revenue $ 125,907 $ 143,630 For the year ended December 31, 2024, total revenue decreased $17,723, or a 12.3% decrease, to $125,907 from $143,630 for the year ended December 31, 2023. This reflected a decrease in print revenue of $8,434 due primarily to the shutdown of Athlon Outdoor print operations and a 6.9% decrease in digital revenue from $134,123 for the year ended December 31, 2023 to $124,834 for the year ended December 31, 2024 driven primarily by the cessation of publishing of the FanNation sites in early 2024. The primary drivers of the decrease include a $13,274 decrease in our digital advertising revenue driven primarily by the cessation of publishing of FanNation sites in early 2024, a decrease in our digital subscriptions of $4,156 due to a decline in subscribers. These decreases were partially offset by an increase in performance marketing revenue that increased by $7,478 due to growth of our affiliate partner network and expansion of the performance marketing model across our portfolio and an increase in other digital revenue of $3,690. Cost of Revenue The following table sets forth cost of revenue from continuing operations by category: Years Ended December 31 2024 2023 External cost of content $ 20,248 $ 27,093 Internal cost of content 26,103 27,131 Technology costs 16,701 21,376 Printing, distribution and fulfillment costs 890 3,602 Amortization of developed technology and platform development 5,988 8,782 Other 259 373 Total cost of revenue $ 70,189 $ 88,357 Total cost of revenues as a percentage of revenues 56 % 62 % For the year ended December 31, 2024, we recognized cost of revenue of $70,189, as compared to $88,357 for the year ended December 31, 2023, representing an increase of $18,168. Cost of revenue for the year ended December 31, 2024 was impacted by decreases in printing, distribution and fulfillment costs of $2,712 due to the shutdown of Athlon Outdoor print operations, a decrease in the amortization of developed technology and platform development costs of $2,794, a decrease in technology costs of $4,675, internal cost of content of $1,028, and external cost of content of $6,845 driven by the cessation of publishing of FanNation sites in early 2024, and a decrease in other costs of revenue of $114. 33 Operating Expenses Selling and Marketing The following table sets forth selling and marketing expenses from continuing operations: Years Ended December 31, 2024 2023 Selling and marketing $ 12,548 $ 24,263 Selling and marketing as a percentage of revenues 10 % 17 % For the year ended December 31, 2024, we incurred selling and marketing costs of $12,548 as compared to $24,263 for the year ended December 31, 2023. The decrease in selling and marketing costs of $11,715 is primarily related to decreases in payroll and employee benefits costs of $6,976 due to a reduction in direct sales workforce. In addition, there were decreases in professional marketing services of $2,139, advertising costs of $887, circulation costs of $906, and stock-based compensation of $1,011; partially offset by other selling and marketing expenses of $204. General and Administrative The following table sets forth general and administrative expenses from continuing operations: Years Ended December 31, 2024 2023 General and administrative $ 30,399 $ 43,783 General and administrative as a percentage of revenues 24 % 30 % For the year ended December 31, 2024, we incurred general and administrative costs of $30,399 as compared to $43,783 for the year ended December 31, 2023. The $13,384 decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $9,495, and payroll and related expenses of $2,987 as a result of headcount and consulting spend reductions, and a decrease in other general and administrative expenses of $851; partially offset by an increase in professional services, including accounting, legal and insurance of $51. Segment Revenue We report our segment results as Sports & Leisure, Finance, Lifestyle, and Platform. Additionally, certain expenses are not allocated to our segments because they represent Arena-level activities. The following table sets forth revenue by segment: Years Ended December 31, 2024 2023 Segment revenue: Sports & Leisure $ 42,449 $ 65,984 Finance 27,734 29,638 Lifestyle 39,865 36,836 Platform 15,859 11,172 Total revenue $ 125,907 $ 143,630 Sports & Leisure – decrease of $23,535 is due to the cessation of publishing of FanNation sites in early 2024 and the shutdown of Athlon Outdoor print operations partially offset by the growth of Athlon Sports. Finance – decrease of $1,904 is primarily driven by a decrease in digital subscription revenues partially offset by an increase in performance marketing revenues. Lifestyle – increase of $3,029 is driven primarily by an increase in performance marketing revenues. Platform – increase of $4,687 is driven by an increase in digital advertising and other revenues. 34 Segment Gross Profit The following table sets forth segment gross profit: Years Ended December 31, 2024 2023 Gross profit: Sports and leisure $ 20,089 $ 33,326 Finance 18,348 17,064 Lifestyle 24,656 22,030 Platform 6,390 2,033 Segment gross profit $ 69,483 $ 74,453 Sports & Leisure – decrease of $13,237 is due to the cessation of publishing of FanNation sites in early 2024 and the shutdown of Athlon Outdoor print operations partially offset by the growth of Athlon Sports. Finance – increase of $1,284 is primarily driven by an increase in performance marketing revenues which require less content & editorial spending than other revenue streams. Lifestyle – increase of $2,626 is driven primarily by an increase in performance marketing revenues which require less content & editorial spending than other revenue streams. Platform – increase of $4,357 is driven by an increase in digital advertising and other revenues with controlled cost. The following table reconciles segment gross profit to gross profit: Years Ended December 31, 2024 2023 Segment gross profit $ 69,483 $ 74,453 Arena level activities: Internal cost of content (2,021 ) (2,962 ) Technology costs (5,756 ) (7,436 ) Amortization of developed technology and platform development (5,988 ) (8,782 ) Gross profit $ 55,718 $ 55,273 35 Other Expenses The following table sets forth other expenses: Years Ended December 31, 2024 2023 Change in fair value of contingent consideration $ (313 ) $ (1,010 ) Interest expense, net (14,668 ) (17,965 ) Liquidated damages (306 ) (583 ) Total other expenses $ (15,287 ) $ (19,558 ) Change in Fair Value of Contingent Consideration – the change in fair value of contingent consideration of $313 for the year ended December 31, 2024 represents the change in fair value of the put option on our common stock in connection with the acquisition of Fexy Studios (as further described in Note 4, Acquisitions and Dispositions , in our accompanying consolidated financial statements). 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 16, Fair Value Measurement in our accompanying consolidated financial statements). Interest Expense – we incurred interest expense, net of $14,668 for the year ended December 31, 2024, as compared to $17,965 for the year ended December 31, 2023. The decrease in interest expense of $3,297 was primarily from lower amortization of debt costs and lower interest charges on the line of credit. Liquidated Damages – we recorded liquidated damages of $306 for the year ended December 31, 2024, as compared to $583 for the year ended December 31, 2023. The decrease of $277 in liquidated damages recorded for the year ended December 31, 2024, is primarily because in 2023 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 years ended December 31, 2024 and 2023, we recorded an income tax provision of $249 and $197, respectively, primarily related to tax deductible goodwill. For further details refer to Note 23, 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 measure may not be comparable to similarly titled measures used by other companies, have 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 measures as superior to, or a substitute for, the equivalent measure calculated and presented in accordance with GAAP. Some of the limitations are that our non-GAAP measure: ● 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 income tax provision or benefit, which is a noncash income or expense; 36 ● 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; ● 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 ● may not reflect proper non direct cost allocations. 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, 2024 2023 Net loss $ (100,710 ) $ (55,582 ) Loss from discontinued operations, net of tax 93,043 18,367 Loss from continuing operations (7,667 ) (37,215 ) Add (deduct): Interest expense, net (1) 14,668 17,965 Income tax provision (benefit) 249 197 Depreciation and amortization (2) 9,692 13,025 Stock-based compensation (3) 2,425 16,292 Change in fair value of contingent consideration (4) 313 1,010 Liquidated damages (5) 306 583 Loss on impairment of assets (6) 1,198 119 Loss on sale of assets (7) - 325 Employee retention credit (8) - (3,890 ) Employee restructuring expenses (9) 5,776 3,570 Professional and vendor fees (10) - 1,194 Adjusted EBITDA $ 26,960 $ 13,175 (1) Interest expense is related to our capital structure and varies over time due to a variety of financing transactions. Interest expense includes $658 and $2,378 for amortization of debt discounts for the years ended December 31, 2024 and 2023, 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. 37 (2) Depreciation and amortization related to our developed technology and Platform is included within cost of revenue of $5,988 and $8,782, for the years ending December 31, 2024 and 2023, respectively, and depreciation and amortization is included within operating expenses of $3,704 and $4,243 for the years ending December 31, 2024 and 2023, 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, 2024 and 2023, 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. 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, and impairment of goodwill. 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. 38 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 have determined we are the principal in the majority of our transactions with our customers and therefore we generally account for revenue on a gross 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 and determine price before transfer to the customer and because we are also the primary obligor responsible for providing the services to the customer. Significant costs of revenue are 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. We enter into contracts with advertising networks to serve display or video advertisements on the digital media pages associated with our various channels. The quantity of advertisements, the impression bid prices, and revenue are reported on a real-time basis to our partners. 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. Performance Marketing Performance Marketing transactions involve the promotion of other companies’ products and services over the internet through digital advertising platforms. We include links to products and services in our display content on the Platform. When a consumer clicks on the links and completes a purchase of a product or performs a specific action, such as signing up for a service, the Company earns commissions by promoting products and services through affiliate links. The promise to integrate links in our display content on the Platform is delivered when a consumer clicks on the links and completes a purchase. Digital Subscription Revenue Digital subscription revenue is generated by entering 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. 39 Print Revenue Print revenue includes single copy sales at newsstands. 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 Publisher Revenue Content licensing-based revenues and publisher revenues, primarily revenue shares and license exclusivity agreements, are accrued generally monthly or quarterly based on a sales-based or usage-based royalty promised in exchange for a license of intellectual property. 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 or are recognized upfront if materially different than the actual usage pattern. Revenue associated with sales-based or usage-based royalties where the customer is expected to exceed the minimum are recognized in the same period in which the underlying sales or usage occurs. 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. 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 October 31, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. Recoverability of goodwill is determined by comparing the fair value of our reporting units to the carrying value of the underlying net assets in the reporting units. If the fair value of a reporting unit is determined to be less than the carrying value of its 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 its other assets and liabilities. We determined our operating segments are our reportable units for goodwill impairment testing, See Note 11 Goodwill in our accompanying consolidated financial statements. We determine the fair value of our reporting units by utilizing the discounted cash flow method of an income approach and the value indicated by the market approach, comparing transaction prices or stock prices of comparable guideline companies to our market value. The income approach utilized a discounted cash flow analysis, incorporating management’s projections of revenue growth, operating margins, and discount rates that reflect the risk-adjusted cost of capital. The market approach considered valuation multiples derived from comparable publicly traded companies. The income and the market approach are equally weighted when determining fair value of the reportable unit. These analyses require significant assumptions and judgments. These assumptions and judgments include estimation of future cash flows, projections of revenue growth and operating margins, which is dependent on internal forecasts, estimation of the long-term rates of growth for our business, estimation of the useful life over which cash flows will occur, determination of a discount rate and the selection of comparable companies and the interpretation of their data. As well as a control premium determined by utilizing publicly available data from studies for similar transactions of public companies. No impairment charges were recorded during the year ended December 31, 2024. 40 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. 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.