Bright Mountain Media, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our consolidated financial condition and results of operations for the years ended December 31, 2022, and 2021 should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. 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, including those set forth under the "Risk Factors," "Cautionary Notice Regarding Forward-Looking Statements" and "Business" sections in this prospectus. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could” and similar expressions to identify forward-looking statements. Overview Organization and Nature of Operations Bright Mountain Media, Inc. is a holding company which focuses on digital publishing and advertising technology. The Company is engaged in content creation and advertising technology development that helps customers connect with, and market to, targeted audiences in high quality environments using a variety of digital advertising ("ad") formats. Digital Publishing Our digital publishing division focuses on developing content that attracts an audience and monetizes that audience through advertising. The current portfolio of owned and operated websites is focused on moms, parenting, families, and more broadly, women. The portfolio consists of popular websites including Mom.com, Cafemom.com, LittleThings.com, and MamasLatinas.com. This demographic is highly sought after by brands and their advertising agencies. We use internal and external technologies to constantly improve the effectiveness and efficiency of the content we create. Our publishing division monetizes its audiences through both direct and programmatic advertising sales. Advertising Technology Our advertising technology division focuses on delivering targeted ads to audiences on owned and operated sites as well as third-party publishers in a cost-effective manner through the deployment of proprietary technologies. Through acquisitions and organic software development, we have consolidated and plan to further condense key elements of the prevailing digital advertising supply chain by eliminating industry “middlemen” and/or costly redundancy of services via our ad exchange. By developing our own proprietary technology stack, we are able to pass along efficiencies to both the demand and supply side of the ecosystem. Our goal is to enable and support a streamlined, end-to-end advertising model that addresses both advertiser demand (buy side) and publisher supply (sell side) programmatic sales and delivery of digital advertisements using an array of audience targeting tools and advertising formats (display, audio, video, connected television (CTV), in-app). Programmatic advertising relies on artificial intelligence powered software programs that leverage data and proprietary algorithms to match the optimal selection of an ad with bid price offered by advertisers. The Company generates revenue through sales of advertising services which generate revenue from advertisements placed on the Company’s owned and managed sites, as well as from advertisements placed on partner websites, for which the Company earns a share of the revenue. Additionally, we also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers, known as demand side platforms ("DSPs) and sellers known as supply side platforms ("SSPs"). Key Factor Affecting Our Performance Seasonal Fluctuations . Typically advertising technology companies report a material portion of their revenues during the third and fourth calendar quarter as a result of back to school and holidays related advertising spend. Our experience since transitioning to focus solely on advertising has been consistent with this trend. Because of seasonal fluctuations, there 24 Table of Contents can be no assurance that the results of any particular quarter will be indicative of results for the full year or for future years or quarters. Limited Number of Customers . During the years ended December 31, 2022, and 2021, one customer represented 37.7% and 8.6% of revenue, respectively. The loss of this customer could have a material adverse impact on the results of operations in future periods. Key Operating and Financial Metrics We monitor the following key financial and operational metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. The following are the key financial and operational metrics for the years ended December 31, 2022, and 2021: December 31, ($ in thousands) 2022 2021 Revenue $ 19,580 $ 12,925 Cost of revenue 10,493 6,350 Gross Margin 9,087 6,575 General and administrative expenses 14,249 18,482 Total financing income (expense) (2,963) (93) Net loss $ (8,125) $ (12,000) Adjusted EBITDA (1) $ (2,463) $ (7,678) (1) For a reconciliation of net loss to Adjusted EBITDA see “Use of Non-GAAP Financial Measures” below. Revenue The Company generates revenue through sales of advertising services which generate revenue from advertisements placed on the Company’s owned and managed sites, as well as from advertisements placed on partner websites, for which the Company earns a share of the revenue. Additionally, we also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers, known as DSPs and sellers known as SSPs. Revenue increased $6.7 million or 51% in the year ended December 31, 2022 when compared to the same period in 2021. See below for a detailed analysis of revenue for the years ended December 31, 2022, and 2021. Cost of Revenue Cost of revenue includes payment to third parties for services performed to drive revenue, which include revenue share paid for ad exchange on third party sites, advertising fees, fees paid for content creation, influencers, writers and sales commission. Costs of revenue increased approximately $4.1 million or 65% for the year ended December 31, 2022 compared to 2021. See below for a detailed analysis of cost of revenue for the years ended December 31, 2022, and 2021. General and Administrative Expenses General and administrative expenses consist primarily of (i) personnel and related costs for our executive, finance and accounting, human resources, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation; (ii) legal, accounting, and other professional service fees; (iii) other corporate expenses; (iv) information technology costs; and (v) facility costs. General and administrative expenses decreased approximately $4.2 million or 23% for the year ended December 31, 2022 compared to the year ended December 31, 2021. See below for a detailed analysis of general and administrative expenses for the years ended December 31, 2022 and 2021. 25 Table of Contents Results of Operations The following is our analysis of the results of operations for the years ended December 31, 2022, and 2021. This analysis should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net loss from operations for the year ended December 31, 2022 was $8.1 million as compared to a net loss of $12.0 million for the year ended December 31, 2021. The following is our analysis for the period. Year Ended December 31, ($ in thousands) 2022 2021 Change % Change Revenue $ 19,580 $ 12,925 $ 6,655 51 % increased Cost of revenue 10,493 6,350 4,143 65 % increased Gross margin 9,087 6,575 2,512 38 % increased General and administrative expense 14,249 18,482 (4,233) (23) % decreased Loss from operations (5,162) (11,907) 6,745 (57) % decreased Financing income (expense) (2,963) (93) (2,870) 3086 % increased Net loss $ (8,125) $ (12,000) $ 3,875 (32) % decreased Gross margin % 46 % 51 % (5) % (10) % decreased Revenue The Company focuses on digital publishing and advertising technology. Digital Publishing Our digital publishing division focuses on developing content that attracts an audience and monetizes that audience through advertising. The current portfolio of owned and operated websites is focused on moms, parenting, families, and more broadly, women. The portfolio consists of popular websites including Mom.com, Cafemom.com, LittleThings.com, and MamasLatinas.com. This demographic is highly sought after by brands and their advertising agencies. We use internal and external technologies to constantly improve the effectiveness and efficiency of the content we create. Our publishing division monetizes its audiences through both direct and programmatic advertising sales. Advertising Technology Our advertising technology division focuses on delivering targeted ads to audiences on owned and operated sites as well as third party publishers in a cost-effective manner through the deployment of proprietary technologies. Through acquisitions and organic software development, we have consolidated and plan to further condense key elements of the prevailing digital advertising supply chain by eliminating industry “middlemen” and/or costly redundancy of services via our ad exchange. By developing our own proprietary technology stack, we are able to pass along efficiencies to both the demand and supply side of the ecosystem. Our goal is to enable and support a streamlined, end-to-end advertising model that addresses both demand (buy side) and publisher supply (sell side) programmatic sales and delivery of digital advertisements using an array of audience targeting tools and advertising formats (display, audio, video, CTV, in-app). Programmatic advertising relies on artificial intelligence powered software programs that leverage data and proprietary algorithms to match the optimal selection of an ad with a bid price offered by advertisers. The Company generates revenue through sales of advertising services which generate revenue from advertisements placed on the Company’s owned and managed sites, as well as from advertisements placed on partner websites, for which the Company earns a share of the revenue. Additionally, we also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers known as DSPs and sellers known as SSPs. 26 Table of Contents Revenue for the year ended December 31, 2022, increased $6.7 million or 51% compared to the same period for 2021. The increase was largely attributable to digital publishing revenue which increased $5.1 million or 178%. This growth has been driven by our ability to leverage our digital publishing assets to attract top advertisers, which in turn has allowed us to onboard direct premium publishers, especially in the CTV market. This led to an increase in volume, as well as rates and overall revenue. Approximately 43% of the Company’s revenue for the year ended December 31, 2022 was generated from our digital publishing customers compared to 22% for the year ended December 31, 2021. Advertising technology revenue increased $1.5 million or 15% for the year ended December 31, 2022 compared to the same period for 2021. In 2022, approximately 90% of advertising technology revenue was generated in the U.S. and 10% was generated from our business in Israel, compared to 87% and 13% in the U.S. and Israel for the same period in 2021, respectively. Cost of Revenue Costs of revenue increased $4.1 million or 65% for the year ended December 31, 2022, compared to the same period for 2021. These costs include revenue share payments to media providers and website publishers. The increase was largely attributable to revenue share payments which increased $4.1 million. The Company started expanding its usage of ad exchange on a third party’s site which is also associated with the increase noted in revenue as discussed above. Gross Margin Our gross margin increased $2.5 million or 38% for the year ended December 31, 2022, when compared to the same period for 2021. General and Administrative Expenses Year Ended December 31, ($ in thousands) 2022 2021 Change % Change Personnel cost $ 6,622 $ 8,945 $ (2,323) (26) % decreased Legal fees 231 520 (289) (56) % decreased Professional fees 3,276 4,574 (1,298) (28) % decreased Insurance 599 540 59 11 % increased Depreciation and amortization 1,597 1,639 (42) (3) % decreased Other 1,923 2,264 (341) (15) % decreased Total $ 14,248 $ 18,482 $ (4,234) (23) % decreased Gross margin as a percentage of general and administrative expense 64 % 36 % 28 % 78 % increased General and administrative expenses decreased $4.2 million or 23% for the year ended December 31, 2022, compared to the same period in 2021. The reduction is due to a combination of factors as discussed below. Personnel Cost Personnel cost decreased approximately $2.3 million or 26% compared to the year ended December 31, 2021. This change is mainly driven by a reduction in head count of 23 employees or 29%. We had 57 total employees as of December 31, 2022 compared to 80 total employees as of December 31, 2021. Legal Fees Legal fees is a combination of legal fees and litigation settlement amounts. During the year ended December 31, 2022, the Company incurred costs of $589,000 in legal fees offset by $357,000 in a litigation settlement, resulting in a net decrease of $289,000 or 56% compared to the year ended December 31, 2021. The credit in litigation settlement is mainly 27 Table of Contents attributable to the reversal of a previous accrual related to the Slutzky & Winshman and Synacor litigation, as discussed in Note 15, "Commitment and Contingencies." Professional Fees During the year ended December 31, 2022, professional fees decreased $1.3 million or 28% when compared to the same period, 2021. The amount for 2021 was higher due to the costs incurred for audit and consultant fees which represented 66% of professional fees in 2022 compared to 82% for 2021. This expense was in connection with the Company’s restatement of its financial results for the period January 1, 2019 to December 31, 2021. Financing (Expense) Income Year Ended December 31, ($ in thousands) 2022 2021 Change % Change Interest expense $ 4,262 $ 2,267 $ 1,995 88 % increased Gain on forgiveness of PPP loan (1,137) (2,172) 1,035 (48) % decreased Other expense (income) (162) (2) (160) 8000 % increased Total financing expense (income) $ 2,963 $ 93 $ 2,870 3086 % increased Financing expense increased $2.9 million or 3086% for the year ended December 31, 2022, compared to the same period 2021. This increase was largely attributable to a $2.0 million increase in interest expense related to the Centre Lane Senior Secured Credit Facility, which reflected higher principal and fees due to the Centre Lane Senior Secured Credit Facility amendments during the year ended December 31, 2022. This increase was offset by a reduction in the Paycheck Protection Program ("PPP") loan forgiveness amount, which was $1.1 million in 2022 compared to $2.2 million for the same period in 2021, resulting in a higher expense for 2022. Liquidity and Capital Resources Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. The following table summarizes total current assets, total current liabilities and net working capital (deficit) as of December 31, 2022 as compared to December 31, 2021. December 31, ($ in thousands) 2022 2021 Total current assets $ 4,501 $ 5,257 Total current liabilities 17,851 23,070 Net working capital deficit $ (13,350) $ (17,813) As of December 31, 2022, we had a cash balance of $316,000 compared with a cash balance of $781,000 as of December 31, 2021. During 2021, we implemented policies and procedures around cash collections to prevent the aging of accounts receivables, and we have continued following such policies and procedures in 2022. Cash collection efforts are improving, and we believe we have appropriately reserved for uncollectible amounts as of December 31, 2022. During the year ended December 31, 2022, the Company received $3.1 million in debt financing from Centre Lane Partners Master Credit Fund II, L.P. (“Centre Lane Partners"). The use of the funds was for general working capital needs. During the period from May 26, 2021 to December 31, 2021, the Company received $5.1 million in debt financing from Centre Lane Partners. The use of the funds was for general working capital needs. Going Concern Historically, the Company has incurred losses, which has resulted in an accumulated deficit of approximately $114.3 million as of December 31, 2022. Cash flows used in operating activities were $3.1 million and $5.9 million for the years 28 Table of Contents ended December 31, 2022, and 2021, respectively. As of December 31, 2022, the Company had a working capital deficit of approximately $13.3 million, inclusive of $316,000 in cash and cash equivalents. The Company’s ability to continue as a going concern is dependent on its ability to meet its liquidity needs through a combination of factors. The Company is currently exploring all strategic alternatives, including restructuring or refinancing its debts, seeking additional debt, such as borrowings under the Centre Lane Senior Secured Credit Facility or equity capital. The ability to access the capital markets is also dependent on the stock volume and market price of the Company's stock, which cannot be assured. Other measures include reducing or delaying certain business activities, reducing general and administrative expenses, and a further reduction in headcount. The ultimate success of these plans is not guaranteed. In considering our forecast for the next twelve months, the Company's current cash and working capital, as of the filing of this Annual Report on Form 10-K, the Company’s available cash will not be sufficient to fund its anticipated level of operations. As a result, such matters create a substantial doubt regarding the Company’s ability to meet its financial needs and continue as a going concern. The accompanying condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about the Company’s ability to continue as a going concern. Subsequent Event On February 28, 2023, the Company reduced its headcount from 57 employees to 52 employees. There were no executive officers included in this reduction. See Note 22, "Subsequent Events", to the accompanying consolidated financial statements for further information. Financing Arrangement Summary Centre Lane Senior Secured Credit Facility Effective June 1, 2020, the Company entered into a membership interest purchase agreement to acquire 100% of Wild Sky Media (the “Purchase Agreement”). To finance this acquisition, the Company obtained a first lien senior secured credit facility from Centre Lane Partners in the amount of $16.5 million, comprising $15.0 million of initial indebtedness, repayment of Wild Sky’s existing accounts receivable factoring facility of approximately $900,000 and approximately $500,000 of expenses. Centre Lane Partners subsequently loaned the Company an additional $8.2 million to provide liquidity to fund operations beginning in April 26, 2021 (as amended, the “Centre Lane Senior Secured Credit Facility”). This Centre Lane Senior Secured Credit Facility has been determined to qualify as a related party transaction as shares were issued to Centre Lane Partners as part of the transaction, resulting in Centre Lane Partners holding 10% of the shares issued and outstanding at December 31, 2022. A related party is a party that can exercise significant influence over the Company in making financial and/or operating decisions. The note issued under the Centre Lane Senior Secured Credit Facility bears interest at a rate of 6.0% per annum and matures June 30, 2025, with payments of 2.5% of outstanding principal beginning on June 30, 2023. The interest rate was increased to 10.0% pursuant to the first amendment with interest payable-in-kind (“PIK Interest”) in lieu of cash payment. Commencing with the ninth amendment, the interest rate was increased to 12% on all subsequent draws with 8% payable quarterly in cash and 4% payable-in-kind in lieu of cash payment. These draws are known as the "last in first out loans," totaling $2.8 million inclusive of exit fees at December 31, 2022, due and payable on June 30, 2023. For a full description of the Centre Lane Senior Secured Credit Facility, see Note 9, "Centre Lane Senior Secured Credit Facility" of our accompanying notes to the consolidated financial statements. 10% Convertible Promissory Note During November 2018, the Company issued 10% convertible promissory notes (the "Convertible Notes") in the amount of $80,000 to the Chairman of the Board, a related party. The Convertible Notes are unsecured and mature in November 2023. The Convertible Notes are convertible at the option of the holder into shares of Common Stock at any time prior to maturity at a conversion price of $0.40 per share. Approximately $118,000 is due and payable by November 2023, consisting of outstanding principal and interest. For a full description of the Convertible Notes, see Note 11, "10% Convertible Promissory Notes" of our accompanying notes to the consolidated financial statements. 29 Table of Contents Summary of Cash Flows The following table summarizes our cash flows from operating, investing and financing activities for the year ended December 31, 2022, and 2021: Year Ended December 31, ($ in thousands) 2022 2021 Total cash (used in) provided by: Operating activities $ (3,115) $ (5,933) Investing activities (14) — Financing activities 2,664 5,978 (Decrease) increase in cash and cash equivalents $ (465) $ 45 Operating Activities For the year ended December 31, 2022, cash used in operating activities was $3.1 million. The primary factors affecting our operating cash flows during the period were our net loss of $8.1 million, adjusted for non-cash charges of $1.6 million for amortization of intangible assets, $1.2 million of amortization of debt discount, $144,000 of stock-based compensation expense, $89,000 of stock compensation for Oceanside shares, $84,000 for the provision of bad debt, $1.1 million from the gain on forgiveness of the PPP loan and a $229,000 net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $698,000 increase in other liabilities and a $695,000 increase in prepaid and other current assets, offset by a $596,000 decrease in accounts payable and accrued expenses, a $465,000 decrease in interest payable on Centre Lane Senior Secured Credit Facility and a $426,000 decrease in deferred revenue. For the year ended December 31, 2021, cash used in operating activities was $5.9 million. The primary factors affecting our operating cash flows during the period were our net loss of $12.0 million, adjusted for non-cash charges of $1.6 million for amortization of intangible assets, $578,000 of amortization of debt discount, $207,000 of stock-based compensation expense, $281,000 of stock compensation for Oceanside shares, $74,000 for the provision of bad debt, $2.2 million from the gain on forgiveness of PPP loan and a $5.7 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $3.0 million increase in accounts receivable, a $1.3 million increase in interest payable on Centre Lane Senior Secured Credit Facility, and a $816,000 increase in deferred revenue, offset by a $426,000 decrease in prepaid and other current assets. Investing Activities Cash used in investing activities of $14,000 and $0 for the year ended December 31, 2022, and 2021, respectively, was due entirely to the purchase of property and equipment. Financing Activities During the year ended December 31, 2022, the Company raised $3.1 million of debt financing from Centre Lane Senior Secured Credit Facility, which was used primarily to fund our working capital. During the year ended December 31, 2021, the Company raised $5.1 million of debt financing from Centre Lane Senior Secured Credit Facility and $1.1 million from the PPP Loan, which were used primarily to fund our working capital. Contractual Obligations and Commitments The following table represents our contractual obligations as of December 31, 2022, aggregated by type: 30 Table of Contents Total Due in less than 1 year Due 1-3 years Due 3-5 years More than 5 years ($ in thousands) Operating lease $ 357 $ 38 $ 236 $ 83 $ — 10% Convertible Promissory Notes 80 80 — — — Interest payable - 10% Convertible Promissory Notes 38 38 — — — Centre Lane Senior Secured Credit Facility 31,109 4,860 26,249 — — Interest payable - Centre Lane Senior Secured Credit Facility 11,237 588 10,649 — — $ 42,821 $ 5,604 $ 37,134 $ 83 $ — Use of Non-GAAP Financial Measures Non-GAAP results are presented only as a supplement to the financial statements and for use within management's discussion and analysis based on U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information is provided to enhance the reader's understanding of the Company's financial performance, but non-GAAP measures should not be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. All of the items included in the reconciliation from net loss to EBITDA and from EBITDA to Adjusted EBITDA are either (i) non-cash items (e.g., depreciation, amortization of purchased intangibles, stock-based compensation, etc.) or (ii) items that management does not consider to be useful in assessing the Company's ongoing operating performance (e.g., M&A costs, income taxes, gain on sale of investments, loss on disposal of assets, etc.). In the case of the non-cash items, management believes that investors can better assess the Company's operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect the Company's ability to generate free cash flow or invest in its business. We use, and we believe investors benefit from the presentation of, EBITDA and Adjusted EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company's operating performance without regard to items such as interest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired. Because not all companies use identical calculations, the Company's presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, these measures can still be useful in evaluating the Company's performance against its peer companies because management believes the measures provide users with valuable insight into key components of GAAP financial disclosures. A reconciliation of net loss before taxes to EBITDA and Adjusted EBITDA is as follows: 31 Table of Contents Year Ended December 31, ($ in thousands) 2022 2021 Net loss before tax plus: $ (8,125) $ (12,000) Depreciation expense 38 48 Amortization expense 1,558 1,591 Amortization of debt discount 1,199 578 Other interest expense 13 90 Interest expense - Centre Lane Senior Secured Credit Facility and Convertible Promissory Notes- related party 3,051 1,600 EBITDA (2,266) (8,093) Stock compensation expense 233 488 Nonrecurring professional fees 657 1,766 Gain on forgiveness of PPP loan (1,137) (2,172) Non-restructuring severance expense 50 333 Adjusted EBITDA $ (2,463) $ (7,678) Critical Accounting Policies Critical Accounting Estimates The preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of our consolidated financial statements as well as reported amounts of revenue and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. Significant estimates included in the accompanying consolidated financial statements include revenue recognition, the fair value of acquired assets for purchase price allocation in business combinations, valuation of goodwill and intangible assets, estimates of amortization period for intangible assets, estimates of depreciation period for fixed assets, the valuation of equity-based transactions, and the valuation allowance on deferred tax assets. Critical accounting policies are those policies that management believes are very important to the portrayal of our financial position and results of operations, and that require management to make estimates that are difficult, subjective or otherwise complex. Based on these criteria, management has identified the following critical accounting policies: Revenue Recognition The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No. 606, Revenue from Contracts with Customers, (ASC 606) . The Company recognizes revenues at a point-in-time when control of services is transferred to the customer. Cash received by the Company prior to when control of services is transferred to the customer is recorded as deferred revenue. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the advertising services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the advertising services promised within each 32 Table of Contents contract and determines those that are performance obligations and assesses whether each promised advertising service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation based on relative fair values, when (or as) the performance obligation is satisfied. The Company recognizes revenue primarily from delivering digital advertisements on its owned and operated publishing websites, as well as advertising on partner websites, mobile apps and digital streaming services such as CTV (Connected Television) channels. Advertising revenues are generated by audiences seeing or clicking on digital advertisements utilizing several advertiser partners. Revenues are recognized net of adjustments based on the number of advertisements delivered and are billed monthly. There are no significant initial costs incurred to obtain contracts with customers, and no contract assets or contract liabilities recorded in our consolidated financial statements. Deferred Revenue The Company records deferred revenue when cash payments are received in advance of performance obligations. The Company expects to recognize the deferred revenue in the following period when it transfers its services and, therefore, satisfies its performance obligation to the customers. Leases We determine whether an arrangement contains a lease at inception in accordance with FASB Accounting Standards Codification No. 842, Leases, (ASC 842) . Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease right-of-use (“ROU”) liability on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We do not include options to extend or terminate the lease term unless it is reasonably certain that we will exercise any such options. We recognize rent expense under our operating leases on a straight-line basis. Variable lease costs such as operating costs and property taxes are expensed as incurred. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable represent receivables from customers in the ordinary course of business and are recorded in accordance with FASB Accounting Standards Codification No. 310, Receivables, (ASC 310) . Receivables are recorded at the invoice amount on the date revenue is recognized and are presented net of the allowance for doubtful accounts in the accompanying consolidated balance sheets. Receivables are subjected to adjustments from traffic settlements that are deducted from open invoices. Our receivables are not interest bearing and not collateralized. The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts. We regularly review our receivables that remain outstanding past their applicable payment terms and establish an allowance for potential write-offs by considering factors such as historical experience, credit quality, age of the accounts receivable balances, and current and forecasted economic conditions that may affect a customer’s ability to pay. The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company is exhausted, the determination for charging off uncollectible receivables is made. Property and Equipment, Net Property and equipment are recorded at cost, less accumulated depreciation in accordance with FASB Accounting Standards Codification No. 360, Property, Plant and Equipment, (ASC 360) . Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the lease term or the useful life of the improvements. 33 Table of Contents Goodwill We account for Goodwill under FASB Accounting Standards Codification No. 350, Goodwill and Other, (ASC 350). Goodwill represents the cost in excess of the fair value of the net assets acquired in a business combination. The Company categorizes Goodwill into two reporting units: “Owned & Operated” and “Ad Network”. Goodwill is tested for impairment at the reporting unit level on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value, which are determined through a qualitative assessment. A qualitative assessment includes consideration of the economic, industry and market conditions in addition to the overall financial performance of the Company and these assets. If our qualitative assessment does not conclude that it is more likely than not that the estimated fair value of the reporting unit is greater than the carrying value, we perform a quantitative analysis. In a quantitative test, the fair value of a reporting unit is determined based on a discounted cash flow analysis and further analyzed using other methods of valuation. A discounted cash flow analysis requires us to make various assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions about future cash flows and growth rates are based on our long-term projections. Assumptions used in our impairment testing are consistent with our internal forecasts and operating plans. Our discount rate is based on our debt structure, adjusted for current market conditions. If the fair value of the reporting unit exceeds its carrying amount, there is no impairment. If not, we compare the fair value with its carrying amount. To the extent the carrying amount exceeds its fair value, an impairment charge of the reporting unit’s goodwill would be necessary. We perform our annual goodwill impairment test as of December 31, 2022 and 2021, we determined there were no events or circumstances which indicated that the carrying value of a reporting unit exceeded the fair value. Intangible Assets We account for intangibles under FASB Accounting Standards Codification No. 350, Goodwill and Other, (ASC 350). Intangible assets acquired in a business combination, or an asset acquisition are recorded at fair value on the date of acquisition and amortized over their estimated useful lives. Intangible assets include trade name, customer relationships, IP/technology and non-compete agreements. The Company’s trade name and customer relationships are amortized on a straight-line basis over a useful life of five years. IP/technology is amortized on a straight-line basis over a useful life of ten years. Non-compete agreements are amortized on a straight-line basis over the length of each agreement, typically between three to five years. The Company reviews for impairment indicators of finite-lived intangibles and other long-lived assets as described below in “Amortization and Impairment of Long-Lived Assets.” Amortization and Impairment of Long-Lived Assets Long-lived assets, such as property, equipment, right-of-use assets, and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management’s estimates, depending upon the nature of the assets. There were no impairment losses related to long-lived assets in any of the periods presented. Cost of Revenue Cost of revenue includes payment to third parties for services performed to drive revenue, including revenue share paid for ad exchange on third party sites, advertising fees, and fees paid for content creation, freelancers, writers and sales commissions. Website Development Costs The Company accounts for its website development costs in accordance with FASB Accounting Standards Codification No. 350, Website Development Costs (ASC 350) . These costs, if any, are included in intangible assets in the 34 Table of Contents accompanying consolidated balance sheets. Upgrades or enhancements that add functionality are capitalized while other costs during the operating stage are expensed as incurred. The Company amortizes the capitalized website development costs over an estimated life of five years. As of December 31, 2022, and 2021, all website development costs have been expensed. While it is likely that we will have significant amortization expense as we continue to acquire websites, we believe that intangible assets represent costs incurred by the acquired website to build value prior to acquisition and the related amortization and impairment charges of assets, if applicable, are not ongoing costs of doing business. Stock-Based Compensation We account for stock based compensation in accordance with FASB Accounting Standards Codification No. 718, Compensation - Stock Compensation (ASC 718) . ASC 718 addresses accounting for share-based awards, including stock options, restricted stock, performance shares and warrant. Stock-based compensation for stock options to employees and non-employees is based upon the fair value of the award on the date of grant. We record forfeitures as they occur. The compensation cost is recognized over the requisite service period, which is generally the vesting period, and is included in general and administrative expenses in the consolidated statements of operations. The Company estimates the fair value of stock options using the Black-Scholes valuation model. The expected life represents the term the options granted are expected to be outstanding. The expected volatility was determined using the historical volatility of similar publicly traded companies. The risk-free interest rate is based on the U.S. Treasury rate in effect at the time of grant. Income Taxes We use the asset and liability method to account for income taxes. Under this method, deferred income taxes are determined based on the differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements which will result in taxable or deductible amounts in future years and are measured using the currently enacted tax rates and laws in the period those differences are expected to reverse. A valuation allowance is provided to reduce net deferred tax assets to the amount that, based on available evidence, is more likely than not to be realized. The Company follows the provisions of FASB Accounting Standards Codification No. 740, Income Taxes (ASC 740). When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax expenses are recognized as tax expenses in the statement of operations and comprehensive loss. Segment Reporting Consistent with FASB Accounting Standards Codification No. 280, Segment Reporting (ASC 280), our Chief Financial Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by the Chief Financial Officer, or anyone else, for operations, operating results and planning for levels or components below the consolidated unit level. Accordingly, we determined we have one operating and reportable segment. Off Balance Sheet Arrangements As of December 31, 2022, there were no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders. 35 Table of Contents Foreign Currency We translate the financial statements of our foreign subsidiaries, which have a functional currency in the respective country’s local currency, to U.S. dollars using month-end exchange rates for assets and liabilities and actual exchange rates for revenue, costs and expenses on the date of the transaction. Translation gains and losses are included within “general and administrative expense” on the consolidated statements of operations. These gains and losses are immaterial to the financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information otherwise required by this Item 7A to Form 10-K.