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, 2023, and 2022 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 annual report. 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. (together with its wholly-owned subsidiaries, the “Company,” “Bright Mountain” or “we”) has an end-to-end digital media and advertising services platform that efficiently connects brands with targeted consumer demographics. We focus on digital publishing, advertising technology, consumer insights, creative and media services. 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. 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 software programs that leverage data and proprietary algorithms to match the optimal selection of an ad with a bid price offered by advertisers. Consumer Insights Our consumer insights division focuses on providing primary and secondary research, competitive intelligence, and expert insight to address customers' strategic issues. We provide cutting-edge and dynamic research, offering clients a comprehensive perspective on their consumers. This insight extends to strategic guidance on the optimal timing and channels to effectively connect with target audiences. Our cutting-edge approach combines advanced data analytics, artificial intelligence, and comprehensive market research, to uncover actionable insights that drive informed decision-making. Creative Services Our creative services division transforms data into award-winning campaigns. We are uniquely able to leverage insights teams with highly strategic media planning and buying teams to ensure brands not only position their advertising precisely, but also yield impactful business results. Our goal is to combine data-driven decisions with creativity fueled by a deep understanding of modern culture. Media Services 29 Table of Contents Our media services division focuses on advertisers and agencies by providing access to premium inventory, leveraging data to optimize programmatic campaigns. Our aim is to empower clients to access the most sought-after advertising spaces across diverse platforms tailored to their specific needs and preferences. Our data-driven approach ensures that ad placements are not only well-targeted, but also continuously optimized for maximum efficiency and ROI. Our commitment to combining premium inventory access with data-driven programmatic campaign optimization makes us an indispensable partner in the success of our clients' advertising and marketing endeavors. The Company generates revenue through: • the selling of advertisements placed on our owned and managed sites and on partner websites where we earn a share of the revenue; • facilitating the seamless, real-time exchange of advertisements on a large scale, bridging networks of buyers (referred to as "DSPs") and networks of sellers (referred to as "SSPs"); • serving advertisers through providing access to premium resources and leveraging data to optimize programmatic campaigns, where revenue is derived from the planning and execution of creative and media marketing campaigns; and • providing primary and secondary research, competitive intelligence, and expert insights to address customers' strategic issues, where revenue is primarily derived from providing a single integrated service for such research. Recent Developments On April 20, 2023, the Company completed the acquisition of two business units of Big Village (Big Village Insights, Inc. and Big Village Agency LLC (together, referred to as the "Big Village Entities")), for approximately $20.0 million, plus assumed liabilities, in an all-cash transaction funded by the Centre Lane Senior Secured Credit Facility (the "Big Village Acquisition"). As part of the Big Village Acquisition, the Company formed BV Insights, LLC ("Insights") and Big Village Agency, LLC ("Agency"), to own the assets acquired in the transaction. In addition, letters of employment were extended to certain legacy employees of the Big Village Entities, resulting in the employment of an additional 203 employees on April 20, 2023. Other Developments During 2022, the Company began scaling down its operations of Slutzky & Winshman Ltd, a digital media company located in Israel that was acquired in August 2019. This decision was made after a consistent decline in revenue. In 2023, we terminated operations in Israel and all employees were terminated. Also in 2023, we terminated the operation of News Distribution Network, Inc., a newspaper technology company, which we also acquired in 2019, and subsequently rebranded this service as Mediahouse, also as a result of a declining revenue stream. There were no specific costs associated with these exits. At December 31, 2023, these two entities have not yet been dissolved. 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 holiday-related advertising spend. We continue to experience this trend in our advertising technology division. Because of seasonal fluctuations, there can be no assurance that the results of any quarter or full year will be indicative of results for future years or quarters. Limited Number of Customers . During the years ended December 31, 2023, and 2022, two and one customer(s) represented 23.0% and 37.7% of revenue, respectively. The loss of either of these customers could have a material adverse impact on our results of operations in future periods. 30 Table of Contents Managing Industry Dynamics . We operate in the rapidly evolving digital advertising industry. Advances in programmatic advertising technologies, and the efficient and automated method of purchasing ads online, has enabled publishers to auction their ad inventory to more buyers simultaneously, in real time. As advertisers stay ahead of evolving trends in consumer engagement with digital media, an expansive opportunity for innovation emerges. Our commitment to understanding customer needs empowers us, and our continuous pursuit of innovation enables swift adaptation to industry shifts. This approach not only facilitates the development of cutting-edge solutions, but also does so in a cost-effective manner. As regulatory concerns accelerate the impact on existing industry standards, companies are actively seeking new methods to finely tailor their messages to target audiences. Tech companies will be limited in how they monetize personal information for advertising purposes. This trend is exemplified by two imminent developments: (1) the anticipated erosion of Google's third-party cookies and (2) the data security measures integrated into Apple iPhones. Consequently, companies must explore innovative methods to better understand their target audiences and have the tools to effectively engage with them. 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, 2023, and 2022: December 31, ($ in thousands) 2023 2022 Revenue $ 44,546 $ 19,580 Cost of revenue 31,766 10,493 Gross margin 12,780 9,087 General and administrative expenses 22,522 14,155 Impairment of goodwill and intangibles 17,070 — Financing income (expense) (8,752) (3,057) Net loss from operations $ (35,564) $ (8,125) Adjusted EBITDA (1) $ (3,932) $ (2,463) (1) For a reconciliation of net loss to Adjusted EBITDA see “Use of Non-GAAP Financial Measures” below. Revenue The Company generates revenue through: • the selling of advertisements placed on our owned and managed sites and on partner websites where we earn a share of the revenue; • facilitating the seamless, real-time exchange of advertisements on a large scale, bridging networks of buyers (referred to as "DSPs") and networks of sellers (referred to as "SSPs"); • serving advertisers through providing access to premium resources and leveraging data to optimize programmatic campaigns, where revenue is derived from the planning and execution of creative and media marketing campaigns; and • providing primary and secondary research, competitive intelligence, and expert insights to address customers' strategic issues, where revenue is primarily derived from providing a single integrated service for such research. Revenue increased approximately $25.0 million, or 128%, for the year ended December 31, 2023 when compared to the same period in 2022. See below for a detailed analysis of revenue for the years ended December 31, 2023, and 2022. Cost of Revenue 31 Table of Contents Cost of revenue includes internal labor and payment to third parties for services performed to drive revenue, which includes the publisher cost paid for ad exchange on third party sites, advertising fees, personnel costs, technology and data related costs, fees paid for content creation, influencers, writers and sales commission. Cost of revenue increased approximately $21.3 million, or 203%, for the year ended December 31, 2023 compared to 2022. See below for a detailed analysis of cost of revenue for the years ended December 31, 2023, and 2022. 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 increased approximately $8.4 million, or 59%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. See below for a detailed analysis of general and administrative expenses for the years ended December 31, 2023 and 2022. Impairment of goodwill and intangibles Impairment of goodwill and intangibles increased approximately $17.1 million, or 100%, for the for the year ended December 31, 2023 compared to 2022. Results of Operations The following is our analysis of the results of operations for the years ended December 31, 2023, and 2022. 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, 2023 Compared to Year Ended December 31, 2022 Net loss from operations for the year ended December 31, 2023 was $35.6 million as compared to a net loss of $8.1 million for the year ended December 31, 2022. The following is our analysis for the period. Year Ended December 31, ($ in thousands) 2023 2022 Change % Change Revenue $ 44,546 $ 19,580 $ 24,966 128 % increased Cost of revenue 31,766 10,493 21,273 203 % increased Gross margin 12,780 9,087 3,693 41 % increased General and administrative expense 22,522 14,155 8,367 59 % increased Impairment of goodwill and intangibles 17,070 — 17,070 100 % increased Loss from operations (26,812) (5,068) (21,744) 429 % increased Financing income (expense) (8,752) (3,057) (5,695) 186 % increased Net loss from operations $ (35,564) $ (8,125) $ (27,439) 338 % increased Gross margin % 29 % 46 % (18) % (38) % decreased Revenue Our revenue showed an overall increase of $25.0 million, or 128%, for the year ended December 31, 2023, compared to the same period in 2022, which was driven by $31.0 million in revenue as a result of the Big Village Acquisition, and was partially offset by macroeconomic factors, coupled with an overall reduction in spending by some customers due to inflationary concerns, which led to lower than normal rates and lower earnings. The macroeconomic impacts significantly reduced direct sales by digital publishing customers as well as traffic on our website, which resulted in lower revenue in 32 Table of Contents these divisions. In addition, some vendors have changed their platforms to favor short video and other "creator" content over news and media type content during 2023. These changes reduced visitors to our site and revenue in general. The Company focuses on digital publishing, advertising technology, consumer insights, creative and media services. Revenue generated by each division is set forth below: (in thousands) Year Ended December 31, 2023 2022 Change % Change Digital publishing $ 4,130 $ 8,032 $ (3,902) (49) % decreased Advertising technology 9,463 11,548 (2,085) (18) % decreased Consumer insights 23,868 — 23,868 100 % increased Creative services 5,130 — 5,130 100 % increased Media services 1,955 — 1,955 100 % increased $ 44,546 $ 19,580 $ 24,966 128 % Digital Publishing Digital publishing revenue decreased by $3.9 million, or 49%, for the year ended December 31, 2023 compared to the same period for 2022. Approximately $4.1 million, or 9%, of the Company’s revenue for the year ended December 31, 2023 was generated from our digital publishing customers compared to $8.0 million, or 41%, for the same period in 2022. This division was significantly impacted by macroeconomic factors, which reduced traffic to our website, coupled with an overall reduction in spending by some customers related to inflationary concerns and reduction in website traffic. Advertising Technology Advertising technology revenue decreased by $2.1 million, or 18%, for the year ended December 31, 2023 compared to the same period for 2022. Approximately $9.5 million, or 21%, of the Company’s revenue for the year ended December 31, 2023 was generated from our advertising technology customers compared to $11.5 million, or 59%, for the same period in 2022. During the year ended December 31, 2023, approximately 100.0% of advertising technology revenue was generated in the U.S. and 0% was generated from our business in Israel, compared to 90% and 10% in the U.S. and Israel, respectively, for the same period in 2022. During the latter part of 2022, the Company started scaling down its operations in Israel and focused more on its U.S. market in advertising technology to capitalize on more attractive revenue streams. The loss of revenue in Israel is a contributor to lower than expected growth in revenue in this category during 2023. The Company subsequently closed operations in Israel in 2023. Consumer Insights Consumer insights revenue, which is a new offering we acquired with the Big Village Acquisition, increased by $23.9 million, or 100%, for the year ended December 31, 2023 compared to the same period in 2022 and represented approximately 54% of the Company’s revenue for the year ended December 31, 2023. Creative Services Creative services revenue, which we also acquired as part of the Big Village Acquisition, increased by $5.1 million, or 100%, for the year ended December 31, 2023 compared to the same period in 2022, and represented approximately 12% of the Company’s revenue for the year ended December 31, 2023. Media Services Media services revenue, which we also acquired as part of the Big Village Acquisition, increased by $2.0 million, or 100%, for the year ended December 31, 2023 compared to the same period in 2022, and represented approximately 4% of the Company’s revenue for the year ended December 31, 2023. 33 Table of Contents Cost of Revenue (in thousand s ) Year Ended December 31, 2023 2022 Change % Change Direct salaries and labor $ 7,355 $ — $ 7,355 100 % increased Direct project and other cost 10,246 — 10,246 100 % increased Non-direct project cost 6,371 — 6,371 100 % increased Publisher cost 5,877 5,967 (90) (2) % decreased Content creation 1,078 1,372 (294) (21) % decreased Sales commission 764 880 (116) (13) % decreased Other 75 2,274 (2,199) (97) % decreased $ 31,766 $ 10,493 $ 21,273 203 % increased Costs of revenue increased $21.3 million, or 203%, for the year ended December 31, 2023, compared to the same period for 2022. This increase is mainly attributable to the acquisition of the Big Village Entities during the year ended December 31, 2023. Direct Salaries and Labor Cost Direct salaries and labor cost was $7.4 million for the year ended December 31, 2023, and represented 23% of overall cost of revenue for this period. These costs represent salary and labor cost of employees that work directly on customer projects for our consumer insights, creative and media services, which divisions we acquired as part of our acquisition of the Big Village Entities. Direct Project Cost Direct project cost was $10.2 million for the year ended December 31, 2023, and represented 32% of overall cost of revenue for this period. These costs include payments made to third-parties that are directly attributable to the completion of projects that allow for revenue recognition for our consumer insights, creative and media services, which divisions we acquired as part of our acquisition of the Big Village Entities. Non-Direct Project Cost Non-direct cost was $6.4 million for the year ended December 31, 2023 and represented 20% of overall cost of revenue for this period. These costs represent overall client service costs that are not specifically related to a particular project, but relate to services we acquired as part of our acquisition of the Big Village Entities. Publisher Cost Publisher cost was $5.9 million, which represents 18% of overall cost of revenue, and $6.0 million, or 57%, of overall cost of revenue, for the years ended December 31, 2023 and 2022, respectively. We experienced a decrease of $90,000, or 2%, for the year ended December 31, 2023 compared to the same period in 2022. These costs represent payments to media providers and website publishers. Gross Margin Gross margin was $12.8 million, and $9.1 million for the years December 31, 2023 and 2022. Our gross margin increased $3.7 million or 41% for the year ended December 31, 2023, when compared to the same period for 2022 Gross margin as a percentage of revenue decreased to 29% for the year ended December 31, 2023 compared to 46% for the same period of 2022. General and Administrative Expenses 34 Table of Contents Year Ended December 31, ($ in thousands) 2023 2022 Change % Change Personnel cost $ 10,024 $ 6,622 $ 3,402 51 % increased Legal fees 981 231 750 325 % increased Professional fees 4,750 3,276 1,474 45 % increased Insurance 1,014 599 415 70 % increased Depreciation 125 38 87 227 % increased Amortization of intangibles 2,490 1,558 932 60 % increased Website expense 1,193 1,257 (64) (5) % decreased Other 1,945 574 1,371 239 % increased Total $ 22,522 $ 14,155 $ 8,367 59 % increased Gross margin as a percentage of general and administrative expense 57 % 64 % (7) % (12) % decreased General and administrative expenses increased $8.4 million, or 59%, for the year ended December 31, 2023, compared to the same period in 2022. The increase is due to a combination of factors as discussed below. Personnel Cost Personnel cost increased by approximately $3.4 million, or 51%, for the year ended December 31, 2023 compared to the same period in 2022. This change is mainly driven by an increase in head count as a result of the acquisition of the Big Village Entities. During the year ended December 31, 2023, the Company's headcount increased by a net amount of 136 employees, or 252%, mainly attributable to the Big Village Acquisition. Personnel cost for Big Village employees is allocated between cost of revenue and general and administrative expenses depending on their contribution to certain revenue generating projects. The overall increase in headcount during the year ended December 31, 2023, was partially offset by a reduction in the Company's headcount by 85 employees, including 54 employees that were terminated as a reduction in force. The Company incurred severance cost of approximately $389,000 in connection with this reduction. Approximately $75,000 is included in cost of revenue with the balance of $314,000 included in general and administrative cost. The Company incurred severance cost of approximately $50,000 associated with a headcount reduction during the same period for 2022. We had 190 total employees as of December 31, 2023, compared to 54 total employees as of December 31, 2022. Legal Fees Legal fees increased by $750,000, or 325%, for the year ended December 31, 2023, compared to the same period in 2022. Approximately $711,000 of overall legal fees during 2023 represented costs associated with the Big Village Acquisition. Professional Fees Professional fees increased by $1.5 million, or 45%, during the year ended December 31, 2023, when compared to the same period in 2022. Approximately $1.5 million of overall professional fees during 2023 represented costs associated with the Big Village Acquisition. Impairment of Goodwill and Intangibles 35 Table of Contents (in thousands) Year Ended December 31, 2023 2022 Change % Change Impairment of goodwill and intangibles $ 17,070 $ — $ 17,070 100 % increased During the year ended December 31, 2023, the Company performed an impairment assessment on goodwill and intangibles for the Ad Network, Owned & Operated, and Insights reporting units. The assessment indicated that the carrying value was in excess of its implied fair value for the Ad Network and Owned & Operated reporting units, resulting in an impairment charge of $14.1 million and $2.9 million for goodwill and intangibles, respectively. There was no such charge for the same period in 2022. See Note 6, "Intangible Assets, Net", and Note 7, "Goodwill", to the consolidated financial statements. Financing Expense (Income) Year Ended December 31, ($ in thousands) 2023 2022 Change % Change Interest expense $ 9,189 $ 4,263 $ 4,926 116 % increased Gain on forgiveness of PPP loan — (1,137) 1,137 (100) % decreased Other (income) expense (437) (69) (368) 532 % increased Total financing expense (income) $ 8,752 $ 3,057 $ 5,695 186 % increased Financing expense increased $5.7 million, or 186%, for the year ended December 31, 2023, compared to the same period in 2022. This increase was largely attributable to a $4.9 million increase in interest expense related to the Centre Lane Senior Secured Credit Facility, which reflected higher principal and fees as a result of amendments to the Centre Lane Senior Secured Credit Facility during the year ended December 31, 2022 through the year ended December 31, 2023. In 2022, total financing expense was offset by a reduction in the Paycheck Protection Program ("PPP") loan forgiveness of $1.1 million. 36 Table of Contents Liquidity and Capital Resources Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. The following table summarizes total current assets, total current liabilities and net working capital (deficit) as of December 31, 2023 as compared to December 31, 2022. December 31, ($ in thousands) 2023 2022 Total current assets $ 19,737 $ 4,501 Total current liabilities 30,802 17,851 Net working capital deficit $ (11,065) $ (13,350) As of December 31, 2023, we had a cash balance of $4.0 million compared with a cash balance of $316,000 as of December 31, 2022. The Company’s liquidity needs, and a discussion of how it intends to meet those needs, is discussed below. See –“Going Concern.” During the year ended December 31, 2023 and 2022, the Company received $8.6 million and $3.1 million, respectively, in debt financing from the Centre Lane Senior Secured Financing Facility. The use of the funds was for general working capital needs and to fund the Big Village Acquisition. Going Concern Historically, the Company has incurred losses, which has resulted in an accumulated deficit of approximately $149.8 million as of December 31, 2023. Cash flows used in operating activities were $4.7 million and $3.1 million for the years ended December 31, 2023, and 2022, respectively. As of December 31, 2023, the Company had a working capital deficit of approximately $11.1 million, inclusive of $4.0 million in cash and cash equivalents. The Company’s ability to continue as a going concern is dependent upon its ability to meet its liquidity needs through a combination of factors. During the next year, we anticipate that we will need approximately $8.6 million to meet our contractual obligations in addition to amounts needed for our working capital needs. The Company is currently exploring several strategic alternatives, including restructuring or refinancing its debt, or seeking additional debt, including borrowing under the Centre Lane Senior Secured Credit Agreement or raising equity capital. The ability to access the capital markets is also dependent upon the volume and market price of the Company's stock, which cannot be assured. Other measures include reducing or delaying certain business activities, or reducing general and administrative expenses, including a reduction in headcount. The ultimate success of these plans is not guaranteed. The Company's current cash and working capital, as of the filing of this Annual Report on Form 10-K, is not expected to be sufficient to fund its anticipated level of operations over the next twelve months. 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 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. Financing Arrangement Summary Centre Lane Senior Secured Credit Facility On June 5, 2020, the Company and its subsidiaries entered into to the Amended and Restated Senior Secured Credit Agreement between themselves, the lenders party thereto and Centre Lane Partners Master Credit Fund II, L.P., as Administrative Agent and Collateral Agent (“Centre Lane Partners”), as amended (the “Credit Agreement”). The Credit Agreement has been amended numerous times to change the terms, including the amounts outstanding, the interest rate, the maturity date and other payment terms. The outstanding principal owed to Centre Lane Partners was $70.2 million and $33.1 million as of December 31, 2023 and 2022, respectively, which matures on April 20, 2026. Of the amount outstanding at December 31, 2023, $879,000, $3.0 million, $879,000 and $879,000 are due on March 31, 2024, June 30, 2024, September 30, 2024 and December 31, 2024, respectively. The balance of $64.6 million is due in 2025 or later. 37 Table of Contents The amount due under the Credit Agreement bears interest of 7.0% per annum plus the Secured Overnight Financing Rate ("SOFR"). At December 31, 2023, the SOFR was 5.39%, thus the overall interest rate on this facility was 12.39% per annum at December 31, 2023. Interest is paid in kind at 12.39% per annum on approximately $34.1 million of the amount owed under the Credit Agreement, and at 15% per annum on $29.2 million of the amount owed under the Credit Agreement. With respect to the remaining $6.9 million owed under the facility, interest is paid in kind at 4% per annum and in cash at the SOFR plus 3.0% (for a total interest rate of 8.39% per annum at December 31, 2023). Effective July 1, 2024, the $34.1 million outstanding under the Centre Lane Senior Secured Credit Facility will bear interest at 7.0% per annum, plus the SOFR plus 5.0%. For a full description of the Centre Lane Senior Secured Credit Facility, see Note 10, "Centre Lane Senior Secured Credit Facility," to the consolidated financial statements. 10% Convertible Promissory Note During November 2018, the Company issued a 10% convertible promissory note (the "Convertible Note") in the amount of $80,000 to the Chairman of the Board, a related party. The Convertible Note is unsecured, matured five years from issuance and was convertible at the option of the holder into shares of our common stock at any time prior to maturity at a conversion price of $0.40 per share. The outstanding principal and interest of the Convertible Note was due and payable in November 2023. At December 31, 2023, approximately $119,000 inclusive of principal and interest is due and payable, and the outstanding principal continues to accrue interest. For a full description of the Convertible Note, see Note 11, "10% Convertible Promissory Note" to the consolidated financial statements. Summary of Cash Flows The following table summarizes cash flow activities during the years ended December 31, 2023, and 2022: Year Ended December 31, ($ in thousands) 2023 2022 Cash flow used in operating activities $ (4,658) $ (3,115) Cash flow used in investing activities (14) (14) Cash flow provided by financing activities 8,353 2,664 Net increase (decrease) in cash and cash equivalents, net of impact of exchange rates $ 3,689 $ (466) Operating Activities Our largest source of operating cash is cash collections from customers from revenue. Our primary uses of our operating cash, are for cost of revenue expenses, personnel-related expenditures and other general administrative expenses. For the year ended December 31, 2023, cash used in operating activities was $4.7 million. The primary factors affecting our operating cash flows during the period were our net loss of $35.6 million, adjusted for non-cash charges of $2.5 million for amortization of intangible assets, $2.1 million of amortization of debt discount, $17.1 million impairment of goodwill and intangibles, $6.7 million in interest paid in kind on the Centre Lane Senior Secured Credit Facility, $58,000 for the allowance of expected credit losses, $196,000 for stock option compensation expense, and a $2.1 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $1.3 million increase in accounts receivables, a $735,000 decrease in accounts payable and accrued expenses, a decrease in other liabilities of $472,000, a decrease in prepaid expenses and other current assets of $360,000, and a $701,000 decrease in deferred revenue. 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 38 Table of Contents $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 the Oceanside shares, $84,000 for the allowance for expected credit losses, $1.1 million from the gain on forgiveness of PPP loans and a $121,000 net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $119,000 decrease in accounts receivable, a $695,000 increase in prepaid and other current assets, a $487,000 decrease in accounts payable and accrued expenses, a $698,000 increase in other liabilities, a $466,000 decrease in interest payable on the Centre Lane Senior Secured Credit Facility, and a $426,000 decrease in deferred revenue. Investing Activities Cash used in investing activities of $14,000 and $14,000 for the year ended December 31, 2023, and 2022, respectively, was due entirely to the purchase of property and equipment. Financing Activities During the year ended December 31, 2023 and 2022 , the Company drew $8.6 million and $3.1 million, respectively, of debt financing from the Centre Lane Senior Secured Credit Facility, which was primarily used for working capital needs, which increased as a result of the Big Village Acquisition, offset by a $270,000 and $0 repayment of principal on the Centre Lane Senior Secured Credit Facility during the year ended December 31, 2023 and 2022, respectively . Contractual Obligations and Commitments The following table represents our contractual obligations as of December 31, 2023, aggregated by type: Total Due in less than 1 year Due 1-3 years Due 3-5 years More than 5 years ($ in thousands) Operating lease $ 303 $ 64 $ 239 $ — $ — Finance lease 60 18 42 — — 10% Convertible Promissory Notes 80 80 — — — Interest payable - 10% Convertible Promissory Notes 39 39 — — — Centre Lane Senior Secured Credit Facility 70,228 5,592 64,636 — — Interest payable - Centre Lane Senior Secured Credit Facility 2,777 2,777 — — — $ 73,487 $ 8,570 $ 64,917 $ — $ — The Company’s liquidity needs, and a discussion of how it intends to meet those needs, is discussed above. See –“Going Concern.” 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 before taxes 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 39 Table of Contents 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 non-GAAP EBITDA and Adjusted EBITDA is as follows: Year Ended December 31, ($ in thousands) 2023 2022 Net loss before tax plus: $ (35,564) $ (8,125) Depreciation expense 125 38 Amortization of intangibles 2,490 1,558 Impairment of goodwill and intangibles 17,070 — Amortization of debt discount 2,074 1,199 Other interest expense 27 14 Interest expense - Centre Lane Senior Secured Credit Facility and Convertible Promissory Notes- related party 7,088 3,050 EBITDA (6,690) (2,266) Stock compensation expense 196 233 Non-recurring professional fees 1,462 657 Non-recurring legal fees 711 — Gain on forgiveness of PPP loan — (1,137) Non-restructuring severance expense 389 50 Adjusted EBITDA $ (3,932) $ (2,463) Critical Accounting Policies Critical Accounting Estimates The preparation of financial statements in conformity with 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 unaudited consolidated financial statements as well as reported amounts of revenue and expenses during the periods presented. Our unaudited 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, valuation of goodwill and intangible assets, allowance for current expected credit losses, the determination of the relative selling prices of our services, percentage of completion for revenue recognition, estimates of amortization period for intangible assets, estimates of depreciation period for property and equipment, discount rates used in the valuation of right-of-use assets and lease liabilities, litigation reserves, the valuation of equity-based transactions, valuation of the Center Lane Senior Secured Facility carrying value regarding debt modification or extinguishment, and the valuation allowance on deferred tax assets. 40 Table of Contents 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 revenue at a point in time when control is transferred to the customer or over time as a percentage of completion or otherwise in accordance with the terms of the contract. 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 the Company will collect the consideration it is entitled to in exchange for the services it provides to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the services promised within each contract and determines those that are performance obligations and assesses whether each promised service is distinct. The Company then recognizes revenue when (or as) the performance obligation is satisfied. The Company generates revenue as follows: • selling of 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; • facilitating the real-time buying and selling of advertisements at scale between networks of buyers, known as DSPs and sellers known as SSPs; • serving advertisers and agencies by providing access to premium resources and leveraging data to optimize programmatic campaigns, where revenue is derived from the planning and execution of creative and media marketing campaigns; and • providing primary and secondary research, competitive intelligence and expert insight to address customer's strategic issues, where revenue is primarily derived from providing a single integrated service for research. Digital publishing and advertising technology revenues are generated by audiences seeing or clicking on digital advertisements utilizing several advertising partners. The Company recognizes revenue once the performance obligation is satisfied at a point in time, on a gross basis, net of adjustments based on the number of advertisements delivered. Customers are billed monthly or billing is generated via custom content production and extensions on our social media platforms. Consumer insights revenues are generated by providing primary and secondary research, competitive intelligence, and expert insight to address customers' strategic issues. The Company recognizes revenue as the services are rendered, by applying the percentage of completion method on a cost-to-cost basis to measure progress toward satisfaction of the performance obligation. Progress toward satisfaction of the performance obligation is measured based on costs incurred to-date relative to the total estimated costs expected to be incurred in providing services. The Company does not include costs that do not contribute to its progress toward satisfying its promise to the customer. Creative services revenues are generated by delivering campaign services to customers. Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for the individual performance 41 Table of Contents obligations separately if they are distinct. If recurring services are performed, the Company recognizes revenue as the services are rendered over time, generally on a ratable basis over the contract term beginning on the date that the service is made available to the customer. For campaign services that require a one-time deliverable, we recognize revenue once the performance obligation is satisfied at a point in time. Media services revenues are generated through the access to programmatic campaigns. The Company recognizes revenue as the services are rendered over time, on a ratable basis over the contract term, beginning on the date that the service is made available to the customer. There is no significant initial cost incurred to obtain contracts with customers. 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 customer. Cost of Revenue Cost of revenue includes internal labor and payment to third parties for services performed to drive revenue, which includes the publisher cost paid for ad exchange on third party sites, advertising fees, personnel costs, technology and data related costs, fees paid for content creation, influencers, writers and sales commission. Leases The Company determines whether an arrangement contains a lease at inception in accordance with FASB Accounting Standards Codification No. 842, Leases, (ASC 842) . A contract is, or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use (“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. For finance leases, we record interest expense on the lease liability in addition to amortizing the right-of-use asset (generally straight-line) over the shorter of the lease term or the useful life of the right-of-use asset. Accounts Receivable and Allowances 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 current expected credit losses in the accompanying consolidated balance sheets. Certain receivables are subject to adjustments from traffic settlements that are deducted from open invoices. Our receivables are not interest bearing and not collateralized. Unbilled receivables are the results of timing differences between billings to clients and is included in accounts receivable. The allowance for current expected credit losses 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 including 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 are exhausted, the determination for charging off uncollectible receivables is made. Expected credit losses are recorded as general and administrative expenses on our consolidated statements of operations and comprehensive loss. 42 Table of Contents 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. When assets are sold or retired, the applicable cost and accumulated depreciation or amortization are removed from the accounts. The resulting gains or losses are reflected in the combined statements of operations and comprehensive loss. 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. We allocate goodwill to reporting units based on the expected benefit from business combination. The Company categorizes goodwill into three reporting units: “Owned & Operated”, “Ad Network” and “Insights”. 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. To the extent the carrying amount exceeds its fair value, an impairment charge of the reporting unit’s goodwill would be necessary. See Note 7, Goodwill to the consolidated financial statements for details regarding goodwill impairment. 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 to ten 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. See Note 6, Intangibles, to the consolidated financial statements for details regarding impairment of intangibles. 43 Table of Contents 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 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. During the year ended December 31, 2023, and 2022, 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 warrants. Stock-based compensation for stock option grants to employees and non-employees is based on the fair value of the award on the date of grant. We record forfeitures as they occur. The Company calculates stock compensation expense using the graded vesting method, which begins expensing each tranche on the expense begin date through the vesting date. This will result in front-loaded expenses, and is included in general and administrative expenses in the consolidated statements of operations. 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 is 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 consolidated statements 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. Our components are digital publishing, advertising technology, consumer insights, creative and media services. There are no segment managers who are held accountable by the Chief Financial Officer, or 44 Table of Contents 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, 2023 and 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. 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 as a result of consolidation are included in accumulated other comprehensive income. Transaction gains and losses are included within “general and administrative expense” on the consolidated statements of operations and comprehensive loss. 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.