Newsmax Inc. 10-K/A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2024 and 2023, and other information included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” included elsewhere in this Annual Report. Additionally, our historical results are not necessarily indicative of the results that may be expected in any future period. Overview of the Company’s Business Founded in 1998 as a digital media brand, Newsmax Inc. entered the cable news market in 2014. Since then, the network has had an astonishing rise, climbing into the top tier of cable channels, and is now the fourth highest-rated cable news channel in the United States, just behind CNN. According to Nielsen, Newsmax Inc. was the only cable news channel to see ratings growth across all day parts in 2023, with prime-time up 42% in total viewers. Q1 2024 also saw an impressive 137% rise in prime-time ratings, compared to the same period last year. The Company has developed a significant audience, reaching over 40 million Americans each month through its television broadcasts and multi-platform content, and has demonstrated remarkable growth with revenues up 332% since 2019. In June 2024, a Reuters global survey of media found Newsmax Inc. was one of the nation’s “top news brands,” identifying the network as one of only 12 major media outlets Americans are turning to regularly. Newsmax Inc. is a holding company that owns 100% of the equity interests of its operating company Newsmax Media and the other Subsidiaries operate the businesses described in this Annual Report, and none of those businesses are operated by Newsmax Inc. Newsmax Inc. is a television broadcaster and multi-platform content publisher that produces original news and editorial content for consumers through various media outlets, including through its TV news channels, digital and print publications, its popular website Newsmax.com and affiliated sites, its syndicated radio show and podcasts and other platforms in order to sell advertising to third-party marketers as well as offering paid subscriptions to more than a dozen digital and print products sold by Newsmax Media. Newsmax Media content is carried by all major linear cable and satellite pay TV platforms, or MVPDs for the Newsmax and World at War channels, and most over the top (“OTT”) streaming platforms for its free ad-supported streaming television service (“FAST”) channel Newsmax2, making Newsmax Media content available to over 100 million homes in the U.S. In addition, international companies have licensed Newsmax Media’s channels and brand for regional, national and local television and digital media purposes. Certain licensing agreements currently in place have allowed Newsmax Media’s partners to provide cable television and digital news under the Newsmax Media brand to viewers in several European countries, including Republic of Serbia, Republic of Croatia, Bosnia and Herzegovina, Montenegro, North Macedonia, Slovenia and Albania. Newsmax Inc. operates several business lines through its subsidiaries and divisions, creating a synergistic effect on audience growth, revenues and customer acquisition. These business lines are grouped into 2 separate reportable segments which consist of Broadcasting and Digital: • Broadcasting - The broadcast segment of the Company’s business produces and licenses news, business news and lifestyle content for distribution primarily through multichannel video programming distributors 43 (“MVPDs”) including cable television systems, direct broadcast satellite operators and telecommunication companies, primarily in the United States, generating revenue through (1) placement of advertisements on our broadcast content, (2) subscriptions to our broadcast content, and (3) affiliate fees from the MVPDs. The components of Broadcasting are as follows: • Newsmax Broadcasting LLC provides programming through three channels, Newsmax, Newsmax2, and World at War. Newsmax and World at War are linear cable channels available on pay TV services, and Newsmax2, is a free streaming channel. Both Newsmax and Newsmax2 offer 24/7 television news and informational programming channels which are distributed through both cable and digital streaming platforms. World at War offers 24/7 historical documentaries and movies that have a primary focus on the wars of the past 150 years and the people who fought them. • Newsmax Radio LLC provides programming through a syndicated radio show as well as widely-available podcasts. These podcasts include “The Newsmax Daily with Tony Marino,” a talk show with radio personality Gerry Callahan and “Greg Kelly Reports” with its TV host Greg Kelly. • Digital - The digital segment generates revenues through (1) online advertising, including online display, email advertising, other online placements and print advertisements, (2) subscriptions, including our collection of specialized health and financial newsletters, Newsmax Magazine and four online membership programs, and (3) e-commerce, primarily through our subsidiaries that sell nutraceuticals and nonfiction books on political, financial and health-related topics. The components of Digital are as follows: • Humanix Publishing LLC is a print and e-book publishing house that publishes books in the areas of politics, health, personal finance, history, religion and current affairs. Under Newsmax ownership, Humanix Publishing has published approximately 100 titles, including a New York Times bestseller. The Company uses published books as free premiums when offering subscriptions to their publications, including Newsmax Magazine and their health and financial newsletters. • Medix Health, LLC offers and sells 22 nutraceutical products. Medix Health’s products are aimed at Newsmax Media’s core demographic of consumers and cross-sold through Newsmax Media’s health newsletters. These supplements have been certified as compliant with current Good Manufacturing Practices by The Natural Products Association and are typically formulated by medical doctors who also write and edit Newsmax Media’s health newsletters. Newsmax Media retains all intellectual property rights to the supplement formulations created for Medix Health. The natural supplements seek to help customers alleviate pain, reduce blood glucose, prevent heart disease, improve energy and mental acuity, and, in general, improve overall wellness. All Medix Health supplements are manufactured at third-party manufacturing facilities that are FDA registered and meet current Good Manufacturing Practices standards. All Medix Health supplements are offered online and are usually purchased as part of a recurring subscription program. • Newsmax Digital Advertising handles advertising and marketing offers and sales to third party companies and agencies associated with our digital segment. Newsmax Digital Advertising sells placements for display and native website ads, email sponsorships in Newsmax News Alerts, sponsorships for SMS/text and push notification, print ads for our magazine, inserts for our newsletters, and podcast offerings. • Newsmax Publications publishes and manages Newsmax Media’s paid subscription business. This subsidiary currently publishes Newsmax Magazine, five health newsletters including Health Radar, Dr. Crandall’s Heart & Health; The Blaylock Wellness Report; financial newsletters including The Dividend Machine, High Income Factor and Financial Intelligence Report, and Newsmax Platinum, our online publication. This subsidiary has over 300,000 subscribers to its paid publications. • ROI Media Strategies LLC provides media buying and strategy services to third party companies and agencies, helping small companies to market their offerings across all channels of marketing, including email, broadcast, podcasts, digital, and print. • Crown Atlantic Insurance LLC is an insurance agency licensed in 50 states of the U.S. and the District of Columbia with an emphasis on life insurance and retirement solutions. Newsmax Media’s subsidiaries use Crown Atlantic Insurance LLC for the purposes of marketing annuities, life insurance and other insurance offerings across their platforms. 44 Growth Strategies and Outlook Maintain and enhance leading position in news and other content production. Newsmax Media has been a leader in digital news and with the continued growth of its television service, plans to continue to invest in talent acquisition and programming that we expect to raise the profile and visibility of Newsmax Media to a broader audience. With expanded content offerings, Newsmax Media plans to expand its reach and value to audiences through traditional platform and direct-to-consumer services. Increase revenue growth through the continued delivery of premium content. Newsmax Media will continue to focus on creating high-quality content delivered through diversified publishing platforms that offers value to its audience, advertisers and distribution partners. As a live linear content service, Newsmax Media seeks to offer a unique perspective and voice that resonates with audiences across those platforms and further develop a dedicated and loyal audience. Expand television and digital distribution offerings, increasing complementary sources of revenues. • Newsmax Media’s key goals are to maximize its subscriber penetration on traditional cable platforms, growing its subscription base for Newsmax+, increasing audiences for its news channels, develop its footprint in international markets - all while creating additional revenue opportunities through advertising sales. Newsmax Media will also further develop its delivery strategies on emerging content and social platforms to increase interaction with its audience. • Newsmax, as a relatively new network, has potential for additional distribution growth, and growth of its advertising and affiliate fee revenue, which is a new revenue stream in 2023. Linear TV is primarily driven by live sports, news and events, and as media companies continue to focus on expanding their streaming service offerings, news consumption has risen in importance. Trends and Other Factors Impacting Our Performance The Company’s broadcast segment derives the majority of its revenues from advertising. For the year ended December 31, 2024, the Company generated revenues of approximately $171.0 million, of which 63.8% was generated from advertising in the broadcast and digital segments, 15.6% was generated from affiliate fee revenue, 15.7% was generated from subscriptions for publications including Newsmax+ and 4.9% was generated from other lines of business which are primarily e-commerce sales of nutraceuticals, books and licensing fees. For the year ended December 31, 2023, the Company generated revenues of $135.3 million, of which approximately 79.3% was generated from advertising in the broadcast and digital segments, approximately 13.4% was generated from subscriptions for publications including Newsmax+, approximately 5.5% was generated from other lines of business which are primarily e-commerce sales of nutraceuticals, books and licensing fee and approximately 1.8% was generated from affiliate fees. Affiliate fees are a new revenue stream that started in November 2023 that primarily include (i) monthly subscriber-based license and retransmission consent fees paid by programming distributors that carry the Newsmax channel. The Company’s revenues are impacted by rate changes, changes in the number of subscribers to MVPD’s and changes in the expenditures by advertisers. The cable network programming and television industries continue to evolve rapidly, with changes in technology leading to alternative methods for the delivery and storage of digital content. These technological advancements have driven changes in consumer behavior as consumers now have more control over when, where and how they consume content. Consumer preferences have evolved toward lower cost alternatives, including direct-to-consumer offerings. These changes in technologies and consumer behavior have contributed to declines in the number of subscribers to MVPD services, and these declines are expected to continue and possibly accelerate in the future. At the same time, technological changes have increased advertisers’ options for reaching their target audiences. There has been a substantial increase in the availability of content with reduced advertising or without advertising at all. As consumers switch to digital consumption of video content, there is still to be developed a consistent, broadly accepted measure of multiplatform audiences across the industry. Furthermore, the pricing and volume of advertising may be 45 affected by shifts in spending from more traditional media and toward digital and mobile offerings, which can deliver targeted advertising more promptly, or toward newer ways of purchasing advertising. The Company operates in a highly competitive industry and its performance is dependent, to a large extent, on the impact of changes in consumer behavior as a result of new technologies, the sale of advertising, the maintenance, renewal and terms of its carriage, affiliation and content agreements and programming rights, the popularity of its content, general economic conditions (including financial market conditions), the Company’s ability to manage its businesses effectively, and its relative strength and leverage in the industry. For more information, see “Risk Factors.” Components of our Results of Operations Revenue Recognition In accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods are services. Advertising Revenue Advertising revenue is derived from the sale of advertising on the Company’s cable television, email database, in the Company’s magazine and related publications, or on the Company’s website. Revenue related to the sale of advertising in the broadcast segment is recognized at the time of broadcast. Revenue related to the Company's digital segment is recognized when display or other digital advertisements record impressions on the various digital media. Revenue related to the Company's magazine and related publications is recognized when the ad is displayed in the printed document. Each advertisement insertion order is determined to be a distinct performance obligation that is satisfied at the point in time when such advertisements are published/aired. The Company records revenue from contracts that are entered into between the Company and its customers, primarily advertising agencies and direct advertisers, at the amount charged for the services. Advertising contracts, which are generally short-term, are billed monthly for the services provided during the month, with payments due shortly thereafter. Cash payments received prior to services rendered result in deferred revenue, which is then recognized as revenue when the advertising time or space is actually provided. The Company enters into agreements with over-the-top distribution platforms to distribute the Company’s news channel. Pursuant to the Company’s distribution agreements, advertising revenues are earned based on an allocation of the fee determined by the number of impressions received. These contracts represent a single performance obligation recognized over time under the series guidance. Revenue is recognized upon delivery of the content over the course of an over-the-top distribution agreement term based on time elapsed, as this best depicts the simultaneous consumption and delivery of the services. The Company bills OTT customers monthly over the life of the contract. The Company has an unconditional right to receive payment of the amount billed generally within 30 days from the invoice date. The invoiced amount to be received is recorded in accounts receivable on the balance sheets. Affiliate Fee Revenue The Company generates affiliate fee revenue from agreements with MVPDs for cable network. Affiliate fee revenue is recognized as we continuously make the programming available to the customer over the term of the agreement. For contracts with affiliate fees based on the number of the affiliate’s subscribers, revenues are recognized based on the contractual rate multiplied by the estimated number of subscribers each period. Affiliate contracts are generally multi-year contracts billed monthly with payments due shortly thereafter. Subscription Revenue The Company sells magazines to consumers through subscriptions. Each subscription is determined to be a distinct performance obligation that is satisfied over the term of the subscription, normally one (1) to five (5) years. Payments for subscriptions received in advance of the publication are recorded as deferred revenue and recognized as income over the term, as this best represents the transfer of control of the services to the consumer. The Company records taxes collected from customers and remitted to governmental authorities on a net basis. In 2023, the Company launched Newsmax+ which is a subscription service that provides the Company’s broadcast content directly to consumers either on a monthly or annual basis. Monthly subscriptions are recognized as income in the month it was earned. Annual subscriptions are recorded as deferred revenue and recognized as income over the term of the contract each month. 46 Product Sales Product sales are derived from the sales of books, audio and video, dietary supplements, television production and distribution, and other items advertised on the Company’s website. Supplement, books, media and other product sales are recognized at the point in time control transfers to the customer, which is when the product is shipped. Allowances are considered for estimated returns and refunds at the point in time when revenue is recognized. The Company records taxes collected from customers and remitted to governmental authorities on a net basis. As a practical expedient, the Company recognizes any incremental costs of obtaining contracts as expense as the amortization period is considered to be a year or less. As a practical expedient, the Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Shipping and Handling Cost Amounts billed to third-party customers for shipping and handling are included as a component of revenue. Shipping and handling costs incurred are included as a component of cost of products sold. Cost of Revenues Cost of revenues consists primarily of compensation-related expenses and costs incurred for the publishing of editorial, promotional, and news content across all platforms, as well as amounts due to third party websites and platforms to fulfil customers’ advertising campaigns. Web hosting and advertising serving platform costs are also included in cost of services. Cost of product sold consists primarily of cost of inventory sold, fulfillment costs and compensation. General and Administrative expenses General and administrative expense consists of compensation-related expenses for corporate employees. Also, it consists of expenses for advertising, facilities, professional services fees, insurance costs, legal or other corporate costs, and other general overhead costs. Accounts Receivable and Allowance for Credit Losses The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses and doubtful accounts. The Company’s allowance for credit losses consists of losses expected based on known credit issues with specific customers as well as a general expected credit loss allowance based on relevant information, including historical loss rates, current conditions, and reasonable economic forecasts that affect collectability. Inventory Inventory consists of promotional items, books and supplements and is stated at the lower of cost (first-in, first-out basis) or net realizable value. The Company also reduces the carrying value of inventories for items identified as excess, obsolete, or slow-moving based on customer demand and other economic factors. Advertising Costs Amounts incurred for advertising costs with third parties are expensed as incurred. Defamation and Disparagement Claims From time to time, the Company is subject to lawsuits alleging defamation or disparagement. These include lawsuits filed by Smartmatic USA Corp. and certain of its affiliates (collectively, “Smartmatic”) and Dominion Voting Systems, Inc. and certain of its affiliates (collectively, “Dominion”) filed during 2021. The Smartmatic complaint sought an unspecified amount of damages while the Dominion complaint is seeking $1.6 billion in damages. On September 26, 2024, the Company entered into a settlement agreement with Smartmatic pursuant to which the parties agreed to resolve the lawsuits among them. The Company agreed to pay a settlement of approximately $40 million payable over time and granted a five year warrant to purchase 2,000 shares of Series B preferred stock at an exercise price of $5,000 per share , which is included in other corporate matters in the Consolidated Statements of Operations and Comprehensive (Loss) Income for the year ended December 31, 2024 and recorded as accrued expenses on the Consolidated Balance Sheet with a balance of $20 million as of December 31, 2024. 47 Results of Operations Year ended December 31, 2024, versus December 31, 2023 The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report. The following table sets forth our results of operations data for the year ended December 31, 2024, as compared to the year ended December 31, 2023: Year ended December 31, 2024 2023 $ Change % Change Revenues Service Revenues Advertising $ 109,128,471 $ 107,322,024 $ 1,806,447 1.7 Subscription 26,907,098 18,080,467 8,826,631 48.8 Affiliate fee 26,661,701 2,410,039 24,251,662 1,006.3 Other 2,308,856 1,027,151 1,281,705 124.8 Product Sales 6,010,329 6,436,346 (426,017) (6.6) Total revenues $ 171,016,455 $ 135,276,027 $ 35,740,428 26.4 Cost of revenues 86,968,328 79,455,996 7,512,332 9.5 Gross profit $ 84,048,127 $ 55,820,031 28,228,096 50.6 General & administrative 153,856,367 100,915,301 52,941,066 52.5 Other (expense) income, net (2,363,689) 3,336,654 (5,700,343) (170.8) Loss before income tax expense $ (72,171,928) $ (41,758,616) $ (30,413,312) (72.8) Income tax expense — 18,550 (18,550) (100.0) Net loss $ (72,171,928) $ (41,777,166) $ (30,394,762) (72.8) Revenues Revenues increased by approximately $35.7 million, or 26.4%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. Affiliate fee revenues increased by approximately $24 million due to new contractual relationships starting, principally in November 2023. Subscription revenue increased by approximately $9 million due to the launch of Newsmax+ streaming service that started in November 2023 but was offset by reductions in publication subscriptions due to decreased new customer acquisition. Product Sales decreased by approximately $(0.4) million due to lower nutraceutical sales as a result of decreased new customer acquisition. Advertising revenue increased by approximately $1.8 million due to higher linear cable and satellite advertising revenue due to higher Nielsen ratings but was offset by reductions in OTT revenue resulting from the launch of Newsmax 2 in November 2023. Cost of Revenues Cost of revenues increased by approximately $7.5 million, or 9.5%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was due to increased headcount, programming and production costs on our main Newsmax TV channel as well as investment into Newsmax 2 for OTT to build out the programming to better monetize Newsmax 2 on FAST channels. These increases were offset by reductions in distribution and carriage costs of approximately $2.3 million and approximately $0.9 million in royalty and product fulfillment costs for the period. Gross Profit Gross profit increased by approximately $28.2 million, or 50.6%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. Gross profit as a percent of revenues increased to 49.1% for the year ended December 31, 2024 from 41.3% for the year ended December 31, 2023. Gross profit increased mainly due to the addition of affiliate fee and Newsmax+ revenue streams. 48 General and Administrative Expense General and administrative expense increased by approximately $52.9 million or 52.5%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to the settlement of the Smartmatic lawsuit and associated legal fees of $76.9 million. These increases were offset by a decrease in impairment costs where the Company recognized a $23.9 million impairment of the capitalized upfront costs associated with a business agreement with a commercial counterparty in 2023 and no subsequent impairment in 2024. Other (Expense) Income, Net Other (expense) income net decreased by approximately $(6) million, or 170.8%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily due to loss on embedded derivatives and warrant liability of $2.2 million versus the income related to income tax credits and unrealized gain on securities recognized in 2023.. Segment Analysis The following tables set forth the Company’s Revenues and Segment EBITDA for the year ended December 31, 2024, as compared to the year ended December 31, 2023: 2024 2023 $ Change % Change Revenues Broadcasting $ 130,708,405 $ 92,680,683 $ 38,027,722 41.0 Digital 40,308,050 42,595,344 (2,287,294) (5.4) Total revenues $ 171,016,455 $ 135,276,027 $ 35,740,428 26.4 2024 2023 $ Change % Change Segment Adjusted EBITDA Broadcasting $ 19,726,103 $ (7,722,782) $ 27,448,885 187.3 Digital (9,478,015) (2,653,753) (6,824,262) (7.7) Adjusted EBITDA 1 $ 10,248,088 $ (10,376,535) $ 20,624,623 146.3 Broadcasting 2024 2023 $ Change % Change Revenues Advertising $ 89,379,946 $ 88,343,596 $ 1,036,350 1.2 Subscription 12,358,641 901,215 11,457,426 1271 Affiliate fee 26,661,701 2,410,039 24,251,662 1,006.3 Other 2,308,117 1,025,833 1,282,284 125.0 Total revenues $ 130,708,405 $ 92,680,683 $ 38,027,722 41.0 Cost of revenues 65,956,021 57,552,788 8,403,233 14.6 Gross profit $ 64,752,384 $ 35,127,895 29,624,489 84.3 General & administrative 45,026,281 42,850,677 2,175,604 5.1 Segment Adjusted EBITDA 2 $ 19,726,103 $ (7,722,782) $ 27,448,885 187.3 1 For a discussion of Adjusted EBITDA, see "Non-GAAP Financial Measures" below. 2 For a discussion of Adjusted EBITDA, see "Non-GAAP Financial Measures" below. 49 Broadcast Revenues increased by $38.0 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to an increase in affiliate fee revenue of approximately $24.3 million , which is attributed to significant new contractual relationships starting principally in November 2023, advertising revenue of approximately $1.0 million due to higher ratings and pricing, subscription revenue of approximately $11.5 million from Newsmax+ which launched in November 2023 and licensing revenue of approximately $1.3 million . Broadcast Segment Adjusted EBITDA increased for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to an increase in gross profit driven by the addition of affiliate fee revenue which did not require a significant increase in expense. Other factors that affected segment adjusted EBITDA are increased headcount, programming and production costs on our main Newsmax TV channel as well as investment into Newsmax 2 for OTT to build out the programming to better monetize Newsmax 2 on FAST channels. These increases were offset by reductions in distribution and carriage costs, OTT transmission expenses, marketing for TV promotion and bad debt expense. Digital 2024 2023 $ Change % Change Revenues Advertising $ 19,748,525 $ 18,978,428 $ 770,097 4.1 Subscription 14,548,457 17,179,252 (2,630,795) (15.3) Product sales 6,010,329 6,436,346 (426,017) (6.6) Other 739 1,318 (579) (43.9) Total revenues $ 40,308,050 $ 42,595,344 $ (2,287,294) (5.4) Cost of revenues 21,012,307 21,903,208 (890,901) (4.1) Gross profit $ 19,295,743 $ 20,692,136 (1,396,393) (6.7) General & administrative 28,773,758 23,345,889 5,427,869 23.2 Segment Adjusted EBITDA 3 $ (9,478,015) $ (2,653,753) $ (6,824,262) (7.7) Digital Revenues decreased by $(2.3) million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to decreases in subscription revenue and e-commerce nutraceutical sales as a result of decreased marketing for new customer acquisitions which were offset by increased advertising revenue due to higher page views and CPM’s associated with the news cycle. Digital Segment Adjusted EBITDA decreased for the year ended December 31, 2024, as compared to year ended December 31, 2023, due to additional headcount and increased audit expenses related to capital raise. Year ended December 31, 2024 versus year ended December 31, 2023 The following table reconciles Net loss to Adjusted EBITDA for the year ended December 31, 2024, as compared to the year ended December 31, 2023: 2024 2023 Net loss $ (72,171,928) $ (41,777,166) Add Depreciation 3,115,635 3,164,254 Interest, net (488,962) (104,299) Asset impairment - 23,928,359 Unrealized (gain) loss on marketable securities 290,081 (46,318) Other corporate matters 76,940,693 7,626,122 Other, net 4 2,562,569 (3,186,037) 3 For a discussion of Adjusted EBITDA, see "Non-GAAP Financial Measures" below. 4 Comprised of miscellaneous items such as derivative adjustments, income tax credits, and unrealized gains on securities 50 Income tax expense - 18,550 Adjusted EBITDA 5 $ 10,248,088 $ (10,376,535) Liquidity and Capital Resources The Company had approximately $24.1 million of cash and cash equivalents and $58.3 million in investments as of December 31, 2024. The Company’s primary sources of liquidity include cash on hand and cash generated from operations which are highly dependent upon the state of the advertising markets, consumer spending and other conditions, many of which are beyond the Company’s control. On September 26, 2024, the Company entered into a settlement agreement with Smartmatic pursuant to which the parties agreed to resolve the lawsuits among them. The Company agreed to pay a settlement of approximately $40 million payable over time and granted a five year warrant to purchase 2,000 of Series B preferred stock at an exercise price of $5,000 per share. As of the date hereof, the Company has made payments under the settlement agreement totaling $20 million. Payment of the remaining balance will be made in installments of $10 million on or prior to each of March 31, 2025 and June 30, 2025. The payments will be made from the Company’s existing cash on hand. The principal uses of cash that affect the Company's liquidity position include the following: operational expenditures including production cost, marketing and promotional expenses, expenses related to broadcasting the Company's programming, employee and facility costs, capital expenditures, income taxes, interest payments and legal fees and settlements. The Company completed the Private Placement on February 27, 2025, having sold 45,000 shares of its Series B Preferred Stock, resulting in net proceeds to the Company of approximately $206,660,000. The Company believes these sources of liquidity are sufficient to meet its business operating requirements and its capital expenditures for the next 12 months. Convertible Preferred Stock Convertible Preferred Stock as of December 31, 2024 and December 31, 2023 (41,034 and 11,034 total shares authorized, respectively, and all classes are $0.001 par value per share) is as follows: Issued and Outstanding as of Class December 31, 2024 December 31, 2023 Series A 611 611 Series A (with redemption rights) 35 35 Series A-1 1,222 1,222 Series A-2 2,647 2,647 Series A-3 1,060 1,060 Series B 27,612 1,897 33,187 7,472 The shares of Series A, Series A-1, Series A-2, and Series A-3 Preferred Stock accrue an annual dividend rate of 5.0% on the price per share. Dividends accrue quarterly and are payable when and if declared and only upon the occurrence of a liquidity event. The holders of shares Series A-1, A-2 and A-3 Preferred Stock also have the right to designate members to the Company’s board of directors, demand registration rights and limited approval rights. As of December 31, 2024 and December 31, 2023, the Company has not recognized an accrual for unpaid dividends on Series A, Series A-1, Series A-2, and Series A-3 Preferred Stock which amount to $31,530,453 and $25,723,781, respectively. Included in these amounts are dividends that have been accreted to the preferred stock being measured at its maximum redemption value (See Note 14 to the December 31, 2024 audited consolidated financial statements included elsewhere in this registration statement). 5 For a discussion of Adjusted EBITDA, see “Non-GAAP Financial Measures” below. 51 The shares of Series B Preferred Stock accrue an annual dividend rate of 7.0% on the price per share. Dividends accrue daily and are payable when and if declared by the board of directors, or upon the occurrence of a liquidity event. The holders of shares of Series B Preferred Stock do not have voting rights. Series B Preferred Stock is classified in permanent equity because redemption is within control of the Company. Accumulated and unpaid dividends on Series B Preferred stock was $2,199,086 as of December 31, 2024. The shares of Series A, Series A-1, Series A-2, Series A-3, and Series B Preferred Stock have preference over dividends payable with respect to Existing Common Stock. No cash or other dividend or distribution may be declared or paid on the Existing Common Stock unless a dividend or other distribution is also declared and paid on the shares of Series A, Series A-1, Series A-2, Series A-3, and Series B Preferred Stock. The Preferred Stockholders have liquidation rights over holders of Existing Common Stock in the event of a liquidation in an amount equal to their respective price per share. The shares of Series A, Series A-1, Series A-2 and Series A-3 Preferred Stock have conversion rights to convert into shares of Existing Class A Common Stock. The shares of Series B Preferred Stock have conversion rights to convert to shares of Existing Class B Common Stock. For details of the conversion terms, see "Description of Capital Stock" in our offering statement on Form 1-A as filed with the SEC on March 19, 2025. Cash and Cash Equivalents As of December 31, 2024, cash and cash equivalents balance was approximately $24.1 million. Cash and cash equivalents consist of interest-bearing deposit accounts and money market accounts managed by third-party financial institutions, and highly liquid investments with maturities of three months or less. The existing cash and cash equivalents, along with projected cash flows, are sufficient to fund our liquidity needs for the next 12 months. At this time, we do not anticipate the need to raise additional capital. The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods: December 31, 2024 2023 Net cash provided by (used in): Operating activities $ (48,687,432) $ (3,831,504) Investing activities (58,428,592) 5,395,227 Financing activities 125,131,700 427,443 Operating Activities Net cash used in operating activities for the year ended December 31, 2024 was $48.7 million and was primarily due to a net loss, increase in accounts receivable and decrease in accounts payable offset by depreciation, warrant liabilities, derivative liabilities and an increase in settlement liabilities. Net cash used in operating activities for the year ended December 31, 2023 was $3.8 million and was primarily due to a net loss offset by loss on asset impairment, depreciation, increase in accounts payable and decrease in accounts receivable and prepaid distribution. Investing Activities Net cash used in investing activities for the year ended December 31, 2024 was $58.4 million primarily due to an increase in the purchase of investments offset by purchases of fixed assets. Net cash provided by investing activities for the year ended December 31, 2023 was $5.32 million primarily due to an increase in the sale of investments offset by purchases of fixed assets. Financing Activities Net cash provided by financing activities for the year ended December 31, 2024 was $125.1 million primarily due to a proceeds received from issuance of convertible stock. 52 Non-GAAP Financial Measures Adjusted EBITDA is defined as revenues less cost of revenues and general and administrative expenses and does not include depreciation and amortization, interest expense, net, impairment charges, unrealized gains (losses) on marketable securities, other corporate matters (consisting primarily of certain litigation expenses, and related fees, for specific legal proceedings that the Company has determined are infrequent and unusual in terms of their magnitude), other, net, and income tax expense. Management believes that information about Adjusted EBITDA assists all users of the Company’s financial statements by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from non-operational factors that affect net income, thus providing insight into both operations and the other factors that affect reported results. Adjusted EBITDA provides management, investors and equity analysts a measure to analyze the operating performance of the Company’s business and its enterprise value against historical data and competitors’ data, although historical results, including Adjusted EBITDA, may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences). Adjusted EBITDA is considered a non-GAAP financial measure and should be considered in addition to, not as a substitute for, net income, cash flow and other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (“GAAP”). In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment charges, which are significant components in assessing the Company’s financial performance. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Off-Balance Sheet Arrangements As of December 31, 2024, we did not have any off-balance sheet arrangements. Critical Accounting Estimates Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments related to credit provisions, fair value of the derivative liability, fair value of the warrant liability and income taxes. Management bases its estimates and judgments on historical experience as well as various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting estimates, among others, reflect the more significant judgments and estimates used in the preparation of our financial statements. Embedded Derivatives Embedded derivatives that are required to be bifurcated from the underlying host instrument are accounted for and valued as a separate financial instrument. These embedded derivatives are bifurcated, accounted for at their estimated fair value, which is based on certain estimates and assumptions, and presented separately on the consolidated statements of financial position. Changes in fair value of the embedded derivatives are recognized as a non-cash component of other expense, net on our consolidated statements of operations and comprehensive (loss) income. The fair value for embedded derivatives are measured on a recurring basis using Level 3 inputs. Warrants The Company evaluates warrants under ASC 815-40, Contracts in Entity’s Own Equity. The Company assesses whether the warrant is a freestanding financial instruments and whether it meets the criteria to be classified in stockholders’ equity, or classified as a liability under ASC 480, Distinguishing Liabilities from Equity. Warrant liabilities are categorized within Level 3 of the fair value hierarchy and are remeasured at each financial reporting date with any changes in fair value being recognized as non-cash gains or losses in change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive (loss) income. 53 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is contained in the financial statements set forth in Item 15(a) under the caption "Consolidated Financial Statements" as part of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.