# Paradium.AI, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Paradium.AI, Inc.](/companies/paai.md) (CIK 894871)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 16:37 ET
- Period: 2023-09-30
- Accession: 0001493152-23-041192
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/894871/000149315223041192/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/894871/000149315223041192/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $63.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $173.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $35.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $102.4m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $28.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $71.2m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$6.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$35.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $4.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $13.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $61.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $168.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$11.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$50.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.48 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.33 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.48 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.33 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 23,445,675 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 21,567,166 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$22.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $7.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $84.1m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $191.6m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $152.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $250.7m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $82.4m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $20.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | −$59.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 50,217 characters.

*The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2023 and* 2022 *should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Annual Report on Form 10-K filed with the SEC on March 31, 2023. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors.. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Forward-Looking Statements.”*

### Overview

We are a tech-powered media company that focuses on building deep content verticals powered by a best-in-class digital media platform (the “Platform”) empowering premium publishers who impact, inform, educate, and entertain. Our strategy is to focus on key verticals where audiences are passionate about a topic category (e.g., sports and finance), and where we can leverage the strength of our core brands to grow our audience and increase monetization both within our core brands as well as our media publisher partners (each, a “Publisher Partner”). Our focus is on leveraging our Platform and iconic brands in targeted verticals to maximize audience reach, improve engagement, and optimize monetization of digital publishing assets for the benefit of our users, our advertiser clients, and our greater than 40 owned and operated properties as well as properties we run on behalf of independent Publisher Partners. We operate the media businesses for Sports Illustrated, own and operate TheStreet, Inc. College Spun Media Incorporated, Parade Media, and Men’s Journal and power more than 320 independent Publisher Partners, including the many sports team sites that comprise FanNation. Each Publisher Partner joins the Platform by invitation only and is drawn from premium media brands and independent publishing businesses with the objective of augmenting our position in key verticals and optimizing the performance of the Publisher Partner. Publisher Partners incur the costs in content creation on their respective channels and receive a share of the revenue associated with their content. Because of the state-of-the-art technology and large scale of the Platform and our expertise in search engine optimization, social media, ad monetization and subscription marketing, Publisher Partners continually benefit from our ongoing technological advances and bespoke audience development expertise. Additionally, we believe the lead brand within each vertical creates a halo benefit for all Publisher Partners in the vertical while each of them adds to the breadth and quality of content. While the Publisher Partners benefit from these critical performance improvements they also may save substantially in costs of technology, infrastructure, advertising sales, and member marketing and management.

Of the more than 320 Publisher Partners, a large majority of them publish content within one of our four verticals of sports, finance, lifestyle or men’s lifestyle, and oversee an online community for their respective sites, leveraging our Platform, monetization operation, distribution channels and data and analytics offerings and benefiting from our ability to engage the collective audiences within a single network. Generally, Publisher Partners are independently owned, strategic partners who receive a share of revenue from the interaction with their content. Audiences expand and advertising revenue may improve due to the scale we have achieved by combining all Publisher Partners onto a single platform and a large and experienced sales organization. They may also benefit from our membership marketing and management systems, which we believe will enhance their revenue.

Our growth strategy is to continue to expand by adding new premium publishers with high quality brands and content either as independent Publisher Partners, by acquiring publishers as owned and operated entities or strategic expansion as described under *Recent Developments.*

### Recent Developments

On November 5, 2023, we signed a definitive business combination agreement (the “BCA”) to combine its operations with those of Bridge Media Networks, LLC (“Bridge Media Networks” or “Bridge Media”) a wholly owned subsidiary of Simplify Inventions, LLC (“Simplify”). The transactions contemplated by the BCA (the “Transaction(s)” or the “Transaction Agreement”) are subject to customary conditions, including the approval by the Company’s shareholders and certain regulatory approvals. Key components of the BCA and related transactions include: (i) a restructure of the Company’s balance sheet and pay down of approximately $20,000 of the 2022 Bridge Notes and $6,000 of the 2023 Notes and the extension of the maturity date of its remaining Notes for a period of three years at an interest rate of 10.0%; (ii) a cash investment of approximately $50,000, comprised of a $25,000 purchase of common stock and a $25,000 investment in newly created Series L preferred stock with a 10.0% non-cash paid-in-kind (PIK) dividend; (iii) an advertising commitment of approximately $60,000 to be spent $12,000 annually for five (5) years from a group of consumer brands also owned by Simplify; and (iv) a business combination resulting in the Company owning and operating Bridge Media Networks’ two 24-hour networks, NEWSnet and Sports News Highlights, as well as the automotive and travel properties *Driven and TravelHost* (these components collectively defined as the “Business Combination”). The Business Combination will result in Simplify and related entities holding approximately 65.0% upon consummation of the transaction of the fully diluted common stock of a newly formed company (“New Arena”) to effectuate the Business Combination.

In addition, at the closing of the Business Combination, New Arena will enter into a stock purchase agreement with Simplify or one of its affiliates (the “Simplify SPA Party”), pursuant to which the Simplify SPA Party will agree to purchase such number of shares of New Arena common stock having an aggregate value of $20,000 in one or more private placements at New Arena’s option for one-year from the closing date of the Business Combination (the “additional equity issuances”). Pursuant to the stock purchase agreement, at closing of the Business Combination, 60,000 shares of New Arena’s common stock will be issued as payment of a 1.5% commitment fee.

For additional information related to the BCA, refer to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2023, which includes the full text of the BCA as Exhibit 2.1.

### Impact of Macroeconomic Conditions

Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including as a result of increases in inflation, rising interest rates and instability in the global banking system and geopolitical factors, including the ongoing conflicts in Ukraine and Israel and the responses thereto, and the remaining effects of the COVID-19 pandemic. While we are closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside of our control and could exist for an extended period of time. As a result, we are subject to continuing risks and uncertainties and continue to closely monitor the impact of the current conditions on our business. For additional information, see the sections titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 and in this Quarterly Report.

### Key Operating Metrics

We monitor and review the key operating metrics described below as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods, for the three and nine months ended September 30, 2023, an increase of 19% and 14%, respectively, as compared to the same period in fiscal 2022. Management monitors and reviews these metrics because such metrics are readily measurable in real time and can provide valuable insight into the performance of and trends related to our digital advertising revenue and our overall business. We consider only those key operating metrics described here to be material to our financial condition, results of operations and future prospects.

Our key operating metrics are identified below:

- Revenue per page view (“RPM”) – represents the advertising revenue earned per 1,000 pageviews. It is calculated as our advertising revenue during a period divided by our total page views during that period and multiplied by $1,000; and
- Monthly average pageviews – represents the total number of pageviews in a given month or the average of each month’s pageviews in a fiscal quarter or year, which is calculated as the total number of page views recorded in a quarter or year divided by three months or 12 months, respectively.

For pricing indicators, we focus on RPM as it is the pricing metric most closely aligned with monthly average pageviews. RPM is an indicator of yield and pricing driven by both advertising density and demand from our advertisers.

Monthly average pageviews are measured across all properties hosted on the Arena Platform and provide us with insight into volume, engagement and effective page management and are therefore our primary measure of traffic. We utilize a third-party source, Google Analytics, to confirm this traffic data.

As described above, these key operating metrics are critical for management as they provide insights into our digital advertising revenue generation and overall business performance. This information also provides feedback on the content on our website and its ability to attract and engage users, which allows us to make strategic business decisions designed to drive more users to read or view more of our content and generate higher advertising revenue across all properties hosted on the Arena Platform.

For the three and nine months ended September 30, 2023 our RPM was $22.98 and $19.73, representing a 35% and 23% increase from RPM of $17.00 and $16.01 for the three and nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2023 our monthly average pageviews were 424,892,705 and 446,094,684, representing a decline of 12% and 8% as compared to monthly average pageviews were 484,299,721 and 482,326,093 for the three and nine months ended September 30, 2022, respectively.

All dollar figures presented below are in thousands unless otherwise stated.

### Liquidity and Capital Resources

### Going Concern

Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Our condensed consolidated financial statements do not include any adjustments that might be necessary if it is unable to continue as a going concern.

For the nine months ended September 30, 2023, we incurred a net loss of $50,027. For the nine months ended September 30, 2023 and year ended December 31, 2022, we had cash on hand of $7,290 and $13,871 and a working capital deficit of $68,332 and $137,669, respectively. Our net loss and working capital deficit have been evaluated by management to determine if the significance of those conditions or events would limit our ability to meet our obligations when due. Furthermore, while we have executed an amendment to extend the maturity of our 2022 Bridge Notes of $36,000, Senior Secured Notes of $62,691, Delayed Draw Term Notes of $4,000 and to extend additional borrowings on our 2023 Notes of $6,000 (each as described in the condensed consolidated financial statements), totaling $108,691, if the Business Combination is not completed by December 31, 2023 it would represent an event of default under the related debt agreements in which case we may not be able to meet our obligations when due.

As a result, management determined there is substantial doubt about our ability to continue as a going concern for a one-year period following the financial statement issuance date, unless we are able to close the Business Combination by December 31, 2023 or extend the date at which such a default would occur.

### Cash and Working Capital Facility

As of September 30, 2023, our principal sources of liquidity consisted of cash of $7,290. In addition, as of September 30, 2023, we had $22,697 available for additional use, subject to eligible accounts receivable, under our working capital line of credit with SLR Digital Finance LLC (formerly FastPay) (“SLR”). As of September 30, 2023, the outstanding balance of the SLR working capital line of credit was $17,303. We also had accounts receivable, net of our advances from SLR of $20,674 as of September 30, 2023. Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements is $4,586.

### Off-Balance Sheet Arrangements

As of September 30, 2023, pursuant to our SLR line of credit, as disclosed above, in the event that our line of credit is accelerated, we will be obligated to pay SLR either a termination fee or performance fee equal to $900.

As of September 30, 2023, in connection with the Sports Illustrated media business, we guaranteed a minimum annual royalty of $15,000 through December 31, 2029, for a total of $78,750.

### Material Contractual Obligations

We have material contractual obligations that arise in the normal course of business primarily consisting of employment contracts, consulting agreements, leases, liquidated damages, debt and related interest payments. Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months. See Notes 5, 9, 11 and 12 in our accompanying condensed consolidated financial statements for amounts outstanding as of September 30, 2023, related to leases, liquidated damages, bridge notes and term debt. During 2022, we assumed the lease from Men’s Journal for office space in Carlsbad, California, that expires in March 2025, and we remain responsible for $2,142 over the lease term that may be offset after considering certain space that we sublet where we are entitled to receive $435. The lease provides for fixed payments ranging from $89 to $94 over the remainder of the lease term, with an estimate of common expenses per month of $25 through the end of the lease term. There have been no material changes from the disclosures in our Annual Report on Form 10-K.

### Working Capital Deficit

We have financed our working capital requirements since inception through issuances of equity securities and various debt financings. Our working capital deficit as of September 30, 2023 and December 31, 2022 was as follows:

|  | As of September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Current assets | $84,117 | $78,695 |
| Current liabilities | (152,449) | (216,364) |
| Working capital deficit | (68,332) | (137,669) |

As of September 30, 2023, we had a working capital deficit of $68,332, as compared to $137,669 as of December 31, 2022, consisting of $84,117 in total current assets and $152,449 in total current liabilities. As of December 31, 2022, our working capital deficit consisted of $78,695 in total current assets and $216,364 in total current liabilities.

Our cash flows for the nine months ended September 30, 2023 and 2022 consisted of the following:

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(22,265) | $(14,676) |
| Net cash used in investing activities | (3,467) | (12,315) |
| Net cash provided by (used in) financing activities | 18,649 | 30,945 |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $(7,083) | $3,954 |
| Cash, cash equivalents, and restricted cash, end of period | $7,290 | $13,805 |

For the nine months ended September 30, 2023, net cash used in operating activities was $22,265, consisting primarily of $178,732 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, professional services, and $10,835 of cash paid for interest, offset by $167,302 of cash received from customers. For the nine months ended September 30, 2022, net cash used in operating activities was $14,676, consisting primarily of $164,106 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, advance of royalty fees and professional services, and $7,209 of cash paid for interest, offset by $156,639 of cash received from customers.

For the nine months ended September 30, 2023, net cash used in investing activities was $3,467, consisting primarily of $2,967 for capitalized costs for our Platform and $500 for the acquisition of a business. For the nine months ended September 30, 2022, net cash used in investing activities was $12,315, consisting primarily of $10,331 for the acquisition of a business; $3,990 for capitalized costs for our Platform, and $444 for property and equipment, offset by $2,450 from the sale of an equity investment.

For the nine months ended September 30, 2023, net cash provided by financing activities was $18,649, consisting primarily of $11,333 (excluding accrued offering costs of $167) in net proceeds from the public offering of common stock and $3,211 from borrowings under our SLR line of credit, $5,603 (excluding debt issuance costs of $100) in net proceeds from issuance of notes; offset by $1,423 tax payments relating to the withholding of shares of common stock for certain employees, and $75 payment of deferred cash payments. For the nine months ended September 30, 2022, net cash provided by financing activities was $30,945, consisting primarily of $30,490 (excluding accrued offering costs of $1,568) in net proceeds from the public offering of common stock, $6,486 from borrowings under our SLR line of credit and $94 in proceeds from exercise of common stock options; offset by $3,520 tax payments relating to the withholding of shares of common stock for certain employees, $2,152 payments of restricted stock liabilities, and $453 payment for The Spun deferred cash payment.

### Results of Operations

#### Three Months Ended September 30, 2023 and 2022

|  | Three Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | $63,418 | $57,277 | $6,141 | 10.7% |
| Cost of revenue | 35,245 | 32,671 | 2,574 | 7.9% |
| Gross profit | 28,173 | 24,606 | 3,567 | 14.5% |
| **Operating expenses** |  |  |  |  |
| Selling and marketing | 19,271 | 18,424 | 847 | 4.6% |
| General and administrative | 11,028 | 13,493 | (2,465) | -18.3% |
| Depreciation and amortization | 4,726 | 4,478 | 248 | 5.5% |
| Total operating expenses | 35,025 | 36,395 | (1,370) | -3.8% |
| Loss from operations | (6,852) | (11,789) | 4,937 | -41.9% |
| Total other expenses | (4,253) | (3,523) | (730) | 20.7% |
| Loss before income taxes | (11,105) | (15,312) | 4,207 | -27.5% |
| Income tax provision | (61) | (547) | 486 | -88.8% |
| Net loss from continuing operations | (11,166) | (15,859) | 4,693 | -29.6% |
| Net loss from discontinued operations, net of tax | - | (646) | 646 | -100.0% |
| **Net loss** | $(11,166) | $(16,505) | $5,339 | -32.3% |

For the three months ended September 30, 2023, the loss from operations narrowed by $4,937 due to a $6,141 increase in revenue and a decrease in operating expenses of $1,370. This was offset by an increase in interest expense of $858 included in other expenses leading to an improvement of $5,339 in net loss to $11,166 for the three months ended September 30, 2023, as compared to $16,505 for the three months ended September 30, 2022.

### Revenue

The following table sets forth revenue, cost of revenue, and gross profit:

|  | Three Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | $63,418 | $57,277 | $6,141 | 10.7% |
| Cost of revenue | 35,245 | 32,671 | 2,574 | 7.9% |
| Gross profit | $28,173 | $24,606 | $3,567 | 14.5% |

For the three months ended September 30, 2023 we had gross profit of $28,173, as compared to $24,606 for the three months ended September 30, 2022, an increase of $3,567, or 14.5%. Gross profit percentage for the three months ended September 30, 2023 was 44.4%, as compared to 43.0% for the three months ended September 30, 2022, an improvement of 1.5 percentage points.

The improvement in gross profit percentage was driven by a higher mix of premium digital advertising, as reflected in the 35% increase in RPM, as well as more than tripling of other digital revenue, largely e-commerce. In addition, stock based compensation included in cost of revenue declined by $1,567 from $2,772 in the three months ended September 30, 2022 to $1,205 in the three months ended September 30, 2023.

The following table sets forth revenue by category:

| Digital revenue: | Three Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Digital advertising | $36,659 | $28,512 | $8,147 | 28.6% |
| Digital subscriptions | 3,181 | 4,629 | (1,448) | -31.3% |
| Licensing and syndication revenue | 4,468 | 4,391 | 77 | 1.8% |
| Other digital revenue | 1,516 | 458 | 1,058 | 231.0% |
| Total digital revenue | 45,824 | 37,990 | 7,834 | 20.6% |
| Print revenue: |  |  |  |  |
| Print advertising | 2,259 | 3,443 | (1,184) | -34.4% |
| Print subscriptions | 15,335 | 15,844 | (509) | -3.2% |
| Total print revenue | 17,594 | 19,287 | (1,693) | -8.8% |
| Total revenue | $63,418 | $57,277 | $6,141 | 10.7% |

For the three months ended September 30, 2023, total revenue increased $6,141, or 10.7%, to $63,418 from $57,277 for the three months ended September 30, 2022. The primary sources of revenue for the three months ended September 30, 2023 were as follows: (i) digital advertising of $36,659, (ii) digital subscriptions of $3,181, (iii) licensing and syndication revenue and other digital revenue of $5,984, (iv) print advertising of $2,259 and (v) print subscriptions of $15,335.

The primary driver of the increase in our digital revenue of $7,834 is derived from our digital advertising revenue and other digital revenue which increased by $8,147 and $1,058, respectively, which was primarily offset by a decrease in our digital subscriptions of $1,448. Digital revenue represented 72.3% of total revenue in the three months ended September 30, 2023 as compared to $66.3% in the prior year period, an increase of 6.0 percentage points. Offsetting the increase in our digital revenue, our print revenue decreased by $1,693 with a 34.4% decrease in print advertising and a 3.2% decrease in print subscription revenue. Revenue for the three months ended September 30, 2022 has been adjusted for the discontinued operations of the Parade print business that was acquired in April 2022 totaling $20,753 since the operations were discontinued during the year ended December 31, 2022.

### Cost of Revenue

The following table sets forth cost of revenue by category:

|  | Three Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Publisher Partner revenue share payments | $7,586 | $4,471 | $3,115 | 69.7% |
| Technology, Platform and software licensing fees | 5,721 | 4,721 | 1,000 | 21.2% |
| Royalty fees | 3,750 | 3,750 | - | 0.0% |
| Content and editorial expenses | 11,381 | 10,642 | 739 | 6.9% |
| Printing, distribution and fulfillment costs | 3,411 | 3,770 | (359) | -9.5% |
| Amortization of developed technology and platform development | 2,191 | 2,413 | (222) | -9.2% |
| Stock-based compensation | 1,205 | 2,772 | (1,567) | -56.5% |
| Other cost of revenue | - | 132 | (132) | -100.0% |
| Total cost of revenue | $35,245 | $32,671 | $2,574 | 7.9% |

For the three months ended September 30, 2023, we recognized cost of revenue of $35,245, as compared to $32,671 for the three months ended September 30, 2022, which represents an increase of $2,574, or 7.9% as compared to the 10.7% increase in revenue. Cost of revenue for the third quarter of 2023 was impacted by increases in (i) Publisher Partner revenue share payments of $3,115 due to very high growth among our FanNation publisher partners, (ii) technology, Platform and software licensing fees of $1,000 and (iii) content and editorial expenses of $739; partially offset by decreases in (iv) stock-based compensation costs of $1,567; (v) printing, distributions and fulfillment costs of $359; and (vi) amortization of our Platform of $222.

### Operating Expenses

#### Selling and Marketing

The following table sets forth selling and marketing expenses from continuing operations by category:

|  | Three Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Payroll and employee benefits of selling and marketing account management support teams | $4,957 | $4,026 | $931 | 23.1% |
| Stock-based compensation | 407 | 810 | (403) | -49.8% |
| Professional marketing services | 1,221 | 500 | 721 | 144.2% |
| Circulation costs | 1,461 | 1,466 | (5) | -0.3% |
| Subscription acquisition costs | 9,819 | 9,778 | 41 | 0.4% |
| Advertising costs | 880 | 1,280 | (400) | -31.3% |
| Other selling and marketing expenses | 526 | 564 | (38) | -6.7% |
| Total selling and marketing | $19,271 | $18,424 | $847 | 4.6% |

For the three months ended September 30, 2023, we incurred selling and marketing costs of $19,271, as compared to $18,424 for the three months ended September 30, 2022. The increase in selling and marketing costs of $847 or 4.6% is primarily related to increases in (i) payroll and employee benefits costs of $931 related to the higher mix of premium and direct advertising, (ii) professional fees of $721; partially offset by decreases in (iii) stock based compensation of $403 and (iv) advertising costs of $400.

#### General and Administrative

The following table sets forth general and administrative expenses by category:

|  | Three Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Payroll and related expenses for executive and administrative personnel | $3,370 | $4,424 | $(1,054) | -23.8% |
| Stock-based compensation | 2,750 | 4,729 | (1,979) | -41.8% |
| Professional services, including accounting, legal and insurance | 3,216 | 3,062 | 154 | 5.0% |
| Other general and administrative expenses | 1,692 | 1,278 | 414 | 32.4% |
| Total general and administrative | $11,028 | $13,493 | $(2,465) | -18.3% |

For the three months ended September 30, 2023, we incurred general and administrative costs of $11,028 as compared to $13,493 for the three months ended September 30, 2022. The $2,465 or 18.3% decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $1,979 or 41.8% and payroll and related expenses of $1,054 or 23.8%.

### Other Expenses

The following table sets forth other expenses:

|  | Three Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Change in fair value of contingent consideration | $(60) | $- | $(60) | 100.0% |
| Interest expense, net | (4,042) | (3,184) | (858) | 26.9% |
| Liquidated damages | (151) | (339) | 188 | -55.5% |
| Total other expenses | $(4,253) | $(3,523) | $(730) | 20.7% |

Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $60 for the three months ended September 30, 2023 represents the change in the put option on our common stock in connection with the Fexy Studios acquisition.

Interest Expense. We incurred interest expense of $4,042 and $3,184 for the three months ended September 30, 2023 and 2022, respectively, as a result of our debt increase.

Liquidated Damages. We recorded $151 of accrued interest on our liquidated damages payable for the three months ended September 30, 2023 primarily from the issuance in past years of our convertible debentures, Series H convertible preferred stock, Series I convertible preferred stock, Series J convertible preferred stock and Series K convertible preferred stock in prior years. We recorded $339 of accrued interest on our liquidated damages payable for the three months ended September 30, 2022 primarily from issuance of the same securities as outlined above.

#### Nine Months Ended September 30, 2023 and 2022

|  | Nine Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | $173,604 | $159,272 | $14,332 | 9.0% |
| Cost of revenue | 102,422 | 98,790 | 3,632 | 3.7% |
| Gross profit | 71,182 | 60,482 | 10,700 | 17.7% |
| **Operating expenses** |  |  |  |  |
| Selling and marketing | 56,743 | 53,123 | 3,620 | 6.8% |
| General and administrative | 35,803 | 41,841 | (6,038) | -14.4% |
| Depreciation and amortization | 14,227 | 13,124 | 1,103 | 8.4% |
| Loss on disposition of assets | 119 | 257 | (138) | -53.7% |
| Total operating expenses | 106,892 | 108,345 | (1,453) | -1.3% |
| Loss from operations | (35,710) | (47,863) | 12,153 | -25.4% |
| Total other expenses | (14,149) | (9,149) | (5,000) | 54.7% |
| Loss before income taxes | (49,859) | (57,012) | 7,153 | -12.5% |
| Income tax provision | (168) | 1,180 | (1,348) | -114.2% |
| Net loss from continuing operations | (50,027) | (55,832) | 5,805 | -10.4% |
| Net loss from discontinued operations, net of tax | - | (1,329) | 1,329 | -100.0% |
| **Net loss** | $(50,027) | $(57,161) | $7,134 | -12.5% |

For the nine months ended September 30, 2023, the loss from operations improved $12,153 to $35,710 as compared to $47,863 during the nine months ended September 30, 2022 due to a $14,332 increase in revenue, with an $1,453 decrease in operating expenses. For the nine months ended September 30, 2023, the net loss was $50,027, a decrease of $7,134 as compared to $57,161 for the nine months ended September 30, 2022 as the improvement in the loss from operations was partially offset by an increase in interest expense of $4,715 included in other expenses.

### Revenue

The following table sets forth revenue, cost of revenue, and gross profit:

|  | Nine Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | $173,604 | $159,272 | $14,332 | 9.0% |
| Cost of revenue | 102,422 | 98,790 | 3,632 | 3.7% |
| Gross profit | $71,182 | $60,482 | $10,700 | 17.7% |

For the nine months ended September 30, 2023 we had gross profit of $71,182, as compared to $60,482 for the nine months ended September 30, 2022, an increase of $10,700. Gross profit percentage for the nine months ended September 30, 2023 was 41.0%, as compared to 38.0% for the nine months ended September 30, 2022.

The improvement in gross profit percentage was driven by a higher mix of premium digital advertising, as reflected in the 23% increase in RPM, as well as an more than doubling of other digital revenue, largely e-commerce. In addition, stock based compensation included in cost of revenue declined by $2,552.

The following table sets forth revenue by category:

| Digital revenue: | Nine Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Digital advertising | $89,458 | $74,849 | $14,609 | 19.5% |
| Digital subscriptions | 10,430 | 16,580 | (6,150) | -37.1% |
| Licensing and syndication revenue | 13,523 | 11,820 | 1,703 | 14.4% |
| Other digital revenue | 3,486 | 1,374 | 2,112 | 153.7% |
| Total digital revenue | 116,897 | 104,623 | 12,274 | 11.7% |
| Print revenue: |  |  |  |  |
| Print advertising | 7,677 | 7,786 | (109) | -1.4% |
| Print subscriptions | 49,030 | 46,863 | 2,167 | 4.6% |
| Total print revenue | 56,707 | 54,649 | 2,058 | 3.8% |
| Total revenue | $173,604 | $159,272 | $14,332 | 9.0% |

For the nine months ended September 30, 2023, total revenue increased $14,332 to $173,604 from $159,272 for the nine months ended September 30, 2022. The primary sources of revenue for the nine months ended September 30, 2023 were as follows: (i) digital advertising of $89,458, (ii) digital subscriptions of $10,430, (iii) licensing and syndication revenue and other digital revenue of $17,009, (iv) print advertising of $7,677 and (v) print subscriptions of $49,030.

The primary driver of the increase in our total revenue is derived from digital advertising revenue, licensing and syndication, and other digital revenue which increased by $14,609, $1,703, and $2,112, respectively, for the nine months ended September 30, 2023 as compared to the prior year period. This was offset by a $6,150 decrease in digital subscriptions, resulting in a $12,274 increase in total digital revenue for the nine months ended September 30, 2023 as compared to the prior year period. In addition, total print revenue increased by $2,058 as print advertising decreased by $109 and print subscriptions grew by $2,167.

### Cost of Revenue

The following table sets forth cost of revenue by category:

|  | Nine Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Publisher Partner revenue share payments | $17,360 | $14,242 | $3,118 | 21.9% |
| Technology, Platform and software licensing fees | 15,510 | 12,293 | 3,217 | 26.2% |
| Royalty fees | 11,250 | 11,250 | - | 0.0% |
| Content and editorial expenses | 34,626 | 35,034 | (408) | -1.2% |
| Printing, distribution and fulfillment costs | 11,652 | 11,000 | 652 | 5.9% |
| Amortization of developed technology and platform development | 6,883 | 7,099 | (216) | -3.0% |
| Stock-based compensation | 5,050 | 7,602 | (2,552) | -33.6% |
| Other cost of revenue | 91 | 270 | (179) | -66.3% |
| Total cost of revenue | $102,422 | $98,790 | $3,632 | 3.7% |

For the nine months ended September 30, 2023, we recognized cost of revenue of $102,422, as compared to $98,790 for the nine months ended September 30, 2022, representing an increase of $3,632 or 3.7% as compared to the 9.0% increase in total revenue. Cost of revenue for the first nine months of 2023 was impacted by increases in (i) technology, Platform and software licensing fees of $3,217, (ii) Publisher Partner revenue share payments of $3,118 and (iii) printing, distribution and fulfillment costs of $652; partially offset by decreases in (iv) stock-based compensation of $2,552, and (v) content and editorial expenses of $408.

### Operating Expenses

#### Selling and Marketing

The following table sets forth selling and marketing expenses from continuing operations by category:

|  | Nine Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Payroll and employee benefits of selling and marketing account management support teams | $14,118 | $11,175 | $2,943 | 26.3% |
| Stock-based compensation | 1,275 | 2,149 | (874) | -40.7% |
| Professional marketing services | 3,518 | 2,275 | 1,243 | 54.6% |
| Circulation costs | 4,070 | 3,158 | 912 | 28.9% |
| Subscription acquisition costs | 29,166 | 28,236 | 930 | 3.3% |
| Advertising costs | 2,935 | 4,205 | (1,270) | -30.2% |
| Other selling and marketing expenses | 1,661 | 1,925 | (264) | -13.7% |
| Total selling and marketing | $56,743 | $53,123 | $3,620 | 6.8% |

For the nine months ended September 30, 2023, we incurred selling and marketing costs of $56,743, as compared to $53,123 for the nine months ended September 30, 2022. The increase in selling and marketing costs of $3,620 is primarily related to increases in (i) payroll and employee benefits of $2,943, (ii) professional marketing services costs of $1,243 , (iii) circulation costs of $912, and (iv) subscription acquisition costs of $930; partially offset by decreases in (v) advertising costs of $1,270 and (vi) stock-based compensation costs of $874. The increase in circulation costs reflects the addition of the Athlon Outdoor properties.

#### General and Administrative

The following table sets forth general and administrative expenses by category:

|  | Nine Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Payroll and related expenses for executive and administrative personnel | $11,037 | $12,704 | $(1,667) | -13.1% |
| Stock-based compensation | 10,653 | 15,026 | (4,373) | -29.1% |
| Professional services, including accounting, legal and insurance | 9,003 | 9,732 | (729) | -7.5% |
| Other general and administrative expenses | 5,110 | 4,379 | 731 | 16.7% |
| Total general and administrative | $35,803 | $41,841 | $(6,038) | -14.4% |

For the nine months ended September 30, 2023, we incurred general and administrative costs of $35,803 as compared to $41,841 for the nine months ended September 30, 2022. The $6,038 or 14.4% decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $4,373, payroll and related expenses of $1,667 and professional services of $729.

### Other Expenses

The following table sets forth other expenses:

|  | Nine Months Ended September 30, 2023 | 2022 | 2023 versus 2022 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Change in fair value of contingent consideration | $(469) | $- | $(469) | 100.0% |
| Interest expense, net | (13,225) | (8,510) | (4,715) | 55.4% |
| Liquidated damages | (455) | (639) | 184 | -28.8% |
| Total other expenses | $(14,149) | $(9,149) | $(5,000) | 54.7% |

Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $469 for the nine months ended September 30, 2023 represents the change in the put option on our common stock in connection with the Fexy Studios acquisition.

Interest Expense. We incurred interest expense of $13,225 and $8,510 for the nine months ended September 30, 2023 and 2022, respectively, as a result of our debt increase.

Liquidated Damages. We recorded $455 of accrued interest on our liquidated damages payable for the nine months ended September 30, 2023 primarily from the issuance in past years of our convertible debentures, Series H convertible preferred stock, Series I convertible preferred stock, Series J convertible preferred stock and Series K convertible preferred stock in prior years. We recorded $639 of accrued interest on our liquidated damages payable for the nine months ended September 30, 2022 primarily from issuance of the same securities as described above.

### Use of Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles in the United States of America (“GAAP”); however, management believes that certain non-GAAP financial measures provide users of our financial information with useful supplemental information that enables a better comparison of our performance across periods. We believe Adjusted EBITDA provides visibility to the underlying continuing operating performance by excluding the impact of certain items that are noncash in nature or not related to our core business operations. We calculate Adjusted EBITDA as net loss as adjusted for loss from discontinued operations, with additional adjustments for (i) interest expense (net), (ii) provision for or benefit from income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in fair value of contingent consideration; (vi) liquidated damages, (vii) loss on impairment of assets, (viii) employee retention credit, (ix) employee restructuring payments, and (x) professional and vendor fees.

Our non-GAAP Adjusted EBITDA may not be comparable to a similarly titled measure used by other companies, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP Adjusted EBITDA as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are that Adjusted EBITDA:

- does not reflect interest expense, or the cash required to service our debt, which reduces cash available to us;
- does not reflect deferred income taxes, which is a noncash expense;
- does not reflect depreciation and amortization expense and, although this is a noncash expense, the assets being depreciated may have to be replaced in the future, increasing our cash requirements;
- does not reflect stock-based compensation and, therefore, does not include all of our compensation costs;
- does not reflect the change in fair value of contingent consideration, which is a noncash expense;
- does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to);
- does not reflect any losses from the impairment of assets, which is a noncash operating expense;
- does not reflect the employee retention credits recorded by us for payroll related tax credits under the Cares Act;
- does not reflect payments related to employee restructuring changes for our former Chief Executive Officer; and
- does not reflect the professional and vendor fees incurred by us for services provided by consultants, accountants, lawyers, and other vendors, which services were related to certain types of events that are not reflective of our business operations.

45

The following table presents a reconciliation of Adjusted EBITDA to net loss, which is the most directly comparable GAAP measure, for the periods indicated:

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(11,166) | $(16,505) | $(50,027) | $(57,161) |
| Net loss from discontinued operations | - | 646 | - | 1,329 |
| Net loss from continued operations | (11,166) | (15,859) | (50,027) | (55,832) |
| Add (deduct): |  |  |  |  |
| Interest expense, net (1) | 4,042 | 3,184 | 13,225 | 8,510 |
| Income tax provision (benefit) | 61 | 547 | 168 | (1,180) |
| Depreciation and amortization (2) | 6,917 | 6,891 | 21,110 | 20,223 |
| Stock-based compensation (3) | 4,362 | 8,311 | 16,978 | 24,777 |
| Change in fair value of contingent consideration (4) | 60 | - | 469 | - |
| Liquidated damages (5) | 151 | 339 | 455 | 639 |
| Loss on impairment of assets (6) | - | - | 119 | 257 |
| Employee retention credit (7) | - | - | (6,868) | - |
| Employee restructuring payments (8) | 735 | - | 4,997 | 679 |
| Professional and vendor fees (9) | 1,194 | - | 1,194 | - |
| Adjusted EBITDA | $6,356 | $3,413 | $1,820 | $(1,927) |

(1) Interest expense is related to our capital structure and varies over time due to a variety of financing transactions. Interest expense includes $533 and $280 for amortization of debt discounts for the three months ended September 30, 2023 and 2022, respectively, as presented in our condensed consolidated statements of cash flows, which is a noncash item. Interest expense includes $2,178 and $1,215 for amortization of debt discounts for the nine months ended September 30, 2023 and 2022, respectively. Investors should note that interest expense will recur in future periods.

(2) Depreciation and amortization is related to our developed technology and Platform included within cost of revenues of $2,191 and $2,413, for the three months ended September 30, 2023 and 2022, respectively, and depreciation and amortization included within operating expenses of $4,726 and $4,478 for the three months ended September 30, 2023 and 2022, respectively. Depreciation and amortization is related to our developed technology and Platform included within cost of revenues of $6,883 and $7,099, for the nine months ended September 30, 2023 and 2022, respectively, and depreciation and amortization included within operating expenses of $14,227 and $13,124 for the nine months ended September 30, 2023 and 2022, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods.

(3) Stock-based compensation represents noncash costs arise from the grant of stock-based awards to employees, consultants and directors. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future.

(4) Change in fair value of contingent consideration represents the change in the put option on our common stock in connection with the Fexy Studios acquisition.

(5) Liquidated damages (or interest expense related to accrued liquidated damages) represents amounts we owe to certain of our investors in private placements offerings conducted in fiscal years 2018 through 2020, pursuant to which we agreed to certain covenants in the respective securities purchase agreements and registration rights agreements, including the filing of resale registration statements and becoming current in our reporting obligations, which we were not able to timely meet.

(6) Loss on impairment of assets represents certain assets that are no longer useful.

(7) Employee retention credit represents payroll related tax credits under the Cares Act.

(8) Employee restructuring payments represents severance payments to employees under employer restructuring arrangements and payments to our former Chief Executive Officer for the three and nine months ended September 30, 2023 and 2022, respectively.

(9) Represents professional and vendor fees that are nonrecurring in connection with the Business Combination resulting in a change of control, including fees incurred by consultants, accountants, lawyers, and other vendors.

46

### Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the condensed consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenue, expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.

Except as described in Note 1, *Summary of Significant Accounting Policies*, of the Notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 that was filed with the SEC on March 31, 2023.

### Recent Accounting Pronouncements

See Note 1, *Summary of Significant Accounting Policies*, of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted as of the date of this report.

## Controls and procedures

As filed, 4,336 characters.

### Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer(s) and principal financial officer(s), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. In light of the material weaknesses described in Part II, Item 9A to our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 that continue and have not been remediated as of the date of filing of this Quarterly Report, we have performed additional analyses, reconciliations, and other post-closing procedures to determine whether our condensed consolidated financial statements are prepared in accordance with GAAP. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2023 in providing reasonable assurance that the information required to be disclosed in our reports filed or submitted under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

### Changes in Internal Control over Financial Reporting

In connection with our continued monitoring and maintenance of our control procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act of 2002, we continue to review, test, and improve the effectiveness of our internal controls. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on the Effectiveness of Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

## Risk factors

As filed, 13,881 characters.

There are numerous factors that affect our business and operating results, many of which are beyond our control. The following risk factors supplement and, to the extent inconsistent, supersede, the risk factors described in Part I, “Item IA. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 (the “2022 10-K”). The risk factors included herein as well as the risk factors described in the 2022 Form 10-K should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with SEC in connection with evaluating us, our business and the forward-looking statements contained in this Quarterly Report on Form 10-Q. Additional risks and uncertainties not known to us at present, or that we currently deem immaterial, may affect us. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition and results of operations.

**Risks Related to the Pending Transaction with Bridge Media Networks and Simplify.**

***The Transactions may not be completed on the terms or timeline currently contemplated, or at all, and failure to complete the Transactions may result in material adverse consequences to our business and operations.***

The Transactions are subject to several closing conditions, including the adoption of the Transaction Agreement and approval of the Transactions by our stockholders, the effectiveness of a registration statement relating to the registration of the issuance of the New Arena common stock in the Transactions, the approval of the listing of the New Arena common stock on the NYSE American and the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). If any one of these conditions is not satisfied or waived, the Transactions may not be completed. There is no assurance that the Transactions will be completed on the terms or timeline currently contemplated, or at all.

Under the Transaction Agreement, the parties’ obligations to complete the Transactions are conditioned on the expiration or termination of the applicable waiting period under the HSR Act.

If our stockholders do not adopt the Transaction Agreement and approve the Transactions or if the Transactions are not completed for any other reason, we would be subject to a number of risks, including the following:

- our stockholders would not become stockholders of New Arena and therefore would not realize the anticipated benefits of the Transactions, including any anticipated synergies from combining New Arena and Bridge Media;
- the failure to consummate the Transactions by December 31, 2023 would result in an event of default under certain of our debt facilities; and
- the trading price of our common stock may experience increased volatility to the extent that the current market prices reflect a market assumption that the Transactions will be completed.

The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations or the trading price of our common stock. We are also exposed to general competitive pressures and risks, which may be increased if the Transactions are not completed.

***Each of Arena and Bridge Media will be subject to business uncertainties and contractual restrictions while the Transactions are pending that could adversely affect each of them.***

Uncertainty about the effect of the Transactions on employees, customers and suppliers may have an adverse effect on either or both of us and Bridge Media, regardless of whether the Transactions are eventually completed, and, consequently, on New Arena. These uncertainties may impair our and Bridge Media’s ability to attract, retain and motivate key personnel until the Transactions are completed, or the Transaction Agreement is terminated, and for a period of time thereafter, and could cause customers, suppliers and others that deal with us or Bridge Media to seek to change or discontinue existing business relationships with us or Bridge Media.

Employee retention and recruitment may be particularly challenging for us and Bridge Media during the pendency of the Transactions, as employees and prospective employees may experience uncertainty about their future roles with New Arena. For each of us and Bridge Media, the departure of existing key employees or the failure of potential key employees to accept employment with New Arena, despite Arena’s and Bridge Media’s retention and recruiting efforts, could have a material adverse impact on our and New Arena’s business, financial condition and operating results, regardless of whether the Transactions are eventually completed.

The pursuit of the Transactions and the preparation for the integration of Arena and Bridge Media have placed, and will continue to place, a significant burden on the management and internal resources of Arena and Bridge Media. There is a significant degree of difficulty and management distraction inherent in the process of closing the Transactions and integrating Arena and Bridge Media, which could cause an interruption of, or loss of momentum in, the activities of each of the existing businesses, regardless of whether the Transactions are eventually completed. Before and immediately following the closing, the management teams of Arena and Bridge Media will be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage their respective existing businesses, service existing customers, attract new customers and develop new products, services or strategies. One potential consequence of such distractions could be the failure of management to realize other opportunities that could be beneficial to Arena or Bridge Media, respectively. If Arena’s or Bridge Media’s senior management is not able to effectively manage the process leading up to and immediately following the closing, or if any significant business activities are interrupted as a result of the integration process, the business of Arena or Bridge Media could suffer.

In addition, the Transaction Agreement restricts Arena and Simplify (with respect to Bridge Media) from taking specified actions without the consent of the other until the Transactions are consummated or the Transaction Agreement is terminated. These restrictions may prevent Arena and Simplify (with respect to Bridge Media) from pursuing otherwise attractive business opportunities and making other changes to their businesses before completion of the Transactions or termination of the Transaction Agreement.

Further, we and our directors could become subject to lawsuits relating to the Transactions that may be filed. While we intend to defend against any such actions vigorously, the costs of the defense of such lawsuits and other effects of such litigation could have an adverse effect on our business, financial condition and operating results.

***The integration of Arena and Bridge Media following the closing will present challenges that may not result in the anticipated benefits of the Transactions.***

The Transactions involve the combination of businesses that currently operate as independent businesses. New Arena will be required to devote management attention and resources to integrating its business practices and operations, and prior to the Transactions, management attention and resources will be required to plan for such integration. Potential difficulties New Arena may encounter in the integration process include the following:

- the inability to successfully integrate the businesses, including operations, technologies, products and services, in a manner that permits New Arena to achieve the anticipated benefits from the Transactions, which could result in the anticipated benefits of the Transactions not being realized partly or wholly in the time frame currently anticipated or at all;
- lost sales and customers as a result of certain customers of any of the businesses deciding not to do business with New Arena;
- the necessity of coordinating geographically separated organizations, systems and facilities;
- potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Transactions;
- integrating personnel with diverse business backgrounds and business cultures, while maintaining focus on providing consistent, high-quality products and services;
- consolidating and rationalizing information technology platforms and administrative infrastructures as well as accounting systems and related financial reporting activities and difficulty implementing effective internal controls over financial reporting and disclosure controls and procedures in particular; and
- preserving important relationships of Arena and Bridge Media and resolving potential conflicts that may arise.

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If New Arena experiences difficulties with the integration process, the anticipated benefits of the Transactions may not be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on the business, results of operations, financial condition or prospects of New Arena during this transition period and for an undetermined period after completion of the Transactions.

***The Transaction Agreement contains provisions that may discourage other companies from trying to acquire Arena.***

The Transaction Agreement contains provisions that may discourage third parties from submitting business combination proposals to Arena that might result in greater value to Arena stockholders than the Transactions. The Transaction Agreement generally prohibits Arena from soliciting any competing acquisition proposal.

***Following the completion of the Transactions, New Arena will be controlled by Simplify. The interests of Simplify may differ from the interests of other stockholders of New Arena.***

Immediately following the closing, Simplify will beneficially own 58.02% of the outstanding shares of New Arena common stock and 5-Hour will own 6.98% of the outstanding shares of New Arena common stock, in each case on a fully diluted basis. 5-Hour is an affiliate of Simplify. Such amounts exclude the ownership of shares of New Arena common stock that may be issued from time to time pursuant to the additional equity issuances to be provided to Arena by Simplify or an affiliate thereof.

Through its ownership of at least a majority of the shares of New Arena common stock and the provisions set forth in the certificate of incorporation of New Arena, the bylaw of New Arena and the nominating agreement to be entered into in connection with the Transactions, Simplify will have the ability to designate and elect a majority of the directors of the New Arena board of directors. New Arena will avail itself of available “Controlled Company” exemptions to the corporate governance listing standards of the NYSE American that would otherwise require New Arena to have (i) a majority of the board of directors consist of independent directors, (ii) a nominating/corporate governance committee that is composed solely of independent directors and (iii) a compensation committee that is composed solely of independent directors.

For as long as Simplify beneficially owns a majority of the outstanding shares of Common Stock, Simplify will also have control over all other matters submitted to stockholders for approval, including changes in capital structure, transactions requiring stockholder approval under Delaware law and corporate governance. Simplify and its subsidiaries may have different interests than other holders of New Arena common stock and may make decisions adverse to your interests.

Among other things, Simplify’s control could delay, defer, or prevent a sale of New Arena that New Arena’s other stockholders support, or, conversely, this control could result in the consummation of such a transaction that other stockholders do not support. This concentrated control could discourage a potential investor from seeking to acquire New Arena common stock and, as a result, might impact the market price of New Arena common stock.

***Arena and New Arena will incur transaction-related costs in connection with the Transactions and the integration of the businesses.***

Arena has incurred transaction-related costs in connection with the Transactions and both Arena and New Arena will incur costs in connection with the integration of Arena’s and Bridge Media’s businesses. There are many systems that must be integrated, including information management, purchasing, accounting and finance, sales, billing, payroll and benefits, fixed asset and lease administration systems and regulatory compliance. Arena and Bridge Media are in the early stages of assessing the magnitude of these costs and, therefore, are not able to provide estimates of these costs. Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. These expenses could, particularly in the near term, reduce the anticipated benefits that New Arena expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost synergies related to the integration of the businesses following the completion of the Transactions, and accordingly, any net synergies may not be achieved in the near term or at all. These integration expenses may result in New Arena taking significant charges against earnings following the completion of the Transactions. Some of these costs and expenses will be incurred even if the Transactions are not consummated.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-041192. Last ingested by Listed: Oct 24, 2026, 14:59 ET. No prices; not investment advice.