# Paradium.AI, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Paradium.AI, Inc.](/companies/paai.md) (CIK 894871)
- Form: 10-Q
- Filed: 2024-05-17
- Accepted by EDGAR: May 17, 2024, 17:13 ET
- Period: 2024-03-31
- Accession: 0001493152-24-020484
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/894871/000149315224020484/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/894871/000149315224020484/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $28.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $20.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $8.9m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$8.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $4.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $41.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$103.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$3.91 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$3.91 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 26,443,764 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$2.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-03-31 | $4.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $43.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $120.3m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $268.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $269.7m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $102.3m | us-gaap:LongTermDebt |
| Current portion of debt | at 2024-03-31 | $102.3m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2024-03-31 | $102.3m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-03-31 | −$149.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,540 characters.

*The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2024 and* 2023 *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, 2023 included in the Annual Report on Form 10-K filed with the SEC on April 1, 2024. 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 media company that leverages technology to build deep content verticals powered by anchor brands and a best-in-class digital media platform (the “Platform”) empowering publishers who impact, inform, educate, and entertain. Our strategy is to focus on key subject matter verticals where audiences are passionate about a topic category (e.g., sports and finance) 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 for our media publisher partners(each, a “Publisher Partner”). Our focus is on leveraging our Platform and brands in targeted verticals to maximize audience reach, enhance 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 own and operate *Athlon Sports, TheStreet, The Spun, Parade, and Men’s* Journal and power more than 360 independent Publisher Partners, including the many sports team sites that contribute to Athlon Sports.

Each Publisher Partner joins the Platform by invitation only with the objective of improving our position in key verticals while 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 audience development expertise. Additionally, we believe the lead brands within our verticals create a halo benefit for all Publisher Partners while each of them adds to the breadth and quality of content. While the Publisher Partners benefit from these critical performance improvements they may also save substantial technology, infrastructure, advertising sales, member marketing and management costs.

Of the more than 360 Publisher Partners, a large majority of them publish content within one of our four verticals of sports, finance, lifestyle and 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 into a single platform and a large and experienced sales organization. They also benefit from our membership marketing and management systems, which we believe will enhance their revenue.

Our growth strategy is to continue adding new Publisher Partners in key verticals that management believes will expand the scale of unique users interacting on the Platform.

### Recent Developments

On February 9, 2024, New Arena Holdco, Inc. (“New Arena”), a wholly owned subsidiary of us, filed a Registration Statement on Form S-4 (File No. 333-276999) with the SEC in connection with the Business Combination Agreement by and among us, Simplify Inventions, LLC (“Simplify”), Bridge Media Networks, LLC (“Bridge Media”), New Arena and the other parties dated November 5, 2023, as amended on December 1, 2023 (the “Transaction Agreement”), that provides for us to combine our operations with those of Bridge Media, a wholly owned subsidiary of Simplify by way of a series of mergers with and among New Arena (the “Mergers”), subject to customary conditions, including the approval by our shareholders and certain regulatory approvals. Immediately following the Mergers, the Transaction Agreement provides for: (i) the purchase by The Hans Foundation USA, a nonprofit nonstock corporation (the “Hans Foundation”) of 25,000 shares of New Arena Series A Preferred Stock, par value $0.0001 per share, at a purchase price of $1,000.00 per share, for an aggregate purchase price of $25,000 pursuant to the subscription agreement, dated as of November 5, 2023, by and between New Arena and the Hans Foundation; and (ii) the purchase by 5-Hour International Corporation Pte. Ltd. (“5-Hour”) of 5,000,000 shares of New Arena common stock , par value $0.0001 per share (the “New Arena Common Stock”) at a purchase price of $5.00 per share, for an aggregate purchase price of $25,000 pursuant to the subscription agreement, dated as of November 5, 2023, by and between New Arena and 5-Hour. Further, concurrently with the closing of the Mergers, pursuant to that certain Committed Equity Facility Term Sheet, dated November 5, 2023, by and between New Arena and Simplify, New Arena will enter into a Stock Purchase Agreement with Simplify, pursuant to which Simplify will agree to purchase, at New Arena’s request, up to $20,000 in aggregate purchase price of shares of New Arena Common Stock from time to time during the 12 months following the closing date at a price per share equal to the lesser of (i) the volume-weighted average price of the New Arena Common Stock for the last sixty trading days prior to the purchase date and (ii) $3.86 per share (the “Equity Line of Credit”), along with 60,000 shares of New Arena Common Stock as payment of a 1.5% commitment fee.

### Impact of Macroeconomic Conditions

Uncertainty in the global economy presents significant risks to our business. Increases in inflation, rising interest rates, instability in the global banking system, geopolitical factors, including the ongoing conflicts in Ukraine and Israel and the responses thereto, and the remaining effects of the COVID-19 pandemic may have an adverse effect on our business. While we are closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside of our control and could exist for an extended period of time. As a result, we are subject to continuing risks and uncertainties. For additional information, see the sections titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024 and in this Quarterly Report.

### Key Operating Metrics

Our key operating metrics are:

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

We monitor and review our key operating metrics as we believe that these metrics are relevant for our industry and specifically to us and to understanding our business. Moreover, they form the basis for trends informing certain predictions related to our financial condition. Our key operating metrics focus primarily on our digital advertising revenue, which has experienced significant growth in recent periods. For the three months ended March 31, 2024, digital advertising revenue increased by 19.1%, as compared to the same period in 2023 as indicated in the Results of Operations section below. 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.

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

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

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

For the three months ended March 31, 2024 and 2023, our RPM was $19.99 and $14.56, respectively. The 37.29% increase in RPM reflects a significant increase in video advertising as a percentage of total digital advertising as digital video advertising is sold at a significantly higher price than digital display advertising. For the three months ended March 31, 2024 and 2023, our monthly average pageviews were 399,683,984 and 397,094,535, respectively. The 0.65% increase in monthly average pageviews reflects algorithmic changes at Google, Facebook and other platforms which subdued user click-throughs to the original content.

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

### Liquidity and Capital Resources

### Going Concern

Our accompanying 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 we are unable to continue as a going concern.

For the three months ended March 31, 2024, we incurred a net loss from continuing operations of $12,720, and as of March 31, 2024, had cash on hand of $4,003 and a working capital deficit of $225,009. Our net loss from continuing operations 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. Also, since our 2023 Notes (see Note 11 in our accompanying condensed consolidated financial statements), Senior Secured Notes, Delayed Draw Term Notes and 2022 Bridge Notes (see Note 12 in our accompanying condensed consolidated financial statements) (collectively our “current debt”) are subject to a forbearance period through the earlier of the following: (a) September 30, 2024; (b) the occurrence of the closing of the Business Combination and (c) the termination of the Business Combination prior to closing (as further described in Note 18 in our accompanying condensed consolidated financial statements) unless we are able to refinance or modify the terms of our current debt we run the risk that our debt could be called, therefore, we may not be able to meet our obligations when due.

In our evaluation, management determined there is substantial doubt about our ability to continue as a going concern for a one-year period following the (unaudited) condensed consolidated financial statement issuance date, unless we are able to refinance or modify our current debt and complete the Business Combination.

We plan to refinance or modify the maturities of our current debt and complete the Business Combination to alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, however, there can be no assurance that we will be able to refinance or modify our current debt and complete the Business Combination.

### Cash and Working Capital Facility

As of March 31, 2024, our principal sources of liquidity consisted of cash of $4,003 and accounts receivable from continuing operations, net of our allowance for doubtful accounts, of $26,452. In addition, as of March 31, 2024, we had $17,252 available for additional use under our working capital loan with Simplify. As of March 31, 2024, the outstanding balance of the Simplify working capital loan was $7,748. Our cash balance as of the issuance date of our accompanying condensed consolidated financial statements is $4,151.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

### 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, 8, 10, 11 and 12 in our accompanying condensed consolidated financial statements for amounts outstanding as of March 31, 2024, related to leases, liquidated damages, working capital loan, bridge notes and debt, respectively. 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 $1,439 over the lease term. 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 for the year ended December 31, 2023.

### Discontinued Operations

In connection with our discontinued operations from the discontinuance of the Sports Illustrated media business, we recorded the termination fee liability of $45,000 and recognized a loss on impairment of assets of $39,391 for the three months ended March 31, 2024. As a result of this discontinuance, our total liabilities from the discontinued operations were $98,874, offset by our total assets from discontinued operations of $5,691 as of March 31, 2024.

Net loss from our discontinued operations, net of tax, was $90,638 and $4,853 for the three months ended March 31, 2024 and 2023, respectively, as indicated in the Results of Operations section below.

See Note 2, *Discontinued Operations* and Note 19, *Commitments and Contingencies* in our accompanying condensed consolidated financial statements for information regarding our discontinued operations and action filed by ABG on April 1, 2024, respectively.

### 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 March 31, 2024 and December 31, 2023 was as follows:

|  | As of March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Current assets | $43,168 | $90,399 |
| Current liabilities | (268,177) | (236,021) |
| Working capital deficit | (225,009) | (145,622) |

As of March 31, 2024, we had a working capital deficit of $225,009, as compared to $145,622 as of December 31, 2023, consisting of $43,168 in total current assets and $268,177 in total current liabilities. As of December 31, 2023, our working capital deficit consisted of $90,399 in total current assets and $236,021 in total current liabilities.

Our cash flows for the three months ended March 31, 2024 and 2023 consisted of the following:

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(1,965) | $(1,672) |
| Net cash used in investing activities | (713) | (1,688) |
| Net cash provided by (used in) financing activities | (2,603) | 5,450 |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $(5,281) | $2,090 |
| Cash, cash equivalents, and restricted cash, end of period | $4,003 | $16,463 |

For the three months ended March 31, 2024, net cash used in operating activities was $1,965, consisting primarily of $58,343 of cash paid to employees, Publisher Partners, expert contributors, suppliers, and vendors, and for revenue share arrangements, professional services, and $964 of cash paid for interest, offset by $56,632 of cash received from customers. For the three months ended March 31, 2023, net cash used in operating activities was $1,672, consisting primarily of $59,394 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 $3,252 of cash paid for interest, offset by $60,974 of cash received from customers.

For the three months ended March 31, 2024, net cash used in investing activities was $713 consisting of $713 for capitalized costs for our Platform. For the three months ended March 31, 2023, net cash used in investing activities was $1,688, consisting of $1,188 for capitalized costs for our Platform and $500 for the acquisition of a business.

For the three months ended March 31, 2024, net cash used in financing activities was $2,603, consisting primarily of (i) $2,263 for the payment of the Fexy put option, (ii) $19,609 from repayment of our line of credit with SLR Digital Finance LLC (“SLR”) and (iii) $479 for tax payments relating to the withholding of shares of common stock for certain employees, less (iv) $12,000 in net proceeds from the common stock private placement, and (v) $7,748 in net proceeds from our working capital loan with Simplify. For the three months ended March 31, 2023, net cash provided by financing activities was $5,450, consisting primarily of (i) $11,431(excluding accrued offering costs of $69) in net proceeds from the public offering of common stock, less (ii) $4,533 from repayments of our SLR line of credit; (ii) $25 in payment of deferred cash payments, and (iii) $1,423 for tax payments relating to the withholding of shares of common stock for certain employees.

### Results of Operations

#### Three Months Ended March 31, 2024 and 2023

|  | Three Months Ended March 31 2024 | 2023 | 2024 versus 2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $28,941 | $28,418 | $523 | 1.8% |
| Cost of revenue | 20,008 | 18,090 | 1,918 | 10.6% |
| Gross profit | 8,933 | 10,328 | (1,395) | -13.5% |
| Operating expenses |  |  |  |  |
| Selling and marketing | 4,564 | 5,847 | (1,283) | -21.9% |
| General and administrative | 10,135 | 12,975 | (2,840) | -21.9% |
| Depreciation and amortization | 987 | 1,096 | (109) | -9.9% |
| Loss on disposition of assets | 1,198 | 119 | 1,079 | 906.7% |
| Total operating expenses | 16,884 | 20,037 | (3,153) | -15.7% |
| Loss from operations | (7,951) | (9,709) | 1,758 | -18.1% |
| Total other expenses | (4,728) | (4,808) | 80 | -1.7% |
| Loss before income taxes | (12,679) | (14,517) | 1,838 | -12.7% |
| Income taxes | (41) | (7) | (34) | 485.7% |
| Net loss from continuing operations | (12,720) | (14,524) | 1,804 | -12.4% |
| Net loss from discontinued operations, net of tax | (90,638) | (4,853) | (85,785) | 1767.7% |
| Net loss | $(103,358) | $(19,377) | $(83,981) | 433.4% |

For the three months ended March 31, 2024, the net loss from continuing operations improved $1,804 to $12,720, as compared to our prior period of $14,524. This improvement was primarily due to a $3,153 decrease in operating expenses that was offset by a decrease in gross profit of $1,395. This improvement was offset by a loss from discontinued operations of $90,638 as compared to $4,853 for the three months ended March 31, 2023. The increase in the loss from discontinued operations was primarily driven by the accrual of the $45,000 termination fee liability and the recognition of a loss on impairment of assets of $39,391. This increased loss from discontinued operations lead to an increase in our net loss of $83,981 as compared to $19,377 from our prior period, resulting in a net loss of $103,358 for the three months ended March 31, 2024.

### Revenue

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

|  | Three Months Ended March 31 2024 | 2023 | 2024 versus 2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| **Revenue** | $28,941 | $28,418 | $523 | 1.8% |
| Cost of revenue | 20,008 | 18,090 | 1,918 | 10.6% |
| Gross profit | $8,933 | $10,328 | $(1,395) | -13.5% |

For the three months ended March 31, 2024 we had gross profit of $8,933, as compared to $10,328 for the three months ended March 31, 2023, a decrease of $1,395. Gross profit percentage for the three months ended March 31, 2024 was 30.9%, as compared to 36.3% for the three months ended March 31, 2023.

The reduction in gross profit percentage was driven by a higher mix of revenue from sports partners, which receive a revenue share, resulting in Publisher Partner revenue share as a percentage of digital advertising revenue increasing to 27.9% for the three months ended March 31, 2024, as compared to 22.1% for the three months ended March 31, 2023.

The following table sets forth revenue by category:

| Digital revenue: | Three Months Ended March 31, 2024 | 2023 | 2024 versus 2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Digital advertising | $22,748 | $19,093 | $3,655 | 19.1% |
| Digital subscriptions | 2,334 | 3,661 | (1,327) | -36.2% |
| Licensing and syndication revenue | 2,300 | 3,351 | (1,051) | -31.4% |
| Other digital revenue | 1,286 | 551 | 735 | 133.4% |
| Total digital revenue | 28,668 | 26,656 | 2,012 | 7.5% |
| Print revenue: |  |  |  |  |
| Print advertising | - | 656 | (656) | -100.0% |
| Print subscriptions | 273 | 1,106 | (833) | -75.3% |
| Total print revenue | 273 | 1,762 | (1,489) | -84.5% |
| Total revenue | $28,941 | $28,418 | $523 | 1.8% |

For the three months ended March 31, 2024, total revenue increased $523, or 1.8%, to $28,941 from $28,418 for the three months ended March 31, 2023. This reflected a decrease in print revenue of $1,489 due primarily to the shutdown of Athlon Outdoor print operations, which was largely offset by a 7.5% increase in digital revenue from $26,656 for the three months ended March 31, 2023 to $28,668 for the three months ended March 31, 2024.

The primary driver of the increase in our digital revenue is a 19.1% increase in our digital advertising revenue from $19,093 for the three months ended March 31, 2023 to $22,748 in the current year period. In addition, other digital revenue increased by $735 to $1,286 for the three months ended March 31, 2024 driven by the expansion in our e-commerce revenue. These improvements were partially offset by a decrease in our digital subscriptions of $1,327 and a $1,051 decline in licensing and syndication revenue.

### Cost of Revenue

The following table sets forth cost of revenue by category:

|  | Three Months Ended March 31, 2024 | 2023 | 2024 versus 2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Publisher Partner revenue share payments | $6,357 | $4,220 | $2,137 | 50.6% |
| Technology, Platform and software licensing fees | 4,224 | 3,759 | 465 | 12.4% |
| Content and editorial expenses | 7,249 | 4,796 | 2,453 | 51.1% |
| Printing, distribution and fulfillment costs | 244 | 872 | (628) | -72.0% |
| Amortization of developed technology and platform development | 1,549 | 2,369 | (820) | -34.6% |
| Stock-based compensation | 385 | 1,983 | (1,598) | -80.6% |
| Other cost of revenue | - | 91 | (91) | -100.00% |
| Total cost of revenue | $20,008 | $18,090 | $1,918 | 10.6% |

For the three months ended March 31, 2024, we recognized cost of revenue of $20,008, as compared to $18,090 for the three months ended March 31, 2023, which represents an increase of $1,918. Cost of revenue for the first quarter of 2024 was impacted by increases in technology, Platform and software licensing fees of $465 and Publisher Partner revenue share payments of $2,137 and content and editorial expenses of $2,453; partially offset by a decrease in stock-based compensation costs of $1,598.

### Operating Expenses

#### Selling and Marketing

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

|  | Three Months Ended March 31, 2024 | 2023 | 2024 versus 2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Payroll and employee benefits of selling and marketing account management support teams | $3,071 | $3,623 | $(552) | -15.2% |
| Stock-based compensation | 109 | 368 | (259) | -70.4% |
| Professional marketing services | 102 | 664 | (562) | -84.6% |
| Circulation costs | 86 | (83) | 169 | -203.6% |
| Advertising costs | 572 | 916 | (344) | -37.6% |
| Other selling and marketing expenses | 624 | 359 | 265 | 73.8% |
| Total selling and marketing | $4,564 | $5,847 | $(1,283) | -21.9% |

For the three months ended March 31, 2024, we incurred selling and marketing costs of $4,564, as compared to $5,847 for the three months ended March 31, 2023. The decrease in selling and marketing costs of $1,283 is primarily related to decreases in payroll and employee benefits costs of $552, professional marketing services of $562, advertising costs of $344 and stock based compensation of $259; partially offset by other selling and marketing expenses of $265.

#### General and Administrative

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

|  | Three Months Ended March 31, 2024 | 2023 | 2024 versus 2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Payroll and related expenses for executive and administrative personnel | $4,585 | $3,727 | $858 | 23.0% |
| Stock-based compensation | 419 | 3,886 | (3,467) | -89.2% |
| Professional services, including accounting, legal and insurance | 3,596 | 3,424 | 172 | 5.0% |
| Other general and administrative expenses | 1,535 | 1,938 | (403) | -20.8% |
| Total general and administrative | $10,135 | $12,975 | $(2,840) | -21.9% |

For the three months ended March 31, 2024, we incurred general and administrative costs of $10,135 as compared to $12,975 for the three months ended March 31, 2023. The $2,840 decrease in general and administrative expenses is primarily due to decreases in stock-based compensation of $3,467 and other general and administrative expenses of $403; partially offset by an increase in payroll and related expenses of $858.

### Other Expenses

The following table sets forth other expenses:

|  | Three Months Ended March 31, 2024 | 2023 | 2024 versus 2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Change in fair value of contingent consideration | $313 | $499 | $(186) | -37.3% |
| Interest expense, net | 4,339 | 4,182 | 157 | 3.8% |
| Liquidated damages | 76 | 127 | (51) | -40.2% |
| Total other expenses | $4,728 | $4,808 | $(80) | -1.7% |

Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration of $313 for the three months ended March 31, 2024 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 $4,339 and $4,182 for the three months ended March 31, 2024 and 2023, respectively, an increase of $157 from the prior period, as a result of our debt increase.

Liquidated Damages. We recorded $76 of accrued interest on our liquidated damages payable for the three months ended March 31, 2024 primarily from the issuance 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 $127 of accrued interest on our liquidated damages payable for the three months ended March 31, 2023 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) income taxes, (iii) depreciation and amortization, (iv) stock-based compensation, (v) change in valuation of contingent consideration; (vi) liquidated damages, (vii) loss on impairment of assets, (viii) employee retention credit, and (ix) employee restructuring payments.

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 income tax provision or benefit, which is a noncash income or 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 valuation of contingent consideration, and, although this is a noncash income or expense, the change in the valuations each reporting period are not impacted by our actual business operations but is instead strongly tied to the change in the market value of our common stock;
- does not reflect liquidated damages and, therefore, does not include future cash requirements if we repay the liquidated damages in cash instead of shares of our common stock (which the investor would need to agree to);
- does not reflect any losses from the impairment of assets, which is a noncash operating expense;
- does not reflect the employee retention credits recorded by us for payroll related tax credits under the CARES Act; and
- does not reflect payments related to employee severance and employee restructuring changes for our former executives.

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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 March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net loss | $(103,358) | $(19,377) |
| Net loss from discontinued operations | 90,638 | 4,853 |
| Net loss from continued operations | (12,720) | (14,524) |
| Add (deduct): |  |  |
| Interest expense, net (1) | 4,339 | 4,182 |
| Income tax provision (benefit) | 41 | 7 |
| Depreciation and amortization (2) | 2,536 | 3,465 |
| Stock-based compensation (3) | 913 | 6,237 |
| Change in fair value of contingent consideration (4) | 313 | 499 |
| Liquidated damages (5) | 76 | 127 |
| Loss on impairment of assets (6) | 1,198 | 119 |
| Employee retention credit (7) | - | (3,890) |
| Employee restructuring payments (8) | 2,456 | 1,675 |
| Adjusted EBITDA | $(848) | $(2,103) |

(1) Interest expense is related to our capital structure and varies over time due to a variety of financing transactions. Interest expense includes $536 and $930 for amortization of debt discounts for the three months ended March 31, 2024 and 2023, respectively, as presented in our condensed consolidated statements of cash flows, which are noncash items. Investors should note that interest expense will recur in future periods.

(2) Depreciation and amortization related to our developed technology and Platform is included within cost of revenues of $1,549 and $2,369, for the three months ended March 31, 2024 and 2023, respectively, and depreciation and amortization is included within operating expenses of $987 and $1,096 for the three months ended March 31, 2024 and 2023, respectively. We believe (i) the amount of depreciation and amortization expense in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods.

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

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

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(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 months ended March 31, 2024 and 2023, respectively.

### 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, 2023 that was filed with the SEC on April 1, 2024.

### Recent Accounting Pronouncements

See Note 1, *Summary of Significant Accounting Policies*, of the notes to our 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, 3,612 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. 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 March 31, 2024 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

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 March 31, 2024 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, 862 characters.

There are numerous factors that affect our business and operating results, many of which are beyond our control. 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, 2023 filed with the SEC on April 1, 2024 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.

Filed May 17, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-020484. Last ingested by Listed: Oct 24, 2026, 14:59 ET. No prices; not investment advice.