Arena (US:AREN)2021-05-06 16:00PART I - FINANCIAL INFORMATION Provides an overview of the company's financial performance and position for the quarter ended March 31, 2020, including detailed statements and explanatory notes Item 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for the quarter ended March 31, 2020, show revenue growth to $30.4 million, a widened net loss of $22.8 million, increased assets and liabilities, and a $55.6 million stockholders' deficiency, raising going concern considerations despite management's plans Condensed Consolidated Balance Sheets As of March 31, 2020, total assets increased to $209.1 million from $197.0 million at year-end 2019, accompanied by a rise in total liabilities to $209.0 million from $178.4 million, worsening the total stockholders' deficiency to $55.6 million from $37.1 million over the same period, reflecting ongoing net losses Condensed Consolidated Balance Sheet Highlights (unaudited) | Balance Sheet Item | March 31, 2020 ($) | December 31, 2019 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $7,536,767 | $8,852,281 | | Total current assets | $50,605,328 | $48,160,360 | | Total assets | $209,107,506 | $196,991,291 | | Total current liabilities | $107,458,999 | $87,541,031 | | Total liabilities | $209,037,693 | $178,405,545 | | Total stockholders' deficiency | ($55,583,917) | ($37,067,984) | Condensed Consolidated Statements of Operations For the three months ended March 31, 2020, revenue surged to $30.4 million compared to $6.3 million in the prior-year period, but despite a gross profit increase to $3.7 million, the loss from operations expanded to $20.2 million from $4.9 million, driven by a significant rise in operating expenses, resulting in a net loss of $22.8 million, or ($0.59) per share, a substantial increase from the $8.9 million, or ($0.26) per share, loss in Q1 2019 Condensed Consolidated Statements of Operations (unaudited) | Metric | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | | :--- | :--- | :--- | | Revenue | $30,412,853 | $6,273,963 | | Gross Profit | $3,674,020 | $621,398 | | Loss from Operations | ($20,192,803) | ($4,861,487) | | Net Loss | ($22,776,624) | ($8,934,980) | | Basic and Diluted Net Loss per Share | ($0.59) | ($0.26) | Condensed Consolidated Statements of Cash Flows For the first quarter of 2020, net cash used in operating activities was $10.2 million, a significant increase from $1.2 million in the same period of 2019, reflecting the expanded net loss, with net cash used in investing activities at $2.0 million and net cash provided by financing activities at $11.2 million, resulting in a net decrease in cash of $0.9 million Cash Flow Summary (unaudited) | Cash Flow Activity | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($10,153,653) | ($1,202,177) | | Net cash used in investing activities | ($2,028,294) | ($438,418) | | Net cash provided by financing activities | $11,246,433 | $1,372,617 | | Net decrease in cash | ($935,514) | ($267,978) | Notes to Condensed Consolidated Financial Statements The notes detail the company's accounting policies, acquisitions, debt structure, and subsequent events, including the company's assessment of its ability to continue as a going concern despite recurring losses, the acquisition of LiftIgniter in March 2020, significant long-term debt and convertible debentures, and various post-quarter financing activities - The company has a history of recurring losses, with a net loss of $22.8 million and cash used in operations of $10.2 million for Q1 2020, but management concluded these conditions do not raise substantial doubt about the company's ability to continue as a going concern for one year303137 - On March 9, 2020, the company acquired substantially all assets of Petametrics Inc. (LiftIgniter) for a total consideration of $815,289, consisting of cash and restricted stock units, primarily adding developed technology valued at $917,762484950 - Subsequent to March 31, 2020, the company received a PPP loan of $5.7 million, raised funds through multiple series of preferred stock, and amended terms on its senior secured notes and delayed draw term note102113115 - On December 18, 2020, the company increased its authorized common stock from 100 million to 1 billion shares, enabling the conversion of various series of preferred stock132133 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 384.7% year-over-year revenue growth in Q1 2020 to platform expansion, including the Sports Illustrated media business, with the increased net loss of $22.8 million driven by higher growth-related costs, and the company's working capital deficit increasing to $56.9 million, while management focuses on adding new publishers and strategic acquisitions, supported by approximately $26.5 million in post-quarter debt and equity financing Q1 2020 vs Q1 2019 Results of Operations | Metric | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $30,412,853 | $6,273,963 | 384.7% | | Gross Profit | $3,674,020 | $621,398 | 491.3% | | Loss from Operations | ($20,192,803) | ($4,861,487) | 315.4% | | Net Loss | ($22,776,624) | ($8,934,980) | 154.9% | Revenue by Product Line (Q1 2020) | Product Line | Revenue ($) | % of Total | | :--- | :--- | :--- | | Advertising | $11,837,984 | 38.9% | | Magazine circulation | $12,537,532 | 41.2% | | Digital subscriptions | $5,537,247 | 18.2% | | Other | $500,090 | 1.6% | | Total Revenue | $30,412,853 | 100.0% | - The working capital deficit increased from $39.4 million at the end of 2019 to $56.9 million as of March 31, 2020, highlighting liquidity challenges140141 - Subsequent to Q1 2020, the company raised approximately $20.8 million from preferred stock issuances and $5.7 million from a PPP loan to fund operations145148 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a "smaller reporting company" under SEC regulations - The company is not required to provide quantitative and qualitative disclosures about market risk because it is a "smaller reporting company" as defined by the SEC168 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective as of March 31, 2020, based on an evaluation of their design and operation, with no material changes to internal control over financial reporting reported during the quarter - Management concluded that the company's disclosure controls and procedures were not effective as of the end of the period covered by this report170 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls171 PART II - OTHER INFORMATION Covers legal proceedings, risk factors, unregistered sales of equity, defaults on senior securities, and other required disclosures Item 1. Legal Proceedings The company reports that it is not currently a party to any pending or threatened legal proceedings that would be reasonably expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not currently subject to any material legal proceedings173 Item 1A. Risk Factors The company identifies several significant risks to its business, primarily the material adverse effect of the COVID-19 pandemic on operations, revenue, and earnings, alongside a history of losses, an accumulated deficit of $95.8 million, potential need for more capital, material weaknesses in internal controls, intense market competition, and various operational risks - The COVID-19 pandemic, which began impacting the company in March 2020, has materially and adversely affected business operations, causing a decline in revenue and earnings due to event cancellations and reduced advertising175176 - The company has a history of losses, with an accumulated deficit of $95.8 million as of March 31, 2020, and may need to raise additional capital to continue operations, especially given the uncertainty of the pandemic's impact179181 - Management has identified material weaknesses in internal control over financial reporting, which could lead to material misstatements in financial statements and adversely affect the business and stock price183 - The company faces significant cybersecurity risks, including malware, viruses, and hacking attacks, which could compromise data security, damage its reputation, and result in significant costs and litigation202204211 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period covered by this report - There were no unregistered sales of equity securities reported for the quarter225 Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities - There were no defaults upon senior securities225 Item 5. Other Information The company reported no other information required to be disclosed in this section - No other information was reported225 Item 6. Exhibits This section lists the exhibits filed as part of the quarterly report, including various agreements such as the Second Amended and Restated Note Purchase Agreement, a sublease agreement, and an asset purchase agreement, as well as officer certifications - Lists various agreements and certifications filed with the Form 10-Q, including debt agreements, leases, and the asset purchase agreement for LiftIgniter224227