Arena (AREN) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section covers the company's unaudited financial statements, management's analysis, market risk, and internal controls Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for TheMaven, Inc. as of June 30, 2020, and for the three and six-month periods then ended, along with detailed notes Condensed Consolidated Balance Sheets As of June 30, 2020, the company reported total assets of $196.5 million, total liabilities of $215.4 million, and a stockholders' deficiency of $74.6 million, reflecting a significant increase in deficiency from year-end 2019 Condensed Consolidated Balance Sheet Data (in thousands) | Balance Sheet Items | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,275 | $8,852 | | Total current assets | $42,054 | $48,160 | | Goodwill | $16,139 | $16,139 | | Total assets | $196,506 | $196,991 | | Liabilities & Stockholders' Deficiency | | | | Total current liabilities | $104,517 | $87,541 | | Long-term debt | $60,390 | $44,010 | | Total liabilities | $215,427 | $178,406 | | Total stockholders' deficiency | $(74,575) | $(37,068) | Condensed Consolidated Statements of Operations For the six months ended June 30, 2020, the company reported revenue of $53.5 million and a net loss of $45.9 million, with substantial revenue growth driven by acquisitions but also significantly widened losses due to increased operating expenses Statement of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $23,091 | $5,770 | $53,504 | $12,044 | | Gross Profit (Loss) | $(1,783) | $283 | $1,891 | $905 | | Loss from Operations | $(21,590) | $(7,147) | $(41,783) | $(12,008) | | Net Loss | $(23,161) | $(10,586) | $(45,938) | $(19,521) | | Basic and Diluted Net Loss per Share | $(0.59) | $(0.30) | $(1.17) | $(0.55) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2020, the company experienced a net decrease in cash of $6.2 million, primarily due to $17.4 million used in operating activities, partially offset by $14.7 million provided by financing activities Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(17,421) | $(47,084) | | Net cash used in investing activities | $(3,442) | $(17,506) | | Net cash provided by financing activities | $14,665 | $75,332 | | Net (decrease) increase in cash | $(6,197) | $10,743 | | Cash, cash equivalents, and restricted cash – end of period | $3,276 | $13,270 | Notes to Condensed Consolidated Financial Statements These notes provide critical context to the financial statements, detailing the company's liquidity, significant acquisitions, debt instruments, and subsequent financing events, despite a history of recurring losses - The company has a history of recurring losses, negative working capital, and negative operating cash flows, incurring a net loss of $45.9 million and using $17.4 million in cash from operations for the six months ended June 30, 2020[33][34] - Despite these conditions, management concluded there is not substantial doubt about the Company's ability to continue as a going concern for one year, based on its 2021 cash flow forecast, operating budget, and ability to raise capital[36][37][39] - 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[50][51] - Subsequent to the reporting period, the company engaged in significant financing activities, including issuing new series of preferred stock, amending debt agreements, and increasing its authorized common stock to 1 billion shares, which triggered the conversion of various preferred stock series[120][125][129][138] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business overview, liquidity, and results of operations, highlighting rapid operational expansion and significant revenue growth to $53.5 million for the first six months of 2020, alongside a wider net loss of $45.9 million and the impact of COVID-19 - The company operates a technology platform for premium publishers, including its owned media businesses for Sports Illustrated and TheStreet, and powers over 250 independent brands[142] - The growth strategy focuses on adding new premium publishers and making strategic acquisitions to expand the platform's scale and improve monetization[143] - The COVID-19 pandemic caused a decline in traffic and advertising revenue in the first and second quarters of 2020, though a steady recovery began in May 2020[35][185] Liquidity and Capital Resources As of June 30, 2020, the company reported cash of $2.3 million and a working capital deficit of $62.5 million, having historically financed operations through debt and equity, with significant additional capital raised post-quarter Working Capital Deficit (in thousands) | | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Current assets | $42,054 | $48,160 | | Current liabilities | $(104,517) | $(87,541) | | Working capital deficit | $(62,462) | $(39,381) | Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(17,421) | $(47,084) | | Net cash used in investing activities | $(3,442) | $(17,506) | | Net cash provided by financing activities | $14,665 | $75,332 | - From July 1, 2020, to the report's issuance date, the company raised approximately $20.8 million in net proceeds from the sale of convertible preferred stock[151][154] Results of Operations For the six months ended June 30, 2020, revenue surged 344% to $53.5 million primarily due to acquisitions, but increased costs and operating expenses led to an operating loss of $41.8 million Results of Operations Comparison for Six Months Ended June 30 (in thousands) | Metric | 2020 | 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $53,504 | $12,044 | $41,460 | 344.2% | | Cost of revenue | $51,613 | $11,140 | $40,473 | 363.3% | | Gross profit | $1,891 | $905 | $986 | 109.0% | | Total operating expenses | $43,674 | $12,913 | $30,761 | 238.2% | | Loss from operations | $(41,783) | $(12,008) | $(29,775) | 248.0% | | Net loss | $(45,938) | $(19,521) | $(26,417) | 135.3% | Revenue by Product Line for Six Months Ended June 30 (in thousands) | Product Line | 2020 | 2019 | % of 2020 Total | | :--- | :--- | :--- | :--- | | Advertising | $19,380 | $11,808 | 36.2% | | Digital subscriptions | $11,627 | $108 | 21.7% | | Magazine circulation | $21,167 | $0 | 39.6% | | Other | $1,331 | $128 | 2.5% | | Total revenue | $53,504 | $12,044 | 100.0% | - The increase in selling and marketing costs of $15.2 million for the six-month period was primarily due to higher payroll, circulation costs, and advertising expenses related to expanded operations[180] - General and administrative expenses increased by $7.6 million, driven by higher headcount, professional services (accounting, legal), and facilities costs[181] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company is a "smaller reporting company" as defined in Item 10(f)(1) of SEC Regulation S-K - Disclosure about market risk is not required for a "smaller reporting company"[186] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2020, due to identified material weaknesses in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were not effective as of the end of the period covered by this report[188] - This conclusion was based on the identification of material weaknesses in internal control over financial reporting[200] - No changes in internal control over financial reporting occurred during the period that materially affected, or are reasonably likely to materially affect, the internal controls[189] PART II - OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity sales, senior security defaults, and exhibits Item 1. Legal Proceedings The company states 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 proceedings[191] Item 1A. Risk Factors This section details significant risks, including the material adverse effects of the COVID-19 pandemic, the need for additional capital due to recurring losses, identified material weaknesses in internal controls, and risks related to competition and stock liquidity Risks Related to Business and Financial Condition The company's business faces material risks from the COVID-19 pandemic, a history of significant losses and an accumulated deficit of $119.0 million, identified material weaknesses in internal controls, intense competition, and technology-related threats - The COVID-19 pandemic has materially and adversely affected business operations, causing a decline in revenue and earnings beginning in March 2020 due to event cancellations and decreased advertising[193][194] - The company has incurred losses since inception, with an accumulated deficit of approximately $119.0 million as of June 30, 2020, and anticipates continued losses[198] - Material weaknesses in internal control over financial reporting have been identified, which could result in material misstatements and adversely affect the stock price[200] - The digital media industry is intensely competitive, with many players having greater financial resources, which could harm operating results[206] Risks Related to Investment in Securities Investing in the company's securities carries significant risks, including the potential lack of a liquid market for its highly volatile common stock, its classification as a "penny stock," and the financial burden of public reporting requirements - There may be no liquid market for the company's common stock, which is quoted on the OTC Pink market and is likely to be highly volatile[235] - The company's stock is subject to SEC "penny stock" rules, which can reduce trading activity and make it difficult for investors to sell their shares[239] - Complying with public reporting requirements is costly and a financial burden, especially as the company is not current in its SEC filings[237] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states "None," indicating there were no unregistered sales of equity securities or use of proceeds to report for the period that were not previously disclosed - The report indicates no unregistered sales of equity securities for the period[242] Item 3. Defaults Upon Senior Securities This section states "None," indicating the company has not defaulted on any senior securities during the reporting period - The company reports no defaults upon senior securities[242] Item 5. Other Information This section states "None," indicating there is no other information required to be disclosed in this report - The company reports no other information for this item[242] Item 6. Exhibits This section lists the documents filed as exhibits to the Quarterly Report, including various agreements and certifications by the CEO and CFO - Exhibits filed with the report include forms of warrants, a PPP loan note, executive employment and chairman agreements, and CEO/CFO certifications[244]