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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended June 30, 2024
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from __________ to __________
Commission
file number 1-12471
THE
ARENA GROUP HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
Delaware |
|
68-0232575 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
No.) |
|
|
|
200
Vesey Street,
24th
Floor
New
York, New York |
|
10281 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(212)
321-5002
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common
Stock, par value $0.01 |
|
AREN |
|
NYSE
American |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ☐ |
|
Accelerated
filer ☐ |
Non-accelerated
filer ☒ |
|
Smaller
reporting company ☒ |
|
|
Emerging
growth company ☐ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ or No ☒
As
of August 19, 2024, the Registrant had 29,591,630 shares of common stock outstanding.
TABLE
OF CONTENTS
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q (this “Quarterly Report”) of The Arena Group Holdings, Inc. (the “Company,”
“we,” “our,” and “us”) contains certain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Forward-looking statements relate to future events or future performance and
include, without limitation, statements concerning our business strategy, future revenues, market growth, capital requirements,
product introductions, the timing, outcome or financial impacts of the pending Business
Combination (as described in Note 18 and Note 20 of the Notes to Condensed Consolidated Financial Statements included in Part 1,
Item 1 herein) and related transactions, expansion plans and the adequacy of our funding. Other statements contained in this
Quarterly Report that are not historical facts are also forward-looking statements. We have tried, wherever possible, to identify
forward-looking statements by terminology such as “may,” “will,” “could,” “should,”
“expects,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” “estimates,” and other stylistic variants denoting forward-looking statements.
We
caution investors that any forward-looking statements presented in this Quarterly Report, or that we may make orally or in writing from
time to time, are based on information currently available, as well as our beliefs and assumptions. The actual outcome related to forward-looking
statements will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to
predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably
prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences
may be material. Accordingly, investors should use caution in relying on forward-looking statements, which are based only on known results
and trends at the time they are made, to anticipate future results or trends. We detail other risks in our public filings with the Securities
and Exchange Commission (the “SEC”), including in Part I, Item 1A, 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. The discussion in this Quarterly Report should be read in conjunction
with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report and our consolidated
financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31,
2023.
This
Quarterly Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake
any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date
of this Quarterly Report except as may be required by law.
PART
I – FINANCIAL INFORMATION
ITEM
1. FINANCIAL INFORMATION
THE
ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
Index
to Condensed Consolidated Financial Statements
THE
ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
June 30, 2024 (unaudited) | | |
December 31, 2023 | |
| |
($ in thousands, except share data) | |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 6,085 | | |
$ | 9,284 | |
Accounts receivable, net | |
| 22,698 | | |
| 31,676 | |
Prepayments and other current assets | |
| 5,555 | | |
| 5,791 | |
Current assets from discontinued operations | |
| 1,014 | | |
| 43,648 | |
Total current assets | |
| 35,352 | | |
| 90,399 | |
Property and equipment, net | |
| 225 | | |
| 328 | |
Operating lease right-of-use assets | |
| 2,565 | | |
| 176 | |
Platform development, net | |
| 7,380 | | |
| 8,723 | |
Acquired and other intangible assets, net | |
| 24,489 | | |
| 27,457 | |
Other long-term assets | |
| 773 | | |
| 1,003 | |
Goodwill | |
| 42,575 | | |
| 42,575 | |
Noncurrent assets from discontinued operations | |
| - | | |
| 18,217 | |
Total assets | |
$ | 113,359 | | |
$ | 188,878 | |
Liabilities, mezzanine equity and stockholders’ deficiency | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 4,977 | | |
$ | 7,803 | |
Accrued expenses and other | |
| 27,270 | | |
| 28,903 | |
Line of credit | |
| - | | |
| 19,609 | |
Unearned revenue | |
| 10,719 | | |
| 16,938 | |
Subscription refund liability | |
| 131 | | |
| 46 | |
Operating lease liabilities | |
| 122 | | |
| 358 | |
Contingent consideration | |
| - | | |
| 1,571 | |
Liquidated damages payable | |
| 3,076 | | |
| 2,924 | |
Simplify loan | |
| 12,748 | | |
| - | |
Bridge notes | |
| 8,000 | | |
| 7,887 | |
Debt | |
| 102,372 | | |
| 102,309 | |
Current liabilities from discounted operations | |
| 97,516 | | |
| 47,673 | |
Total current liabilities | |
| 266,931 | | |
| 236,021 | |
Unearned revenue, net of current portion | |
| 530 | | |
| 542 | |
Operation lease liabilities, net of current portion | |
| 2,101 | | |
| - | |
Other long-term liabilities | |
| 169 | | |
| 406 | |
Deferred tax liabilities | |
| 661 | | |
| 599 | |
Noncurrent liabilities from discontinued operations | |
| - | | |
| 10,137 | |
Total liabilities | |
| 270,392 | | |
| 247,705 | |
Commitments and contingencies (Note 19) | |
| - | | |
| - | |
Mezzanine equity: | |
| | | |
| | |
Series G redeemable and convertible preferred stock, $0.01 par value, $1,000 per share liquidation value and 1,800 shares designated; aggregate liquidation value: $168; Series G shares issued and outstanding: 168; common shares issuable upon conversion: 8,582 at June 30, 2024 and December 31, 2023 | |
| 168 | | |
| 168 | |
Total mezzanine equity | |
| 168 | | |
| 168 | |
Stockholders’ deficiency: | |
| | | |
| | |
Common stock, $0.01 par value, authorized 1,000,000,000 shares; issued and outstanding: 29,573,932 and 23,836,706 shares at June 30, 2024 and December 31, 2023, respectively | |
| 295 | | |
| 237 | |
Common stock to be issued | |
| - | | |
| - | |
Additional paid-in capital | |
| 332,702 | | |
| 319,421 | |
Accumulated deficit | |
| (490,198 | ) | |
| (378,653 | ) |
Total stockholders’ deficiency | |
| (157,201 | ) | |
| (58,995 | ) |
Total liabilities, mezzanine equity and stockholders’ deficiency | |
$ | 113,359 | | |
$ | 188,878 | |
See
accompanying notes to condensed consolidated financial statements
THE
ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
Three
Months Ended June
30, | | |
Six
Months Ended June
30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
($
in thousands, except share data) | |
Revenue | |
$ | 27,183 | | |
$ | 34,072 | | |
$ | 56,124 | | |
$ | 62,490 | |
Cost
of revenue (includes amortization of platform development and developed technology for the three months ended June 30, 2024 and 2023
of $1,507
and $2,323,
respectively and for the six months ended June 30, 2024 and 2023 of $3,056
and $4,692,
respectively) | |
| 16,465 | | |
| 20,855 | | |
| 36,473 | | |
| 38,945 | |
Gross
profit | |
| 10,718 | | |
| 13,217 | | |
| 19,651 | | |
| 23,545 | |
Operating
expenses | |
| | | |
| | | |
| | | |
| | |
Selling
and marketing | |
| 3,751 | | |
| 6,904 | | |
| 8,315 | | |
| 12,751 | |
General
and administrative | |
| 8,632 | | |
| 11,601 | | |
| 18,767 | | |
| 24,576 | |
Depreciation
and amortization | |
| 913 | | |
| 1,065 | | |
| 1,900 | | |
| 2,161 | |
Loss
on impairment of assets | |
| - | | |
| - | | |
| 1,198 | | |
| 119 | |
Total
operating expenses | |
| 13,296 | | |
| 19,570 | | |
| 30,180 | | |
| 39,607 | |
Loss
from operations | |
| (2,578 | ) | |
| (6,353 | ) | |
| (10,529 | ) | |
| (16,062 | ) |
Other
(expense) income | |
| | | |
| | | |
| | | |
| | |
Change
in fair value of contingent consideration | |
| - | | |
| 90 | | |
| (313 | ) | |
| (409 | ) |
Interest
expense | |
| (4,249 | ) | |
| (5,001 | ) | |
| (8,588 | ) | |
| (9,183 | ) |
Liquidated
damages | |
| (76 | ) | |
| (177 | ) | |
| (152 | ) | |
| (304 | ) |
Total
other expenses | |
| (4,325 | ) | |
| (5,088 | ) | |
| (9,053 | ) | |
| (9,896 | ) |
Income
tax provision | |
| (35 | ) | |
| (86 | ) | |
| (76 | ) | |
| (93 | ) |
Loss
from continuing operations | |
| (6,938 | ) | |
| (11,527 | ) | |
| (19,658 | ) | |
| (26,051 | ) |
Loss
from discontinued operations, net of tax | |
| (1,249 | ) | |
| (7,957 | ) | |
| (91,887 | ) | |
| (12,810 | ) |
Net
loss | |
$ | (8,187 | ) | |
$ | (19,484 | ) | |
$ | (111,545 | ) | |
$ | (38,861 | ) |
Basic
and diluted net loss per common share: | |
| | | |
| | | |
| | | |
| | |
Continuing
operations | |
$ | (0.24 | ) | |
$ | (0.52 | ) | |
$ | (0.70 | ) | |
$ | (1.27 | ) |
Discontinued
operations | |
| (0.04 | ) | |
| (0.36 | ) | |
| (3.27 | ) | |
| (0.62 | ) |
Basic
and diluted net loss per common share | |
$ | (0.28 | ) | |
$ | (0.88 | ) | |
$ | (3.97 | ) | |
$ | (1.89 | ) |
Weighted
average number of common shares outstanding – basic and diluted | |
| 29,399,365 | | |
| 22,074,500 | | |
| 28,110,331 | | |
| 20,509,676 | |
See
accompanying notes to condensed consolidated financial statements.
THE
ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Three
and Six Months Ended June 30, 2024
| |
Shares | | |
Par
Value | | |
Shares | | |
Par
Value | | |
Paid-in Capital | | |
Accumulated Deficit | | |
Stockholders’
Deficiency | |
| |
Common
Stock | | |
Common
Stock
to be Issued | | |
Additional
| | |
| | |
Total | |
| |
Shares | | |
Par
Value | | |
Shares | | |
Par
Value | | |
Paid-in Capital | | |
Accumulated Deficit | | |
Stockholders’
Deficiency | |
| |
($
in thousands, except share data) | |
Balance
at April 1, 2024 | |
| 29,513,563 | | |
$ | 294 | | |
| 2,701 | | |
$ | - | | |
$ | 332,165 | | |
$ | (482,011 | ) | |
$ | (149,552 | ) |
Issuance
of common stock for restricted stock units | |
| 68,975 | | |
| 1 | | |
| - | | |
| - | | |
| (1 | ) | |
| - | | |
| - | |
Common
stock withheld for taxes | |
| (8,606 | ) | |
| - | | |
| - | | |
| - | | |
| (7 | ) | |
| - | | |
| (7 | ) |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 545 | | |
| - | | |
| 545 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (8,187 | ) | |
| (8,187 | ) |
Balance
at June 30, 2024 | |
| 29,573,932 | | |
$ | 295 | | |
| 2,701 | | |
$ | - | | |
$ | 332,702 | | |
$ | (490,198 | ) | |
$ | (157,201 | ) |
| |
Common
Stock | | |
Common
Stock
to be Issued | | |
Additional | | |
| | |
Total | |
| |
Shares | | |
Par
Value | | |
Shares | | |
Par
Value | | |
Paid-in Capital | | |
Accumulated Deficit | | |
Stockholders’
Deficiency | |
| |
($
in thousands, except share data) | |
Balance
at January 1, 2024 | |
| 23,836,706 | | |
$ | 237 | | |
| 2,701 | | |
$ | - | | |
$ | 319,421 | | |
$ | (378,653 | ) | |
$ | (58,995 | ) |
Issuance
of common stock in connection with private placement | |
| 5,555,555 | | |
| 56 | | |
| - | | |
| - | | |
| 11,944 | | |
| - | | |
| 12,000 | |
Issuance
of common stock for restricted stock units | |
| 747,140 | | |
| 8 | | |
| - | | |
| - | | |
| (8 | ) | |
| - | | |
| - | |
Common
stock withheld for taxes | |
| (290,777 | ) | |
| (3 | ) | |
| - | | |
| - | | |
| (483 | ) | |
| - | | |
| (486 | ) |
Repurchase
of common stock for Fexy put option | |
| (274,692 | ) | |
| (3 | ) | |
| - | | |
| - | | |
| (376 | ) | |
| - | | |
| (379 | ) |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,204 | | |
| - | | |
| 2,204 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (111,545 | ) | |
| (111,545 | ) |
Balance
at June 30, 2024 | |
| 29,573,932 | | |
$ | 295 | | |
| 2,701 | | |
$ | - | | |
$ | 332,702 | | |
$ | (490,198 | ) | |
$ | (157,201 | ) |
THE
ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(unaudited)
Three
and Six Months Ended June 30, 2023
| |
Common
Stock | | |
Common
Stock
to be Issued | | |
Additional | | |
| | |
Total | |
| |
Shares | | |
Par
Value | | |
Shares | | |
Par
Value | | |
Paid-in Capital | | |
Accumulated Deficit | | |
Stockholders’ Deficiency | |
| |
($
in thousands, except per share data) | |
Balance
at April 1, 2023 | |
| 21,773,078 | | |
$ | 217 | | |
| 41,283 | | |
$ | - | | |
$ | 289,532 | | |
$ | (342,448 | ) | |
$ | (52,699 | ) |
Issuance
of common stock in connection with settlement of Series H convertible preferred stock | |
| 207,000 | | |
| 2 | | |
| - | | |
| - | | |
| 1,498 | | |
| - | | |
| 1,500 | |
Issuance
of common stock in connection with settlement of liquidated damages | |
| 11,766 | | |
| - | | |
| - | | |
| - | | |
| 45 | | |
| - | | |
| 45 | |
Gain
upon issuance of common stock in connection with settlement of liquidated damages | |
| - | | |
| - | | |
| - | | |
| - | | |
| 84 | | |
| - | | |
| 84 | |
Issuance
of common stock for restricted stock units | |
| 23,083 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Costs
incurred upon issuance of common stock in connection with registered direct offering | |
| - | | |
| - | | |
| - | | |
| - | | |
| (67 | ) | |
| - | | |
| (67 | ) |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,430 | | |
| - | | |
| 6,430 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (19,484 | ) | |
| (19,484 | ) |
Balance
at June 30, 2023 | |
| 22,014,927 | | |
$ | 219 | | |
| 41,283 | | |
$ | - | | |
$ | 297,522 | | |
$ | (361,932 | ) | |
$ | (64,191 | ) |
| |
Common
Stock | | |
Common
Stock
to be Issued | | |
Additional | | |
| | |
Total | |
| |
Shares | | |
Par
Value | | |
Shares | | |
Par
Value | | |
Paid-in Capital | | |
Accumulated Deficit | | |
Stockholders’ Deficiency | |
| |
($
in thousands, except per share data) | |
Balance
at January 1, 2023 | |
| 18,303,193 | | |
$ | 182 | | |
| 41,283 | | |
$ | - | | |
$ | 270,743 | | |
$ | (323,071 | ) | |
$ | (52,146 | ) |
Issuance
of common stock in connection with settlement of Series H convertible preferred stock | |
| 207,000 | | |
| 2 | | |
| | | |
| | | |
| 1,498 | | |
| | | |
| 1,500 | |
Issuance
of common stock in connection with the acquisition of Fexy Studios | |
| 274,692 | | |
| 3 | | |
| - | | |
| - | | |
| 1,997 | | |
| - | | |
| 2,000 | |
Issuance
of common stock in connection with settlement of liquidated damages | |
| 47,252 | | |
| - | | |
| - | | |
| - | | |
| 369 | | |
| - | | |
| 369 | |
Gain
upon issuance of common stock in connection with settlement of liquidated damages | |
| - | | |
| - | | |
| - | | |
| - | | |
| 130 | | |
| - | | |
| 130 | |
Issuance
of common stock for restricted stock units | |
| 420,459 | | |
| 4 | | |
| - | | |
| - | | |
| (4 | ) | |
| - | | |
| - | |
Common
stock withheld for taxes | |
| (202,382 | ) | |
| (2 | ) | |
| - | | |
| - | | |
| (1,421 | ) | |
| - | | |
| (1,423 | ) |
Issuance
of common stock in connection with the exercise of stock options | |
| 795 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Issuance
of common stock in connection with registered direct offering | |
| 2,963,918 | | |
| 30 | | |
| - | | |
| - | | |
| 11,114 | | |
| - | | |
| 11,144 | |
Reclassification
to liability upon modification of common stock option | |
| - | | |
| - | | |
| - | | |
| - | | |
| (68 | ) | |
| - | | |
| (68 | ) |
Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 13,164 | | |
| - | | |
| 13,164 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (38,861 | ) | |
| (38,861 | ) |
Balance
at June 30, 2023 | |
| 22,014,927 | | |
$ | 219 | | |
| 41,283 | | |
$ | - | | |
$ | 297,522 | | |
$ | (361,932 | ) | |
$ | (64,191 | ) |
See
accompanying notes to condensed consolidated financial statements.
THE
ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| |
2024 | | |
2023 | |
| |
Six
Months Ended June 30, | |
| |
2024 | | |
2023 | |
| |
($
in thousands) | |
Cash
flows from operating activities | |
| | | |
| | |
Net
loss | |
$ | (111,545 | ) | |
$ | (38,861 | ) |
Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation
of property and equipment | |
| 130 | | |
| 197 | |
Amortization
of platform development and intangible assets | |
| 7,227 | | |
| 13,996 | |
Amortization
of debt discounts | |
| 596 | | |
| 1,645 | |
Noncash
and accrued interest | |
| 5,959 | | |
| 602 | |
Loss
on impairment of assets | |
| 40,589 | | |
| 119 | |
Change
in fair value of contingent consideration | |
| 313 | | |
| 409 | |
Liquidated
damages | |
| 152 | | |
| 304 | |
Stock-based
compensation | |
| 1,976 | | |
| 12,616 | |
Deferred
income taxes | |
| 62 | | |
| 73 | |
Bad
debt expense | |
| 672 | | |
| 54 | |
Other | |
| (21 | ) | |
| - | |
Change
in operating assets and liabilities net of effect of business combination: | |
| | | |
| | |
Accounts
receivable, net | |
| 20,458 | | |
| 2,213 | |
Subscription
acquisition costs | |
| 6,131 | | |
| (7,273 | ) |
Prepayments
and other current assets | |
| 1,043 | | |
| (7,327 | ) |
Other
long-term assets | |
| 230 | | |
| 8 | |
Accounts
payable | |
| (3,645 | ) | |
| 742 | |
Accrued
expenses and other | |
| 41,155 | | |
| (800 | ) |
Unearned
revenue | |
| (14,304 | ) | |
| 5,526 | |
Subscription
refund liability | |
| 105 | | |
| 45 | |
Operating
lease liabilities | |
| (524 | ) | |
| (114 | ) |
Contingent consideration | |
| (1,683 | ) | |
| - | |
Other
long-term liabilities | |
| (237 | ) | |
| (574 | ) |
Net
cash used in operating activities | |
| (5,161 | ) | |
| (16,400 | ) |
Cash
flows from investing activities | |
| | | |
| | |
Purchases
of property and equipment | |
| (27 | ) | |
| - | |
Capitalized
platform development | |
| (1,485 | ) | |
| (2,132 | ) |
Payments
for acquisition of business, net of cash acquired | |
| - | | |
| (500 | ) |
Net
cash used in investing activities | |
| (1,512 | ) | |
| (2,632 | ) |
Cash
flows from financing activities | |
| | | |
| | |
Payment
of Fexy put option | |
| (561 | ) | |
| - | |
(Repayments) proceeds under line of credit, net borrowing | |
| (20,027 | ) | |
| 815 | |
Proceeds
from common stock private placement | |
| 12,000 | | |
| - | |
Proceeds
from Simplify loan | |
| 12,748 | | |
| - | |
Proceeds
from common stock registered direct offering | |
| - | | |
| 11,500 | |
Payments
of issuance costs from common stock registered direct offering | |
| - | | |
| (167 | ) |
Payment
of deferred cash payments | |
| (200 | ) | |
| (75 | ) |
Payment
of taxes from common stock withheld | |
| (486 | ) | |
| (1,423 | ) |
Net
cash provided by financing activities | |
| 3,474 | | |
| 10,650 | |
Net
decrease in cash, cash equivalents, and restricted cash | |
| (3,199 | ) | |
| (8,382 | ) |
Cash,
cash equivalents, and restricted cash – beginning of period | |
| 9,284 | | |
| 14,373 | |
Cash,
cash equivalents, and restricted cash – end of period | |
$ | 6,085 | | |
$ | 5,991 | |
Cash,
cash equivalents, and restricted cash | |
| | | |
| | |
Cash
and cash equivalents | |
$ | 6,085 | | |
$ | 5,489 | |
Restricted
cash | |
| - | | |
| 502 | |
Total
cash, cash equivalents, and restricted cash | |
$ | 6,085 | | |
$ | 5,991 | |
Supplemental
disclosure of cash flow information | |
| | | |
| | |
Cash
paid for interest | |
$ | 2,033 | | |
$ | 7,140 | |
Cash
paid for income taxes | |
| 85 | | |
| 85 | |
Noncash
investing and financing activities | |
| | | |
| | |
Reclassification
of stock-based compensation to platform development | |
$ | 228 | | |
$ | 548 | |
Issuance
cost of registered direct offering recorded in accrued expenses and other | |
| - | | |
| 189 | |
Repurchase
of common stock for Fexy put option | |
| 379 | | |
| - | |
Issuance
of common stock in connection with settlement of liquidated damages | |
| - | | |
| 499 | |
Issuance
of common stock upon conversion of Series H convertible preferred stock | |
| - | | |
| 1,500 | |
Issuance
of common stock in connection with acquisition | |
| - | | |
| 2,000 | |
Deferred
cash payments recorded in connection with acquisitions | |
| - | | |
| 246 | |
Reclassification
to liability upon common stock modification | |
| - | | |
| 68 | |
See
accompanying notes to condensed consolidated financial statements.
THE
ARENA GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
($
in thousands, unless otherwise stated)
1.
Summary of Significant Accounting Policies
Basis
of Presentation
The
condensed consolidated financial statements include the accounts of The Arena Group Holdings, Inc. and its wholly owned subsidiaries
(“The Arena Group” or the “Company”), after eliminating all significant intercompany balances and transactions.
The
accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required
by accounting principles generally accepted in the United States of America (“GAAP”) for complete audited financial statements.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial
statements, which are included in The Arena Group’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with
the SEC on April 1, 2024.
The
condensed consolidated financial statements as of June 30, 2024, and for the three months ended June 30, 2024 and 2023, are unaudited
but, in management’s opinion, include all adjustments necessary for a fair presentation of the results of interim periods. All
such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet as of December 31, 2023, was derived
from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for interim periods
are not necessarily indicative of the results to be expected for the entire fiscal year.
The
Company’s business and operations are sensitive to general business and economic conditions in the United States and worldwide.
These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the
general condition of the United States and world economy. A host of factors beyond the Company’s control could cause fluctuations
in these conditions. Adverse developments in these general business and economic conditions could have a material adverse effect on the
Company’s financial condition and the results of its operations.
In
addition, the Company will compete with many companies that currently have extensive and well-funded projects, marketing and sales operations
as well as extensive human capital. The Company may be unable to compete successfully against these companies. The Company’s industry
is characterized by rapid changes in technology and market demands. As a result, the Company’s products, services, or expertise
may become obsolete or unmarketable. The Company’s future success will depend on its ability to adapt to technological advances,
anticipate customer and market demands, and enhance its current technology under development.
Uncertainty
in the global economy presents significant risks to the Company’s business. Increases in inflation, increasing and continued elevated
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 the Company’s business.
While the Company is closely monitoring the impact of the current macroeconomic conditions on all aspects of its business, the ultimate
extent of the impact on its 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 the Company’s control and could exist for an extended period of time. As
a result, the Company is subject to continuing risks and uncertainties.
The
Company operates in one reportable segment.
Going
Concern
The
Company’s condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern,
which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company’s
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 six months ended June 30, 2024, the Company incurred a net loss from continuing operations of $19,658,
and as of June 30, 2024, had cash on hand of $6,085
and a working capital deficit of $231,579.
The Company’s 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 its ability to meet its obligations when due. Management also
evaluated the Company’s 2023 Notes (see Note 11), Senior Secured Notes, Delayed Draw Term Notes and 2022 Bridge Notes (see
Note 12) (collectively its “current debt”) that are subject to a forbearance period through the earlier of the
following: (a) September 30, 2024, as further extended on July 12, 2024 to December 31, 2024 (as further described under the heading Arena
Loan Agreement in Note 20); (b) the occurrence of the closing of the Business Combination (as further described in Note 18); or
(c) the termination of the Business Combination prior to closing. In addition to the forgoing, management evaluated the August 2,
2024 shut down all of the operations and layoff of substantially all of the employees of Bridge Media Networks, LLC (“Bridge
Media”), an affiliated entity of Simplify Inventions, LLC (“Simplify”), and both parties to the Business
Combination. Unless the Company is able to refinance or modify the terms of its current debt it runs the risk that its debt could be
called, therefore, it may not be able to meet its obligations when due.
In
its evaluation, management determined that substantial doubt exists about the Company’s ability to continue as a going concern
for a one-year period following the financial statement issuance date. The plans to seek refinancing or modification of the terms of
its current debt, complete the Business Combination or enter
into possible alternative structures or options to the transactions contemplated under the Business Combination which are
discussed below are outside of management’s control.
The
Company plans to refinance or modify the terms of its current debt, complete the Business Combination or enter into possible
alternative structures or options to the transactions contemplated under the Business Combination based on its continuing
discussions with Simplify (as further discussed under the heading Business Combination in Note 20) to alleviate the
conditions that raised substantial doubt about its ability to continue as a going concern. However, there can be no assurance that
the Company will be able to refinance or modify the terms of its current debt, complete the Business Combination or enter into
possible alternative structures or options to the transactions contemplated under the Business Combination.
Use
of Estimates
The
preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make
certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the condensed consolidated financial statements and the reported results of operations during the
reporting period. Significant estimates include: reserves for bad debt; capitalization of platform development costs and associated
useful lives; goodwill and other acquired intangible assets and associated useful lives; assumptions used in accruals for potential
liabilities; revenue recognition and estimates of standalone selling price of performance obligations for revenue contracts with
multiple performance obligations; stock-based compensation and the determination of the fair value; valuation allowances for
deferred tax assets and uncertain tax positions; accounting for business combinations; and assumptions used to calculate contingent
liabilities. These estimates are based on information available as of the date of the condensed consolidated financial statements;
therefore, actual results could differ from management’s estimates.
Recently
Adopted Accounting Standards
In
June 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-03, Fair Value Measurement (Topic 820):
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction
on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered
in measuring fair value. This update also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual
sale restriction and requires certain disclosures for equity securities subject to contractual sale restrictions. The adoption of ASU
2022-03 on January 1, 2024 did not have a material impact on the Company’s condensed consolidated financial statements.
Loss
per Common Share
Basic
loss per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive
effects of common stock equivalent shares, such as stock options, restricted stock, and warrants. All restricted stock awards are considered
outstanding but are included in the computation of basic loss per common share only when the underlying restrictions expire, the shares
are no longer forfeitable, and are thus vested. All restricted stock units are included in the computation of basic loss per common share
only when the underlying restrictions expire, the shares are no longer forfeitable, and are thus vested. Contingently issuable shares
are included in basic loss per common share only when there are no circumstances under which those shares would not be issued. Diluted
loss per common share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding
during the period using the treasury stock method.
The
Company excluded the outstanding securities summarized below (capitalized terms are described herein), which entitle the holders thereof
to acquire shares of the Company’s common stock, from its calculation of net loss per common share, as their effect would have
been anti-dilutive. Common stock equivalent shares are excluded from the diluted calculations when a net loss is incurred as they would
be anti-dilutive.
Schedule of Common Stock Equivalent Shares Excluded From Diluted Calculations
| |
2024 | | |
2023 | |
| |
As
of June 30, | |
| |
2024 | | |
2023 | |
Series
G convertible preferred stock | |
| 8,582 | | |
| 8,582 | |
Series
H convertible preferred stock | |
| - | | |
| 1,774,128 | |
Financing
warrants | |
| 39,774 | | |
| 39,774 | |
ABG
Warrants | |
| 999,540 | | |
| 999,540 | |
AllHipHop
warrants | |
| 5,682 | | |
| 5,682 | |
Publisher
Partner Warrants | |
| 9,800 | | |
| 9,800 | |
Restricted
stock units | |
| 194,212 | | |
| 878,706 | |
Common
stock options | |
| 3,840,700 | | |
| 5,878,838 | |
Total | |
| 5,098,290 | | |
| 9,595,050 | |
2.
Discontinued Operations
On
March 18, 2024, the Company discontinued the Sports Illustrated media business (the “SI Business”) that was operated under
the Licensing Agreement with ABG-SI, LLC (“ABG”) dated June 14, 2019 (as amended to date, the “Licensing Agreement”).
This discontinuation of the SI Business (i.e., discontinued operations) followed the termination of the Licensing Agreement by ABG on
January 18, 2024. The last date of any obligation of the Company to perform under the Licensing Agreement was March 18, 2024. In connection
with the termination, certain ABG Warrants vested (further details are provided under the heading Vesting of Warrants in
Note 15).
The
table below sets forth the loss from discontinued operations:
Schedule of Discontinued Operations
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
Three
Months Ended June
30, | | |
Six
Months Ended June
30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
($
in thousands, except share data) | |
Revenue | |
$ | 404 | | |
$ | 24,734 | | |
$ | 22,252 | | |
$ | 47,696 | |
Cost
of revenue | |
| 865 | | |
| 16,287 | | |
| 14,846 | | |
| 28,232 | |
Gross
profit (loss) | |
| (461 | ) | |
| 8,447 | | |
| 7,406 | | |
| 19,464 | |
Operating
expense | |
| | | |
| | | |
| | | |
| | |
Selling
and marketing | |
| 499 | | |
| 12,599 | | |
| 12,002 | | |
| 24,721 | |
General
and administrative (1) | |
| 301 | | |
| 121 | | |
| 45,493 | | |
| 199 | |
Depreciation
and amortization | |
| - | | |
| 3,670 | | |
| 2,401 | | |
| 7,340 | |
Loss
on impairment of assets (2) | |
| - | | |
| - | | |
| 39,391 | | |
| - | |
Total
operating expenses | |
| 800 | | |
| 16,390 | | |
| 99,287 | | |
| 32,260 | |
Loss
from discontinued operations | |
| (1,261 | ) | |
| (7,943 | ) | |
| (91,881 | ) | |
| (12,796 | ) |
Income
tax benefit | |
| 12 | | |
| (14 | ) | |
| (6 | ) | |
| (14 | ) |
Net
loss from discontinued operations | |
$ | (1,249 | ) | |
$ | (7,957 | ) | |
$ | (91,887 | ) | |
$ | (12,810 | ) |
The
table below sets forth the major classes of assets and liabilities of the discontinued operations:
| |
June
30, 2024 | | |
December
31, 2023 | |
| |
As
of | |
| |
June
30, 2024 | | |
December
31, 2023 | |
Assets | |
| | | |
| | |
Accounts
receivable, net | |
$ | 1,014 | | |
$ | 13,135 | |
Subscription
acquisition costs, current portion | |
| - | | |
| 29,706 | |
Prepayments
and other current assets | |
| - | | |
| 807 | |
Current
assets from discontinued operations | |
| 1,014 | | |
| 43,648 | |
Subscription
acquisition costs, net of current portion | |
| - | | |
| 7,215 | |
Acquired
and other intangibles assets, net | |
| - | | |
| 11,002 | |
Noncurrent
assets from discontinued operations | |
| - | | |
| 18,217 | |
Total
assets from discontinued operations | |
$ | 1,014 | | |
$ | 61,865 | |
Liabilities | |
| | | |
| | |
Accounts
payable | |
$ | 1,735 | | |
$ | 2,554 | |
Accrued
expenses and other | |
| 1,665 | | |
| 1,868 | |
Subscription
refund liability | |
| 423 | | |
| 403 | |
Royalty
fee liability(1) | |
| 3,750 | | |
| - | |
Termination
fee liability(1) | |
| 45,000 | | |
| - | |
Subscription
liability, current portion | |
| 44,943 | | |
| 42,848 | |
Current
liabilities from discontinued operations | |
| 97,516 | | |
| 47,673 | |
Subscription
liability, net of current portion | |
| - | | |