Filing Overview
Issuer discrepancy: The request identifies Fubotv Inc., but the supplied Form 10-Q is for Carolco Pictures, Inc. The filing covers the unaudited three months ended March 31, 2016, with comparison to March 31, 2015. Carolco describes its business as film and television production, live events, award programming, and related entertainment activities.
Financial Highlights
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $22,000 | $2,000 |
| Gross profit (loss) | $20,000 | $(30,000) |
| Operating expenses | $142,000 | $726,000 |
| Loss from operations | $(122,000) | $(756,000) |
| Net loss attributable to Carolco | $(2,467,000) | $(702,000) |
| Basic and diluted loss per share | $(0.02) | $(0.03) |
| Net cash used in operating activities | $(144,000) | $(647,000) |
| Net cash provided by financing activities | $103,000 | $517,000 |
| Cash at period end | $7,000 | $30,000 |
Gross margin was approximately 91% in Q1 2016 versus a negative gross margin in Q1 2015. The company remained deeply unprofitable; the Q1 2016 loss included a $2.380 million unfavorable change in the fair value of derivative liabilities, partly offset by a $174,000 gain on extinguishment of derivative liabilities.
Balance Sheet, Debt and Liquidity
- March 31, 2016 total assets were $273,000, including $7,000 of cash and a $250,000 deposit on a film project paid to a related party.
- Total current liabilities were $8.060 million, producing negative working capital of approximately $8.038 million.
- Stockholders’ deficit attributable to Carolco was $7.787 million, compared with $5.372 million at December 31, 2015.
- Derivative liabilities increased to $6.879 million from $4.673 million at year-end 2015.
- Debt included $543,000 of convertible notes payable to a related party, $57,000 of other convertible notes, and a $74,000 secured note payable.
- The $543,000 related-party convertible notes and $57,000 convertible note were matured and in default at March 31, 2016. Advances from related parties increased to $226,000 from $31,000 and were unsecured, non-interest bearing, and due on demand.
Material Changes Versus Prior Period
- Revenue increased by $20,000, primarily from production services and award programming.
- Cost of goods sold decreased by $30,000, and operating expenses declined by approximately $584,000, primarily because Q1 2015 included significant stock-based compensation related to the S&G Holdings acquisition.
- Net loss increased by approximately $1.765 million, primarily because of the $2.380 million derivative-liability fair-value loss and higher interest expense.
- Operating cash burn improved from $647,000 to $144,000, but cash declined by $41,000 during the quarter to only $7,000.
- The company issued 145,299,937 common shares upon conversion or settlement of convertible notes during the quarter. Common shares outstanding increased to 239,156,794 from 93,856,857 at December 31, 2015.
- In January 2016, authorized common shares increased to 5.0 billion and authorized preferred shares increased to 50 million, partly to support required reserves for convertible notes.
Outlook, Risks and Unusual Items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern because of recurring losses, a $7.787 million stockholders’ deficit, operating cash usage, and debt defaults. The company expects to seek additional financing, primarily through equity issuance, but provides no assurance that financing will be available or acceptable.
- Management stated that approximately $120,000 of funds on hand as of the report date was expected to support operations through December 31, 2016. The filing also reports approximately $416,000 raised in July 2016 through an equity issuance.
- The company had no formal third-party financing commitments available and stated that additional equity financing could substantially dilute existing shareholders.
- A $250,000 deposit related to a film project with a company managed by former Chairman Mario Kassar remained recorded as an asset; the project was still in production and no impairment was recognized.
- One customer accounted for 80% of Q1 2016 sales, compared with 95% in Q1 2015, indicating significant customer concentration.
- Management concluded that disclosure controls and procedures were ineffective as of March 31, 2016 because of limited resources and personnel.
- The company received an April 2016 cease-and-desist letter from Studiocanal S.A. concerning trademark rights. Management stated that no legal claim had been brought as of the filing.
- Subsequent events included a change in control, issuance of multiple series of preferred stock, the July 2016 acquisition of Recall Studios, additional debt conversions, and extensions of related-party debt maturities. The filing stated that the acquisition valuation and purchase-price allocation were not yet finalized.
- No specific revenue, earnings, or cash-flow guidance was provided. Management’s outlook consisted primarily of pursuing additional entertainment projects, acquisitions, financing, and improved operating scale.
Investor Verification Checklist
- Confirm that this filing belongs to Carolco Pictures, Inc. rather than Fubotv Inc.
- Verify the going-concern disclosure, debt defaults, maturity extensions, and the company’s ability to obtain additional financing.
- Reconcile the large number of note conversions with common-share dilution and the company’s authorized-share capacity.
- Review the valuation methodology and assumptions supporting the $6.879 million derivative liability.
- Assess the recoverability of the $250,000 related-party film-project deposit.
- Review subsequent control changes, the Recall Studios acquisition, preferred-stock rights, and the unresolved purchase-price allocation.
- Evaluate customer concentration, ineffective disclosure controls, related-party transactions, and the Studiocanal trademark dispute.