Business Context and Reporting Period
The filing is a Form 10-Q for the three months ended March 31, 2015. The registrant identified in the filing is Carolco Pictures, Inc., formerly Brick Top Productions, Inc.; the supplied metadata identifies Fubotv Inc., which does not match the filing. Carolco describes itself as a feature-film and television production company, including activity through majority-owned High Five Entertainment.
The company changed its name and trading symbol to Carolco Pictures, Inc. and CRCO, respectively, on January 20, 2015. The financial statements are unaudited.
Key Financial Metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $1,900 | $21,349 |
| Cost of goods sold | $32,499 | $20,078 |
| Gross margin (loss) | $(30,599) | $1,271 |
| Operating expenses | $725,904 | $160,726 |
| Loss before income taxes and noncontrolling interest | $(730,494) | $(159,954) |
| Net loss attributable to Carolco stockholders | $(702,801) | $(132,272) |
| Basic and diluted loss per share | $(0.03) | $0.00 |
| Net cash used in operating activities | $(646,610) | $(219,896) |
| Net cash provided by financing activities | $516,810 | $250,300 |
| Ending cash | $30,576 | $165,052 |
At March 31, 2015, total assets were $690,680 and total liabilities were $1,075,827. Total equity was a deficit of $385,147, compared with positive equity of $28,956 at December 31, 2014. The company reported negative working capital of $706,905.
Current liabilities included $484,700 of related-party notes payable, $50,000 of notes payable, $150,000 of accrued payroll, $200,000 of accrued related-party compensation, and $60,847 of advances from related parties. The company also carried $319,237 of goodwill and a $250,000 deposit for the Audition project.
Cash used in operating activities included the $250,000 project deposit and reflected a $200,000 increase in accrued related-party compensation. Financing inflows included $334,400 of related-party borrowings, $29,660 of bank borrowings, $55,750 from private stock placements, and $147,000 from unit sales.
Material Changes Versus the Prior Comparable Period
- Revenue declined approximately 91% to $1,900 because little production product was delivered and license fees were earned.
- Gross margin moved from a $1,271 profit to a $30,599 loss as cost of goods sold exceeded revenue.
- Operating expenses increased by $565,178, primarily because compensation expense rose by $450,986 to $517,743. Management attributed the increase principally to the Mario Kassar chairman agreement, including $400,000 of cash consideration, $40,000 of stock compensation, and $8,631 of option compensation.
- Net loss attributable to Carolco stockholders increased to $702,801 from $132,272.
- Operating cash burn increased to $646,610 from $219,896, while ending cash fell by $129,801 during the quarter.
- Common shares outstanding increased to 57,967,000 from 54,239,500 at December 31, 2014. The company also had 2,446,350 outstanding and exercisable warrants.
- Related-party notes payable increased materially from $150,300 at December 31, 2014 to approximately $484,700-$485,300 at March 31, 2015, reflecting additional CEO loans of approximately $335,000.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management provided no quantified revenue or earnings guidance. It stated that future revenue depends on marketing The Doorman pilot, closing new film-rights acquisitions, producing sufficient revenue, and raising additional capital. The company commenced a private unit offering of up to 31,250,000 units at $0.50 per unit, with proceeds intended partly to finance Audition and otherwise support film and television production.
The financial statements contain an explicit substantial-doubt going-concern disclosure. The company has recurring operating losses, an accumulated deficit, limited cash, negative working capital, and substantial operating cash outflows. Continuation depends on implementing its business plan, generating revenue, and obtaining additional financing; management stated that there is no assurance these objectives will be achieved.
Related-party and financing risks are significant. The $50,000 bank line of credit, bearing a variable rate stated as 4.95%, was due in full on June 1, 2015. Related-party promissory notes generally bear 5% interest and mature October 1, 2015. Management stated that no third-party financing was currently available and that officers and shareholders had not committed to provide additional financing.
Management concluded that disclosure controls and procedures were not effective as of March 31, 2015, primarily because the company had only two employees, only one with an accounting background, and lacked segregation of duties. No material changes in internal control over financial reporting were identified during the quarter.
Notable unusual items include the $250,000 Audition project deposit, the Kassar-related compensation charge, stock and warrant issuances for services, and the continuing carrying value of $319,237 of goodwill. No material litigation was reported. Subsequent events included a $45,000 CEO loan, additional equity and unit sales, a further 100,000-share commitment to Mr. Kassar, and an $88,242 consultant advance.
Important Facts for Investors to Verify
- Confirm the issuer identity: the filing is for Carolco Pictures, Inc., not Fubotv Inc.
- Review the going-concern warning, available cash of $30,576, negative working capital, and funding requirements.
- Verify maturity, repayment terms, and related-party nature of the approximately $485,000 of notes payable and the June 1, 2015 bank-line maturity.
- Assess whether the Audition project and proposed private unit offering can generate sufficient funding and future revenue.
- Examine the Kassar agreement, including cash compensation, stock, options, tax-related obligations, indemnification, and insurance requirements.
- Evaluate dilution from the increased share count and 2,446,350 warrants, including warrants exercisable at $0.01, $1.00, $3.00, and $6.00 per share.
- Review the ineffective disclosure controls and the company’s ability to remediate the lack of accounting personnel and segregation of duties.
- Reconcile inconsistencies in the filing, including certain related-party note balances and descriptions of unit sales.