Brick Top Productions, Inc. — Form 10-Q Summary
Filing identity: The supplied filing is for Brick Top Productions, Inc., not FuboTV Inc. It covers the quarter and six months ended June 30, 2014; financial statements are unaudited. The company was a smaller reporting company with 30,974,500 common shares outstanding as of August 14, 2014.
Business Context and Reporting Period
Brick Top finances, produces and distributes television, film and other media projects and has expanded into acquiring entertainment production companies. Its consolidated subsidiaries include York Productions, LLC, York Productions II, LLC and S&G Holdings, Inc., doing business as High Five Entertainment. The company acquired a 75% interest in S&G in December 2013, which generated the company’s first reported revenue in the current periods.
The company is developing and marketing the “Nick The Doorman” pilot, evaluating a feature-film version, pursuing the “Bless Me Father” screenplay, considering a smartphone-content platform and exploring additional acquisitions.
Financial Highlights
| Metric | Three Months Ended June 30, 2014 | Three Months Ended June 30, 2013 |
|---|---|---|
| Revenue | $249,303 | $0 |
| Operating expenses | $2,066,834 | $42,716 |
| Loss from operations | $(1,817,531) | $(42,716) |
| Net loss attributable to company stockholders | $(1,743,684) | $(42,692) |
| Basic and diluted loss per share | $(0.06) | $(0.00) |
| Metric | Six Months Ended June 30, 2014 | Six Months Ended June 30, 2013 |
|---|---|---|
| Revenue | $270,652 | $0 |
| Operating expenses | $2,247,638 | $64,291 |
| Loss from operations | $(1,976,986) | $(64,291) |
| Net loss attributable to company stockholders | $(1,875,956) | $(65,259) |
| Basic and diluted loss per share | $(0.06) | $(0.00) |
Gross margin and operating margin were not meaningful because the filing reports license-fee revenue but does not present a separate cost-of-revenue line. The six-month loss included $1,746,990 of stock-based compensation, including $1,476,735 of estimated fair value for an award to the S&G president.
Cash Flow, Liquidity and Capital Structure
- Cash was $167,820 at June 30, 2014, up from $135,612 at December 31, 2013.
- Six-month operating cash flow was $(266,603), compared with $(90,447) in the prior-year period.
- Investing cash flow was $(1,203), primarily for computer equipment.
- Financing cash flow was $300,014, including $200,014 of note proceeds, $50,000 of related-party advances, $40,000 from stock issuance and a $10,000 capital contribution.
- Total assets were $515,300 and total liabilities were $556,337 at June 30, 2014. Total equity was $(41,037), compared with $68,161 at December 31, 2013.
- Current liabilities included $149,000 of accrued payroll, $110,847 of advances from related parties and $104,714 of notes payable. Long-term liabilities included $150,000 owed under an officer note.
- Management reported negative working capital of approximately $(215,695) and stated that additional capital is required to fund operations.
- The company had a $50,000 bank note bearing a variable rate then stated at 4.95%, due June 1, 2015, and a $150,000 related-party note bearing 5% interest, due October 1, 2015.
Material Changes Versus the Prior Comparable Period
- Revenue increased from zero to $249,303 in the second quarter and $270,652 for the six-month period, primarily because of the S&G acquisition.
- Operating expenses increased substantially, principally from the acquired operations and $1.75 million of noncash stock compensation.
- Six-month operating cash use increased by $176,156 year over year, while financing inflows increased by $164,214.
- Common shares outstanding increased from 29,692,000 at December 31, 2013 to 30,974,500 at June 30, 2014. The company issued shares for cash, outside services, employee services and board services.
- Accumulated deficit increased from $1,396,523 to $3,272,479, and total equity declined into a deficit.
- The company recognized a $75,000 bad-debt recovery during the six-month period, reducing the reported net loss but not representing recurring operating revenue.
Guidance, Outlook, Risks and Unusual Items
Management provided no formal quantitative revenue or earnings guidance. It expects future revenue to depend on High Five’s programming, marketing the “Nick The Doorman” project, developing additional film and television rights and completing potential acquisitions. Management stated that additional capital is needed and that there is no assurance it can raise financing on acceptable terms.
- Going concern: Recurring losses, negative operating cash flow, accumulated deficit and limited cash raise substantial doubt about the company’s ability to continue as a going concern. Management’s plans depend on generating revenue and obtaining additional financing.
- Acquisition funding obligation: The company agreed to contribute an additional $365,000 to S&G before September 2014. Failure to make required contributions could require the company to return certain S&G shares.
- Execution and market risk: Film and television projects may take months to years to monetize and face significant competition from major networks and studios with substantially greater resources.
- Concentration and valuation risk: Goodwill of $319,237 represented a substantial portion of assets. The company reported no goodwill impairment at the latest test date, but future impairment is possible if S&G underperforms.
- Equity dilution: A 1,491,350-share option award to the S&G president had a $0.01 exercise price; 994,233 shares were vested and exercisable at June 30, 2014.
- Internal controls: Management concluded that internal control over financial reporting was not effective, primarily because the company had only two employees, only one with an accounting background, and lacked segregation of duties.
- Related-party dependence: The company relies on advances and financing from officers and stockholders. Management stated that no written or oral agreement exists obligating them to provide additional financing.
- Subsequent event: Effective July 14, 2014, the company appointed a chief legal officer under a $5,000 monthly retainer arrangement.
Investor Verification Checklist
- Confirm the issuer and ticker because the supplied filing identifies Brick Top Productions, Inc., rather than FuboTV Inc.
- Verify the operating performance and financial contribution of the S&G/High Five acquisition, including the basis for the $319,237 goodwill balance.
- Assess the company’s ability to fund the required $365,000 S&G capital contribution and ongoing operating cash needs.
- Review the going-concern disclosure, negative working capital, accrued payroll and related-party obligations.
- Evaluate the recurring versus nonrecurring nature of the $1,746,990 stock-compensation expense and $75,000 bad-debt recovery.
- Review dilution from outstanding options, issued shares and future equity financing.
- Investigate the disclosed ineffective internal controls and any remediation after June 30, 2014.