Business Context and Reporting Period
The supplied filing is not for FuboTV Inc.; it is Pulse Evolution Group, Inc. (renamed from Recall Studios, Inc.), filed on Form 10-Q for the quarter ended June 30, 2019. The company develops hyper-realistic digital humans and related technologies for entertainment, virtual reality, augmented reality, mobile, interactive and artificial-intelligence applications. The filing was signed August 14, 2019.
The company acquired a 99.7% interest in Evolution AI Corporation in August 2018, indirectly obtaining a majority interest in Pulse Evolution Corporation. Comparative results for 2018 were therefore not fully comparable to 2019. No revenue was reported in the statements of operations; the filing text does not provide a clear current-period revenue value.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | Comparable 2018 Period |
|---|---|---|---|
| Operating expenses | $6.0 million | $12.2 million | $1.0 million and $1.9 million |
| Loss before income taxes | $4.4 million | $8.4 million | $2.2 million and $2.9 million |
| Income tax benefit | $1.0 million | $2.2 million | None reported |
| Net loss | $3.4 million | $6.2 million | $2.2 million and $2.9 million |
| Net loss attributable to common stockholders | $5.5 million | $9.0 million | $2.2 million and $2.9 million |
| Basic and diluted loss per share | $0.24 | $0.50 | $0.77 and $1.04 |
Margins are not meaningful because the filing does not report operating revenue. The 2019 results included $5.2 million of quarterly and $10.3 million of year-to-date amortization expense related to acquired intangible assets.
- Cash was $151,000 at June 30, 2019, compared with $31,000 at December 31, 2018.
- Net cash used in operating activities was $1.5 million for the six months ended June 30, 2019, compared with $1.6 million in 2018.
- Net cash used in investing activities was $374,000, primarily reflecting a $1.0 million investment in Panda Productions, partially offset by $655,000 received from the sale of profits interests.
- Net cash provided by financing activities was $2.0 million, including $2.2 million from common-stock issuances.
- Current liabilities were $13.6 million, versus current assets of $166,000, resulting in a reported working-capital deficiency of approximately $13.4 million.
- Total liabilities were $46.4 million and stockholders’ equity was $228.7 million at June 30, 2019.
- Debt and debt-like obligations included a $3.9 million note payable, $516,000 of notes payable to related parties, $100,000 of convertible notes, $655,000 of profits interests sold, and $927,000 of subsidiary warrant liability. Certain obligations were in default or past due.
Material Changes Versus the Prior Comparable Period
- Operating expenses increased by $5.0 million in the quarter and $10.3 million year to date, almost entirely because of amortization of acquired intangible assets.
- Quarterly net loss increased from $2.2 million to $3.4 million; year-to-date net loss increased from $2.9 million to $6.2 million. Net loss attributable to common stockholders was $9.0 million year to date.
- Other income was $1.6 million in the quarter and $3.7 million year to date, compared with other expense in the 2018 periods. The change was driven primarily by non-cash fair-value gains on subsidiary warrants and derivative liabilities.
- The company raised approximately $2.2 million through common-stock issuances during the first six months of 2019 and issued 764,890 shares to accredited investors.
- Series X preferred stock automatically converted into 15.0 million common shares on February 28, 2019. The company also completed a 1-for-30 reverse stock split and increased authorized common shares to 400 million.
- The company adopted new accounting guidance for equity investments and leases in 2019. The lease adoption resulted in recognition of approximately $99,000 of right-of-use assets and lease liabilities at June 30, 2019.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued losses and states that additional capital is required to fund operations, satisfy obligations and execute its business plan. The filing identifies substantial doubt about the company’s ability to continue as a going concern within one year.
- Management was seeking additional debt and equity financing, but stated that financing may not be available on acceptable terms and could restrict operations or substantially dilute shareholders.
- The company committed to invest at least $2.0 million in a production company for DreamWorks’ Kung Fu Panda Spectacular Live in Macau, scheduled to open in January 2020. $1.0 million remained unfunded at June 30, 2019.
- A $2.7 million note bearing 10% interest, with approximately $1.2 million of accrued interest, was in default. Holders agreed to forbear from exercising remedies while the company negotiated a resolution.
- Related-party obligations included amounts due to executives and other related parties, including a note to the chairman that was replaced with a $264,365 non-convertible note maturing August 31, 2019.
- The company had $524,000 accrued for judgments from closed litigation and was engaged in settlement discussions. A separate complaint was dismissed on July 24, 2019, subject to the plaintiff’s right to amend.
- Subsequent events included authorization and issuance plans for Series D preferred stock, a $275,000 convertible note issued July 30, 2019, and a July 31, 2019 agreement to develop a digital likeness of Floyd Mayweather. Under that agreement, the company paid $250,000, issued shares valued at $1.0 million and agreed to fund technology and related costs.
- Disclosure controls and internal control over financial reporting were reported as ineffective because of material weaknesses involving risk assessment, accounting policies, segregation of duties, technical expertise, information-technology controls and tax-reporting processes.
Investor Verification Priorities
- Verify the issuer identity: the supplied document is for Pulse Evolution Group, Inc., not FuboTV Inc.
- Confirm whether the company generated any operating revenue during the period; the provided statements do not present a clear revenue line.
- Assess the going-concern qualification, working-capital deficiency, minimal cash balance and dependence on additional financing.
- Review all defaulted and past-due debt, accrued interest, creditor forbearance arrangements and related-party obligations.
- Evaluate the sustainability of results excluding substantial amortization and non-cash fair-value gains.
- Review dilution from the preferred-stock conversion, private placements, warrants, convertible instruments and subsequent Series D issuance.
- Assess the funding obligations and commercial prospects of the Kung Fu Panda and Virtual Mayweather arrangements.
- Review the material weaknesses in internal controls and any remediation disclosed in subsequent filings.