Filing Summary
Filing identity: The provided Form 10-Q is for Brick Top Productions, Inc., not Fubotv Inc. It covers the unaudited quarter ended March 31, 2014, with comparisons to March 31, 2013. The filing was signed May 20, 2014.
Business Context and Reporting Period
Brick Top is an entertainment production and acquisition company focused on television series, feature films, and related distribution opportunities. 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.
The company is developing and marketing the “Nick The Doorman” pilot, considering a feature-film version, and planning additional projects including “Bless Me Father.” Management states that additional capital is required to execute its business plan.
Financial Results and Key Metrics
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $21,349 | $0 |
| Operating expenses | $180,804 | $21,575 |
| Loss before non-controlling interest | $159,954 | $22,587 |
| Net loss attributable to Brick Top stockholders | $132,272 | $22,567 |
| Net cash used in operating activities | $219,896 | $47,684 |
| Net cash provided by financing activities | $250,300 | $85,800 |
| Ending cash | $165,052 | $41,270 |
- Revenue consisted of $21,349 in license fees. The filing does not provide a gross margin or cost-of-revenue figure; operating expenses were approximately 847% of revenue.
- Operating expenses included compensation of $84,757, professional fees of $31,383, and general and administrative expenses of $64,664.
- Interest expense was $1,499, partially offset by $1,000 of other income. No income tax provision was recorded.
- At March 31, 2014, total assets were $492,160, total liabilities were $583,953, and total equity was negative $91,793.
- Current liabilities were $433,953 versus current assets of $166,629, resulting in negative working capital of $267,324.
- Debt and funding obligations included a $55,000 note payable, $161,147 of advances from related parties, and a $150,000 long-term related-party note payable recorded at March 31, 2014.
- Cash used in investing activities was $964, primarily for computer equipment. Financing inflows included $100,300 of related-party advances and $150,000 from a related-party note.
Material Changes Versus the Prior Comparable Period
- Revenue increased from zero to $21,349, attributed primarily to the S&G acquisition completed in the fourth quarter of 2013.
- Operating expenses increased by $159,229, or approximately 738%, also attributed to the S&G acquisition and related operations.
- Net loss attributable to Brick Top stockholders increased from $22,567 to $132,272.
- Operating cash burn increased from $47,684 to $219,896.
- Cash increased by $29,440 during the quarter, but the increase was driven by $250,300 of financing inflows rather than operating performance.
- Stockholders’ equity declined from $97,592 at December 31, 2013 to a deficit of $34,680 at March 31, 2014. The total equity deficit, including non-controlling interests, was $91,793.
Guidance, Outlook, Risks, and Unusual Items
- Management has not provided quantitative revenue, earnings, or cash-flow guidance. It expects future revenue to depend on marketing “The Doorman” pilot and completing additional acquisitions or projects.
- The company disclosed substantial doubt about its ability to continue as a going concern because of recurring losses, accumulated deficit, operating cash requirements, and insufficient cash to support daily operations.
- Management expects to seek additional financing through equity offerings and loans, but stated that no third-party financing is currently available and there is no agreement requiring officers or shareholders to provide further funding.
- Under the S&G acquisition agreement, the company agreed to make an additional $365,000 of capital contributions before September 2014. Failure to fund the required contributions could require the company to return certain acquired shares.
- The company incurred an accumulated deficit of $1,528,795 at March 31, 2014. Deferred tax benefits from net operating losses are fully reserved because realization was not considered more likely than not.
- Management reported 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.
- The CEO had waived future base salary, but accrued payroll was $149,000. The S&G president has a five-year employment agreement with initial annual compensation of $144,000, potential annual bonuses of up to $100,000, and a monthly automobile allowance.
- The company granted the S&G president an option to purchase approximately 1.49 million common shares at $0.01 per share.
- Capitalized pilot costs of $292,931 were impaired at December 31, 2013. Goodwill of $319,237 related to S&G remained on the balance sheet and was reported as unimpaired.
- Subsequent events included a $150,000 CEO loan bearing 5% annual interest and maturing October 1, 2015, and the appointment of a director in exchange for 50,000 shares plus potential annual grants of 50,000 shares for four additional years.
- The company reported no legal proceedings and no off-balance-sheet arrangements. Market-risk disclosures were deemed not applicable.
Facts an Investor Should Verify
- Confirm the issuer identity: the supplied filing is for Brick Top Productions, Inc., whereas the request identifies Fubotv Inc.
- Verify the company’s ability to fund the required $365,000 S&G capital contribution and ongoing operating losses.
- Review the terms, enforceability, and repayment capacity for related-party advances and the $150,000 CEO note.
- Assess whether “The Doorman” and planned projects can generate sufficient revenue to address the going-concern uncertainty.
- Evaluate the carrying value and impairment risk of the $319,237 goodwill balance and remaining entertainment-related assets.
- Review the disclosed ineffective internal controls, accrued payroll, employment obligations, stock options, and potential future equity issuances.
- Confirm subsequent financing, director compensation, and any changes filed after May 20, 2014.