Filing Scope and Business Context
The provided filing is a Form 10-Q for Recall Studios, Inc., not Fubotv Inc. It covers the quarter ended March 31, 2018 and was filed May 21, 2018. Recall Studios described its business as focused on augmented reality and virtual reality technologies, content, and immersive experiences, with two patents pending. The filing states that the company also did business as Brick Top Productions.
Key Financial Metrics
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $0 | $5,000 |
| Operating expenses | $840,000 | $142,000 |
| Loss from continuing operations | $695,000 loss | $6,663,000 income |
| Net income (loss) | $695,000 loss | $6,630,000 income |
| Basic net loss per share | $0.01 loss | $195.34 income |
| Cash flow from operating activities | $641,000 used | $83,000 used |
| Cash flow from financing activities | $983,000 provided | $0 |
| Cash at period end | $419,000 | $18,000 |
Amounts are rounded to the nearest thousand unless otherwise stated. Gross profit was $0 in 2018 versus $5,000 in 2017; therefore, a meaningful gross margin was not available.
- Total assets were $437,000 at March 31, 2018, compared with $86,000 at December 31, 2017.
- Total current liabilities were $3.191 million, including a $1.980 million derivative liability, $484,000 of related-party convertible notes, and $131,000 of other convertible notes, net of discount.
- The company reported negative working capital of $2.763 million and stockholders’ deficit of $2.754 million.
- As of March 31, 2018, outstanding note principal was $878,500, accrued interest was $10,295, and unamortized note discount was $747,626. Certain related-party notes were past due.
Material Changes Versus the Prior Comparable Period
- Revenue declined from $5,000 to zero.
- Operating expenses increased by $698,000, primarily from higher compensation, consulting fees, and advertising and marketing costs.
- Net results moved from $6.630 million of income to a $695,000 loss. The prior-year income was substantially affected by a $6.807 million derivative-liability fair-value gain; the current-period gain was $2.768 million.
- Q1 2018 included $2.137 million of financing costs and $364,000 of debt-discount amortization, with no corresponding amounts reported for Q1 2017.
- Common shares outstanding increased to 83,274,896 from 79,797,533 at year-end 2017. The company issued 2.736 million shares for $549,000 in cash, 475,000 shares for services valued at $410,000, and 200,000 shares as a financing commitment fee valued at $118,000.
- Financing proceeds included $807,000 from convertible notes and $549,000 from common-stock sales, partly offset by $373,000 of convertible-note repayments.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that current funds and anticipated proceeds from common-stock subscriptions were expected to support operations through 2018, but the company was seeking additional capital and provided no assurance that financing would be available on acceptable terms.
- The financial statements include a substantial-doubt going-concern disclosure based on recurring losses, a $2.754 million stockholders’ deficit, and $641,000 of operating cash burn during the quarter. Management stated that continuation depends on raising capital, executing its strategy, and generating sufficient revenue.
- The company’s disclosure controls and procedures were deemed ineffective because of limited resources and a limited number of employees. Management relied heavily on direct oversight and external legal and accounting professionals.
- Variable-price conversion features in convertible notes were recorded as derivative liabilities and remeasured through earnings. The derivative liability was $1.980 million at March 31, 2018, using Level 3 valuation inputs.
- Many convertible notes carry substantial discounts and conversion prices based on discounted historical trading prices, creating potential dilution and financing risk.
- On February 1, 2018, Alexander Bafer became chief executive officer and chairman. The company entered into employment and chairman agreements providing annual salary of $250,000 and options for an aggregate of 500,000 common shares.
- The former High Five Entertainment business was classified as discontinued operations. The company may receive up to $590,000 based on future revenues, but the filing states that the remaining purchase price will be recognized when collectability can be determined.
- In May 2018, after quarter-end, the company entered into a $56,000 convertible-note agreement due May 3, 2019.
Investor Verification Items
- Confirm the issuer identity: the supplied filing is for Recall Studios, Inc., whereas the request identifies Fubotv Inc.
- Verify the company’s ability to raise additional capital and fund operations given only $419,000 of cash against $3.191 million of current liabilities.
- Review the maturity, conversion terms, discounts, and potential dilution associated with the $878,500 of outstanding note principal and related-party obligations.
- Assess the recurring operating cash burn and the absence of revenue during the quarter.
- Review the valuation assumptions and earnings volatility associated with the $1.980 million Level 3 derivative liability.
- Follow remediation of ineffective disclosure controls and monitor related-party accrued payroll, interest, and past-due notes.