SEC Filing Summary
Filing and period: The provided filing is a Form 10-K for Carolco Pictures, Inc., not Fubotv Inc. It covers the fiscal year ended December 31, 2015; it is not a quarterly Q4 filing. The report was signed November 22, 2016. The company operated feature-film and television production businesses through High Five Entertainment and had four full-time employees at December 31, 2015.
Business Context
The company sought to finance, produce and distribute feature films, television programs, live events and award shows. Revenue was primarily generated through production services and programming distribution. Management also pursued the Carolco Pictures brand, the “Audition” film project and future acquisitions. Recall Studios, focused on virtual-reality content, was acquired after year-end in July 2016 and was not part of the 2015 operating business.
Financial Performance and Position
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $964,141 | $790,467 |
| Gross profit | $172,110 | $159,141 |
| Gross margin | Approximately 17.9% | Approximately 20.1% |
| Operating expenses | $3,218,204 | $2,499,574 |
| Loss from operations | $(3,046,094) | $(2,340,433) |
| Net loss attributable to Carolco stockholders | $(7,577,145) | $(2,220,196), as shown in the audited statements |
| Basic and diluted loss per share | $(0.13) | $(0.08) |
| Net cash used in operating activities | $(914,694) | $(412,868) |
| Net cash used in investing activities | $(250,000) | $(51,203) |
| Net cash provided by financing activities | $1,052,582 | $488,836 |
| Cash at year-end | $48,265 | $160,377 |
| Total assets | $313,340 | $548,762 |
| Total liabilities | $5,684,699 | $519,806 |
| Working capital | Negative $5,623,000 | Not clearly provided |
| Total stockholders’ deficit, including non-controlling interest | $(5,371,359) | $28,956 |
Revenue increased approximately 22.0%, but cost of goods sold increased approximately 25.4%, reducing gross margin. Based on reported revenue, operating margin was approximately negative 316% and net margin was approximately negative 786%. The filing does not provide a clear value for interest-bearing debt on a consolidated gross basis, but current liabilities included $43,687 of notes payable, $182,491 of convertible notes payable net of discount, $543,115 of convertible notes payable to a related party and a $4,672,617 derivative liability.
Material Changes Versus Prior Period
- Revenue rose by approximately $173,674, attributed mainly to increased demand for production services and award-show programming.
- Gross profit increased only approximately $12,969, while gross margin declined because production labor and other costs grew faster than revenue.
- Operating expenses increased approximately $718,630, including higher professional fees, general and administrative costs and a $319,237 goodwill impairment, partly offset by lower compensation expense.
- Net loss attributable to company stockholders increased substantially, driven principally by a $2,262,774 increase in the fair value of derivative liabilities, a $1,499,918 loss on extinguishment of debt and the goodwill impairment.
- Operating cash burn more than doubled to $914,694, while year-end cash declined by $112,112 to $48,265.
- Total liabilities increased sharply, primarily because of convertible debt, related-party debt and derivative liabilities. Stockholders’ deficit shifted from positive equity in 2014 to a $5.4 million deficit in 2015.
- Common shares outstanding increased from 54,239,500 at December 31, 2014 to 93,856,857 at December 31, 2015, reflecting equity issuances, note conversions and stock-based compensation.
Liquidity, Debt and Going-Concern Matters
Management and the independent auditor stated that substantial doubt existed regarding the company’s ability to continue as a going concern. The company had recurring losses, negative working capital, a stockholders’ deficit, limited cash and continuing operating cash requirements. Management expected to rely on additional equity offerings and other financing, but disclosed that no third-party financing commitments were available and that officers and shareholders had not agreed to provide additional funding.
At December 31, 2015, $543,115 of related-party convertible notes had matured and were in default. A cross-default provision caused approximately $261,157 of other convertible notes to be considered in default. The company also had a $4,672,617 derivative liability, with valuation changes materially affecting earnings.
Guidance, Outlook, Risks and Unusual Items
- No quantitative financial guidance was provided. Management expected future revenue to depend on marketing the “The Doorman” pilot, completing new productions and acquiring viable film rights.
- Management stated that future operations and growth depended on raising additional capital and achieving profitable operations.
- The company recognized $1,940,239 of stock-based compensation in operating cash flow reconciliation, including substantial equity compensation and warrants issued to directors and service providers.
- The company paid or committed $250,000 toward the “Audition” film project with a related party, Mario Kassar. The project remained in pre-production at year-end.
- Four customers represented 24%, 18%, 16% and 15% of 2015 sales, indicating material customer concentration.
- Management concluded that disclosure controls and internal control over financial reporting were not effective, citing the company’s small staff, limited accounting personnel and lack of segregation of duties.
- The company received a trademark-related cease-and-desist letter from Studiocanal S.A. in April 2016. The filing stated that no legal claim was known to have been filed as of the report date.
- The filing contains inconsistent prior-year loss figures: the MD&A section cites different 2014 amounts than the audited statements. The audited statements report 2014 net loss attributable to Carolco stockholders of $2,220,196, while other filing text cites $2,620,196 or $2,677,000.
- Subsequent events included changes in control and management, the July 2016 acquisition of Recall Studios, approximately $416,000 raised through Recall shares and the issuance of 243,540,999 common shares upon conversion of convertible notes and accrued interest.
Most Important Facts to Verify
- Confirm the issuer identity: the supplied filing is for Carolco Pictures, Inc. and does not describe Fubotv Inc.
- Reconcile the inconsistent 2014 net-loss figures and determine which comparative amounts were formally revised in the audited financial statements.
- Review the going-concern qualification, defaulted convertible notes, derivative-liability valuation and potential dilution from note conversions and warrants.
- Assess whether the company had sufficient cash or committed financing to fund operations after the $48,265 year-end cash balance.
- Review related-party transactions, including the $250,000 “Audition” deposit and compensation and equity awards to Mario Kassar.
- Evaluate the impact of ineffective internal controls and the company’s limited staffing on financial reporting reliability.
- Verify the status and valuation of the 2016 Recall Studios acquisition, subsequent preferred-stock issuances and changes in voting control.