Business Context and Reporting Period
FaceBank Group, Inc. filed this Form 10-K for the fiscal year ended December 31, 2019. The filing was submitted on May 29, 2020 under an SEC COVID-19 filing extension. At December 31, 2019, the registrant was primarily a digital-human, virtual-entertainment and intellectual-property company; it was not yet the operating fuboTV business.
On April 1, 2020, FaceBank completed its merger with fuboTV, Inc., which became a wholly owned subsidiary. The 2019 financial statements do not include fuboTV’s operating results. The company subsequently changed its trading symbol to FUBO.
Financial Performance and Position
| Metric | 2019 | 2018 | Change or comment |
|---|---|---|---|
| Revenue | $4.271 million | $0 | Primarily Nexway software-license revenue |
| Operating loss | $113.326 million | $14.963 million | Driven largely by impairment and amortization |
| Net loss | $117.836 million | $13.092 million | Loss increased substantially |
| Net loss attributable to common stockholders | $114.667 million | $10.610 million | Includes preferred-stock deemed dividends |
| Basic and diluted loss per share | $5.15 | $2.37 | Loss per share increased |
| Operating cash flow | $1.731 million provided | $3.153 million used | Benefited from noncash charges and working-capital changes |
| Investing cash flow | $1.509 million provided | $0 | Included acquisition-related net cash inflow |
| Financing cash flow | $4.353 million provided | $3.107 million provided | Primarily equity, preferred stock and note financing |
| Cash at year-end | $7.624 million | $31 thousand | Substantial increase, but liquidity remained inadequate relative to obligations |
All balance-sheet and cash-flow amounts above are in thousands unless otherwise stated. The filing does not provide a meaningful gross margin because revenue was reported primarily on a net-agent basis and cost of revenue was not separately presented. Based on reported figures, the operating and net margins were deeply negative.
- General and administrative expense was $13.793 million versus $6.746 million in 2018.
- Amortization expense was $20.682 million versus $8.209 million.
- The company recorded $74.441 million of goodwill impairment and $8.598 million of intangible-asset impairment.
- Other expense was $9.782 million, including $13.549 million of investment losses and $2.062 million of interest expense and financing costs.
- Year-end total assets were $288.516 million, including $148.054 million of goodwill and $116.646 million of net intangible assets.
- Current liabilities were $67.442 million, versus $18.551 million in 2018. Total liabilities were $145.049 million, including $43.982 million of long-term borrowings.
- The company reported a $49.5 million working-capital deficiency and a $135.8 million accumulated deficit.
Material Changes Versus the Prior Comparable Period
- Revenue increased from zero to $4.271 million following the acquisition and consolidation of Nexway-related operations.
- Net loss expanded from $13.092 million to $117.836 million, primarily because of goodwill and intangible-asset impairments, higher amortization, acquisition-related expenses and investment losses.
- The company acquired Facebank AG in August 2019 for 2.5 million common shares valued at approximately $19.95 million and acquired majority interests in Nexway AG and Highlight Finance Corp. in September 2019.
- Goodwill increased from $149.975 million at December 31, 2018 to $148.054 million at December 31, 2019 after recognizing $74.441 million of impairment and other acquisition adjustments.
- Cash improved from $31 thousand to $7.624 million, but this was accompanied by substantially higher accounts payable, accrued expenses and assumed debt.
- The company completed a 1-for-30 reverse stock split on February 28, 2019 and increased authorized common shares to 400 million. Series X preferred stock automatically converted into 15 million common shares.
Liquidity, Debt and Going Concern
Management and the independent auditor identified substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Management expected continuing losses and stated that additional debt or equity financing would be required. The filing provides no assurance that financing would be available on acceptable terms.
- Debt and other obligations included $43.982 million of long-term borrowings, $4.090 million of current notes payable, $1.358 million of current convertible notes and $368 thousand of related-party notes payable.
- A $2.7 million note assumed through EAI, plus accrued interest, was in default. Holders agreed to forbear while the company negotiated a resolution.
- Several acquisition-related euro-denominated bonds were outstanding at year-end, including approximately $18.76 million of SAH bonds, $14.53 million of HFC bonds and $8.61 million of Nexway bonds.
- Accounts payable and accrued expenses totaled $56.775 million, including supplier balances, payroll taxes in arrears, accrued compensation, taxes and legal fees.
- Cash was concentrated largely in banks in France and Germany, with amounts exceeding applicable deposit-insurance limits.
Outlook, Risks, Contingencies and Unusual Items
- No formal financial guidance was provided for 2020 or later periods.
- The post-year-end fuboTV merger is transformational, but its operating results, subscriber metrics and cash requirements are not included in the 2019 historical financial statements.
- COVID-19 delayed the audit because French confinement measures and travel restrictions prevented access to the French subsidiary. Management stated it did not expect a material long-term impact at the time of filing, while acknowledging that the assessment remained ongoing.
- Internal controls over financial reporting and disclosure controls were deemed ineffective as of December 31, 2019. Management reported material weaknesses involving risk assessment, written accounting policies, segregation of duties, accounting expertise, information-technology controls and tax-reporting processes.
- The company had a $524 thousand accrued liability related to judgments against Pulse Evolution Corporation and remained in settlement discussions.
- The company entered into the Virtual Mayweather agreement, paid a $250 thousand cash fee and recorded a $1.25 million intangible asset and a $1.0 million shares-settled liability at year-end. Under the amended agreement, the company funded development costs while future revenue sharing could favor Mr. Mayweather after cost recovery.
- The company fully impaired its Nexway-related intangible assets and goodwill because of Nexway’s continuing losses and poor financial condition. Future economic deterioration or COVID-19 effects could cause further impairments.
- Subsequent to year-end, FaceBank entered into a $100 million revolving facility at 10% interest, issued $10.05 million of senior secured notes at 15% interest, completed the fuboTV merger and raised $7.409 million through a common-stock and warrant offering. These transactions materially changed the company’s capital structure after December 31, 2019.
Most Important Facts to Verify
- Confirm that 2019 results are historical FaceBank results and exclude fuboTV, despite the company’s later FUBO identity.
- Reconcile the post-merger fully diluted share count, including Series AA preferred shares, options, warrants and subsequent equity issuances.
- Verify the amount, maturity, collateral and covenant status of all inherited and post-merger debt.
- Assess whether the company resolved the going-concern condition and material internal-control weaknesses in subsequent filings.
- Review the sustainability and quality of the reported $4.271 million of revenue, including the net-agent presentation of Nexway license sales.
- Evaluate the recoverability of remaining goodwill and intangible assets after the large 2019 impairment charges.
- Review the effect of COVID-19 and the absence or disruption of live sports on fuboTV’s later revenue, subscriber growth, advertising and liquidity.