Filing Overview
Period: Three months ended March 31, 2017; filed May 22, 2017.
Entity mismatch: The supplied filing is for Carolco Pictures, Inc. (formerly Brick Top Productions, Inc.), not Fubotv Inc. This should be verified before relying on the data.
The company reported television production and virtual-reality/application production activities. The condensed consolidated financial statements are unaudited.
Key Financial Metrics
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $53,000 | $22,000 |
| Cost of goods sold | $31,000 | $2,000 |
| Gross profit | $22,000 | $20,000 |
| Gross margin | Approximately 41.5% | Approximately 90.9% |
| Operating expenses | $192,000 | $142,000 |
| Loss from operations | $(170,000) | $(122,000) |
| Net income attributable to Carolco | $6,638,000 | $(2,467,000) |
| Net cash used in operating activities | $(83,000) | $(144,000) |
| Cash at period end | $18,000 | $7,000 |
The reported Q1 2017 net income was driven primarily by a $6,807,000 gain from the change in fair value of derivative liabilities. This was a non-cash accounting gain, not operating revenue or cash generation.
At March 31, 2017, total assets were $34,000, total liabilities were $5,084,000, and total stockholders’ deficit was $5,050,000. Current liabilities included a $3,602,000 derivative liability, $553,000 of accrued officer payroll, $484,000 of related-party convertible notes, $124,000 of accrued related-party interest, and a $75,000 note payable.
Material Changes Versus Prior Comparable Period
- Revenue increased by $31,000, or approximately 141%, primarily from production services and award programming.
- Cost of goods sold increased by $29,000, reducing gross margin substantially.
- Operating expenses increased by $50,000 to $192,000, primarily due to compensation and professional fees.
- The company moved from a $2,467,000 attributable net loss to $6,638,000 of attributable net income, almost entirely because the prior-year derivative liability expense became a current-year derivative liability gain.
- Operating cash use improved by $61,000, but the company still used cash and had only $18,000 on hand at quarter-end.
- The derivative liability declined from $12,985,000 at December 31, 2016 to $3,602,000 at March 31, 2017. Warrants with a stated fair value of $2,575,000 expired during the quarter.
- The company completed a 1-for-10,000 reverse stock split in January 2017. Preferred stock and convertible instruments could result in substantial common-share dilution.
Liquidity, Debt, Outlook, and Risks
Management disclosed substantial doubt about the company’s ability to continue as a going concern within one year. Management expects current funds and proceeds from common-stock subscriptions to support operations through 2017, but stated that additional financing is required and that no assurance exists that financing will be available on acceptable terms.
The company had no third-party financing commitments available and stated that officers and shareholders had not agreed to provide additional financing. The $75,000 secured note payable was past due as of March 31, 2017, and the related-party convertible notes and shareholder note were also past due or subject to amended maturity terms.
No formal revenue or earnings guidance was provided. Management’s outlook focuses on developing and acquiring revenue-positive entertainment projects, expanding production services, and pursuing virtual-reality content. Management cautioned that the production market is highly competitive and that profitability is not assured.
- One customer accounted for 91% of Q1 2017 revenue, creating significant customer-concentration risk.
- Disclosure controls and procedures were deemed ineffective because of limited resources and personnel.
- Studiocanal S.A. asserted potential trademark, copyright, and related intellectual-property rights involving marks and entertainment content used by the company. No lawsuit was reported as of the filing date.
- Related-party obligations included accrued officer payroll of $553,000, advances of $41,000, accrued related-party interest of $124,000, and convertible notes payable.
- Derivative valuations relied on significant assumptions, including expected volatility of 1,004% at March 31, 2017, making reported earnings highly sensitive to valuation changes.
- Subsequent to quarter-end, a related entity controlled by Chairman and Chief Development Officer Alex Bafer acquired specified Series A and Series C preferred shares for $37,500. Former CEO David Cohen agreed to resign and receive 1,000 common shares.
Investor Verification Checklist
- Verify that the filing belongs to Carolco Pictures, Inc., not Fubotv Inc.
- Reconcile the reported net-income figures: the statements report $6.638 million attributable net income, while certain cash-flow and MD&A disclosures use $6.630 million or reference a different pre-noncontrolling-interest amount.
- Separate the $6.807 million non-cash derivative gain from recurring operating performance and cash flow.
- Confirm the status, maturity, and settlement or conversion terms of the past-due note payable and related-party convertible notes.
- Assess the company’s ability to raise additional capital and the resulting dilution risk.
- Review the ineffective disclosure controls and the company’s limited-personnel remediation plan.
- Investigate the Studiocanal intellectual-property claims and any subsequent developments.
- Evaluate customer concentration and whether the reported production-service revenue is recurring or seasonal.