The following discussion and analysis by our management of our financial
condition and results of operations should be read in conjunction with our
unaudited condensed consolidated financial statements and the accompanying
related notes included in this Quarterly Report on Form 10-Q and our audited
financial statements and related notes and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report
on Form 10-K for the year ended December 31, 2019, as filed with the Securities
and Exchange Commission (the "SEC").
The results of our operations for the three months ended March 31, 2020 are not
readily comparable against the results of our operations in the comparable prior
year three month period ended March 31, 2019 as a result of our acquisition of
Facebank AG and our acquisition of and then deconsolidation of Nexway AG and its
subsidiaries.
In addition, because of the acquisition of fuboTV on April 1, 2020, the results
of our operations going forward will be markedly different. We encourage our
investors to review the Pro Forma Unaudited Condensed Combined financial
statement presentation as of and for the year ended December 31, 2019 that was
included as Exhibit 99.2 to the Company's Current Report on Form 8-K/A that was
filed with the Commission on June 17, 2020, as well as the Company's forthcoming
Current Report on Form 8-K/A that will include additional Pro Forma Unaudited
Condensed Combined financial statements as of and for the period ended March 31,
2020.
Incorporation
FaceBank Group, Inc. (the "Company" or "FaceBank") was incorporated under the
laws of the State of Florida in February 2009 under the name York Entertainment,
Inc. On September 30, 2019, the Company's name was changed to FaceBank Group,
Inc.
Merger with fuboTV Inc.
On April 1, 2020, fuboTV Acquisition Corp., a Delaware corporation and our
wholly-owned subsidiary ("Merger Sub") merged with and into fuboTV Inc., a
Delaware corporation ("fuboTV"), whereby fuboTV continued as the surviving
corporation and became our wholly-owned subsidiary pursuant to the terms of the
Agreement and Plan of Merger and Reorganization dated as of March 19, 2020, by
and among us, Merger Sub and fuboTV (the "Merger Agreement" and such
transaction, the "Merger") (See Note 16).
In accordance with the terms of the Merger Agreement, at the effective time of
the Merger (the "Effective Time"), all of the capital stock of fuboTV was
converted into the right to receive shares of our newly-created class of Series
AA Convertible Preferred Stock, par value $0.0001 per share (the "Series AA
Preferred Stock") (See Note 13). Each share of Series AA Preferred Stock is
entitled to 0.8 votes per share and is convertible into two (2) shares of our
common stock, only in connection with a bona fide transfer to a third party
pursuant to Rule 144. Until the time we are able to uplist to a national
securities exchange, the Series AA Preferred Stock benefits from certain
protective provisions that, for example, require us to obtain the approval of a
majority of the shares of outstanding Series AA Preferred Stock, voting as a
separate class, before undertaking certain matters.
As a result of the Merger, fuboTV, a leading live TV streaming platform for
sports, news, and entertainment, became a wholly-owned subsidiary of the
Company. Before the Merger, Facebank Group was and continues to be a
character-based virtual entertainment company, and a leading developer of
digital human likeness for celebrities and consumers, focused on applications in
traditional entertainment, sports entertainment, live events, social networking,
mixed reality (AR/VR) and artificial intelligence. Following the Merger, we
operate our business under the name "fuboTV" and we are in the process of
changing the name of FaceBank Group, Inc. to fuboTV, Inc. On May 1, 2020, the
Company's trading symbol was changed to "FUBO". Unless the context otherwise
requires, "we," "us," "our," and the "Company" refers to FaceBank and its
subsidiaries on a consolidated basis, and fuboTV Pre-Merger refers to fuboTV
Inc. prior to the Merger.
In connection with the Merger, on March 11, 2020, FaceBank and HLEE Finance S.a
r.l. ("HLEE") entered into a Credit Agreement, dated as of March 11, 2020,
pursuant to which HLEE provided FaceBank with a $100,000,000 revolving line of
credit (the "Credit Facility"). The Credit Facility is secured by substantially
all the assets of FaceBank. As of August 10, 2020, there are no amounts
outstanding under the Credit Facility, and the Company does not intend to draw
down on this Credit Facility. See Note 9 of the Notes to the Unaudited Condensed
Consolidated Financial Statements for more information about the Credit
Facility.
On March 19, 2020, FaceBank, Merger Sub, Evolution AI Corporation ("EAI") and
Pulse Evolution Corporation ("PEC" and collectively with EAI, Merger Sub and
FaceBank, the "Initial Borrower") and FB Loan Series I, LLC ("FB Loan") entered
into a Note Purchase Agreement (the "Note Purchase Agreement"), pursuant to
which the Initial Borrower sold to FB Loan senior secured promissory notes in an
aggregate principal amount of $10,050,000 (the "Senior Notes"). The Company
received proceeds of $7.4 million, net of an original issue discount of $2.65
million. In connection with the FB Loan, FaceBank, fuboTV and certain of their
respective subsidiaries granted a lien on substantially of their assets to
secure the obligations under the Senior Notes. See Note 8 of the Notes to the
Unaudited Condensed Consolidated Financial Statements for more information about
the Note Purchase Agreement.
Prior to the Merger, fuboTV Pre-Merger and its subsidiaries were party to a
Credit and Guaranty Agreement, dated as of April 6, 2018 (the "AMC Agreement"),
with AMC Networks Ventures LLC as lender, administrative agent and collateral
agent ("AMC Networks Ventures"). fuboTV Pre-Merger previously granted AMC
Networks Ventures a lien on substantially all of its assets to secure its
obligations thereunder. The AMC Agreement survived the Merger and, as of the
Effective Time, there was $24.9 million outstanding under the AMC Agreement, net
of debt issuance costs. In connection with the Merger, FaceBank guaranteed the
obligations of fuboTV under the AMC Agreement on an unsecured basis. The liens
of AMC Networks Ventures on the assets of fuboTV are senior to the liens in
favor of FB Loan and FaceBank securing the Senior Notes.
Nature of Business
The Company is a leading digital entertainment company, combining fuboTV
Pre-Merger's direct-to-consumer live TV streaming, or vMVPD, platform with
FaceBank Pre-Merger's technology-driven IP in sports, movies and live
performances. We expect that this business combination will create a content
delivery platform for traditional and future-form IP. We plan to leverage
FaceBank' IP sharing relationships with leading celebrities and other digital
technologies to enhance its already robust sports and entertainment offerings.
Since the Merger, while we continue our previous business operations, we are
principally focused on offering consumers a leading live TV streaming platform
for sports, news and entertainment through fuboTV. fuboTV revenues are almost
entirely derived from the sale of subscription services and advertising in the
United States, though fuboTV has started to assess expansion opportunities into
international markets, with operations in Canada and the launch in late 2018 of
its first ex-North America offering of streaming entertainment, to consumers in
Spain.
Our subscription-based services are offered to consumers who can sign-up for
accounts at https://fubo.tv, through which we provide basic plans with the
flexibility for consumers to purchase the add-ons and features best suited for
them. Besides the website, consumers can also sign-up via some TV-connected
devices. The fuboTV platform provides, what we believe to be, a superior viewer
experience, with a broad suite of unique features and personalization tools such
as multi-channel viewing capabilities, favorites lists and a dynamic
recommendation engine as well as 4K streaming and Cloud DVR offerings.
Corporate Information
Our headquarters are located at 1330 Avenue of the Americas, New York, NY 10019,
and our telephone number is (212) 672-0055. You can access our websites,
including historical financial information pertaining to fuboTV Pre-Merger, at
https://fubo.tv, https://ir.fubo.tv, https://facebankgroup.com and
https://ir.facebankgroup.com. Information contained on our websites is not part
of this Quarterly Report on Form 10-Q and is not incorporated by reference in
this Quarterly Report on Form 10-Q.
30
Results of Operations for the three months ended March 31, 2020 and 2019 (in
thousands):
Three Months Ended March 31,
2020
(as restated) 2019
Revenues
Revenues $ 7,295 $ -
Total Revenues
Operating Expenses
General and administrative 20,203 1,037
Amortization of intangible assets 5,217 5,153
Depreciation 3 5
Total Operating Expenses 25,423 6,195
Change in fair value of subsidiary warrant
liability (15 ) 2,477
Change in fair value of warrant liability (366 ) -
Change in fair value of shares settled liability (180 ) -
Change in fair value of derivative liability 297 128
Interest expense (2,581 ) (446 )
Loss on deconsolidation of Nexway (11,919 ) -
Loss on issuance of convertible notes, bonds and
warrants (24,053 ) -
Other expense (436 ) -
Total Other Income (expense) (39,253 ) 2,159
Loss before income taxes (57,381 ) (4,036 )
Income tax benefit (1,038 ) (1,169 )
Net loss $ (56,343 ) $ (2,867 )
Revenue
During the three months ended March 31, 2020, we recognized revenues of $7.3
million. The revenues recognized are related to the sale of our software
licenses. There were no revenues recognized during the three months ended March
31, 2019.
General and Administrative
During the three months ended March 31, 2020, general and administrative
expenses totaled $20.2 million, compared to $1.0 million for the three months
ended March 31, 2019. The increase of $19.2 million is primarily related to $9.2
million compensation expenses, $3.6 million marketing and advertising and $6.2
million other general and administrative expenses resulting from our 2019
acquisitions of Facebank AG and Nexway.
Depreciation and Amortization
During the three months ended March 31, 2020, amortization expenses totaled $5.2
million compared to $5.2 million during the three months ended March 31, 2019.
Other Income (Expense)
During the three months ended March 31, 2020, we recognized $39.3 million of
other expense, compared to $2.2 million of other income during the three months
ended March 31, 2019. The $37.1 million increase to other expense is primarily
related to a $0.3 million for the change in fair value of our derivative
liability related to our convertible notes and preferred stock, offset by debt
discount of $2.6 million related to our convertible notes, $0.4 million for the
loss in fair value of warrant liability, a $11.9 million of loss on
deconsolidation of Nexway, $0.2 million for the loss in fair value of shares
settled liability and $24.1 million of loss on issuance of convertible notes,
bonds and warrants.
31
Income Taxes
During the three months ended March 31, 2020, we recognized an income tax
benefit of $1.0 million. The Company's deferred tax liability and income tax
benefit relates to our amortizable intangible assets. The amortization of
intangible assets of $1.0 million caused the deferred tax liability to decrease
by $1.0 million, which resulted in the recognition of an income tax benefit.
Net Loss
During the three months ended March 31, 2020, we recorded a net loss of $56.3
million, compared to a net loss of $2.9 million for the three months ended March
31, 2019. The increase in net loss of $53.4 million is primarily due to higher
stock-based compensation expense of $9.1 million and a loss of $11.9 million on
deconsolidation of Nexway, $24.1 million loss on issuance of convertible notes,
bonds and warrants, debt discount of $2.6 million related to our convertible
notes and net revenue of $7.3 million recognized from the sale of our software
licenses.
Liquidity and Going Concern
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the continuity of operations, realization of assets, and liquidation of
liabilities in the normal course of business.
The Company had cash of $0.1 million, a working capital deficiency of $31.4
million and an accumulated deficit of $111.6 million at March 31, 2020. The
Company incurred a $56.3 million net loss for the three months ended March 31,
2020. The Company expects to continue incurring losses in the foreseeable future
and will need to raise additional capital to fund its operations, meet its
obligations in the ordinary course of business and execute its longer-term
business plan. These factors raise substantial doubt about the Company's ability
to continue as a going concern within one year from the date that those
financial statements are issued. The condensed consolidated financial statements
do not include any adjustments related to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including its ability to successfully attract
and retain subscribers, develop new technologies that can compete in a rapidly
changing market with many competitors and the need to enter into collaborations
with other companies or acquire other companies or technologies to enhance or
complement its product and service offerings.
Management believes that the Company has access to capital resources through
potential issuances of debt and equity securities. The ability of the Company to
continue as a going concern is dependent on the Company's ability to execute its
strategy and raise additional funds. Management is currently seeking additional
funds, primarily through the issuance of equity securities for cash, to operate
its business. No assurance can be given that any future financing will be
available or, if available, that it will be on terms that are satisfactory to
the Company. Even if the Company is able to obtain additional financing, it may
contain undue restrictions on our operations, in the case of debt financing or
cause substantial dilution for our stockholders, in the case of an equity
financing. In addition to the foregoing, based on the Company's current
assessment, the Company does not expect any material impact on its long-term
development timeline and its liquidity due to the worldwide spread of a novel
strain of coronavirus ("COVID 19"). However, the Company is continuing to assess
the effect on its operations by monitoring the spread of COVID-19 and the
actions implemented to combat the virus throughout the world.
32
Cash Flows (in thousands)
Three Months Ended March 31,
2020 2019
Net Cash Used in Operating Activities $ (7,478 ) $ (582 )
Net Cash Used in Investing Activities (2,421 ) (801 )
Net Cash Provided by Financing Activities 2,356 1,658
Net Change in Cash $ (7,543 ) $ 275
Operating Activities
For the three months ended March 31, 2020, net cash used in operating activities
was $7.5 million, which consisted of our net loss of $56.3 million, adjusted for
non-cash expenses of $58 million, including $5.2 million of amortization
expenses related to our intangible assets, loss on issuance of convertible
notes, bonds and warrants of $24.1 million, $9.1 stock-based compensation, $1.7
million of amortization of the debt discount, $0.4 million of change in fair
value of warrant liability, $0.2 million of change in fair value of shares
settled liability and $0.1 million of interest expense related to our
convertible notes payable, offset by $0.3 million related to the change in fair
value of our subsidiary warrant liability and our derivative liability, $8.6
million on deconsolidation of Nexway and $1.0 million of income tax benefit.
Changes in operating assets and liabilities primarily consisted of increases in
accounts payable and accrued expenses of $1.0 million, offset by a decrease in
accounts receivable of $0.9 million.
For the three months ended March 31, 2019, net cash used in operating activities
was $0.6 million, which consisted of our net loss of $2.9 million, adjusted for
non-cash expenses of $1.8 million including, $5.2 million of depreciation and
amortization expenses, $0.2 million of amortization of the debt discount and
$0.1 million of interest expense related to our notes payable, offset by $2.5
million related to the change in fair value of our warrant liability, $1.2
million of income tax benefit, and the increase in accounts payable and accrued
expenses of $0.5 million.
Investing Activities
In March 2020, we advanced $2.4 million to fuboTV in accordance with the Merger
Agreement.
For the three months ended March 31, 2019, net cash used in investing activities
was $0.8 million, which primarily consisted of our $1.0 million payment for our
investment in Panda Productions (HK) Limited ("Panda"), offset by $0.2 million
received from accredited investors for an interest in Panda.
Financing Activities
For the three months ended March 31, 2020, net cash provided by financing
activities was $2.4 million. The net cash provided is primarily related to $2.3
million of proceeds received from the sale of our common stock, $0.2 million of
proceeds received from the issuance of our Series D Preferred Stock, $78,000
received as an advance from a related party, $0.9 million of proceeds received
from the issuance of a convertible note, offset by repayments of $0.6 million in
connection with our convertible notes, repayments of $0.3 million to related
parties and redemption of $0.3 million of Series D Preferred Stock.
For the three months ended March 31, 2019, net cash provided by financing
activities was $1.7 million. The net cash provided is primarily related to $1.8
million of proceeds received from the sale of our common stock, $65,000 of
proceeds received from the issuance of our subsidiary's common stock, offset by
repayments of $0.2 million of our convertible notes.
Off-Balance Sheet Arrangements
As of March 31, 2020, there were no off-balance sheet arrangements.
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is
based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these condensed consolidated
financial statements and related disclosures requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Those
estimates and assumptions include allocating the fair value of purchase
consideration issued in business acquisitions, investments, depreciable lives of
property and equipment, analysis of impairments of recorded goodwill and other
long-term assets, accruals for potential liabilities, assumptions made in
valuing derivative liabilities, assumptions made when estimating the fair value
of equity instruments issued in share-based payment arrangements and deferred
income taxes and related valuation allowance.
33
Recently Issued Accounting Pronouncements
See Note 4 in the accompanying condensed consolidated financial statements for a
discussion of recently issued accounting policies.
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