10-K/A 1 form10-ka.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Amendment No. 1)

(Mark One)

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number 000-55353

FaceBank Group, Inc.

(Exact name of registrant as specified in its charter)

Florida		26-4330545
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1330 Avenue of the Americas New York, NY		10019
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (212) 672-0055

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of exchange on which registered
N/A		N/A		N/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.0001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [X]	Smaller reporting company [X]
	Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes [ ] No [X]

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates on June 28, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter) was $82,999,601.

The number of shares outstanding of the registrant’s common stock as of August 7, 2020, was 42,064,459 shares.

DOCUMENTS INCORPORATED BY REFERENCE — NONE

TABLE OF CONTENTS

FORM 10-K/A

		PAGE NO.
	Explanatory Note	3

PART II

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	4
Item 9A.	Controls and Procedures.	10

PART IV

Item 15.	Exhibits, Financial Statement Schedules.	12
	Signatures.	14

EXPLANATORY NOTE

On March 4, 2020, the Securities and Exchange Commission (the “SEC”) issued an order (Release No. 34-88318) under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), granting exemptions from specified provisions of the Exchange Act and certain rules thereunder, as amended by Release No. 34-88465 issued on March 25, 2020 (as amended, the “Order”). The Order provided public companies with a 45-day extension to file certain disclosure reports, including their Annual Report on Form 10-K that would otherwise have been due between March 1, 2020 and July 1, 2020. As disclosed in FaceBank Group, Inc.’s (the “Company”) Current Report on Form 8-K filed with the SEC on March 31, 2020 (the “8-K”), the Company is relying on the Order and was unable to file this Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”) on a timely basis due to the novel coronavirus pandemic (“COVID-19”). The headquarters and finance operations of the Company’s principal operating subsidiary are located in France. Local health authorities in France have enacted stringent restrictions designed to minimize risk to exposure to COVID-19 that have resulted in the mandatory confinement of people to their homes, subject to limited exceptions. In addition, due to travel restrictions imposed by the governments of the United States and France in the wake of the COVID-19 outbreak, the Company’s U.S. based independent auditor was unable to travel to France to perform the site visits needed to complete the audit of the Company’s financial statements for the fiscal year ended December 31, 2019. These restrictions have prevented the Company’s personnel and auditors from accessing the offices of the Company’s subsidiary in France. All of the foregoing slowed the accounting and auditing work required to compile and audit the Company’s financial statements for the year ended December 31, 2019 to be included in the Annual Report. Based on the foregoing, on March 31, 2020, the Company filed the 8-K to avail itself of a 45-day extension to file this Annual Report relying on the exemptions provided by the SEC Order. This Annual Report on Form 10-K is being filed in reliance on the SEC Order.

In connection with the preparation of the Company’s condensed consolidated interim financial statements as of and for the quarter ended June 30, 2020, the Company identified an inadvertent error in the accounting for goodwill relating to the Company’s acquisitions of Nexway and Facebank AG. Goodwill was inadvertently impaired at December 31, 2019. Accordingly, the Company is restating herein its previously issued consolidated financial statements and the related disclosures for the year ended December 31, 2019.

Also, the Company is restating Item 9A to correct the list of material weaknesses that were identified in connection with the evaluation that was conducted in connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2019, originally filed with the Securities and Exchange Commission on May 29, 2020.

Part II

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Unless otherwise indicated, references in this Annual Report on Form 10-K to “FaceBank,” “we,” “us,” “our” and the “Company” are to FaceBank Group, Inc. and its subsidiaries, unless the context requires otherwise. The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying related notes included in this Annual Report on Form 10-K.

Overview

FaceBank Group, Inc. 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.

On April 1, 2020, FaceBank effected a merger (the “Merger”) pursuant to which fuboTV, Inc., a Delaware corporation and a leading live TV streaming platform for sports, news and entertainment, became a wholly owned subsidiary of the Company. On May 1, 2020, the Company’s trading symbol was changed to FUBO.

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. Facebank Group is positioned as a technology driven, intellectual property company with significant revenue participations in the digital likeness of leading celebrities and character-based entertainment properties.

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.

Nature of Business

The Company is a leading digital entertainment company, combining fuboTV’s direct-to-consumer live TV streaming platform with FaceBank’s technology-driven IP in sports, movies and live performances. This business combination, operating as fuboTV, Inc., will create a content delivery platform for traditional and future-form IP. fuboTV plans to leverage FaceBank’s 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.

Results of Operations for the Years Ended December 31, 2019 and 2018

	Years Ended December 31,
	2019			2018
Revenues	$	4,271			-
General and administrative		(13,793	)		(6,746	)
Amortization of intangible assets		(20,682	)		(8,209	)
Impairment of intangible assets		(8,598	)		-
Depreciation		(83	)		(8	)
Other income (expense)		(4,514	)		(243	)
Income tax benefit		5,272			2,114
Net loss	$	(38,127	)	$	(13,092	)

Revenues

During the year ended December 31, 2019 we recognized net revenues of approximately $4.3 million related primarily from the sale of software licenses. There were no revenues recognized for the year ended December 31, 2018.

General and administrative

During the year ended December 31, 2019 general and administrative expenses totaled $13.8 million compared to $6.8 million for the year ended December 31, 2018. The increase of $7.0 million is primarily related to $7.7 million of general and administrative expenses from our 2019 acquisitions of Facebank AG and Nexway, offset by $0.7 million of lower general and administrative expenses, consisting of $2.5 million of lower stock-based compensation expenses, offset by increases of $1.8 million for employee salaries and related expenses, legal and professional fees, and other administrative expenses.

Amortization of intangible assets

During the year ended December 31, 2019 amortization expenses for intangible assets totaled $20.7 million compared to $8.2 million for the year ended December 31, 2018. The increase of $12.5 million was primarily due to amortization expenses recognized in connection with our acquisition of Evolution AI Corp in September 2018.

Long-Term Asset Impairments

During the year ended December 31, 2019 impairment expenses related to long-term assets totaled $8.6 million. We recognized $8.6 million of impairments related to the intangible assets acquired in connection with our acquisitions of Nexway and Facebank AG.

Other Income/Expense

During the year ended December 31, 2019 other expenses totaled $4.5 million compared to other expenses of $0.2 million for the year ended December 31, 2018. The $4.3 million increase to other expenses was primarily related to $8.3 million of losses recorded on investments in connection with our acquisitions of Facebank AG and Paddle 8, and our Panda investment, $2.1 million of interest expense related to our convertible notes and long-term borrowings, $0.2 million recorded for the change in fair value of our Panda interests, offset by $4.5 million recorded for the change in fair value of our subsidiary warrant liability, and $0.8 million for the change in fair value of our derivative liability related to our convertible notes and series D preferred stock.

Income Taxes

During the year ended December 31, 2019, we recognized an income tax benefit of $5.3 million. The Company’s deferred tax liability and income tax benefit relates to our amortizable intangible assets. The amortization of intangible assets of $20.7 million caused the deferred tax liability to decrease by $5.3 million, which resulted in the recognition of an income tax benefit.

During the year ended December 31, 2018, we recorded an income tax benefit of $2.1 million. The Company’s deferred tax liability is tied to our amortizable intangible assets. The amortization of intangibles of $8.2 million caused the deferred tax liability to decrease from $2.1 million, which resulted in an income tax benefit for the period.

Net Income/Loss

During the year ended December 31, 2019 and 2018, our net loss was $38.1 million and $13.1 million, respectively.

Liquidity and Going Concern

Cash Flows (in thousands)

	December 31,
	2019		2018

Net cash used in operating activities	$	1,731	$	(3,153	)
Net cash used in investing activities		1,509		-
Net cash provided by financing activities		4,353		3,107
Net decrease in cash	$	7,593	$	(46	)

The accompanying 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 has cash of $7.6 million, a working capital deficiency of $49.5 million and an accumulated deficit of $56.1 million at December 31, 2019. The Company recorded a net loss of $38.1 million and net cash provided by operating activities was $1.7 million for the year ended December 31, 2019. 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 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.

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 or 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.

The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including its ability to successfully commercialize its products and services, competing technological and market developments, 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.

The ability of the Company to continue as a going concern is dependent on the Company’s ability to execute its strategy and to 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 or 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.

Operating Activities

For the year ended December 31, 2019, net cash provided by operating activities was $1.7 million, which consisted of our net loss of $38.1 million, adjusted for non-cash expenses of $28.1 million including, $8.6 million of impairment charges recorded for intangible assets acquired with our acquisitions of Facebank AG and Nexway, $20.7 million of amortization expenses related to our intangible assets acquired with Evolution AI, $8.3 million of losses recorded on investments, $1.4 million of stock-based compensation, and $0.6 million of amortization of the debt discount, offset by $5.3 million related to the change in fair value of our subsidiary warrant liability and our derivative liability, and $5.3 million of income tax benefit. Changes in operating assets and liabilities primarily consisted of increases in accounts payable of $5.5 million, offset by a decrease in accounts receivable of $7.7 million.

For the year ended December 31, 2018, net cash used in operating activities was $3.2 million, which primarily consisted of our net loss of $13.1 million, adjusted for non-cash expenses of $9.3 million including, $8.2 million of depreciation and amortization expenses, $3.8 million of stock-based compensation expense, $1.5 million of amortization expense for the debt discount related to our convertible notes, offset by $2.1 million of income tax benefit, $1.9 million for the gain on extinguishment related to our convertible notes, $0.7 million for the change in fair value of our derivative liability, and the increase in accounts payable and accrued expenses of $0.6 million.

Investing Activities

For the year ended December 31, 2019, net cash provided by investing activities was $1.5 million, which primarily consisted of $2.3 million of cash received, net of cash paid, in connection with our acquisition of Facebank AG and Nexway, $1.0 million paid for our investment in Panda Productions (HK) Limited (“Panda”), offset by $0.7 million received from accredited investors for an interest in Panda, $0.2 million paid for intangible assets related to our Virtual Mayweather agreement, and $0.2 million purchases of property and equipment.

There were no investing activities for the year ended December 31, 2018.

Financing Activities

For the year ended December 31, 2019, net cash provided by financing activities was $4.4 million. The net cash provided is primarily related to $3.6 million of proceeds received from the sale of our common stock and warrants, $0.7 million of proceeds received from the issuance of our preferred stock, $0.4 million received as an advance from a related party, $0.8 million of proceeds received from the issuance of a convertible note and $0.1 million of proceeds received from the issuance of our subsidiary’s common stock, offset by repayments of $0.5 million in connection with our convertible notes, repayments of $0.4 million to related parties, and $0.3 million paid for the redemption of our Series D preferred stock.

For the year ended December 31, 2018, net cash provided by financing activities was $3.1 million. The net cash provided is primarily related to $3.1 million of proceeds received from the sale of our common stock, $1.8 million of proceeds received from the issuance of our convertible notes, offset by repayments of $1.8 million of our convertible notes.

Off-Balance Sheet Arrangements

As of December 31, 2019, 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 consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an ongoing basis, our estimates and judgments, including those related to the useful life of the assets. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our consolidated financial statements. The Securities and Exchange Commission (the “SEC”), considers an entity’s most critical accounting policies to be those policies that are both most important to the portrayal of a company’s financial condition and results of operations and those that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation. For a more detailed discussion of the accounting policies of the Company, see Note 4 of the Notes to the Consolidated Financial Statements, “Summary of Significant Accounting Policies”.

We believe the following critical accounting policies, among others, require significant judgments and estimates used in the preparation of our consolidated financial statements.

Impairment Testing of Long-Lived Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.

During the year ended December 31, 2019, the Company recorded impairment charges of approximately $8.6 million related to the intangible assets acquired with the Company’s acquisition of Nexway and Facebank AG.

Acquisitions and Business Combinations

The Company allocates the fair value of purchase consideration issued in business combination transactions to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from, acquired technology, trade-marks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Goodwill

The Company tests goodwill for impairment at the reporting unit level on an annual basis on December 31 for each fiscal year or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a single reporting unit is less than its carrying amount under ASU No. 2017-04, Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, issued by the FASB. If it is determined that the fair value is less than its carrying amount, the excess of the goodwill carrying amount over the implied fair value is recognized as an impairment loss.

The Company tested goodwill for impairment as of December 31, 2019 and based on its review, the Company did not record a goodwill impairment charge during the year ended December 31, 2019. There were no goodwill impairment charges recorded during the year ended December 31, 2018. Changes in economic and operating conditions and the impact of COVID-19 could result in goodwill impairment in future periods.

Intangible Assets

The Company’s intangible assets represent definite lived intangible assets, which are being amortized on a straight- line basis over their estimated useful lives as follows:

Human animation technologies	7 years
Trademark and trade names	7 years
Animation and visual effects technologies	7 years
Digital asset library	5-7 years
Intellectual Property	7 years
Customer relationships	11 years

Revenue From Contracts With Customers

The Company recognizes revenue from contracts with customers under ASC 606, Revenue from Contracts with Customers (the “revenue standard”) on a net basis, as the Company is an agent and not a principal. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. The following five steps are applied to achieve that core principle:

	●	Step 1: Identify the contract with the customer
	●	Step 2: Identify the performance obligations in the contract
	●	Step 3: Determine the transaction price
	●	Step 4: Allocate the transaction price to the performance obligations in the contract
	●	Step 5: Recognize revenue when the company satisfies a performance obligation

The Company recognized net revenues from contracts with customers of approximately $4.3 million during the year ended December 31, 2019, primarily from the sale of software licenses. Revenue from the sale of software licenses are recognized as a single performance obligation at the point in time that the software license is delivered to the customer. The Company under its contracts is required to provide its customers with 30 days to return the license for a full refund, regardless of reason, and the Company will be provided a refund in full of its cost to sell the license. Therefore, for Nexway, the Company acts as an agent and recognizes revenue on a net basis.

Derivative Financial Instruments

The Monte Carlo Model was used to estimate the fair value of the embedded conversion features of the Company’s convertible notes. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the convertible notes. There were no extinguishment charges, as the notes converted to shares in accordance with the prepayment provisions specified in the note agreements.

Warrant Liability

The Company accounts for common stock warrants with cash settlement features as liability instruments at fair value. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated statements of operations. The fair value of liabilities classified as warrants has been estimated using the Monte Carlo simulation model.

Convertible Preferred Stock

Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity (“mezzanine”) until such time as the conditions are removed or lapse.

Recently Issued Accounting Pronouncements

See Note 4 in the accompanying consolidated financial statements for a discussion of recent accounting policies.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our Chief Executive Officer (our Principal Executive Officer) and Chief Financial Officer (our Principal Accounting and Financial Officer) of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2019, our disclosure controls and procedures were not effective because of the identification of material weaknesses in our internal control over financial reporting as described below.

Subsequent to this evaluation, our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) re-evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were still not effective as of December 31, 2019 because of the same material weaknesses previously identified.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). All internal control systems, no matter how well designed, have inherent limitations.

Under the supervision and with the participation of our management, including our CEO and CFO, under the oversight of our Board of Directors, subsequent to the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, originally filed with the Securities and Exchange Commission (“SEC”) on May 29, 2020 (the “Original Filing”), we re-evaluated the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 Framework).

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with U.S. GAAP. A company’s internal control over financial reporting includes those policies and procedures that:

	●	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
	●	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
	●	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives.

In the evaluation that was conducted in connection with the Original Filing, our management determined that the following material weaknesses existed in our control over financial reporting:

	●	We failed to adequately invest in our accounting and reporting functions such that we are unable to timely record transactions, reconcile accounts and convert local GAAP produced information outside of the United States into U.S. GAAP-compliant information to timely prepare and adequately review financial statements in accordance with U.S. GAAP across the spectrum of entities within our consolidated group.
	●	We have not retained adequate financial and accounting personnel on a continuous basis, and such limited personnel are not involved when decisions are made by management, so they lack critical time and information in order to properly and timely report on the transactions and events.
	●	Our management in the United States has failed to set up reporting functions and to manage the operations of majority-owned subsidiaries in Europe such that it is unable to timely produce the required accounting information for filing under its Exchange Act requirements.
	●	We have not made the investment at the parent level required to properly document and maintain an effective internal control system in compliance with the requirements of the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.
	●	We have failed to timely test for impairment of intangible assets and goodwill at our acquisition subsidiaries.
	●	We have failed to timely record revenue in the proper net form as agent and not principal by our subsidiary Nexway AG.

In connection with our subsequent evaluation of the effectiveness of our internal control over financial reporting, our management determined that the material weaknesses in our internal control over financial reporting identified in the evaluation that was conducted in connection with the Original Filing still existed at the time of the subsequent evaluation.

A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.

The effectiveness of internal control over financial reporting has also been audited by L J Soldinger Associates, LLC, an independent registered public accounting firm.

Remediation Plan

We have identified and begun to implement a plan designed to remediate the material weaknesses described in this Item 9A and to enhance our overall control environment. We will not consider the material weaknesses remediated until our enhanced control is operational for a sufficient period of time and tested, enabling management to conclude that the enhanced controls are operating effectively.

Changes in Internal Control Over Financial Reporting

Other than the material weaknesses as described in this Item 9A, there were no other changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART IV

ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements.

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

For the years ended December 31, 2019 and 2018

Index to the Consolidated Financial Statements

Contents		Page

Reports of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets at December 31, 2019 (Restated) and 2018		F-3

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2019 (Restated) and 2018		F-4

Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2019 (Restated) and 2018		F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 (Restated) and 2018		F-6

Notes to the Consolidated Financial Statements		F-8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

To the Shareholders and Board of Directors of

FaceBank Group, Inc. (formerly known as Pulse Evolution Group, Inc.) and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of FaceBank Group, Inc. (formerly known as Pulse Evolution Group, Inc.) and Subsidiaries (the “Company”) as of December 31, 2019, the related consolidated statement of operations, stockholders’ equity and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Correction of an Error

As discussed in Note 2 to the consolidated financial statements, the Company has restated its 2019 consolidated financial statements to correct a misstatement in regards to the improper impairment of goodwill.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3, the Company has a significant working capital deficiency, incurred significant operating and cash flow losses and needs to raise additional capital to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ LJ Soldinger Associates, LLC

Deer Park, IL

May 29, 2020, except for the effects of the restatement discussed in Note 2 as to which the date is August 10, 2020.

We have served as the Company’s auditor since 2020.

F-1

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

To the Shareholders and Board of Directors of

FaceBank Group, Inc. (formerly known as Pulse Evolution Group, Inc.) and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of FaceBank Group, Inc. (formerly known as Pulse Evolution Group, Inc.) and Subsidiaries (the “Company”) as of December 31, 2018, the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, incurred significant operating and cash flow losses and needs to raise additional capital to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.

Basis for Opinion

/s/ Marcum llp

Marcum llp

We have served as the Company’s auditor in 2019.

New York, NY

June 7, 2019

F-2

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Consolidated Balance Sheets

(in thousands, except for share and per share information)

	December 31, 2019 (As Restated)			December 31, 2018
ASSETS
Current assets
Cash	$	7,624		$	31
Accounts receivable, net		8,904			-
Inventory		49			-
Prepaid expenses		1,396			-
Total current assets		17,973			31

Property and equipment, net		335			14
Deposits		24			3
Financial assets at fair value		1,965			-
Intangible assets		116,646			136,078
Goodwill		227,763			149,975
Right-of-use assets		3,519			-
Total assets	$	368,225		$	286,101

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		36,373		$	2,475
Accrued expenses		20,402			5,860
Due to related parties		665			398
Note payable		4,090			3,667
Notes payable - related parties		368			172
Convertible notes, net of $710 and $456 discount as of December 31, 2019 and 2018, respectively		1,358			587
Convertible notes - related parties		-			864
Shares settled liability for intangible asset		1,000			-
Profit share liability		1,971			-
Warrant liability - subsidiary		24			4,528
Derivative liability		376			-
Current portion of lease liability		815			-
Total current liabilities		67,442			18,551

Deferred income taxes		30,879			35,000
Other long-term liabilities		41			-
Lease liability		2,705			-
Long term borrowings		43,982			-
Total liabilities		145,049			53,551

COMMITMENTS AND CONTINGENCIES (Note 16)

Series D Convertible Preferred stock, par value $0.0001, 2,000,000 shares authorized, 461,839 shares issued and outstanding as of December 31, 2019; aggregate liquidation preference of $462 as of December 31, 2019		462			-

Stockholders’ equity:
Series A Preferred stock, par value $0.0001, 5,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2019 and 2018, respectively		-			-
Series B Convertible Preferred stock, par value $0.0001, 1,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2019 and 2018, respectively		-			-
Series C Convertible Preferred stock, par value $0.0001, 41,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2019 and 2018, respectively		-			-
Series X Convertible Preferred stock, par value $0.0001, 1,000,000 shares authorized, 0 and 1,000,000 shares issued and outstanding as of December 31, 2019 and 2018, respectively		-			-
Common stock par value $0.0001: 400,000,000 shares authorized; 28,912,500 shares issued and 7,532,776 shares outstanding at December 31, 2019 and 2018, respectively		3			1
Additional paid-in capital		257,002			227,570
Accumulated deficit		(56,123	)		(21,763	)
Non-controlling interest		22,602			26,742
Accumulated other comprehensive loss		(770	)		-
Total stockholders’ equity		222,714			232,550
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY	$	368,225		$	286,101

The accompanying notes are an integral part of these consolidated financial statements.

F-3

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Consolidated Statements of Operations and Comprehensive Income (Loss)

( in thousands except for share and per share information)

	For the Years Ended December 31,
	2019			2018
	(As Restated)
Revenues
Revenues, net	$	4,271		$	-
Total revenues		4,271			-
Operating expenses
General and administrative		13,793			6,746
Amortization of intangible assets		20,682			8,209
Impairment of intangible assets		8,598			-
Depreciation		83			8
Total operating expenses		43,156			14,963
Operating loss		(38,885	)		(14,963	)

Other income (expense)
Interest expense and financing costs		(2,062	)		(2,651	)
Gain on extinguishment of convertible notes		-			1,852
Loss on investments		(8,281	)		-
Foreign currency loss		(18	)		-
Other expense		726			(94	)
Change in fair value of subsidiary warrant liability		4,504			(91	)
Change in fair value of derivative liability		815			741
Change in fair value of Panda interests		(198	)		-
Total other income (expense)		(4,514	)		(243	)
Loss before income taxes		(43,399	)		(15,206	)
Income tax benefit		(5,272	)		(2,114	)
Net loss		(38,127	)		(13,092	)
Less: net loss attributable to non-controlling interest		3,767			2,482
Net loss attributable to controlling interest	$	(34,360	)	$	(10,610	)
Less: Deemed dividend on Series D Preferred stock		(9	)		-
Less: Deemed dividend - beneficial conversion feature on preferred stock		(589	)		-
Net loss attributable to common stockholders	$	(34,958	)	$	(10,610	)

Other comprehensive income (loss)
Foreign currency translation adjustment		(770	)		-
Comprehensive loss	$	(35,728	)	$	(10,610	)

Net loss per share attributable to common stockholders
Basic and diluted	$	(1.57	)	$	(2.37	)

Weighted average shares outstanding:
Basic and diluted		22,286,060			4,481,600

The accompanying notes are an integral part of these consolidated financial statements.

F-4

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Statements of Stockholders’ Equity (Deficit)

For the years ended December 31, 2019 and 2018

(in thousands except for share information)

																	Accumulated						Total
											Additional						Other						Stockholders’
	Preferred stock						Common Stock				Paid-In			Accumulated			Comprehensive			Noncontrolling			Equity
	Shares			Amount			Shares		Amount		Capital			Deficit			Loss			Interest			(Deficit)
Balance at January 1, 2018		7,424,491		$	1			2,659,918	$	-	$	8,053		$	(11,153	)	$	-		$	-		$	(3,099	)
Issuance of common stock for cash		-			-			623,578		-		3,185			-			-			-			3,185
Issuance of common stock for services		-			-			407,943		-		3,752			-			-			-			3,752
Issuance of common stock for commitment fee		-			-			3,072		-		63			-			-			-			63
Conversion of notes payable into common shares		-			-			4,334		-		18			-			-			-			18
Cashless exercise of warrants		-			-			5,114		-		-			-			-			-			-
Excess shares issued upon cashless exercise of warrants		-			-			10,492		-		94			-			-			-			94
Beneficial conversion feature on note payable		-			-			-		-		50			-			-			-			50
Exchange of Series A Preferred into common stock		(5,000,000	)		(1	)		3,633,333		1		-			-			-			-			-
Conversion of Series B Preferred into common stock		(1,000,000	)		-			66,667		-		-			-			-			-			-
Conversion of Series C Preferred into common stock		(1,424,491	)		-			94,966		-		-			-			-			-			-
Issuance of Series X Preferred for business acquisition		1,000,000			-			-		-		211,500			-			-			-			211,500
Non-controlling interest of acquired business		-			-					-					-			-			29,224			29,224
Issuance of common stock for purchase of asset		-			-			23,360		-		658			-			-			-			658
Extinguishment gain on related party convertible notes recorded as a capital contribution		-			-			-		-		197			-			-			-			197
Net loss		-			-			-		-		-			(10,610	)		-			(2,482	)		(13,092	)
Balance at December 31, 2018		1,000,000		$	-			7,532,777	$	1	$	227,570		$	(21,763	)	$	-		$	26,742		$	232,550
Issuance of common stock for cash		-			-			1,028,497		-		2,526			-			-			-			2,526
Issuance of common stock for cash - Hong Kong investor		-			-			93,910		-		1,063			-			-			-			1,063
Preferred stock converted to common stock		(1,000,000	)		-			15,000,000		1		(1	)		-			-			-			-
Common stock issued for lease settlement		-			-			18,935		-		130			-			-			-			130
Issuance of subsidiary common stock for cash		-			-			-		-		92			-			-			-			92
Additional shares issued for reverse stock split		-			-			1,373		-		-			-			-			-			-
Acquisition of Facebank AG and Nexway		-			-			2,500,000		-		19,950			-			-			3,582			23,532
Issuance of common stock - subsidiary share exchange		-			-			2,503,333		1		3,954			-			-			(3,955	)		-
Issuance of common stock for services		-			-			35,009		-		302			-			-			-			302
Issuance of common stock in connection with cancellation of a consulting agreement		-			-			2,000		-		13			-			-			-			13
Deemed dividend related to immediate accretion of redemption feature of convertible preferred stock		-			-			-		-		(589	)		-			-			-			(589	)
Deemed dividend on Series D preferred stock		-			-			-		-		(9	)		-			-			-			(9	)
Accrued Series D Preferred stock dividends		-			-			-		-		(14	)		-			-			-			(14	)
Common stock issued in connection with note payable		-			-			5,000		-		47			-			-			-			47
Issuance of common stock in connection with Panda Investment		-			-			175,000		-		1,918			-			-			-			1,918
Issuance of common stock in connection with note conversion		-			-			16,666		-		50			-			-			-			50
Foreign currency translation adjustment		-			-			-		-		-			-			(770	)		-			(770	)
Net loss – As Restated		-			-			-		-		-			(34,360	)		-			(3,767	)		(38,127	)
Balance at December 31, 2019 (As Restated)		-		$	-			28,912,500	$	3	$	257,002		$	(56,123	)	$	(770	)	$	22,602		$	222,714

The accompanying notes are an integral part of these consolidated financial statements.

F-5

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Consolidated Statements of Cash Flows

(in thousands, except for share and per share information)

	For the Years Ended December 31,
	2019 (As Restated)			2018
Cash flows from operating activities
Net loss	$	(38,127	)	$	(13,092	)

Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets		20,682			8,209
Depreciation		83			8
Gain on extinguishment of convertible notes		-			(1,852	)
Loss on excess shares issued upon cashless exercise of warrants		-			94
Issuance of common stock for services		302			3,752
Issuance of common stock in connection with cancellation of a consulting agreement		13			-
Common stock issued for commitment fee		-			63
Common stock issued in connection with note payable		47			-
Loss on investments		8,281			-
Stock-based compensation in connection with Panda		1,118			-
Impairment of intangible assets		8,598			-
Amortization of debt discount		603			1,535
Deferred income tax benefit		(5,272	)		(2,114	)
Fair value of derivative in excess of note payable		-			293
Change in fair value of derivative liability		(815	)		91
Change in fair value of subsidiary warrant liability		(4,504	)		(741	)
Change in fair value of Panda interests		198			-
Amortization of right-of-use assets		200			-
Other income related to note conversion		(50	)		-
Accrued interest on note payable		658			-
Foreign currency loss		(770	)		-
Other adjustments		(1,304	)		-
Changes in operating assets and liabilities of business, net of acquisitions:
Accounts receivable		7,705			-
Prepaid expenses		(227	)		-
Accounts payable		5,476			183
Accrued expenses		(964	)		74
Lease liability		(200	)		344
Net cash provided by (used in) operating activities		1,731			(3,153	)

Cash flows from investing activities
Investment in Panda Productions (HK) Limited		(1,000	)		-
Acquisition of FaceBank AG and Nexway, net of cash paid		2,300			-
Sale of profits interest in investment in Panda Productions (HK) Limited		655			-
Purchase of intangible assets		(250	)		-
Payments for property and equipment		(175	)		-
Lease security deposit		(21	)		-
Net cash provided by investing activities		1,509			-

Cash flows from financing activities
Proceeds from issuance of convertible notes		847			1,780
Repayments of convertible notes		(541	)		(1,803	)
Proceeds from the issuance of preferred stock		700			-
Proceeds from sale of common stock and warrants		3,589			3,130
Proceeds from sale of subsidiary’s common stock		92			-
Redemption of Series D preferred stock		(337	)		-
Proceeds from related parties		423			-
Repayments of note payable related party		(264	)		-
Repayments to related parties		(156	)		-
Net cash provided by financing activities		4,353			3,107

Net increase in cash		7,593			(46	)
Cash at beginning of period		31			77
Cash at end of period		7,624		$	31

The accompanying notes are an integral part of these consolidated financial statements.

F-6

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)
Consolidated Statements of Cash Flows (Continued)
(in thousands, except for share and per share information)

Supplemental disclosure of cash flows information:
Interest paid	$	170	$	588
Income tax paid		-		-
	$	170	$	588
Non cash financing and investing activities:
Issuance of common stock in connection with note conversion	$	50	$	18
Issuance of common stock upon acquisition of Facebank AG and Nexway	$	19,950	$	-
Issuance of common stock in connection with Panda Investment	$	1,918	$	-
Series X convertible preferred stock issued upon acquisition of Evolution AI Corporation	$	-	$	211,500
Issuance of common stock upon acquisition of Evolution AI Corporation	$	-	$	658
Long term borrowings related to investment	$	5,443	$	-
Extinguishment gain on related party convertible notes recorded as a capital contribution	$	-	$	197
Beneficial conversion feature	$	-	$	50
Shares settled liability for intangible asset - Floyd Mayweather	$	1,000	$	-
Accrued Series D Preferred Stock dividends	$	14	$	-
Deemed dividend related to immediate accretion of redemption feature of convertible preferred stock	$	589	$	-
Common stock issued for lease settlement	$	130	$	-
Measurement period adjustment on the Evolution AI Corporation acquisition	$	1,921	$	-

F-7

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Note 1 – Organization, Nature of Business and Basis of Presentation

Overview

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.

Nature of Business

Reverse Stock Split and Increase in Authorized Share Capital

On January 9, 2019, the Company amended its certificate of incorporation to increase the authorized number of shares of its $0.0001 par value per share common stock to 400 million shares. The Company also effectuated a 1-for-30 reverse stock split of its common stock on February 28, 2019. All share and per share amounts for all periods presented are retroactively restated for the effect of the reverse stock split. All of the outstanding shares of Series X Preferred Stock also automatically converted into an aggregate of 15,000,000 shares of common stock on February 28, 2019.

F-8

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Note 2 – Restatement for Correction of an Error

In connection with the preparation of the Company’s condensed consolidated interim financial statements as of and for the quarter ended June 30, 2020, the Company identified an inadvertent error in the accounting for goodwill relating to the Company’s acquisition of Nexway. Goodwill was inadvertently impaired at December 31, 2019. Upon further evaluation, the Company determined that goodwill amounting to $79.7 million should not have been impaired. Accordingly, the Company is restating herein its previously issued consolidated financial statements and the related disclosures for the year ended December 31, 2019.

In addition to the restatement of the financial statements, certain information within the following notes to the financial statements have been restated to reflect the correction of a misstatement discussed above as well as to add disclosure language as appropriate:

Note 4 - Summary of Significant Accounting Policies

Note 5 – Acquisitions

Note 7 – Intangible Assets and Goodwill

The financial statement misstatements reflected in the table below did not impact cash flows from operations, investing, or financing activities in the Company’s consolidated statements of cash flows for any period previously presented.

Comparison of restated financial statements to financial statements as previously reported

The following tables compare the Company’s previously issued Consolidated Balance Sheets and Consolidated Statement of Operations as of and for the year ended December 31, 2019 to the corresponding restated consolidated financial statements for that year end.

Restated consolidated balance sheets and consolidated statements of operations as of and for the year ended December 31, 2019 are as follows:

	December 31, 2019 as Previously Reported			Effect of Restatement		December 31, 2019 as Restated
ASSETS
Current assets
Cash	$	7,624		$	-	$	7,624
Accounts receivable, net		8,904			-		8,904
Inventory		49			-		49
Prepaid expenses		1,396			-		1,396
Total current assets		17,973			-		17,973
							-
Property and equipment, net		335			-		335
Deposits		24			-		24
Financial assets at fair value		1,965			-		1,965
Intangible assets		116,646			-		116,646
Goodwill		148,054			79,709		227,763
Right-of-use assets		3,519			-		3,519
Total assets	$	288,516		$	79,709	$	368,225
							-
LIABILITIES AND STOCKHOLDERS’ EQUITY							-
Current liabilities							-
Accounts payable		36,373			-		36,373
Accrued expenses		20,402			-		20,402
Due to related parties		665			-		665
Note payable		4,090			-		4,090
Notes payable - related parties		368			-		368
Convertible notes, net of $710 and $456 discount as of December 31, 2019 and 2018, respectively		1,358			-		1,358
Convertible notes - related parties		-			-		-
Shares settled liability for intangible asset		1,000			-		1,000
Profit share liability		1,971			-		1,971
Warrant liability - subsidiary		24			-		24
Derivative liability		376			-		376
Current portion of lease liability		815			-		815
Total current liabilities		67,442			-		67,442
							-
Deferred income taxes		30,879			-		30,879
Other long-term liabilities		41			-		41
Lease liability		2,705			-		2,705
Long term borrowings		43,982			-		43,982
Total liabilities		145,049			-		145,049
							-
COMMITMENTS AND CONTINGENCIES (Note 15)							-
							-
Series D Convertible Preferred stock, par value $0.0001, 2,000,000 shares authorized, 461,839 shares issued and outstanding as of December 31, 2019; aggregate liquidation preference of $462 as of December 31, 2019		462			-		462
							-
Stockholders’ equity:							-
Series A Preferred stock, par value $0.0001, 5,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2019 and 2018, respectively		-			-		-
Series B Convertible Preferred stock, par value $0.0001, 1,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2019 and 2018, respectively		-			-		-
Series C Convertible Preferred stock, par value $0.0001, 41,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2019 and 2018, respectively		-			-		-
Series X Convertible Preferred stock, par value $0.0001, 1,000,000 shares authorized, 0 and 1,000,000 shares issued and outstanding as of December 31, 2019 and 2018, respectively		-			-		-
Common stock par value $0.0001: 400,000,000 shares authorized; 28,912,500 shares issued and 7,532,776 shares outstanding at December 31, 2019 and 2018, respectively		3			-		3
Additional paid-in capital		257,002			-		257,002
Accumulated deficit		(135,832	)		79,709		(56,123	)
Non-controlling interest		22,602			-		22,602
Accumulated other comprehensive loss		(770	)		-		(770	)
Total stockholders’ equity		143,005			79,709		222,714
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY	$	288,516		$	79,709	$	368,225

F-9

	For the Year Ended December 31, 2019 as Previously Reported			Effect of Restatement			For the Year Ended December 31, 2019 as Restated
Revenues
Revenues, net	$	4,271		$	-		$	4,271
Total revenues		4,271			-			4,271
Operating expenses								-
General and administrative		13,793			-			13,793
Amortization of intangible assets		20,682			-			20,682
Impairment of intangible assets		8,598			-			8,598
Impairment of goodwill		74,441			(74,441	)		-
Depreciation		83			-			83
Total operating expenses		117,597			(74,441	)		43,156
Operating loss		(113,326	)		74,441			(38,885	)
								-
Other income (expense)								-
Interest expense and financing costs		(2,062	)		-			(2,062	)
Gain on extinguishment of convertible notes		-			-			-
Loss on investments		(13,549	)		5,268			(8,281	)
Foreign currency loss		(18	)		-			(18	)
Other expense		726			-			726
Change in fair value of subsidiary warrant liability		4,504			-			4,504
Change in fair value of derivative liability		815			-			815
Change in fair value of Panda interests		(198	)		-			(198	)
Total other income (expense)		(9,782	)		5,268			(4,514	)
Loss before income taxes		(123,108	)		79,709			(43,339	)
Income tax benefit		(5,272	)		-			(5,272	)
Net loss		(117,836	)		79,709			(38,127	)
Less: net loss attributable to non-controlling interest		3,767			-			3,767
Net loss attributable to controlling interest	$	(114,069	)	$	79,709		$	(34,360	)
Less: Deemed dividend on Series D Preferred stock		(9	)		-			(9	)
Less: Deemed dividend - beneficial conversion feature on preferred stock		(589	)		-			(589	)
Net loss attributable to common stockholders	$	(114,667	)	$	79,709		$	(34,958	)

Other comprehensive income (loss)
Foreign currency translation adjustment		(770	)		-			(770	)
Comprehensive loss	$	(115,437	)	$	79,709		$	(35,728	)

Net loss per share attributable to common stockholders
Basic and diluted	$	(5.15	)				$	(1.57	)

Weighted average shares outstanding:
Basic and diluted		22,286,060			-			22,286,060

Note 3 - Liquidity, Going Concern and Management Plans

The Company has cash of $7.6 million, a working capital deficiency of $49.5 million and an accumulated deficit of $56.1 million at December 31, 2019. The Company incurred a net loss of $38.1 million and cash provided by its operating activities totaled $1.7 million for the year ended December 31, 2019. 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 obligations include liabilities assumed in acquisition that are in arrears and payable on demand. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date that these financial statements are issued. The 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.

F-10

Note 4 - Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its 99.7% owned principal operating subsidiary Evolution AI Corporation (“EAI”), 62.3% majority-owned operating subsidiary Nexway AG (“Nexway”), wholly-owned subsidiaries Facebank AG and StockAccess Holdings SAS (“SAH”), 70.0% majority-owned operating subsidiary Highlight Finance Corp. (“HFC”), inactive subsidiaries York Production LLC and York Production II LLC and its 68% majority owned subsidiary, Pulse Evolution Corporation (“PEC”). All inter-company balances and transactions have been eliminated in consolidation.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications have no impact on the previously reported financial position or results of operations.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management 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. The significant estimates and assumptions include allocating the fair value of purchase consideration issued in business acquisitions, useful lives of intangible assets, analysis of impairments of recorded intangible assets, accruals for potential liabilities, assumptions made in valuing derivative liabilities and assumptions made when estimating the fair value of equity instruments issued in share-based payment arrangements.

Cash and Cash Equivalents

The Company’s cash balances primarily consist of funds maintained at Nexway AG. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The Company does not have any cash equivalents as of December 31, 2019 and 2018. Nearly all of the cash held by the Company as of December 31, 2019 was held in banks in France and Germany. Under the EU banking directive of 94/19/EC, both Germany and France created insurance funds covering 100,000 EUR per account. The Company holds significant amounts of cash in excess of those insurance limits, however, the Company maintains its accounts at high quality financial institutions and to date has never experienced a loss.

F-11

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Fair Value Estimates

The carrying amounts of the Company’s financial assets and liabilities, such as cash, other assets, accounts payable and accrued payroll, approximate their fair values because of the short maturity of these instruments. The carrying amounts of notes payable and convertible notes approximate their fair values due to the fact that the effective interest rates on these obligations are comparable to market interest rates for instruments of similar credit risk.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are reported at realizable value, net of allowances for contractual credits and doubtful accounts. The Company records allowances for doubtful accounts receivable based upon expected collectability. The reserve is generally established based upon an analysis of its aged receivables. Additionally, if necessary, a specific reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligations, such as in the case of a bankruptcy filing or deterioration in the customer’s operating results or financial position. The Company also regularly reviews the allowance by considering factors such as historical collections experience, credit quality, age of the accounts receivable balance and current economic conditions that may affect a customer’s ability to pay. If actual bad debts differ from the reserves calculated, the Company records an adjustment to bad debt expense in the period in which the difference occurs.

Concentrations

For the year ended December 31, 2019 and 2018, no customer accounted for more than 10% of sales and accounts receivable.

Vendor Concentration

For the year ended December 31, 2019 the Company purchased approximately 47% of its licenses sold to customers from two vendors and those two vendors accounts for approximately 60% of accounts payable as of December 31, 2019.

Property and Equipment

Property and equipment, which principally consists of furniture and fixtures, are stated at cost, and are depreciated using the straight-line method over the estimated useful life of five years. Repairs and maintenance are expensed as incurred.

Fair Value of Financial Instruments

The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 — assets and liabilities whose significant value drivers are unobservable.

Long-Term Investments

As described in Note 5 to these consolidated financial statements, effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and related ASU 2018-03 concerning recognition and measurement of financial assets and financial liabilities. In adopting this new guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values.

F-12

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

For equity investments that are accounted for using the measurement alternative, the Company initially records equity investments that qualify for the measurement alternative at cost, but is required to adjust the carrying value of such equity investments through earnings when there is an observable transaction involving the same or a similar investment with the same issuer or upon an impairment.

For equity investments that result in the Company having significant influence, but not control, of an entity, the Company applies the equity method of accounting.

Loans for which the Company has the intent and ability to hold for the foreseeable future or until maturity are classified as held for investment and accounted for at cost, adjusted for unamortized premiums and discounts, net of allowance for loan losses.

Impairment Testing of Long-Lived Assets

Acquisitions and Business Combinations

Goodwill

The Company tested goodwill for impairment as of December 31, 2019 and based on its review, goodwill was not impaired. There were no goodwill impairment charges recorded during the year ended December 31, 2018. Changes in economic and operating conditions and the impact of COVID-19 could result in goodwill impairment in future periods.

Intangible Assets

The Company’s intangible assets represent definite lived intangible assets, which are being amortized on a straight- line basis over their estimated useful lives as follows:

Human animation technologies			7 years
Trademark and trade names			7 years
Animation and visual effects technologies			7 years
Digital asset library			5-7 years
Intellectual Property			7 years
Customer relationships			11 years

F-13

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Convertible Instruments With Embedded Features

The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The accounting treatment of derivative financial instruments requires that the Company record the conversion options and warrants at their fair values as of the inception date of the agreement and as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period conversion options, when bifurcated, are recorded as a discount to the host instrument and are amortized as interest expense over the life of the underlying instrument using the effective interest method. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

The Monte Carlo simulation model was used to estimate the fair value of the warrants that are classified as derivative liabilities on the consolidated balance sheets. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the warrants.

Derivative Financial Instruments

Derivative liabilities are recognized in the consolidated balance sheets at fair value based on the criteria specified in ASC Topic 815-15 – Derivatives and Hedging – Embedded Derivatives (“ASC 815-15”). The Company evaluates all of its financial instruments, including embedded conversion features in convertible debt and warrants, and unit investments that include the sale of a profits interest, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

The Monte Carlo simulation model was used to estimate the fair value of the embedded conversion features of the Company’s convertible notes that are classified as derivative liabilities on the consolidated balance sheets. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the convertible notes.

Warrant Liability

Deferred Tax Liability

The Company recognized $1.2 million of deferred tax liabilities related to its Facebank AG acquisition, and $0.5 million related to its Nexway acquisition during the year ended December 31, 2019. During the year ended December 31, 2019, the Company recognized a full impairment of the intangible assets acquired with its Nexway acquisition, and eliminated the related deferred tax liability. The Company recorded $36.9 million of deferred tax liabilities related to the EAI acquisition and $0.2 million related to the Namegames acquisition during the year ended December 31, 2018. The following is a rollforward of the Company’s deferred tax liability from January 1, 2019 to December 31, 2019 (in thousands):

	December 31, 2019			December 31, 2018
Beginning balance	$	35,000		$	-
Evolution AI acquisition		-			36,937
Namegames acquisition		-			177
Facebank acquisition		1,151			-
Nexway acquisition		450			-
Impairment of Nexway intangible assets		(450	)		-
Income tax benefit (associated with the amortization of intangible assets)		(5,272	)		(2,114	)
Ending balance	$	30,879		$	35,000

F-14

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Convertible Preferred Stock

Non-Controlling Interest

Non-controlling interest represents PEC stockholders who retained an aggregate 32% interest in that entity following the Company acquisition of EAI. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate share of the earnings or losses even if loss allocations result in a deficit non-controlling interest balance.

Sequencing

On July 30, 2019, the Company adopted a sequencing policy under ASC 815-40-35 whereby in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.

Leases

Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. The adoption of ASC 842 did not have an effect on the Company’s consolidated results of operations or cash flows, due to the leases having a term of less than one year.

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less, if any, from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

The Company continues to account for leases in the prior period financial statements under ASC Topic 840.

Revenue From Contracts With Customers

	●	Step 1: Identify the contract with the customer
	●	Step 2: Identify the performance obligations in the contract
	●	Step 3: Determine the transaction price
	●	Step 4: Allocate the transaction price to the performance obligations in the contract
	●	Step 5: Recognize revenue when the company satisfies a performance obligation

F-15

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

The following presents our revenues from contracts disaggregated by major business activity (in thousands):

	Year Ended December 31, 2019
Nexway eCommerce Solutions	$	3,359
Nexway Academics		912
Total	$	4,271

Stock-Based Compensation

The Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generally vest on the grant date or over a one- year period.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.

Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.

Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.

Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

Effective January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by Accounting Standards Update (“ASU”) 2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.

Income Taxes

The Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.

F-16

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

ASC Topic 740, Income Taxes, (“ASC 740”), also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

(Loss)/ Income Per Share

Basic (loss) income per share is computed by dividing net (loss) income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted (loss) income per share reflects the potential dilution, using the treasury stock method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the (loss) income of the Company. In computing diluted (loss) income per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.

The following common share equivalents are excluded from the calculation of weighted average common shares outstanding because their inclusion would have been anti-dilutive:

	December 31,
	2019		2018
Common stock purchase warrants		200,007		7
Series D convertible preferred shares		461,839		-
Series X convertible preferred shares		-		15,000,000
Stock options		16,667		16,667
Convertible notes variable settlement feature		190,096		196,243
Total		868,609		15,212,917

Foreign Currency Translation and Transactions

Assets and liabilities of foreign subsidiaries having non-U.S. dollar functional currencies are translated at exchange rates at the end of a period. Revenues and expenses are translated at average exchange rates during the period. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars, net of taxes, if any, are reported as a separate component of Accumulated Other comprehensive income (loss) within stockholders’ equity. Gains or losses resulting from foreign currency transactions are included in Other income (expense) in the Company’s Consolidated Statements of Operations.

Segment Reporting

The Company has only one operating segment and reporting unit. The Company defines its segments as those business units whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to analyze performance and allocate resources. The Company’s CODM is its Chief Executive Officer. As of and for the year ended December 31, 2019, the CODM only reviews consolidated results to analyze performance and allocate resources.

Revenues, classified by the major geographic areas in which our customers were located, were as follows (in thousands):

	Revenues
Europe	$	4,049
United States		222
Total	$	4,271

F-17

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU’) 2016-02, Leases (Topic 842) which supersedes FASB Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842, which amends ASU 2016-02 to provide entities an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 842. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. The standard will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted upon issuance. The Company adopted this standard on January 1, 2019. The impact of this adoption was immaterial. See Note 15 for more information.

In July 2017, the FASB has issued a two-part ASU No. 2017-11, (i) Accounting for Certain Financial Instruments with Down Round Features and (ii) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception which simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. It is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company adopted this standard on its consolidated financial statements and disclosures as of January 1, 2019. The adoption of ASU 2017-11 did not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”), amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The core principle of Topic 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional ASUs have been issued that are part of the overall new revenue guidance including: (i) ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” (ii) ASU 2016-10, “Identifying Performance Obligations and Licensing,” (iii) ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” and (iv) ASU 2016-12, “Narrow Scope Improvements and Practical Expedients,” which clarified guidance on certain items such as reporting revenue as a principal or agent, identifying performance obligations. Concurrent with the acquisition of Nexway, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, as amended (Accounting Standards Codification Topic 606) (ASC 606) using the modified retrospective method applied to those contracts which were not completed the acquisition date. The Company also elected to use the practical expedient that allows an entity to expense the incremental cost of obtaining a contract as an expense when incurred if the amortization period of the asset that an entity otherwise would have recognized is less than one year.

In April 2016, the FASB issued ASU 2016-10 to clarify the implementation guidance on licensing and the identification of performance obligations consideration included in ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is also known as ASC 606, was issued in May 2014 and outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In March 2016, the FASB issued ASU 2016-08 to provide amendments to clarify the implementation guidance on principal versus agent considerations. The Company implemented the standard on the effective date of January 1, 2018 on a modified retrospective basis to contracts which were not completed as of this date. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements as the Company did not have a material amount of revenue.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business” The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted, including for interim or annual periods for which the financial statements have not been issued or made available for issuance. The Company adopted this guidance as of January 1, 2018.

F-18

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020 and is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has chosen to early adopt this standard as of January 1, 2019.

On June 20, 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Meaning that companies will value all equity classified awards at their grant date under ASC 718 and forgo revaluing the award after this date. The Company has chosen to early adopt this standard as of January 1, 2018.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating ASU 2018-13 and its impact on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

Note 5 – Acquisitions

EAI acquisition

The EAI acquisition which occurred on August 8, 2018, was accounted for using acquisition method of accounting. The aggregate of the purchase price, plus net liabilities assumed was allocated to separately identifiable assets and the excess was recorded as goodwill. The preliminary allocation of the purchase price was based upon a valuation for which the estimates and assumptions are subject to change during the one-year measurement period, which ended August 7, 2019. During the year ended December 31, 2019, the Company recorded a measurement period adjustment to reduce acquisition date accrued expenses by $1.9 million, which resulted in a corresponding decrease to goodwill. In addition, during the year ended December 31, 2019, the Company recorded a lease settlement liability measurement period adjustment of $0.1 million which should have been accrued at the time of the acquisition. This lease settlement liability was settled during the first quarter of 2019 with the issuance of 18,935 shares (see Note 14).

F-19

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

The Company allocated the purchase consideration to the fair value of the assets acquired and liabilities assumed as summarized in the table below (in thousands except for share and per share amounts):

	Fair Value
Consideration Paid:
Series X Convertible Preferred Stock (1,000,000 shares at a fair value of $211.50 per share)	$	211,500

Purchase Price Allocation:
Property and equipment		22
Accounts payable		(2,291	)
Accrued expenses		(3,205	)
Notes payable (in default)		(3,634	)
Warrant liability		(4,437	)
Due to related parties and affiliates		(295	)
Net liabilities assumed		(13,840	)
Excess allocated to
Human animation technologies		123,436
Trademark and trade names		7,746
Animation and visual effects technologies		6,016
Digital asset library		6,255
Intangible assets		143,453
Deferred tax liability		(36,944	)
Non- controlling interest		(29,224	)
Goodwill		148,055
Total Purchase Price	$	211,500

Proforma (Unaudited)

The following unaudited pro forma financial information presents combined results of operations as if the acquisition of Evolution AI Corporation and Pulse Evolution Corporation had occurred on January 1, 2018:

	Year Ended December 31, 2018

Operating Revenues	$	294
Net (Loss) Income	$	(15,142	)

Proforma EPS* - basic	$	(0.78	)
Proforma EPS* - dilutive	$	(0.78	)

*assumes Series X Preferred stock is converted into common stock

Facebank AG acquisition

On August 15, 2019, the Company acquired 100% of the issued and outstanding capital stock of Facebank AG in exchange for 2,500,000 shares of common stock, par value $0.0001 per share, of the Company. The acquisition was accounted for using the acquisition method accounting. The fair value of the Company’s common stock transferred as consideration in the acquisition was $19.95 million, which was determined using the closing Price of the Company’s stock as traded on the OTC. Facebank AG is a privately-owned Swiss holding company which, at the time of acquisition, owned a minority interest in Nexway AG, and had entered into a binding agreement to acquire an aggregate 62.3% majority interest in Nexway AG. On September 16, 2019, Facebank AG completed its acquisition of a majority interest in Nexway AG, which is further discussed below. Facebank AG also owns 100% of SAH, a French joint stock company and investor in the global luxury, entertainment and celebrity focused industries that directly or indirectly holds investments in multiple other subsidiaries.

The acquisition of Facebank AG was considered immaterial as defined by ASC 805, Business Combinations.

F-20

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Purchase Price Allocation

The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed for the Facebank AG acquisition (in thousands):

Cash	$	329
Accounts receivable		3,709
Property and equipment		16
Investments		5,671
Financial assets as fair value		2,275
Intangible assets – customer relationships		2,241
Intangible assets – intellectual property		1,215
Intangible assets – trade names and trademarks		843
Goodwill		28,541
Accounts payable		(64	)
Accrued expenses		(802	)
Deferred taxes		(1,161	)
Long-term borrowings		(22,863	)
Stock purchase price	$	19,950

The liabilities assumed in the acquisition include long-term borrowings with an acquisition-date fair value of $22.9 million. SAH is the borrower under a EUR 20.0 million bond due March 31, 2014 and an interest rate of 7%. The principal amount outstanding under the borrowing was EUR 14.5 million and EUR 16.7 million at August 15, 2019 (acquisition date) and December 31, 2019, respectively.

At August 15, 2019, SAH was also the borrower under a EUR 5.0 million term loan with Highlight Finance Corp. as the lender and an interest rate of 4.0%. The term loan was effectively settled as part of Facebank AG’s acquisition of Nexway AG and Highlight Finance Corp. on September 19, 2019 and is not outstanding at December 31, 2019. Refer to the following section for further discussion on the acquisition of Nexway AG and Highlight Finance Corp.

Nexway AG Acquisition

On September 16, 2019, Facebank AG, a wholly owned subsidiary of the Company, acquired 333,420 shares, or approximately 51%, of Nexway and 35,000 shares, or approximately 70%, of Highlight Finance Corp. (“HFC”) (the “Nexway AG Acquisition”). Prior to the acquisition, Facebank AG owned 74,130 shares of Nexway, representing approximately 11.3% of the outstanding common shares of Nexway. Nexway is a Karlsruhe-based and Germany-listed software and solutions company, which provides a subscription-based platform for the monetization of intellectual property, principally for entertainment, games and security software companies, through its proprietary merchant presence in 180 different countries. HFC is a British Virgin Islands company with a EUR 15.0 million term bond facility issued and outstanding.

The acquisition was accounted for using the acquisition method accounting. The aggregate consideration of approximately ($5.3 million) equaled the sum of cash paid ($2.2 million), the fair value of bonds issued ($1.8 million), and the fair value of the Nexway shares previously owned by Facebank AG ($1.1 million), less the fair value of Facebank AG debt effectively settled as a result of the acquisition ($10.4 million). Goodwill related to the Nexway AG Acquisition is not deductible for tax purposes.

The Company did not apply pushdown accounting to its acquisition of Nexway.

F-21

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Purchase Price Allocation

The following table summarizes the preliminary allocation of the purchase price to the assets acquired, liabilities assumed and noncontrolling interest for the Nexway AG Acquisition (in thousands):

Cash	$	4,152
Accounts receivable		12,900
Prepaid expenses		1,169
Inventory		61
Property and equipment		213
Intangible assets – customer relationships		2,241
Intangible assets – intellectual property		1,215
Intangible assets – trade names and trademarks		843
Goodwill		45,900
Right-of-use assets		3,594
Accounts payable		(28,381	)
Accrued expenses		(16,747	)
Current portion of lease liability		(756	)
Deferred income taxes		(450	)
Other long-term liabilities		(193	)
Lease liability		(2,838	)
Long-term borrowings		(24,609	)
Noncontrolling interests		(3,582	)
Consideration transferred	$	(5,268	)

The liabilities assumed in the acquisition include long-term borrowings with an acquisition-date fair value of $24.6 million. Nexway AG is the borrower of EUR 12.0 million secured notes, of which EUR 7.5 million was outstanding upon the acquisition on September 19, 2019. The Nexway borrowing has a maturity date of September 8, 2023 and interest rate of 6.5%. HFC is the borrower under a EUR 15.0 million bond due April 30, 2024 and an interest rate of 4%. All of the HFC bond was outstanding as of September 19, 2019 and December 31, 2019. The negative consideration transferred noted above was included with goodwill as of December 31, 2019.

The Company has determined that because of the continuing losses and poor financial condition of Nexway AG, that the intangible assets acquired in the acquisition of Nexway AG were required to be impaired in full as of December 31, 2019.

Proforma – Nexway AG

The following unaudited pro forma financial information for the year ended December 31, 2019 and 2018 presents combined results of operations as if the Nexway AG Acquisition had occurred on January 1, 2018 (in thousands):

	Year Ended December 31,
	2019 (As Restated)			2018

Operating Revenues	$	14,928		$	25,289
Net (Loss) Income	$	(44,088	)	$	(9,763	)

Proforma EPS – basic and diluted	$	(1.98	)	$	(2.18	)

Note 6 – Investments

In March 2019, the Company entered into an agreement to finance and co-produce Broadway Asia’s theatrical production of DreamWorks’ Kung Fu Panda Spectacular Live at the Venetian Theatre in Macau, Hong Kong, currently scheduled to open in January 2020 (“Macau Show”). The agreement requires the Company to invest at least $2 million in Panda, in exchange for which the Company has received an equity interest in the production, billing credit as associate producer, and certain rights to participate in possible future productions of DreamWorks’ Kung Fu Panda property in similar theatrical productions.

During the year ended December 31, 2019, the Company acquired an approximate 4% interest in Panda for $2.0 million. The Company has evaluated the guidance in ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and elected to account for the investment using the measurement alternative as the equity securities are without a readily determinable fair value and do not give the Company significant influence over Panda. The measurement alternative at cost, less any impairment, plus or minus changes resulting from observable price changes

As of December 31, 2019, the Company paid $1.0 million to Panda. On October 24, 2019, the Company entered into an agreement with Panda and issued 175,000 shares of its common stock as satisfaction of the remaining $1.0 million obligation. On October 24, 2019, the fair value of the 175,000 shares was approximately $1.9 million or $10.96 per share, and the additional $0.9 million was recorded as stock-based compensation expense during the year ended December 31, 2019. As of December 31, 2019, the Company has fully impaired its investment.

During the year ended December 31, 2019, the Company sold profits interests to accredited investors and received cash of $0.7 million. As part of this transaction, the Company also issued 209,050 common shares in connection with this transaction. As a result of this sale of the profits interest, the Company will potentially distribute approximately 5.2% of its proceeds received by the Company from the producer of the Macau Show. The Company allocated 100% of the amount of proceeds received from investors to the fair value of the profits interests based upon expected cash outflows on the Macau Shaw. The issuance of a profits interest meets the definition of a derivative in accordance with ASC 815, therefore, the Company will update the fair value of this profits interests on a quarterly basis and record any change in fair value as a component of other income (expense). The Company determined the fair value of the profits interest to be approximately $1.7 million as of the date of this transaction and $2.0 million as of December 31, 2019 (See Note 11).

F-22

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

The table below summarizes the Company’s profits interest at December 31, 2019 (in thousands except for unit and per unit information):

Panda units granted		26.2
Fair value per unit on grant date	$	67,690
Grant date fair value	$	1,773
Change in fair value of Panda interests	$	198
Fair value at December 31, 2019	$	1,971

As part of its acquisition of Facebank AG on August 15, 2019, the Company acquired investments in Paddle8 consisting of common shares and a term loan. Paddle8 is an online auction house that connects buyers and sellers of fine art and collectibles across the internet. The common shares hold a 49% voting interest and 33% economic interest in Paddle8 and were assessed to have an acquisition date fair value of $-0-, which is the carrying value as of December 31, 2019. The Company will account for its investment in the common shares under the equity method of accounting. The Company intends to hold the term loan until maturity and will accounted for the term loan at amortized cost, net of any allowance for loan loss. As of December 31, 2019, the Company had fully impaired the loan due to concerns about the quality of the security interest held and the continuing losses and poor financial condition of Paddle8.

In addition to the Paddle8 investment and loans, the Company also acquired through its acquisition of Nexway AG, an interest in a private partnership, Olma Funds, that holds equity interest in private companies in Europe. At the date of the acquisition, the investment fair value was determined to be approx. $1.8 million USD. The Company is treating this as the cost basis of the investment and does not re-value at fair value on a recurring basis, but retains the cost basis less any other than temporary impairments necessary. As of December 31, 2019, no impairments were deemed necessary.

Note 7 – Intangible Assets and Goodwill

On July 31, 2019, the Company entered into a joint venture and revenue share agreement, called the Digital Likeness Development Agreement (the “Agreement”), among the Company, FaceBank, Inc., and professional boxing promoter and retired professional boxer, Floyd Mayweather, concerning the development of the hyper-realistic, computer generated ‘digital likeness’ of the face and body of Mr. Mayweather (“Virtual Mayweather”), for global exploitation in commercial applications. The Company is responsible for the advance funding of all technology and related costs. The Company paid an upfront cash fee of $250,000 and intended to issue share-based awards with an approximate fair value of $1,000,000 to Mr. Mayweather. The revenue earned from the agreement will initially be shared 50% to the Company and 50% to Mr. Mayweather, until the Company has recovered the advanced funding. Revenues earned subsequent the Company’s cost recovery will be shared 75% to Mr. Mayweather and 25% to the Company. The term of the agreement is from July 31, 2019 through July 31, 2024, unless extended by the parties. The Company also has an option to extend the Agreement, for an additional five-year term, based on performance. As of December 31, 2019, the Company has not issued the share-based awards and has recorded a shares settled liability of $1,000,000 on the accompanying consolidated balance sheet. The Company recorded an intangible asset of $1,250,000 in connection with Virtual Mayweather. The Company will amortize this intangible asset over a 5-year period. On January 25, 2020, the Company entered into an amended Digital Likeness Development Agreement with Floyd Mayweather (the “Amended Agreement”), which supersedes the Agreement dated July 31, 2019 (see Note 19).

The Company recognized intangible assets during the period ended December 31, 2019 in connection with the Facebank AG Acquisition and the Nexway acquisition. Refer to Note 5 – Acquisition for further information on the Facebank AG Acquisition and the Nexway acquisition.

F-23

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

The table below summarizes the Company’s intangible assets at December 31, 2019 and 2018 (in thousands):

					December 31, 2019
	Useful Lives (Years)		Weighted Average Remaining Life (Years)		Intangible Assets		Intangible Asset Impairment			Accumulated Amortization			Net Balance
Human animation technologies		7		6	$	123,436	$	-		$	(24,646	)	$	98,790
Trademark and trade names		7		6		9,432		(1,686	)		(1,549	)		6,197
Animation and visual effects technologies		7		6		6,016		-			(1,203	)		4,813
Digital asset library		5-7		5.5		7,505		-			(1,251	)		6,254
Intellectual Property		7		6		3,258		(2,430	)		(236	)		592
Customer relationships		11		11		4,482		(4,482	)		-			-
Total					$	154,129	$	(8,598	)	$	(28,885	)	$	116,646

					December 31, 2018
	Useful Lives (Years)		Weighted Average Remaining Life (Years)		Intangible Assets		Accumulated Amortization			Net Balance
Human animation technologies		7		6.6	$	123,436	$	(7,012	)	$	116,424
Trademark and trade names		7		6.6		7,746		(443	)		7,303
Animation and visual effects technologies		7		6.6		6,016		(344	)		5,672
Digital likeness development		7		6.6		6,255		(357	)		5,898
Intellectual Property		7		6.6		828		(47	)		781
Total					$	144,281	$	(8,203	)	$	136,078

The intangible assets are being amortized over their respective original useful lives, which range from 5 to 11 years. The Company recorded amortization expense related to the above intangible assets of approximately $21.0 million and $8.2 million for the years ended December 31, 2019 and 2018, respectively. As noted above in Footnote 5, the Company has fully impaired the intangible assets acquired in Nexway AG and Facebank AG business combinations as of December 31, 2019. There were no impairment charges recorded during the year ended December 31, 2018.

The estimated future amortization expense associated with intangible assets is as follows (in thousands):

	Future Amortization
2020	$	20,862
2021		20,862
2022		20,862
2023		20,862
2024		20,790
Thereafter		12,408
Total	$	116,646

F-24

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Goodwill

The following table is a summary of the changes to goodwill for the year ended December 31, 2019 (in thousands) (As Restated):

Balance - January 1, 2018	$	-

Evolution AI Acquisition		149,975
Balance - December 31, 2018		149,975
Nexway Acquisition		51,168
Facebank AG Acquisition		28,541
Measurement period adjustment for EAI acquisition		(1,921	)
Balance - December 31, 2019	$	227,763

* The Company recorded a measurement period adjustment related to its EAI acquisition to reduce acquisition date accrued expenses by $1.9 million, which resulted in a corresponding decrease to goodwill.

Note 8 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses as of December 31, 2019 and 2018 consist of the following (in thousands):

	December 31, 2019		December 31, 2018
Suppliers	$	37,508	$	-
Payroll taxes (in arrears)		1,308		1,308
Accrued compensation		3,649		2,453
Legal and professional fees		3,936		1,952
Accrued litigation loss		524		524
Taxes (including value added)		5,953		-
Other		3,897		2,098
Total	$	56,775	$	8,335

Note 9 - Related Parties

Amounts owed to related parties as of December 31, 2019 and 2018 consist of the following (in thousands):

	December 31, 2019		December 31, 2018
Alexander Bafer, Executive Chairman	$	20	$	25
John Textor, Chief Executive Officer and affiliated companies		592		304
Other		53		69
Total	$	665	$	398

Our Chairman, Mr. Bafer, advanced an unsecured, non-interest-bearing loan to the Company which is payable on demand. The amounts due to John Textor, Chief Executive Officer, represents an unpaid compensation liability assumed in the acquisition of EAI. The amounts due to other related parties also represent financing obligations assumed in the acquisition of EAI.

During the year ended December 31, 2019, the Company received approximately $423,000 from related parties, including a $300,000 advance from FaceBank, Inc., a development stage company controlled by Mr. Textor, $56,000 from Mr. Bafer, $37,000 from Mr. Textor and $30,000 from other related parties. During the year ended December 31, 2019, the Company paid approximately $156,000 to related parties, including $56,000 to Mr. Bafer, $49,000 to Mr. Textor and $51,000 to other related parties.

F-25

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Notes Payable - Related Parties

On August 8, 2018, the Company assumed a $172,000 note payable due to a relative of the CEO. The note has three-month roll-over provision and different maturity and repayment amounts if not fully paid by its due date and bears interest at 18% per annum. The Company has accrued default interest for additional liability in excess of the principal amount. The note is currently in default. Accrued interest as of December 31, 2019 and 2018 related to this note was $85,000 and $45,000, respectively.

On May 22, 2019, the Company issued a non-convertible promissory note to replace its convertible promissory note, dated October 12, 2015, with its Chairman, Mr. Bafer. The note has a principal balance of $264,365, accrues interest at a rate of 8% per annum and matured on August 31, 2019. During the year ended December 31, 2019, Mr. Bafer was repaid $258,850 of the principal balance and approximately $46,160 of interest. As part of this transaction, the Company and Mr. Bafer agreed to transfer approx. $124,000 from his note balance to accrued payroll.

Note 10 - Note Payable

The Company has recorded, through the accounting consolidation of EAI, a $2.7 million note payable bearing interest at the rate of 10% per annum that was due on October 1, 2018. The cumulative accrued interest on the note amounts to $1.3 million. The note is currently in a default condition due to non-payment of principal and interest. The note relates to the acquisition of technology from parties who, as a result of the acquisition of EAI, own 15,000,000 shares of the Company’s common stock (after the conversion of 1,000,0000 of Series X Convertible Preferred Stock during the year ended December 31, 2019). Such holders have agreed not to declare the note in default, and to forbear from exercising remedies which would otherwise be available in the event of a default, while the note continues to accrue interest. The Company is currently in negotiation with such holders to resolve the matter.

As part of the acquisitions in 2019 of Facebank AG and Nexway AG, the Company assumed the following notes payable:

In March 2019, Stock Access Holdings SAS (“SAH”), issued EUR 20 million in bonds with an interest rate of 7% per annum and a maturity date of March 31, 2024. Interest on the notes is payable semiannually on September 30 and March 31. The bonds are secured by 100% of issued and outstanding share of SAH and issued pari passu with all other existing convertible obligations of the issuer. The holders of the bonds, as a class, may restrict the ability of the issuer to enter into additional note or bond obligations. In addition, the holders have the right to put EUR 2 million back to the Company on March 1, 2020 and further EUR 3 million on March 2021. Upon a change of control, as defined in the bond agreements, EUR 5 million is able to be put back to the Company within 90 days of the change of control. As of December 31, 2019, the outstanding balance of these bonds was $18.76 million.

In April 2019, Highlight Finance Corp. (“HFC”) issued EUR 15 million in bonds with an interest rate of 4% per annum and a maturity date of April 2024. Interest on the notes is payable semiannually on April 30 and October 31. The bonds are unsecured and are issued pari passu with all other existing unsecured obligations of the issuer. In the event of the change of control of the issuer, as defined in the agreement, the holders of the bonds may put back to HFC for full repayment within 5 business days of the change of control. As of December 31, 2019, the outstanding balance of these bonds was $14.53 million.

In September 2018, Nexway SAS issued EUR 7.5 million in bonds with an interest rate of 6.5% per annum and a maturity date of September 2023. Interest is payable semiannually on March 10 and September 10. The bonds are secured by 100% of the issued and outstanding shares of Nexway SAS and are guaranteed by Nexway AG. The holders of the bonds, as a class, may restrict the ability of the issuer to enter into additional note or bond obligations. The holders of the bonds may present the bonds for early repayment beginning in July 2021 at a 97% redemption rate. Nexway SAS may repay the bonds at any time at par given 90 days’ notice to the bond holders. As of December 31, 2019, the outstanding balance of these bonds was $8.61 million.

In February 2020, the Company refinanced the bonds noted above from its subsidiaries in Facebank AG and Nexway AG – see Footnote 19.

In 2015, Nexway SAS entered into a note for EUR 1.2 million, with an interest rate of 1.9% per annum and 30 fixed quarterly principal of EUR 42,857 and interest payments. As of December 31, 2019, the balance on the note was EUR 300,000.

Note 11 - Fair Value Measurements

The Company holds investments in equity securities and limited partnership interests, which are accounted for at fair value and classified within financial assets at fair value on the consolidated balance sheet, with changes in fair value recognized as investment gain/ loss in the consolidated statements of operations. Additionally, the Company’s convertible notes, derivatives and warrants were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income/expense in the consolidated statements of operations.

F-26

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

	Fair Value measured at December 31, 2019
	Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Derivative liability - convertible notes	$	-	$	-	$	1,203
Profits interest		-		-		1,971
Embedded put option		-		-		376
Warrant Liability		-		-		24
Total Financial Liabilities at Fair Value	$	-	$	-	$	3,574

	Fair Value measured at December 31, 2018
	Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Derivative liability - convertible notes	$	-	$	-	$	469
Derivative liability - related party convertible notes		-		-		549
Total Derivative Liability	$	-	$	-	$	1,018
Warrant Liability		-		-		4,528
Total Fair Value	$	-	$	-	$	5,546

Derivative Financial Instruments

The following table presents changes in Level 3 liabilities measured at fair value (in thousands) for the year ended December 31, 2019. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.

	Derivative - Convertible Notes			Warrants (assumed from subsidiary)			Profits Interests		Embedded Put Option
Fair value at December 31, 2018	$	1,018		$	4,528		$	-	$	-
Change in fair value		(678	)		(4,504	)		198		(137	)
Additions		863			-			1,773		589
Redemptions		-			-			-		(76	)
Fair value at December 31, 2019	$	1,203		$	24		$	1,971	$	376

The Company assumed liability for a warrant issued by PEC that expires on January 28, 2023. The fair value of the warrant liability, totaled $24,000 on December 31, 2019 and $4.5 million on December 31, 2018, resulting in a change in fair value of $4.5 million that is reported as a component of other income/(expense) in the consolidated statement of operations for the year ended December 31, 2019.

Warrant Liability - The Company used a Monte Carlo simulation model to estimate the fair value of the warrant liability with the following assumptions at December 31, 2019 and 2018:

	December 31, 2019			December 31, 2018
Exercise price	$	0.75		$	0.75
Stock price - subsidiary	$	0.02		$	0.22
Discount applied		0	%		50	%
Fair value of stock price	$	0.00		$	0.09
Risk free rate		1.62	%		2.49	%
Contractual term (years)		3.08			4.08
Expected dividend yield		0	%		0	%
Expected volatility		83.7	%		86.5	%
Number of subsidiary warrants outstanding		48,904,037			48,904,037

F-27

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

In arriving at the fair value of stock price, in 2019 no discount was applied to the trading price of the PEC stock, as a result of illiquidity in the volumes being traded on the OTC markets. Risk-free interest rate was based on rates established by the Federal Reserve Bank. The volatility rate was based on stock prices of comparable companies.

Profits Interest - The fair value of the profits interest was determined using an expected cash flow analysis.

Embedded Put Option - The Series D Convertible Preferred Stock contains a contingent put option and, accordingly, the Company considered it to be a liability and accounted for it at fair value using Level 3 inputs. The Company determined the fair value of this liability using the Monte Carlo simulation model with the following inputs:

	December 31, 2019
Stock price	$	8.91 – $9.03
Fixed conversion price	$	0.25
Risk free rate		1.6	%
Contractual term (years)		1.2 - 1.5
Expected dividend yield		8.0	%
Expected volatility		89.2% - 90.4	%

Note 12 - Convertible Notes Payable and Convertible Notes Payable to Related Parties

At December 31, 2019 and 2018, the carrying amounts of the convertible notes including the remaining principal balance plus the fair value of the derivative liabilities associated with the variable share settlement feature and unamortized discounts is as follows (in thousands):

	Issuance Date		Stated Interest Rate			Maturity Date		Principal		Unamortized Discount			Variable Share Settlement Feature at Fair Value		Carrying amount
Convertible notes
Adar Bays - Alef (4)		11/28/2018		10	%		11/28/2019		275		(159	)		379		495
JSJ Investments (7)		12/6/2019		10	%		12/6/2020		255		(238	)		422		439
Eagle Equities (8)		12/12/2019		12	%		12/12/2020		210		(199	)		285		296
BHP Capital (9)		12/20/2019		10	%		12/20/2020		125		(114	)		117		128

Balance at December 31, 2019								$	865	$	(710	)	$	1,203	$	1,358

	Issuance Date		Stated Interest Rate			Maturity Date		Principal		Unamortized Discount			Variable Share Settlement Feature at Fair Value		Carrying Amount
Convertible notes

Power Up (1*)		8/24/18		8	%		8/24/19	$	203	$	(131	)	$	152	$	224
Birchwood Capital (2)		11/6/18		10	%		5/6/19		50		(35	)		-		15
Power Up (3)		11/26/18		8	%		11/26/19		128		(115	)		96		109
Adar Bays - Alef (4)		11/28/18		10	%		11/28/19		193		(175	)		221		239
Total								$	574	$	(456	)	$	469	$	587

Convertible notes- Related Parties

Chairman (5) in default		10/12/15		22	%		8/1/17	$	265		-		$	549		814
Shareholder (6) in default		12/28/16		3	%		3/24/17		50		-			-		50
Total								$	315		-		$	549	$	864

Balance at December 31, 2018								$	889	$	(456	)	$	1,018	$	1,451

* The (#) references the notes described below

F-28

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

The derivative liability results from the variable share settlement provision featured within the convertible notes issued by the Company. The fair value of the derivative liabilities was estimated using the Monte Carlo simulation model on the dates that the notes were issued and were subsequently revalued at December 31, 2019 and 2018, with the following weighted average assumptions:

	December 31, 2019			December 31, 2018

Stock Price	$	8.91 - 10.15		$	6.75
Risk Free Interest Rate		1.52 1.60	%		2.61	%
Expected life (years)		0.58 – 1.00			0.73
Expected dividend yield		0	%		0	%
Expected volatility		90.0 – 95.3	%		92.8	%

Fair Value - Note Variable Share Settlement Feature (in thousands)	$	1,203		$	1,018

(1)	On February 20, 2019, the Company settled the August 24, 2018, convertible promissory note issued to Power Up, repaying the principal balance of $202,500 and $66,369 for interest and penalties.

(2)	On November 6, 2018, the Company issued a convertible promissory note to Birchwood Capital, LLC in the amount of $50,000. The note was due on May 6, 2019 and bears interest at 10% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of $3.00 per share. The Company recorded a beneficial conversion feature discount of $50,000 on this note as of December 31, 2018. The note is currently past due. Accrued interest was approximately $4,500 and $1,000 as of September 30, 2019 and December 31, 2018, respectively. On October 11, 2019, the principal balance of $50,000 was converted into 16,666 shares of the Company’s common stock at share price of $3.00. The Company and Birchwood Capital, LLC, have agreed that this conversion fully satisfies the outstanding principal and accrued interest related to this note. During the year ended December 31, 2019, the Company reversed accrued interest of approximately $4,500.

(3)	On November 26, 2018, the Company issued a convertible promissory note to Power Up Lending Group, LLC in the amount of $128,000. The note is due on November 26, 2019 and bears interest at 8% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 61% multiplied by the average for the three lowest traded prices during the previous ten (10) day trading period ending on the latest complete trading day prior to the conversion date. On April 25, 2019, the Company settled the note, repaying the principal balance of $128,000 and $39,000 for interest and penalties.

(4)

On July 30, 2019, the Company issued a convertible promissory note to Adar Alef, LLC in the amount of $275,000. The note accrues interest at a rate of 12% per annum and matures on July 30, 2020. The note is not convertible until the six month anniversary of the note, at which time if the note has not already been repaid by the Company, the note holder shall be entitled to convert all or part of the note into shares of the Company’s common stock, at a price per share equal to 53% of the lowest trading price of the common stock for the twenty prior trading days upon which the conversion notice is received by the Company.

On November 28, 2018, the Company issued a convertible promissory note to Adar Bays - Alef, LLC in the amount of $192,500. The note is due on November 28, 2019 and bears interest at 6% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 53% multiplied by the lowest trading price during the previous twenty (20) day trading period ending on the latest complete trading day prior to the conversion date. On May 20, 2019, the Company settled the note, repaying the principal balance of $192,500 and $47,500 for interest and penalties.

F-29

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

(7)	On December 6, 2019, the Company issued a convertible promissory note to JSJ Investments with a principal balance of $255,000. The Company received net proceeds of $250,000. The note matures on December 6, 2020 and bears interest at 10% per annum. The Company may prepay this note and unpaid interest on or prior to July 3, 2020. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 47% multiplied by the lowest trading price during the previous twenty (20) day trading period ending on the latest complete trading day prior to the conversion date.

(8)	On December 12, 2019, the Company issued a convertible promissory note to Eagle Equities, LLC with a principal balance of $210,000. The Company received net proceeds of $200,000. The note matures on December 12, 2020 and bears interest at 12% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock, at any time after the six month anniversary of the note, at a rate of 53% multiplied by the lowest trading price during the previous twenty (20) day trading period ending on the latest complete trading day prior to the conversion date.

(9)	On December 20, 2019, the Company issued a convertible promissory note to BHP Capital NY Inc. with a principal balance of $125,000. The Company received net proceeds of $122,500. The note matures on December 20, 2020 and bears interest at 10% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 61% multiplied by the lowest trading price during the previous fifteen (15) day trading period ending on the latest complete trading day prior to the conversion date. In connection with the promissory note, the Company issued 5,000 shares of its restricted common stock with a fair value of approximately $47,000. The Company will have the option to buy back the shares 180 days from the issue date, for a one-time payment of $8.00 per share.

Related Party Convertible Notes

(5)	In July 2015, the Company issued convertible promissory notes to Mr. Bafer, Chairman, in exchange for the cancellation of previously issued promissory notes in the aggregate of $530,000 and accrued interest of $13,000 for a total of $543,000. The notes are unsecured, bear interest of 5% per annum, matured on October 1, 2015 and are convertible into shares of common stock at a conversion price equal to the lowest closing stock price during the 20 trading days prior to conversion with a 50% discount.

	In October 2015, the notes matured and became past due. As a result, the stated interest of 5% increased to 22% pursuant to the term of the notes. In July 2016, the Company and Mr. Bafer agreed to extend the maturity date of these notes to August 1, 2017 to cure the default. There were no other terms changed and no additional consideration was paid. On May 22, 2019, the Company issued a non-convertible promissory note to replace the convertible promissory notes (See Note 9).

(6)	On December 28, 2016, the Company issued an unsecured convertible promissory note in the principal amount of $50,000 to a shareholder. The note bears interest at 3% per annum, was due on March 24, 2017, and is convertible into shares of common stock at a conversion price of $4,000 per share. The promissory note was converted into 250,000 shares of common stock.

F-30

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Note 13 – Temporary Equity

Series D Convertible Preferred Stock

The following table summarizes the Company’s Series D Convertible Preferred Stock activities for the year ended December 31, 2019 (dollars in thousands):

	Series D Preferred Stock
	Shares			Amount
Total temporary equity as of December 31, 2018		-		$	-
Issuance of Series D convertible preferred stock for cash		709,000			709
Offering cost related to issuance of Series D convertible preferred stock		-			(9	)
Deemed dividends related to immediate accretion of offering cost		-			9
Accrued Series D preferred stock dividends		5,839			6
Bifurcated redemption feature of Series D convertible preferred stock		-			(589	)
Deemed dividends related to immediate accretion of bifurcated redemption feature of Series D convertible preferred stock		-			589
Redemption of Series D preferred stock		(253,000	)		(253	)
Total temporary equity as of December 31, 2019		461,839		$	462

During the year ended December 31, 2019, the Company entered into the following stock purchase agreements:

	●	On July 15, 2019, the Company issued 253,000 shares of its Series D Preferred Stock, for proceeds of $253,000;
	●	On September 6, 2019, the Company issued 203,000 shares of its Series D Preferred Stock, for proceeds of $203,000; and
	●	On December 19, 2019, the Company issued 253,000 shares of its Series D Preferred Stock, for proceeds of $253,000.

Holders of shares of the Series D Preferred Stock are entitled to receive, cumulative cash dividends at the rate of 8% on $1.00 per share of the Series D Preferred Stock per annum (equivalent to $0.08 per annum per share). The dividends are payable solely upon redemption, liquidation or conversion.

The Series D Preferred Stock is being classified as temporary equity because it has redemption features that are outside of the Company’s control upon certain triggering events, such as a Market Event. A “Market Event” is defined as any trading day during the period which shares of the Series D Preferred Stock are issued and outstanding, where the trading price for such date is less than $0.35. In the event of a Market Event, the Series D Preferred Stock shall be subject to mandatory redemption and the stated value shall immediately be increased to $1.29 per share of Series D Preferred Stock. The Market Event is considered to be outside the control of the Company, resulting in classification of the Series D Preferred Stock as temporary equity.

The initial discounted carrying value resulted in recognition of a bifurcated redemption feature of $589,000, further reducing the initial carrying value of the Series D Shares. The discount to the aggregate stated value of the Series A Shares, resulting from recognition of the bifurcated redemption feature was immediately accreted as a reduction of additional paid-in capital and an increase in the carrying value of the Series D Shares. The accretion is presented in the Consolidated Statement of Operations as a deemed dividend, increasing net loss to arrive at net loss attributable to common stockholders.

On December 19, 2019, the Company redeemed the 253,000 shares of its Series D preferred stock issued on July 15, 2019 as follows (amounts in thousands except share and per share values):

Series D preferred stock issued		253,000
Per share value	$	1.00
	$	253
Accrued dividends	$	9
	$	262
Redemption percentage	$	1.29
Total	$	337

The Company recorded approximately $14,000 of accrued dividends as of December 31, 2019.

F-31

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Note 14- Stockholders’ Equity/ (Deficit)

Authorized Share Capital

The Company amended its articles of incorporation on January 9, 2019 to increase the authorized share capital to 400 million shares of common stock.

Series A Preferred Shares

The Company had no shares, par value $0.0001, of series A Preferred Shares, issued and outstanding at December 31, 2019 and 2018. Series A Preferred shares have no rights to receive dividends or any distributions, but each series A Preferred share entitles the holder to 100 votes relative to each share of common stock. Series A Preferred shares have no conversion rights.

Series B Convertible Preferred Shares

The Company had no shares, par value $0.0001, of series B Convertible Preferred Shares, issued and outstanding at December 31, 2019 and 2018. Series B Convertible Preferred shares have no rights to receive dividends or any distributions; however, each series B Convertible Preferred share entitles the holder to 1 vote relative to each share of common stock. Each series B Convertible Preferred share is convertible into 2 shares of common stock. Series B Convertible Preferred shares are also exempt from any adjustment to the conversion ratio in the event of a split or reverse stock split of the common stock.

Series C Convertible Preferred Shares

The Company had no shares, par value $0.0001, of series C Convertible Preferred Shares, issued and outstanding at December 31, 2019 and 2018. Series C Convertible Preferred shares have no rights to receive dividends or any distributions; however, each series C Convertible Preferred share entitles the holder to 1 vote relative to each share of common stock. Each series C Convertible Preferred share is convertible into 2 shares of common stock. Series C Convertible Preferred shares are also exempt from any adjustment to the conversion ratio in the event of a split or reverse stock split of the common stock.

Series X Convertible Preferred Shares

The Company had no shares, par value $0.0001, of Series X Convertible Preferred Shares, issued and outstanding at December 31, 2019 and 2018, respectively. Series X Convertible Preferred shares have the rights to receive dividends or any distributions on a “as-converted basis” and also each Series X Convertible Preferred stockholder held the right to 1 vote relative to each stockholder of common stock, on a “as-converted basis”. Each Series X Convertible Preferred share is convertible into 15 shares of common stock. On February 28, 2019, the 1,000,000 Series X Preferred Shares automatically converted into 15,000,000 shares of common stock.

Common Stock Activity

Issuance of Common Stock for Cash

In March 2019, the Company raised $1.1 million in a private placement transaction by issuing 93,910 shares of its common stock for $11.28 per share to a Hong Kong-based family office group. The Company contemporaneously issued warrants to purchase an additional 200,000 shares of common stock to the investor in this transaction. The warrants feature an exercise price of $11.31 per share, and may be exercised at any time prior to March 31, 2020. The warrants were determined to be equity instruments and are therefore classified within stockholders’ equity in accordance with ASC 815.

The Company raised an additional $2.5 million through issuances of an aggregate of 1,028,497 shares of its common stock in private placement transactions during the year ended December 31, 2019 to several other investors.

During the year ended December 31, 2018, the Company issued 623,578 shares of common stock for proceeds of $3.2 million

Issuance of Common Stock to Settle a Lease Dispute

During the year ended December 31, 2019, the Company issued 18,935 shares of its common stock, at a fair value of approximately $0.1 million or $6.90 per share, to settle a lease dispute.

Issuance of Common Stock for Acquisitions

During the year ended December 31, 2019, the Company issued 2,500,000 shares of its common stock, at a fair value of approximately $19.95 million, or approximately $7.98 per share, related to its acquisition of Facebank AG and Nexway.

F-32

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

During the year ended December 31, 2019, the Company issued 2,503,333 shares of its common stock in exchange for 40,991,276 shares of its subsidiary PEC. The interests exchange in PEC were previously recorded within noncontrolling interests and the transaction was accounted for as a reduction of approximately $4.0 million of noncontrolling interests for the carrying value of those noncontrolling interests at the date of exchange with an offsetting increase in additional paid-in capital.

Issuance of Common Stock for Services Rendered

During the year ended December 31, 2019, the Company issued 15,009 shares of its common stock at a fair value of approximately $0.1 million or $6.72 per share for services rendered.

During the year ended December 31, 2019, the Company issued 20,000 shares of its common stock at a fair value of approximately $200,000 or $10.00 per share in connection with a consulting agreement.

Issuance of Common Stock for Cancellation of a Consulting Agreement

During the year ended December 31, 2019, the Company issued 2,000 shares of its common stock at a fair value of approximately $13,000 or $6.59 per share in connection with the cancellation of a consulting agreement.

Issuance of Common Stock to Satisfy Investment Obligation

On October 24, 2019, the Company satisfied its obligations under its investment agreement with Panda Productions (HK) Limited by issuing 175,000 common shares, in lieu of its obligation to fund an additional $1.0 million in cash. On October 24, 2019, the fair value of the 175,000 shares was approximately $1.9 million or $10.96 per share, and the additional $0.9 million was recorded as a loss on investment during the year ended December 31, 2019.

Issuance of Common Stock and Options for Employee Services

During the year ended December 31, 2018, the Company issued an aggregate of 407,943 shares of fully vested common stock at an aggregate fair value of $3.3 million to various non-employee service providers. On February 1, 2018, the Company granted options to purchase 16,667 shares of common stock to Alex Bafer, the Company’s Chief Executive Officer from February 1, 2018 until August 8, 2018. The options have a 10-year term and an exercise price of $28.20. The fair value of the options on the grant date was $470,000.

Issuance of Common Stock for Commitment Fee

During the year ended December 31, 2018 pursuant to securities purchase agreements with Auctus Fund, the Company issued 6,667 shares to Auctus as a commitment fee valued at $118,000.

Issuance of Common Stock upon Conversion of Note Payable

During the year ended December 31, 2019, the Company issued 16,666 shares of its common stock with a fair value of $50,000, or $3.00 per share, upon the contractual conversion of principal of a convertible note payable.

During the year ended December 31, 2018, the Company issued 4,334 shares of its common stock with a fair value of $18,000 upon the contractual conversion of principal of a convertible note payable.

Issuance of Common Stock for Cashless Exercise of Warrants

During the year ended December 31, 2018, the Company issued 15,606 shares of its common stock upon the cashless exercise of warrants. The Company intended to issue 5,114 shares related to this cashless exercise, however, the actual shares issued totaled 15,606. The Company recorded a loss of approximately $94,000 on the additional 10,492 shares which were issued erroneously. The 10,492 shares were canceled during the year ending December 31, 2019.

Issuance of Common Stock Upon Exchange of Series A Preferred Stock

During the year ended December 31, 2018 the Company issued 3,633,333 shares of its common stock upon the exchange of 5,000,000 shares of Series A Preferred Stock pursuant to the terms of the certificate of designation of the Series A Preferred Stock. The quantity of common stock issued was determined by reference to the preferential voting and financial participation rights of the Series A preferred Stockholder.

F-33

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Issuance of Common Stock Upon Conversion of Series B Preferred Stock

During the year ended December 31, 2018 the Company issued 66,667 shares of common stock upon the contractual conversion of 1,000,000 shares of Series B Convertible Preferred Stock pursuant to the terms of the certificate of designation of the Series B Convertible Preferred Stock.

Issuance of Common Stock Upon Conversion of Series C Convertible Preferred Stock

During the year ended December 31, 2018 the Company issued 94,966 shares of common stock upon the contractual conversion of 1,424,491 shares of Series C Convertible Preferred Stock pursuant to the terms of the certificate of designation of the Series C Convertible Preferred Stock.

Issuance of Series X Convertible Preferred Stock for Business Acquisition

During the year ended December 31, 2018 the Company issued 1,000,000 shares of Series X Convertible Preferred stock to the selling stockholders as consideration in the acquisition of EAI. The series X Convertible Preferred shares are convertible into an aggregate of 15,000,000 shares of common stock.

Issuance of Common Stock for Purchase of Asset

In November 2018, the Company acquired Namegames LLC pursuant to an agreement dated February 1, 2018 and issued 23,360 shares of common stock with an aggregate issuance date fair value of $658,000 (Note 5).

Equity Compensation Plan Information

The Company has adopted a 2014 Equity Incentive Stock Plan (the “Plan”). The Plan provides for the issuance of up to 166,667 incentive stock options and nonqualified stock options to the Company’s employees, officers, directors, and certain consultants. The Plan is administered by the Company’s Board, and has a term of 10 years.

Options

The fair value of the Company’s common stock was based upon the publicly quoted price on the date that the final approval of the awards was obtained. The Company does not expect to pay dividends in the foreseeable future so therefore the expected dividend yield is 0%. The expected term for stock options granted with service conditions represents the average period the stock options are expected to remain outstanding and is based on 10 years. The Company obtained the risk-free interest rate from publicly available data published by the Federal Reserve. The Company uses a methodology in estimating its volatility percentage from a computation that was based on a comparison of average volatility rates of similar companies to a computation based on the standard deviation of the Company’s own underlying stock price’s daily logarithmic returns. There were no options granted during the year ended December 31, 2019. The grant date fair value of stock options granted during year ended December 31, 2018 was approximately $470,000. The fair value of options granted during the year ended December 31, 2018 were estimated using the following weighted-average assumptions:

	Year ended December 31, 2018
Exercise price	$	28.20
Expected stock price volatility		222
Risk-free rate of interest		2.78
Term (years)		10.0

F-34

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

A summary of option activity under the Company’s employee stock option plan for years ended December 31, 2018 and 2019 are presented below:

	Number of Shares		Weighted Average Exercise Price		Total Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding as of December 31, 2017		-	$	-	$	-		-
Granted		16,667		28.20		-		9.1
Outstanding as of December 31, 2018		16,667	$	28.20	$	-		9.1
Outstanding as of December 31, 2019		16,667	$	28.20	$	-		8.1

Options vested and exercisable as of December 31, 2019		16,667	$	28.20	$	-		8.1

As of December 31, 2019, there was no unrecognized stock-based compensation expense.

Warrants

A summary of the Company’s outstanding warrants as of December 31, 2019 and 2018 are presented below:

	Number of Warrants			Weighted Average Exercise Price		Total Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding as of December 31, 2017		3,015		$	15.00	$	-		4.7
Exercised		(3,008	)		15.00				-
Outstanding as of December 31, 2018**		7		$	24,000.00	$	-		2.9
Issued		200,000			11.31		-		0.2
Outstanding as of December 31, 2019		200,007		$	12.15	$	-		0.2

Warrants exercisable as of December 31, 2019		200,007		$	12.15	$	-		0.2

** The warrants outstanding as of December 31, 2018 had an original exercise price of $0.80. In January 2017, the Company executed a 1-for-10,000 reverse split, that resulted in an exercise price of $800. Following the 1 for 30 reverse split in February 2019, the exercise price is currently $24,000 per share.

During the year ended December 31, 2018, 3,008 warrants were converted to 15,606 shares in a cashless exercise. The Company recorded $94,000 loss on the excess shares issued for this transaction.

Note 15 - Leases

On February 14, 2019, the Company entered into a lease for new offices in Jupiter, Florida. The lease has an initial term of 18 months commencing March 1, 2019 until August 31, 2020 with a base annual rent of $89,437. The Company has an option to extend the lease for another year until August 31, 2021 for an annual rent of $94,884 and a second option for a further annual extension until August 31, 2022 for an annual rent of $97,730. The Company recorded the lease obligations in accordance with ASC 842.

As part of the Nexway acquisition on September 19, 2019, the Company recognized right of use assets of $3.6 million and lease liabilities of $3.6 million associated with operating lease obtained in the acquisition. At December 31, 2019, the Company had operating lease liabilities of $3.5 million and right of use assets of $3.5 million, respectively, recorded in the accompanying consolidated balance sheet.

F-35

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

The following summarizes quantitative information about the Company’s operating leases (amounts in thousands, except lease term and discount rate):

	For the Year Ended December 31, 2019
Operating leases
Operating lease cost	$	259
Variable lease cost		56
Operating lease expense		315
Short-term lease rent expense		-
Total rent expense	$	315

Operating cash flows from operating leases	$	281
Right-of-use assets exchanged for operating lease liabilities	$	3,719
Weighted-average remaining lease term – operating leases		7.8
Weighted-average discount rate – operating leases		8.0	%

Maturities of the Company’s operating leases, are as follows (amounts in thousands):

Year Ended December 31, 2020	$	862
Year Ended December 31, 2021		769
Year Ended December 31, 2022		465
Year Ended December 31, 2023		465
Thereafter		2,326
Total		4,887
Less present value discount		(1,367	)
Operating lease liabilities	$	3,520

Note 16 - Commitments and Contingencies

Litigation

The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Legal expenses associated with any contingency are expensed as incurred. In connection with closed litigation on two separate matters that resulted in judgments against PEC, a majority interest of which was subsequently purchased by the Company, we have accrued $524,000 which remains on the balance sheet as a liability at December 31, 2019 and 2018. The Company, on behalf of its subsidiary, is in settlement discussions with the parties.

On August 27, 2018 plaintiff, Scott Meide, filed a pro se (unrepresented by counsel) complaint in the United States District Court for the Middle District of Florida, Jacksonville Division, against PEC, now a subsidiary of the Company, naming its former officers among others as defendants. The Company’s position is that the pro se Complaint is defamatory, without merit in fact or law and represents an extortive attempt to coerce payment under threat of reputational harm. The Company’s subsidiaries and affiliates filed a motion to dismiss on September 25, 2018. On July 24, 2019, all counts of the complaint were dismissed in favor of the Company’s subsidiaries and affiliates. Mr. Meide was afforded the opportunity to file an amended complaint for a portion of his claims, and such amendment was filed on September 24, 2019. On October 6, 2019, Judge Marcia Morales Howard ordered Mr. Meide’s amended complaint stricken, describing the filing as insufficient and having failed to identify facts necessary to support its allegations, and offering Mr. Meide “one final opportunity to properly state his claims” with an amended complaint. Mr. Meide’s third attempt to submit a sufficient complaint was filed on November 1, 2019. The Company’s subsidiaries and affiliates plan to reaffirm their motions to dismiss and the Company believes Mr. Meide’s final amended complaint will also be dismissed. The Company plans to the ask the court for an award of sanctions and attorney fees in connection with Mr. Meide’s filing of a frivolous lawsuit.

On June 25, 2018, prior to our acquisition of a majority interest in PEC, an office space vendor filed a complaint against such company (Case#: CIV1802192) in the Superior Court of the State of California, Marin County asserting breach of contract, breach of implied covenant of good faith and fair dealing, intentional misrepresentation, and negligent misrepresentation. The Company’s subsidiary then responded with affirmative defenses on September 27, 2018. The Company reached an out of court settlement on December 19, 2018 with the vendor and the case was dismissed on January 24, 2019. During the year ended December 31, 2019, the Company issued 18,935 shares of its common stock, at a fair value of approximately $0.1 million or $6.90 per share, in connection with this lease settlement.

F-36

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Note 17 – Income Tax Provision

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date. As of December 31, 2019 and 2018, the Company recorded a full valuation allowance against its deferred tax assets since it is more likely than not that the future tax benefit on such temporary differences will not be realized.

The Company recognizes the tax benefit from an uncertain income tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement by examining taxing authorities. The Company has open tax years going back to 2014 (or the tax year ended December 31, 2013 if the Company were to utilize its NOLs) which will be subject to audit by federal and state authorities upon filing.

The Company’s policy is to recognize interest and penalties accrued on uncertain income tax positions in income tax or administrative expense in the Company’s consolidated statements of operations.

The components of our deferred tax assets are as follows ($ in thousands).

	December 31,
	2019			2018
Deferred Tax Assets:
Net operating losses	$	-		$	1,042
Accrued compensation		-			205
Depreciation and amortization		-			13
Other		-			5
Total deferred tax assets		-			1,265
Less: Valuation allowance		-			(1,265	)
Net Deferred Tax Assets:	$	-		$	-

Deferred Tax Liabilities:
Intangible assets	$	(30,879	)	$	(35,000	)
Net Deferred Tax Liability	$	(30,879	)	$	(35,000	)

F-37

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

The benefit of income taxes for the years ended December 31, 2019 and 2018 consist of the following ($ in thousands):

	For the years ended December 31,
	2019			2018
U.S. federal
Current	$	-		$	-
Deferred		(4,302	)		(1,725	)
State and local
Current		-			-
Deferred		(970	)		(389	)
Valuation allowance		-			-
Income Tax Provision (Benefit)	$	(5,272	)	$	(2,114	)

A reconciliation of the statutory federal rate to the Company’s effective tax rate is as follows:

	December 31,
	2019			2018

Federal rate		21.00	%		21.00	%
State income taxes, net of federal benefit		4.74	%		4.74	%
Non-controlling interest		(0.82	)%		(4.20	)%
Common stock issued for services		(0.82	)%		(6.35	)%
Change in fair value of derivative, warrant liability and gain on extinguishment of convertible notes		1.16	%		4.39	%
Amortization of debt discount		(0.13	)%		(2.60	)%
Loss on investments		(1.81	)%		-
Other		-	%		(1.26	)%
Change in valuation allowance		(37.15	)%		(29.62	)%
Income Taxes Provision (Benefit)		(13.83	)%		(13.90	)%

The Company files income tax returns in the United States (“Federal”) and Florida (“State”) jurisdictions. The company has been delinquent in filings since December 31, 2014. Therefore, during 2019 the Company wrote-off all its potential net operating loss carryforwards against its full valuation allowance.

The Company has not been under tax examination in any jurisdiction for the years ended December 31, 2019 and 2018.

Note 18 - Employment Agreements

The following are the employment agreements of the Chief Executive Officer, Mr. John Textor, the Chairman of the Board, Mr. Alexander Bafer and the Chief Financial Officer, Mr. Anand Gupta.

Textor Employment Agreement

On August 8, 2018, Mr. Textor was appointed as Chief Executive Officer and Director of the Company. Pursuant to the terms of his at-will Employment Agreement, Mr. Textor reports to the Board of Directors and is entitled to an annual base salary of $500,000 per annum. Mr. Textor is also eligible to receive equity awards, and an annual target bonus payment equal, as a percentage of his base salary, to that received by all other C-suite executives, subject to a minimum bonus of $100,000 per year. If the employment agreement is terminated, either by Mr. Textor or the Company, then the Company shall be liable to pay Mr. Textor an amount equal to his then current base salary in addition to any accrued compensation owed to Mr. Textor until his date of termination. Mr. Textor is subject to non-competition and non-solicitation of employee clauses for a period of 12 months, pursuant to the terms of the Employment Agreement.

F-38

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Bafer Employment Agreement

On August 8, 2018, Mr. Bafer resigned from his previous role as Chief Executive Officer and was appointed as Executive Chairman of the Board of Directors. Pursuant to the terms of his new Employment Agreement as Executive Chairman, Mr. Bafer is entitled to an annual base salary of $500,000 per annum. Mr. Bafer is also eligible to receive equity awards, and an annual target bonus payment equal, as a percentage of his base salary, to that received by all other C-suite executives, subject to a minimum bonus of $100,000 per year. The Company remains liable to pay Mr. Bafer certain past due payments that remain owed to Mr. Bafer until fully paid. Mr. Bafer has 500,000 stock options expiring in 2029, granted under his previous contract on February 1, 2018, that are now fully vested. If his employment agreement is terminated, Mr. Bafer will be entitled to a lump sum payment equal to the then current base salary.

Gupta Employment Agreement

On November 12, 2018, Anand Gupta was appointed as the Chief Financial Officer and Executive Vice President Finance of the Company. Pursuant to the terms of his employment agreement, Mr. Gupta is entitled to compensation as set out below

	(i)	For an initial period of four (4) months, a gross monthly salary of $12,500 (“Initial Monthly Salary”) that will approximately equate to $10,000 per month net of taxes, plus the cost of his temporary accommodation, rental car, per diem, and business class airfare as required for the Executive to individually relocate from India to work at the company’s premises in Florida.
	(ii)	Subsequently, after the initial period and subject to the Company successfully raising at least $10 million in fresh capital, an annual base salary of $400,000.

Mr. Gupta is also eligible to receive equity awards, and an annual target bonus payment equal, as a percentage of his base salary, to that received by all other C-suite executives. If the employment agreement is terminated, either by Mr. Gupta or the Company, then the Company shall be liable to pay Mr. Gupta an amount equal to his prevailing annual base salary in addition to any accrued compensation owed to Mr. Gupta until his date of termination. Mr. Gupta is subject to non-competition and non-solicitation clauses pursuant to the terms of the Employment Agreement.

On August 8, 2019, Mr. Gupta resigned from his positions as the Chief Financial Officer and Executive Vice President of Finance of the Company. Mr. Gupta’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

Note 19 – Subsequent Events

Digital Likeness Development Agreement

On January 25, 2020, the Company entered into an amended Digital Likeness Development Agreement with Floyd Mayweather (the “Amended Agreement”), which supersedes the Agreement dated July 31, 2019 (see Note 7). All terms of the Agreement remain the same except for the following:

	●	The Amended Agreement term is from October 22, 2019 through October 22, 2024, unless extended by the parties.
	●	In place of the share-based awards with an approximate fair value of $1.0 million, the Company granted options to purchase 280,000 shares of the Company’s common stock. The options have a five year term and expire on October 21, 2024.

Refinance of Nexway AG Debt

On February 17, 2020, FBNK Finance SarL (“the Issuer”) a Luxembourg private limited liability company, a 100% owned subsidiary of the Company, issued EUR 50,000,000 of bonds. There were 5,000 notes with a nominal value EUR 10,000 per note. The bonds were issued at par with 100% redemption price. The maturity date of the bonds is February 15, 2023 and have a 4.5% annual fixed rate of interest. Interest is payable semi-annually on August 15 and February 15^th. The majority of the proceeds was used for the redemption of the bonds issued by SAH, HFC and Nexway SAS, affiliates of the Issuer. The bonds are unconditional and unsubordinated obligations of the Issuer.

Common Stock

On February 20, 2020, the Company issued 300,000 shares of its common stock to an officer of the Company at a fair value of $2.7 million, or $9.00 per share.

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FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Material Definitive Agreement

On April 1, 2020, fuboTV Acquisition Corp., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of FaceBank Group, Inc. (“FaceBank” or the “Company”) merged with and into fuboTV Inc., a Delaware corporation (“fuboTV”) whereby fuboTV continued as the surviving corporation and became a wholly-owned subsidiary of FaceBank pursuant to the terms of the Agreement and Plan of Merger and Reorganization dated as of March 19, 2020 (the “Merger Agreement”) by and among FaceBank, Merger Sub and fuboTV.

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 a newly created class of Series AA Convertible Preferred Stock of FaceBank, par value $0.0001 per share (the “Series AA Preferred Stock”) . The aggregate number of FaceBank common stock equivalent shares to be issued to fuboTV shareholders as a result of the Merger is 32,324,362 shares of Series AA Preferred Stock, each of which is convertible into two (2) shares of FaceBank common stock, par value $0.0001 per share (“FaceBank Common Stock”), for a total of 72,699,824 shares of FaceBank Common Stock on an as-converted basis. In addition, at the Effective Time, each outstanding option to purchase shares of common stock of fuboTV was assumed by FaceBank and converted into an option to acquire FaceBank Common Stock. The aggregate number of options to acquire FaceBank Common Stock as a result of the foregoing is 8,051,098, which are exercisable at a weighted average price of $1.32 per share. Each share of Series AA Preferred Stock is entitled to 0.8 votes per preferred share, and is convertible into two (2) shares of FaceBank Common Stock, only in connection with a bona fide transfer to a third party. The Series AA Preferred stock will benefit from certain protective provisions which, among others, require FaceBank to obtain the approval of a majority of the shares of outstanding Series AA Preferred Stock, voting as a separate class before undertaking certain actions. The effect of the Merger and the terms of the Series AA Preferred Stock is to initially establish an approximate two-thirds majority ownership of FaceBank on a common equivalent basis for the pre-Merger fuboTV shareholders while preserving a majority voting interest for the pre-Merger FaceBank shareholders.

In connection with the closing of the Merger, the Board of Directors of FaceBank approved the establishment of the FaceBank 2020 Equity Incentive Plan (the “Plan”). Pursuant to the Merger Agreement, FaceBank created an incentive option pool of 12,116,646 shares of FaceBank Common Stock under the Plan.

Pursuant to the Merger Agreement the parties agreed that at the Effective Time the Board of Directors of FaceBank would be expanded to seven (7) members comprised of (i) John Textor, (ii) David Gandler, (iii) three (3) members to be selected by FaceBank and (iv) two (2) members to be selected by fuboTV. Pursuant to the Merger Agreement, the parties also agreed that immediately following the Effective Time, the Chief Executive Officer of FaceBank would be David Gandler, and the executive chairman of the Board of Directors of FaceBank would be John Textor. Pursuant to the Merger Agreement, the parties also agreed that, as promptly as reasonably practicable following the closing date of the Merger, FaceBank will create an incentive option pool in an aggregate amount equal to ten percent (10%) of the Fully Diluted FaceBank Shares (as defined in the Merger Agreement) that are outstanding as of the date of the creation of such pool.

In connection with execution and delivery of the Merger Agreement, each of the officers and directors of fuboTV and certain other shareholders of fuboTV, and certain shareholders of the Company executed and delivered lock-up agreements, with a term commencing at the Effective Time and continuing for a period of 180 days after the closing date of the Merger, with respect to the shares of the Company owned by them or to be acquired by them in the Merger, as applicable.

The Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement were unanimously approved by the respective Boards of Directors of the Company and Merger Sub, by the Company, as sole shareholder of Merger Sub and by the Board of Directors of fuboTV and the required shareholders of fuboTV.

Immediately following the execution and delivery of the Merger Agreement, FaceBank and fuboTV entered into a Loan and Security Agreement dated as of March 19, 2020 (the “Signing Date Loan Agreement”) whereby FaceBank advanced to fuboTV a junior secured term loan in the aggregate principal amount of $10,000,000 (the “Signing Date Loan”) on the terms set forth in the Signing Date Loan Agreement. Interest on the Signing Date Loan accrues at a rate of 11% per annum. Interest is payable in arrears on the first business day of each calendar month commencing with the calendar month beginning on April 1, 2020. The maturity date for the Signing Date Loan was May 1, 2020; provided, that if the Merger was consummated on or prior to May 1, 2020, the maturity date would be automatically extended to June 27, 2020. Pursuant to the Signing Date Loan Agreement, fuboTV granted to FaceBank a junior security interest in substantially all of its assets as security for the payment of all obligations under the Signing Date Loan Agreement, the Signing Date Loan and the other transaction documents executed in connection therewith. The Signing Date Loan and the other obligations under the Signing Date Loan Agreement are subordinated to fuboTV’s existing secured indebtedness to AMC Networks Ventures.

F-40

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

On April 1, 2020, Merger Sub merged with and into fuboTV whereby fuboTV continued as the surviving corporation and became a wholly-owned subsidiary of FaceBank pursuant to the terms of the Merger Agreement.

Each share of Series AA Preferred Stock is entitled to 0.8 votes per preferred share, and is convertible into two (2) shares of FaceBank Common Stock, only in connection with a bona fide transfer to a third party. The Series AA Preferred stock will benefit from certain protective provisions which, among others, require FaceBank to obtain the approval of a majority of the shares of outstanding Series AA Preferred Stock, voting as a separate class before undertaking certain actions. The effect of the Merger and the terms of the Series AA Preferred Stock is to initially establish an approximate two-thirds majority ownership of FaceBank on a common equivalent basis for the pre-Merger fuboTV shareholders while preserving a majority voting interest for the pre-Merger FaceBank shareholders.

fuboTV was incorporated in Delaware in 2015. Since its founding in 2015 as a soccer streaming service, fuboTV has evolved into a live TV streaming service for cord-cutters, with top Nielsen-ranked sports, news and entertainment channels.

Preferred Stock Designations

On March 20, 2020, FaceBank amended its Articles of Incorporation to withdraw, cancel and terminate the previously filed (i) Certificate of with respect to 5,000,000 shares of its Series A Preferred Stock, par value $0.0001 per share, (ii) Certificate of Designation with respect to 1,000,000 shares of its Series B Preferred Stock, par value $0.0001 per share, (iii) Certificate of Designation with respect to 41,000,000 shares of its Series S Preferred Stock, par value $0.0001 per share and (iv) Certificate of Designation with respect to 1,000,000 shares of its Series X Preferred Stock, par value $0.0001 per share. Upon the withdrawal, cancelation and termination of such designations, all shares previously designated as Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series X Preferred Stock were returned to the status of authorized but undesignated shares of Preferred Stock, par value $0.0001 per share of FaceBank (the “Termination of Prior Designations Amendment”).

On March 20, 2020, FaceBank filed an amendment to its Articles of Incorporation to designate 35,800,000 of its authorized preferred stock as “Series AA Convertible Preferred Stock” pursuant to a Certificate of Designation of Series AA Convertible Preferred Stock (the “Series AA Preferred Stock Certificate of Designation”). The Series AA Preferred Stock has no liquidation preference. The Series AA Preferred Stock is entitled to receive dividends and other distributions as and when paid on the Common Stock on an as converted basis. Each share of Series AA Preferred Stock is initially convertible into two shares of Common Stock, subject to adjustment as provided in the Certificate of Designation with respect to the Series AA Preferred Stock and shall only be convertible immediately following the sale of such shares on an arms’-length basis either pursuant to an exemption from registration under Rule 144 promulgated under the Securities Act or pursuant to an effective registration statement under the Securities Act. Each share of Series AA Preferred Stock shall have 0.8 votes per share (the Voting Rate”) on any matter submitted to the holders of the Common Stock for a vote and shall vote together with the Common Stock on such matters for as long as the Series AA Preferred Stock is outstanding. The Voting Rate shall be subject to adjustment in the event of stock splits, stock combinations, recapitalizations reclassifications, extraordinary distributions and similar events.

F-41

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Credit and Security Agreement

The Company and HLEE Finance S.a.r.l. (“HLEEF”) entered into a Credit Agreement dated as of March 11, 2020 (the “Credit Agreement”) pursuant to which HLEEF agreed to extend a revolving credit facility to the Company in an aggregate principal amount of up to $100,000,000. The loans under the revolving credit facility are available in four Tranches, subject to certain conditions precedent as follows:

(i) Tranche I Loans: HLEEF shall make loans (“Tranche I Loans”) aggregating up to $10,000,000 on the later of (A) the closing date of the Merger and (B) April 1, 2020. Tranche I Loans may be prepaid and repaid without penalty and to the extent repaid, re-borrowed, subject to the terms of the Credit Agreement;

(ii) Tranche II Loans: HLEEF shall make loans (“Tranche II Loans”) aggregating up to $10,000,000 on the later of (A) May 1, 2020 and (B) the date on which FaceBank shall have submitted a formal application, based on its good faith belief that it is qualified, to obtain approval from either Nasdaq or The New York Stock Exchange for FaceBank’s Common Stock to be listed publicly for trading on such stock exchange. Tranche II Loans may be prepaid and repaid without penalty and to the extent repaid, re-borrowed, subject to the terms of the Credit Agreement ;

(iii) Tranche III Loans: HLEEF shall make loans (“Tranche III Loans”) aggregating up to $10,000,000 on the later of (A) June 1, 2020 and (B) the date on which FaceBank shall have received approval from either Nasdaq or The New York Stock Exchange for FaceBank’s Common Stock to be listed publicly for trading on such stock exchange. Tranche III Loans may be prepaid and repaid without penalty and to the extent repaid, re-borrowed, subject to the terms of the Credit Agreement.

(iv) Tranche IV Loans: HLEEF shall make loans (“Tranche IV Loans”) aggregating up to $70,000,000 on the later of (A) July 1, 2020 and (B) the date on which all conditions precedent to the making of the Tranche I, Tranche II and Tranche III Loans have occurred and the Tranche III Loan shall have been fully advanced by HLEEF; provided, however, that FaceBank may not receive Tranche IV Loans totaling more than $10,000,000 in a single calendar month or during any 30-day period.

The interest rate on all Tranche I, Tranche II, Tranche III and Tranche IV loans shall be equal to 10% per annum. The maturity date of all amounts outstanding under the Credit Agreement is March 11, 2022.

The Credit Agreement contains certain restrictions on the ability of FaceBank to incur or permit indebtedness in excess of $50,000,000, subject to certain exceptions, to make loans in excess of $250,000 to directors or officers of FaceBank or to any subsidiary other than fuboTV and to declare and pay any distributions, subject to certain exceptions.

In connection with the Credit Agreement, FaceBank entered into a Security Agreement with HLEEF dated March 11, 2020 (the “HLEEF Security Agreement”) pursuant to which FaceBank granted to HLEEF as security for the prompt and complete payment and performance of all of the obligations under the Credit Agreement and the related promissory note, a security interest in all substantially all assets of FaceBank.

Note Purchase Agreement

On March 19, 2020, FaceBank, Merger Sub, Evolution AI Corporation (“Evolution”) and Pulse Evolution Corporation (“Pulse” and collectively with Evolution, Merger Sub and FaceBank, the “Borrower”) and FB Loan Series I, LLC (“FB Loan”) entered into a Note Purchase Agreement dated as of March 19, 2020 (the “Note Purchase Agreement”) pursuant to which Borrower sold to FB Loan senior secured promissory notes in an aggregate principal amount of $10,050,000 (the “Senior Note”). The Company received proceeds in cash of $7.5 million and the remainder was original issue discount.

Interest on the Senior Note shall accrue until full and final repayment of the principal amount of the Senior Note at a rate of fifteen percent (15%) per annum. On the first business day of each calendar month in which the Senior Note is outstanding, beginning on April 1, 2020, Borrower shall pay in arrears in cash to FB Loan accrued interest on the outstanding principal amount of the Senior Note. The maturity date of the Senior Note is July 17, 2020. The Borrower may prepay or redeem the Senior Note in whole or in part without penalty or premium.

Amendment to Note Purchase Agreement

On April 21, 2020, the Company entered into an amendment (the “Amendment”) to the Note Purchase Agreement, dated as of March 19, 2020 (the “Note Purchase Agreement”), by and among FaceBank, fuboTV Inc., a Delaware corporation (f/k/a FuboTV Acquisition Corp.) (“fuboTV”), Evolution AI Corporation (“Evolution”), a Florida corporation, Pulse Evolution Corporation, a Nevada corporation (“Pulse”, and collectively with FaceBank, fuboTV and Evolution, the “Borrower”), and FB Loan Series I, LLC (“FB Loan”), a Delaware limited liability company.

F-42

FaceBank Group, Inc.

(formerly known as Pulse Evolution Group, Inc.)

Notes to Consolidated Financial Statements

Pursuant to the Note Purchase Agreement, the Borrower agreed, among other things that (i) FaceBank shall file a registration statement with the U.S. Securities and Exchange Commission (the “Commission”) regarding the purchase and sale of 784,617 shares (the “Shares”) of FaceBank’s common stock, par value $0.0001 per share (the “Common Stock”) and any shares of capital stock issuable upon exercise of a warrant to purchase 3,269,231 shares of Common Stock (the “Warrant Shares”); and (ii) FaceBank shall have filed an application to list FaceBank’s Common Stock for trading on the NASDAQ exchange, on or before the date that is thirty (30) days following the closing date of the Note Purchase Agreement. Pursuant to the Amendment, the covenants set forth in (i) and (ii) above were replaced with the following:

(i) If FaceBank decides to register any of its securities either for its own account or the account of a security holder or holders on any registration form (other than Form S-4 or S-8), FaceBank shall include in such registration all of the Shares and the Warrant Shares (collectively, the “Registrable Securities” and such registration of the Registrable Securities, a “Piggyback Registration”); provided, however, that if a Piggyback Registration does not occur on or prior to May 25, 2020, FaceBank shall file a registration statement with the Commission to register the Registrable Securities and to permit or facilitate the sale and distribution of the Registrable Securities on or prior to May 25, 2020; and

(ii) FaceBank shall have initiated the process to list its capital stock for trading on a national exchange (e.g., NYSE or Nasdaq) on or before the date that is thirty (30) days following March 19, 2020.

Purchase Agreement

On May 11, 2020, the Company entered into Purchase Agreements (the “Purchase Agreements”) with certain investors (the “Investors”), pursuant to which the Company sold an aggregate of 1,058,435 shares (the “Purchased Shares”) of the Company’s common stock at a purchase price of $7.00 per share (the “Purchase Price”), which is based on 0.8 of the rounded 30-day trailing volume-weighted average price within three business days of the signing of the Purchase Agreements, for an aggregate of $7,409,045.00. In connection with the Purchase Agreements, the Company issued warrants to purchase the Company’s common stock, each with an exercise price equal to the Purchase Price (the “Warrants”), to the Investors to purchase, in the aggregate, 1,058,435 shares of the Company’s common stock. There were no underwriting discounts or commissions.

Waivers

On May 11, 2020, certain holders of the Series AA Convertible Preferred Stock (the “Acting Shareholders”) of the Company, acting by written consent pursuant to Section 607.0704 of the Florida Business Corporation Act, approved a waiver of certain anti-dilution rights under the Certificate of Designation of Series AA Convertible Preferred Stock of the Company in connection with the sale and issuance of the Purchased Shares and the Warrants. As of such date, the Acting Shareholders collectively held 16,270,570 shares, or 50.34%, of the Company’s outstanding shares of Series AA Convertible Preferred Stock.

On May 21, 2020, certain holders of the Company’s Series AA Convertible Preferred Stock (the “Acting Shareholders”), acting by written consent pursuant to Section 607.0704 of the Florida Business Corporation Act, approved a waiver of certain anti-dilution rights under the Certificate of Designation of Series AA Convertible Preferred Stock of the Company in connection with the sale and issuance of an aggregate of up to 3,227,280 shares of the Company’s common stock and warrants to purchase an aggregate of up to 3,227,280 shares of the Company’s common stock in an unregistered offering. As of such date, the Acting Shareholders collectively held 17,315,836 shares, or 53.57%, of the Company’s outstanding shares of Series AA Convertible Preferred Stock.

Senior Note Prepayment and Second Amendment to Note Purchase Agreement

On May 28, 2020, the Borrower delivered to FB Loan $7,500,000 in partial repayment of the Senior Note. Also on May 28, 2020, the parties to the Note Purchase Agreement, as amended, entered into a Consent and Second Amendment to Note Purchase Agreement (the “Second Amendment”). Pursuant to the terms of the Second Amendment:

	(i)	FB Loan consented to the May 11, 2020 sale by the Company of capital stock for aggregate consideration in the amount of $7,409,045;
	(ii)	The provision requiring that following receipt by any loan party or any subsidiary of proceeds of any financing, the Borrower must prepay the Senior Note in an amount equal to 100% of the cash proceeds of such financing, was removed; and
	(iii)	The date by which the Company must file a registration statement to register the Shares and the Warrant Shares was extended from May 25, 2020 to July 1, 2020.

Other Subsequent Share Issuances

From January 1, 2020 through May 29, 2020, the Company issued shares of its common stock consisting of, 1,309,789 shares issued to advisors in connection with its FuboTV merger, 2,385,428 shares in private placement transactions, and 518,582 shares in connection with its subsidiary share exchange agreement with PEC.

F-43

(b) The following exhibits are filed as a part of this Amendment No. 1:

Exhibit Number		Description

23.1*		Consent of Independent Registered Public Accounting Firm.

23.2*		Consent of Former Independent Registered Public Accounting Firm.

31.1*		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

31.2*		Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

32.1*		Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.

* Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FACEBANK GROUP, INC.

Dated: August 10, 2020	By:	/s/ David Gandler
		David Gandler
		Chief Executive Officer

	By:	/s/ Simone Nardi
		Simone Nardi
		Chief Financial Officer