VidAngel, Inc.
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(Exact
name of registrant as specified in its charter)
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Delaware
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46-5217451
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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|
|
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295 W Center St.
Provo, Utah
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84601
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(Address
of principal executive offices)
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(Zip
Code)
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For The Period Ended June 30,
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Change
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||
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2019
|
2018
|
2019 vs. 2018
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|
|
|
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Revenues
|
|
|
|
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Revenues
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$4,927,682
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$3,133,357
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$1,794,325
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57%
|
Operating Expenses
|
|
|
|
|
Cost
of Revenues
|
$1,447,113
|
$1,181,625
|
$265,488
|
22%
|
Sales
and Marketing
|
926,116
|
845,244
|
80,872
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10%
|
General
and Administrative
|
1,028,239
|
841,457
|
186,782
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22%
|
Legal
|
1,491,058
|
273,528
|
1,217,530
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445%
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Research
and Development
|
821,771
|
813,685
|
8,086
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1%
|
Total Operating Expenses:
|
$5,714,297
|
$3,955,539
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$1,758,758
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44%
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Balance
Sheet
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F-2
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Statement
of Operations
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F-3
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Statement
of Stockholder’s Equity
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F-4
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Statement
of Cash Flows
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F-5
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Notes
to Financial Statements
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F-6 to F-10
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June 30, 2019
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December 31,
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(Unaudited)
|
2018
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Assets
|
|
|
|
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Current
assets:
|
|
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Cash
and cash equivalents
|
$1,792,981
|
$1,539,731
|
Restricted
cash
|
-
|
954,381
|
Accounts
receivable
|
142,478
|
266,436
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Note
receivable, current
|
501,688
|
349,866
|
Prepaid
expenses and other
|
65,939
|
133,907
|
|
|
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Total
current assets
|
2,503,086
|
3,244,321
|
|
|
|
Movie
asset
|
1,206,687
|
1,206,687
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Deposits
|
-
|
47,915
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Property
and equipment, net
|
64,617
|
85,590
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Certificate
of deposit
|
75,579
|
75,000
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Note
receivable, long-term
|
-
|
-
|
|
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Total
assets
|
$3,849,969
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$4,659,513
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Liabilities and Stockholders' Equity (Deficit)
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Current
liabilities:
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Accounts
payable
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$935,183
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$397,705
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Accrued
expenses
|
74,577
|
758,299
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Deferred
revenue
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3,930,107
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3,813,134
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|
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Total
current liabilities
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4,939,867
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4,969,138
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Commitments
and contingencies
|
|
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Stockholders'
equity (deficit):
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Common
stock, $0.001 par value, 25,000,000 shares
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|
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authorized;
21,383,449 and 21,377,191 shares issued
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and
outstanding, respectively
|
21,560
|
21,560
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Additional
paid-in capital
|
13,414,186
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13,414,186
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Accumulated
deficit
|
(14,525,644)
|
(13,745,371)
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Total
stockholders' equity (deficit)
|
(1,089,898)
|
(309,625)
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|
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Total
liabilities and stockholders' equity (deficit)
|
$3,849,969
|
$4,659,513
|
See accompanying
notes to financial statements.
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F-2
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|
June 30, 2019
|
June 30, 2018
|
|
(Unaudited)
|
(Unaudited)
|
|
|
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Revenues,
net
|
$4,927,682
|
$3,133,357
|
|
|
|
Operating
expenses:
|
|
|
Cost
of revenues
|
1,447,113
|
1,181,625
|
General
and administrative
|
1,028,239
|
845,244
|
Research
and development
|
821,771
|
841,457
|
Selling
and marketing
|
926,117
|
273,528
|
Legal
|
1,491,059
|
813,685
|
|
|
|
Total
operating expenses
|
5,714,299
|
3,955,539
|
|
|
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Operating
loss
|
(786,617)
|
(822,182)
|
|
|
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Other
income (expense):
|
|
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Interest
income
|
6,344
|
9,062
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Interest
expense
|
-
|
-
|
|
|
|
Total
other income, net
|
6,344
|
9,062
|
|
|
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Loss
before income taxes
|
(780,273)
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(813,120)
|
|
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Provision
for income taxes
|
-
|
-
|
|
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Net
loss
|
$(780,273)
|
$(813,120)
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See accompanying notes to financial
statements.
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F-3
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|
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Additional
|
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Total
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Common Stock
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Paid-in
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Accumulated
|
Stockholders'
|
|
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Class A Shares
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Class B Shares
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Amount
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Capital
|
Deficit
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Equity (Deficit)
|
|
|
|
|
|
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Balance as of
January 1, 2018
|
18,063,856
|
3,313,335
|
$21,377
|
$13,231,869
|
$(13,459,017)
|
$(205,771)
|
|
|
|
|
|
|
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Stock options
excercised
|
182,975
|
-
|
183
|
83,179
|
-
|
83,362
|
|
|
|
|
|
|
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Stock-based
compensation expense
|
-
|
-
|
-
|
99,138
|
-
|
99,138
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
(286,354)
|
(286,354)
|
|
|
|
|
|
|
|
Balance as of
December 31, 2018
|
18,246,831
|
3,313,335
|
21,560
|
13,414,186
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(13,745,371)
|
(309,625)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Stock options
excercised
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
(780,273)
|
(780,273)
|
|
|
|
|
|
|
|
Balance as of
June 30, 2019
|
18,246,831
|
3,313,335
|
$21,560
|
$13,414,186
|
$(14,525,644)
|
$(1,089,898)
|
See accompanying notes to financial
statements.
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F-4
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|
June 30, 2019
|
June 30, 2018
|
|
(Unaudited)
|
(Unaudited)
|
|
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Cash flows from operating activities:
|
|
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Net
loss
|
$(780,273)
|
$(813,120)
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Adjustments
to reconcile net loss to net cash
|
|
|
used
in operating activities:
|
|
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Depreciation
and amortization
|
33,390
|
54,160
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Decrease
(increase) in:
|
|
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Restricted
cash
|
954,381
|
99,038
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Accounts
receivable
|
123,958
|
(179,660)
|
Prepaid
expenses and other assets
|
67,968
|
(14,808)
|
Movie
inventory
|
-
|
-
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Deposits
|
47,336
|
-
|
Note
receivable
|
(151,822)
|
-
|
Increase
(decrease) in:
|
|
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Accounts
payable and accrued expenses
|
(146,244)
|
(439,991)
|
Deferred
revenue
|
116,973
|
(241,098)
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Escrow
obligation
|
-
|
-
|
|
|
|
Net
cash used in operating activities
|
265,667
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(1,535,479)
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|
|
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Cash flows from investing activities:
|
|
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Purchase
of property and equipment
|
(12,417)
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(16,749)
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|
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Cash flows from financing activities:
|
|
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Proceeds
from issuance of common stock, net
|
-
|
3,059
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Exercise
of stock options
|
-
|
-
|
|
|
|
Net
cash provided by financing activities
|
-
|
3,059
|
|
|
|
Net
change in cash and cash equivalents
|
253,250
|
(1,549,169)
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|
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Cash
and cash equivalents at beginning of period
|
1,539,731
|
1,920,052
|
|
|
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Cash
and cash equivalents at end of period
|
$1,792,981
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$370,883
|
|
|
|
|
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Supplemental disclosure of cash flow information:
|
|
|
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Cash
paid for interest
|
$-
|
$-
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See accompanying notes to financial
statements.
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F-5
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1. Basis
of Presentation
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The
accompanying financial statements have been prepared by the
Company, without audit, and reflect all adjustments that are, in
the opinion of management, necessary for a fair statement of the
results for the periods presented. The financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP) for interim
financial reporting. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted pursuant to such rules and
regulations. It is the opinion of management that the financial
statements reflect all adjustments necessary for a fair
presentation of the financial position, results of operations, and
cash flows for the periods presented. The results of operations for
the six months ended June 30, 2019, are not indicative of the
results expected for the entire fiscal year.
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2. Description of
Organization
and
Summary
of
Significant
Accounting
Policies
|
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Organization
VidAngel,
Inc. (the “Company”) was incorporated on November 13,
2013, as a Utah limited liability company. On February 7, 2014, the
Company converted to a Delaware corporation. The Company has
developed, and sells, the most widely used filtering technology
available, that gives customers the unprecedented ability to remove
objectionable content from motion pictures they watch in their own
homes. The Company also produces its own original comedy series for
fun and family-friendly laughs.
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2. Description of
Organization
and
Summary
of
Significant
Accounting
Policies
Continued
|
|
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates. Key management estimates include the
estimated life of the customer’s ownership of a disc,
estimated life and salvage value of discs, valuation allowances for
net deferred income tax assets, and valuation of stock-based
compensation.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with original
maturities to the Company of three months or less to be cash
equivalents. As of June 30, 2019, these cash equivalents consisted
of money market accounts.
Movie Inventory
Movie
inventory includes DVD and Blu-Ray discs purchased by the Company
for resale, not in excess of realizable value. Movie inventory is
recorded at cost less accumulated depreciation. Depreciation is
calculated using the straight-line method over the estimated
economic useful life of five years. Movie inventory is depreciated
over the estimated economic useful life to the estimated salvage
value. The Company periodically reviews inventories for excess
supply, obsolescence, and valuations above estimated realizable
amounts, and provides a reserve to cover these items. Management
determined that no allowance for obsolete inventory was necessary
as of June 30, 2019.
Property and Equipment
Property
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are calculated using
the straight-line method over the estimated economic useful lives
of the assets or over the related lease terms (if shorter) as
follows:
|
Office
and computer equipment
|
3
years
|
Furniture
and fixtures
|
3
years
|
Production
equipment
|
1
year
|
Leasehold
improvements
|
1
year
|
2. Description of
Organization
and
Summary
of
Significant
Accounting
Policies
Continued
|
|
Expenditures
that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine
maintenance, repairs, and renewal costs are expensed as incurred.
Upon sale or other retirement of depreciable property, the cost and
accumulated depreciation and amortization are removed from the
related accounts and any gain or loss is reflected in the statement
of operations.
Impairment of Long-Lived Assets
The
Company reviews its property and equipment, and other long-lived
assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may be impaired. If
it is determined that the estimated undiscounted future cash flows
are not sufficient to recover the carrying value of the asset, an
impairment loss is recognized in the statements of operations for
the difference between the carrying value and the fair value of the
asset. Management does not consider any of the Company’s
assets to be impaired as of June 30, 2019.
The
Company offers its customers filtering subscriptions to use its
proprietary content filtering technology in conjunction with many
of today’s popular streaming services for a fixed rate of
$1.99 - $9.99 per month. Customers are charged the full price at
the start of the subscription period, which is initially recognized
as deferred revenue and recognized as revenue daily as the
subscription service is provided. While customers have an active
subscription, they are provided access to our patented video
streaming technology that permits them to direct their individual
viewing experience by choosing to remove certain audio or video
segments containing material they consider distasteful, in
conjunction with popular video streaming platforms. Access to this
technology is available during the entire subscription period and
is extinguished at the end of any subscription period during which
the customer cancels the subscription.
Additionally,
the Company created Dry Bar Comedy, an ongoing stand-up comedy
series that the Company films. The Company sells tickets to the
live stand-up comedy events. Revenue is recognized at the
conclusion of the event.
The
Company also receives advertising revenue by publishing its
original content on third party websites (such as Facebook,
YouTube, and Amazon). The third-party websites pay the Company
based on impressions delivered, or the number of actions, such as
clicks, taken by users viewing the Company’s content. The
Company recognizes revenue in the period in which the impressions
or actions occur.
Advertising
Advertising
costs are expensed as incurred. Advertising expenses totaled
$177,726 for the six months ended June 30, 2019.
|
|
3. Commitments
and
Contingencies
|
|
Litigation
The
Company is involved in legal proceedings from time to time arising
in the normal course of business. The Company has received,
and may in the future continue to receive, claims from third
parties. Management, after consultation with legal counsel,
believes that the outcome of these proceedings may have a material
impact on the Company’s financial position, results of
operations, or liquidity.
|
3. Commitments
and
Contingencies
|
|
Litigation
is necessary to defend the Company. The results of any current or
future complex litigation matters cannot be predicted with
certainty, and regardless of the outcome, litigation can have an
adverse impact because of defense and settlement costs, distraction
of management and resources, and other factors. Additionally, these
matters may change in the future as the litigation and factual
discovery unfolds. Legal fees are expensed as incurred. Insurance
recoveries associated with legal costs incurred are recorded when
they are deemed probable of recovery.
The
Company assesses whether there is a reasonable possibility that a
loss, or additional losses beyond those already accrued, may be
incurred (“Material Loss”). If there is a reasonable
possibility that a Material Loss may be incurred, the Company
discloses an estimate or range of the amount of loss, either
individually or in the aggregate, or discloses that an estimate of
loss cannot be made. If a Material Loss occurs due to an
unfavorable outcome in any legal matter, this may have an adverse
effect on the financial position, results of operations, and
liquidity of the Company. The Company records a provision for each
liability when determined to be probable, and the amount of the
loss may be reasonably estimated. These provisions are reviewed
annually and adjusted as additional information becomes
available.
The
Company is involved in various litigation matters and believes that
any reasonably possible adverse outcome of these matters could
potentially be material, either individually or in the aggregate,
to the Company’s financial position, results of operations
and liquidity. As of the date of this report management has
determined that an adverse outcome on one or more of the claims is
probable, but not estimable, and has not accrued any estimated
losses related to these matters. Expectations may change in the
future as the litigation and events related thereto unfold. For the
six months ended June 30, 2019 the Company incurred $1,491,058 in
legal and litigation costs, which are included in legal expenses in
the accompanying statements of operations.
On
December 29, 2016, the Company complied with an injunction and
ceased selling discs and streaming customized versions of the
discs, pending the outcome of certain legal matters.
The
Company has determined that an adverse outcome in litigation
brought by Disney Enterprises, Inc., Twentieth Century Fox Film
Corporation, Warner Bros. Entertainment, Inc., LucasFilm Ltd.,
LLC., MVL Film Finance, LLC., New Line Production, Inc., and Turner
Entertainment Co., or, collectively, the Plaintiffs, is probable.
The Plaintiffs have obtained an award of monetary damages, and are
seeking costs, and attorneys’ fees related to their claims
that the Company violated their exclusive rights under US copyright
law.
On June
17, 2019, a jury in California found the Company liable for willful
infringement and awarded the Plaintiffs $62,488,750 in statutory
damages. A judgment in that amount was entered by the California
Court on September 23, 2019. It is expected that the judgment will
be amended to include an award of costs and attorneys’ fees.
The Company is preparing motions seeking a new trial or remittitur
of the jury award and will initiate an appeal.
At this
time, the Company does not believe that the amount of the loss is
reasonably estimable as required under ASC 450-20-5, and therefore
has not accrued any losses related to the litigation.
|
|
VidAngel, Inc.
|
|
|
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By:
|
/s/
Neal S. Harmon
|
|
|
Name:
|
Neal
S. Harmon
|
|
|
Title:
|
Chief
Executive Officer
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Neal S. Harmon
|
|
Chief
Executive Officer and Director
|
|
September 30, 2019
|
Neal S.
Harmon
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/ Patrick Reilly
|
|
Chief Financial Officer
|
|
September 30, 2019
|
Patrick Reilly
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/ Dalton Wright
|
|
Director
|
|
September 30, 2019
|
Dalton Wright
|
|
|
|
|
|
|
|
|
|
/s/ Paul Ahlstrom
|
|
Director
|
|
September 30, 2019
|
Paul Ahlstrom
|
|
|
|
|
|
|
|
|
|