WEB NEWS Investor Alert
Item 5.02
As previously announced, the Company’s full Board became aware in late 2014 that one of the Company’s subsidiaries had entered into contracts to obtain license rights to film and television content at a total cost of RMB 525 million. To date, the Board has been unable to verify the authenticity of the contracts, the identity of the counterparties, or the goods or services received by the Company pursuant to the contracts.
The Board has been informed by the Xicheng Economic Investigation Department in Beijing that Chairman Zhang Hongcheng has been detained and that an investigation regarding his conduct had proceeded to the second of three stages, in which the prosecutor determines whether to go forward with charges. The Board is informed that the potential charge against Chairman Zhang is illegally obtaining funds from the public. The Board has been informed that the charges relate to conduct with respect to a company owned by Chairman Zhang (rather than FAB) but has been unable to confirm any additional information about Chairman Zhang’s detention or the charges.
Given the above, the Board has determined to request Chairman Zhang’s resignation as soon as communication with Chairman Zhang can be established. To date, however, management has not been allowed to visit with or speak to Chairman Zhang. In addition to attempting to seek Chairman Zhang’s resignation, at a meeting conducted on February 5, 2015, the Board reduced the size of the Board from seven to four.
The Company’s business in China appears to be abandoned. The Company’s retail stores are closed and empty. Management has been unable to determine whether the Company’s wholesale business is operating. The Company’s digital business – provision of digital content over multiple platforms – has ceased for lack of funds. Given the matters set forth herein, it appears that there is no Company personnel currently providing service to the Company in China other than Vice President Cindy Lv, who is assisting management in determining the circumstances in China. Operations in the United States continue.
The owner of the office facilities leased, in part, by the Company (the Chairman’s private companies occupy the vast majority of the space) in Beijing has foreclosed on the premises for nonpayment of rent and claims to have a judgment against the Company. The Company’s PRC counsel has been in contact with the landlord’s counsel to attempt to negotiate access to the facilities. Because the Company does not have access to the facilities, management does not have possession of the Company chops or access to the Company’s books and records.
In connection with the 2012 acquisition of Digital Entertainment Inc. by Wizzard Software Corp., 290 shares of preferred stock was issued to former shareholders of Digital Entertainment International. Pursuant to the Share Exchange Agreement (“SEA”), which governed the acquisition, the preferred stock would be automatically cancelled if certain milestones set forth in the SEA are not met. Because those milestones were not met, the preferred was cancelled.
In December 2014, the Company’s CEO and CFO traveled to Beijing to investigate these matters. In that regard, management retained PRC counsel, ensured that Ms. Lv could continue to serve the Company, and met with or spoke to numerous individuals, including the Company’s auditors. Management continues to be in contact with PRC counsel and Ms. Lv and continues to attempt locate Mr. Zhang and to gain access to the chops, records and facilities, and to recover the assets, of the Company.
By letter dated January 29, 2015, Gu Jianfen resigned as a director of the Company effective immediately. Ms. Gu’s resignation was not the result of any disagreement with the Company over the Company’s operations, policies or practices.
On November 19, 2014, James Rodgers, Jr. informed the Company that the one-year contract pursuant to which he served on the Board expired in June 2014 and that since he had not renewed the contract he was no longer a member of the Board as of June 2014. Mr. Rodgers served as Chair of the Compensation committee.
Comments & Business Outlook
FAB UNIVERSAL CORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 30,
For the Six Months Ended June 30,
2014
2013
2014
2013
Restated
Restated
Revenue
$ 13,857,077
$ 25,857,239
$ 28,601,536
$ 48,493,632
Cost of Revenue
5,722,898
14,362,500
12,075,113
28,624,131
Gross Profit
8,134,179
11,494,739
16,526,423
19,869,501
OPERATING EXPENSES
Selling expenses
1,183,471
1,039,850
2,426,611
1,976,171
General and administrative
3,909,905
2,487,458
6,731,327
5,117,790
Consulting fees
80,946
446,460
707,751
930,592
Research and development
79,061
73,189
157,043
140,539
Total Expenses
5,253,383
4,046,957
10,022,732
8,165,092
Income from operations
2,880,796
7,447,782
6,503,691
11,704,409
OTHER INCOME (EXPENSE):
Interest income
55,260
8,461
127,263
37,020
Interest (expense)
(541,429)
(327,115)
(1,107,357)
(366,265)
Other (expense), net
(14,133)
(85,147)
(9,196)
(84,344)
Total Other Expense, net
(500,302)
(403,801)
(989,290)
(413,589)
Income from operations before income taxes
2,380,494
7,043,981
5,514,401
11,290,820
Income tax expense
1,000,310
1,658,842
2,127,635
2,901,684
Net income
1,380,184
5,385,139
3,386,766
8,389,136
Other comprehensive income (loss)
Foreign currency translation gain (loss)
263,266
1,542,802
(3,660,112)
2,033,011
COMPREHENSIVE INCOME (LOSS)
$ 1,643,450
$ 6,927,941
$ (273,346)
$ 10,422,147
BASIC AND DILUTED INCOME PER COMMON SHARE
$ 0.07
$ 0.26
$ 0.16
$ 0.41
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
20,805,860
20,761,025
20,805,860
20,708,042
Management Discussion and Analysis
During the second quarter ended June 30, 2014, FAB recorded revenue of $13.9 million, a decrease of $12.0 million, from our revenue of $25.9 million in the same period of 2013.
This decrease was driven by a decrease in Wholesale from $14.0 million to $4.4 million, Retail from $2.3 million to $1.0 million, and Digital decreasing from $9.6 million to $8.4 million. The decrease in Wholesale is being driven by customers making changes in their business with a move away from traditional goods and a focus on delivery of digital content. For our retail stores, with the change to a digital experience and personalized products versus our traditional goods, we have seen a decrease in sales during the second quarter of 2014. Within the Digital segment, advertising delivered $2.5 million, FAB Memberships delivered $2.0 million, Cross Platform Video delivered $0.1 million and FAB Brand Licensing delivered $2.5 million with no brand license sales, and the Libsyn business generated $1.4 million.
Net income available to common stockholders decreased to $1.4 million for the quarter ended June 30, 2014, as compared to a net income available to common stockholders of $5.4 million for the same period in 2013. Basic and diluted earnings per common share were $0.07 in the second quarter of 2014, compared to $0.26 earnings per share for the second quarter of 2013.
Investor Alert
Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
The Company intends to request an oral hearing before an Exchange Listing Qualifications Panel to appeal the Staff’s determination.
Comments & Business Outlook
FAB UNIVERSAL CORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended
March 31, 2014
March 31, 2013
Revenue
$ 14,744,459
$ 22,636,393
Cost of Revenue
6,352,215
14,261,631
Gross Profit
8,392,244
8,374,762
OPERATING EXPENSES
Selling expenses
1,243,140
936,321
General and administrative
2,821,422
2,630,332
Consulting fees
626,805
484,132
Research and development
77,982
67,350
Total Expenses
4,769,349
4,118,135
Income from operations
3,622,895
4,256,627
OTHER INCOME (EXPENSE):
Interest income
72,003
28,559
Interest expense
(565,928)
(39,150)
Other income, net
4,937
803
Total Other Expense, net
(488,988)
(9,788)
Income before income taxes
3,133,907
4,246,839
Income tax expense
1,127,325
1,242,842
Net income
2,006,582
3,003,997
Other comprehensive income (loss)
Foreign Currency translation gain (loss)
(3,923,378)
490,209
COMPREHENSIVE INCOME (LOSS)
$ (1,916,796)
$ 3,494,206
BASIC AND DILUTED INCOME PER COMMON SHARE
$ 0.10
$ 0.15
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
20,805,860
20,648,904
Management Discussion and Analysis
revenues of $14.7 million, a decrease of $7.9 million , from our revenues of $22.6 million in the same period of 2013. This decrease was driven by a decrease in Wholesale from $13.8 million to $5.9 million, Retail from $2.0 million to $0.7 million, offset in part by Digital increasing from $6.8 million to $8.1 million. The decrease in Wholesale is being driven by customers making changes in their business with a move away from traditional goods and a focus on delivery of digital content. For our retail stores, with the change to a digital experience and personalized products versus our traditional goods, we have seen a decrease in sales during the first quarter of 2014. Within the Digital segment, advertising delivered $1.2 million, FAB Memberships delivered $2.8 million, Cross Platform Video delivered $0.4 million and FAB Brand Licensing delivered $2.4 million with no brand license sales, and the Libsyn business generated $1.3 million.
Net income available to common stockholders decreased to $2.0 million for the quarter ended March 31, 2014, as compared to $3.0 million for the same period in 2013. During the first quarter of 2014, non-cash expenditures totaled $1,990,817, as compared to $1,813,351 for the first quarter of 2013. Basic and diluted earnings per common share were $0.10 in the first quarter of 2014, compared to $0.15 per share for the first quarter of 2013.
Investor Alert
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
As of June 26, 2014, [20,805,860] shares of our common stock were outstanding and the last reported sales price for our common stock on the NYSE MKT on November 21, 2013 was $3.07 per share. We were notified on November 21, 2013 that the NYSE MKT had instituted a trading halt in our common stock, pending receipt of further information, as a result of allegations contained in various short-seller publications issued in November 2013. We subsequently received an information request from NYSE MKT and on April 28, 2014 received a notice from NYSE MKT that the staff of the NYSE MKT intends to strike our common stock from listing. We have appealed the staff’s determination in this regard to the Exchange Listing Qualifications Panel and a hearing to review the staff’s decision has been scheduled for July 16, 2014.
Comments & Business Outlook
FAB UNIVERSAL CORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(includes only the restated accounts)
For the Three Months Ended June 30, 2013
For the Six Months Ended June 30, 2013
As restated
As previously reported
Change Inc(dec)
As restated
As previously reported
Change Inc(dec)
Interest income
$ 8,461
$ -
$ 8,461
$ 7,020
$ 28,559
$ 8,461
Interest (expense)
(327,115)
(4,004)
323,111
(366,265)
(43,154)
323,111
Other income (expense)
(85,147)
(55,773)
29,374
(84,344)
(54,970)
29,374
Total Other Income (Expense)
(403,801)
(59,777)
344,024
(413,589)
(69,565)
344,024
Income (loss) from continuing operations before income taxes
7,043,981
7,388,005
(344,024)
11,290,820
11,634,844
(344,024)
Net income (loss) from continuing operations
5,385,139
5,729,163
(344,024)
8,389,136
8,733,160
(344,024)
Net Income (loss)
5,385,139
5,729,163
(344,024)
8,389,136
8,733,160
(344,024)
Foreign currency translation gain
1,542,802
1,543,850
(1,048)
2,033,011
2,034,059
(1,048)
COMPREHENSIVE INCOME (LOSS)
$6,927,941
$7,273,013
$(345,072)
$10,422,147
$10,767,219
$(345,072)
BASIC AND DILUTED INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS
$ 0.26
$ 0.28
$ (0.02)
$ 0.41
$ 0.42
$ (0.01)
BASIC AND DILUTED INCOME PER COMMON SHARE
$ 0.26
$ 0.28
$ (0.02)
$ 0.41
$ 0.42
$ (0.01)
Management Discussion and Analysis
Results of Operations.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
FAB Universal derives its revenue from the sale of copyright protected media, FAB Brand licenses, advertising sales and FAB Membership cards sold in mainland China as well as from our podcast hosting fees, podcast advertising sales, and subscription sales.
During 2013, FAB recorded revenues of $110.9 million, an increase of $83.4 million, from our revenues of $27.5 million in 2012. This increase was driven by an increase in revenue from first full year of operation since the acquisition of DEI in September 2012. During the fourth quarter of 2012, DEI reported $22.9 million of revenue. During 2013, revenue from the wholesale segment generated $60.4 million in revenue with the retail segment providing $9.0 million and Digital Media/licensing delivering $41.5 million. Within the Digital segment, Advertising delivered $17.3 million, FAB Memberships delivered $11.3 million and FAB Brand Licensing delivered $7.7 million, while content download revenue was minimal and the Libsyn business generated $5.0 million. The Libsyn business saw significant increases in hosting fees, ad revenue and the addition of subscription revenue. The increase in hosting fees was due to the increase in the number of producers using our services.
Net income available to common stockholders increased to $20.7 million in 2013, as compared to a net loss available to common stockholders of $4.0 million in 2012. This increase in net income available to common stockholders for 2013 is a result of adding the acquisition of DEI for a full year in 2013. Basic and diluted income per common share was $0.99 in 2013, compared to a loss per share of $0.34 in 2012.
Auditor trail
Changes in Registrant’s Certifying Accountant
On April 30, 2014, FAB Universal, Corp. (the “Company”) engaged KCCW Accountancy Corp. (“KCCW”), as its principal accountant, and on the same date dismissed Friedman LLP (“Friedman”).
As of the date hereof, the audit of the Company’s financial statements for the fiscal year ended December 31, 2013 has not yet been completed; however, the Company expects such audit to be completed as part of KCCW’s engagement.
During the year ended December 31, 2012, which was audited by Friedman, and the year ended December 31, 2013, which Friedman was engaged to audit, and the period from January 1, 2014 to April 30, 2014, when Friedman was still the auditor of record and performing auditing procedures, (i) there were no disagreements with Friedman on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to Friedman’s satisfaction, would have caused Friedman to make reference in connection with its opinion to the subject matter of the disagreement, except that (a) due to the time requirements placed on management because of an internal investigation (the “Internal Investigation”) being conducted by an outside independent consulting firm at the same time as the audit, Company personnel were not readily available to assist Friedman in completion of certain audit procedures, (b) certain requests for additional documentation and procedures were not complied with, and (c) Friedman was unwilling to express an opinion on the Company’s financial statements prior to the completion of the Internal Investigation and prior to the confirmation of bank balances at certain depository institutions in China, and (ii) there were no “reportable events,” as that term is described in Item 304(a)(1)(v) of Regulation S-K. The report of Friedman on the Company’s financial statements as of and for the fiscal year ended December 31, 2012 did not contain an adverse opinion or a disclaimer of an opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the Company’s two most recent fiscal years and in the subsequent interim period prior to April 30, 2014, the Company did not consult with KCCW regarding (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements and no written or oral advice was provided by KCCW that was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue or (ii) any matter that was either the subject of a disagreement or event, as set forth in Item 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K.
Investor Alert
PITTSBURGH
--(BUSINESS WIRE)-- FAB Universal (NYSE MKT: FU), a worldwide distributor of digital media and entertainment announced on April 7, 2014 that it had received notice from NYSE MKT LLC that, based upon a review of the Securities and Exchange Commission�s (the �SEC�) EDGAR database, that
FAB Universal Corp. has yet to file it Form 10K for the year ended December 31, 2013. As such, FAB Universal Corp. (a) is not in compliance with Sections 134 and 1101 of the NYSE MKT Company Guide (the �Company Guide�). In addition, the Company�s failure to timely file this report is a material violation of its listing agreement with the Exchange and therefor, pursuant to Section 1003(d) of the Company Guide, the Exchange is authorized to suspend and, unless prompt corrective action is take, remove the Company�s securities from the Exchange. In order to maintain its listing, the Company must submit a plan of compliance by April 17, 2014 (the �Plan�), addressing how it intends to regain compliance with Sections 134 and 1101 of the Company Guide by July 1, 2014 (the �Plan Period�). The staff of the Issuer Oversight Department of NYSE Regulation will evaluate the Plan and make a determination as to whether the Company has demonstrated an ability to regain compliance with the applicable continued listing standards within the specified timeframe.
If the plan, as submitted, is not accepted, FAB Universal Corp will be subject to delisting proceedings.
Investor Alert
Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
On April 3, 2014, FAB Universal Corp. (the “Company”), received a notice (the “Notice”) from the NYSE MKT LLC (“NYSE MKT”), indicating that the Company is no longer in compliance with Sections 134 and 1101 of the NYSE MKT’s Company Guide due to the Company’s inability to timely file its Annual Report on Form 10-K for the year ended December 31, 2013 (the “Annual Report”) with the U.S. Securities & Exchange Commission (the “SEC”).
NYSE MKT elected to exercise its discretionary authority under Section 1003(d) of the NYSE MKT’s Company Guide to require the Company to submit a plan of compliance regarding the filing of its Annual Report by April 17, 2014. Upon receipt of this plan, NYSE MKT may, at its discretion, grant the Company a further extension to complete the filing of its Annual Report and regain compliance with NYSE MKT’s continued listing requirements or deny such further extension and seek to remove the Company’s securities from listing.
On April 8, 2014, the Company issued a press release relating to the Notice received from NYSE MKT indicating that the Company is no longer in compliance with Sections 134 and 1101 of the NYSE MKT’s Company Guide due to the Company’s inability to timely file its Annual Report with the SEC.
Company Rebuttal
PITTSBURGH--(BUSINESS WIRE )--FAB Universal (NYSE MKT:FU), a worldwide distributor of digital media and entertainment, announced today the findings of the preliminary internal review undertaken at the direction of FAB’s Board of Directors in response to the allegations made in numerous published reports through November 19, 2013 by acknowledged short-sellers of FAB’s common stock.
The Board of Directors takes these allegations seriously and is aware that they have created doubt about FAB Universal and its business operations and financial reporting. The Board and its management team remain committed to providing the highest level of transparency in its financial reporting and maintaining the trust of its shareholders. The management team has been working diligently to complete the preliminary internal review undertaken at the Board’s request. As a result of the findings of this review, the Board has uncovered certain deficiencies in the Company’s internal controls, and is taking the necessary steps to tighten FAB Universal’s internal controls.
In recognition of the fact that the Board is relying on its own analysis of the allegations and to reassure the Company’s shareholders of the integrity of its analysis, the Board has authorized the hiring of an independent third party to verify these findings. In addition, the Company plans to hire a bi-lingual Senior Financial Reporting Executive with public company experience to work at FAB Universal in Beijing. This individual will have responsibility for all FAB financial reporting in China.
Bond Offering
It has been determined that one of the Company’s variable interest entities (VIE), conducted a $16.3 million bond offering in China which was not reflected on the Company’s financials. The Company is taking steps to determine both how this occurred and what controls are necessary to ensure that it does not happen again.
Net proceeds from the bond offering totaled $15.8 million; however, to date none of the funds have been used by FAB Universal. The three year bonds were issued on April 25, 2013 in an aggregate principal amount of $16.3 million and bear interest at the rate of 11% per annum with an option to adjust the interest rate at the end of the second year. The bonds are secured by a pledge of all shares in an entity that does business with the Company and certain real estate assets in China, and are guaranteed by FAB Universal’s Chairman Zhang Hongcheng. The bonds are puttable by the holders at the end of the second year.
While FAB Universal intends to restate its financial statements for the second and third quarters of 2013, it is important to note that neither the proceeds of the offering nor the liability were reflected on the Company’s financial statements. The Company’s financial statements will be impacted for the net interest expense and deferred financing costs associated with the bond offering.
The Company will file an 8-K later today advising investors to no longer rely on the Company’s unaudited financial statements for the second and third quarters of 2013 and presenting the Company’s preliminary estimates of the effect of the bond offering.
Kiosks
The short sellers provide anecdotal evidence to suggest that the number of Intelligent Media kiosks licensed by FAB is far lower than publicly reported. The short sellers have a fundamental, but understandable, misunderstanding of the economics of the Company’s business. FAB does not buy, sell or own kiosks. Instead, it sells licenses to operate Intelligent Media kiosks and to use the software to run the kiosks through 40 independent regional agents who are responsible for signing up licensees, deploying the kiosks and reporting the number of installed kiosks.
As of September 30, 2013, 16,820 licenses have been sold, of which 3,954 have been issued for the placement of kiosks in Beijing; all of the 3,954 kiosks in Beijing have been deployed. As part of its preliminary review, the Board has examined data concerning the licenses to operate kiosks entered into by the Company as of September 30, 2013, and has re-verified 12,866 licenses. Verification of the remaining licenses will continue until all licenses have been reviewed.
Minimum Guarantee
It has been alleged that FAB promises kiosk licensees guaranteed minimum returns on their kiosk investments and offers to buy back kiosks using FAB’s U.S. listed common stock. To date, the Company has completed a review of 75% of the license contracts and has not identified any instances of a minimum guarantee. FAB maintains that it has never entered into any agreement with an agent or licensee for a minimum return guarantee or stock payment by the Company. Any communication to the contrary was unauthorized and is unenforceable.
Pirated Content
One of the short sellers’ allegations centers on the claim that the Company’s Intelligent Media kiosks have been distributing pirated U.S. movies. FAB Universal takes great pride in its commitment to copyright protection and has never authorized the installation of any pirated content. To ensure compliance with its policies regarding piracy, the Company will examine its content control processes with the assistance of the independent third party and implement any measures deemed necessary to tighten controls.
New Retail Store Prepayments
As part of its review, the Board of Directors has asked that $17.8 million in prepayments for the setup of additional FAB flagship stores be returned to the Company in light of its decision to accelerate the transition to digital distribution channels. These are cash payments that FAB has made to third parties to assist the Company in opening multiple retail flagship stores throughout China. Of the total $21.2 million in prepayments on the Company’s balance sheet as of September 30, 2013, $3.4 million of prepayments will remain outstanding which will be used to open 2 retail stores in 2014.
Cash
For cash recorded at September 30, 2013, cash confirmations were received for five bank accounts representing 99% of the cash reported on Form 10Q with no exceptions. On November 27, 2013, a bank confirmation was received by the Company for the account that holds the largest amount of cash to verify the balance as of November 18, 2013. There was no significant change in the cash balance between September 30, 2013 and November 18, 2013 for this account. Additionally, on November 27, 2013, bank confirmations were received by the Company for the account where the bond proceeds were held in order to verify the balance as of September 30, 2013 and November 18, 2013. The confirmation confirmed the cash proceeds from the bond offering were in the bank account. The bond proceeds were transferred to a FAB Universal operating account on November 22, 2013.
Research
On Friday, November 15, 2013, a Seeking Alpha contributor alerted GeoInvesting to an undisclosed RMB 100 million ($16.4 million) Chinese bond issuance by FAB Universal (FU). The implications of this development are significant, especially when one considers that FAB operates through Variable Interest Entities (VIEs) wherein U.S. investors have been found historically to have questionable legal claims to assets and cash flows.
In today's revealing report, the following is covered:
A public announcement regarding the bond offering was posted on August 2, 2013 on the official website of the Shenzhen Stock Exchange.
Wind Info, China’s leading financial data provider (the Chinese Bloomberg), disclosed information about the bond offering.
An asset management report shows that a mutual fund sponsored by China’s Daton Securities owns 20,000,000 RMB of the FU bonds.
At this point FAB’s U.S. management should proactively halt their own stock to protect investors and commence an independent investigation to carefully check these very serious allegations.
Please see our report here .
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Joint Venture
PITTSBURGH--(BUSINESS WIRE has entered into an agreement with Future TV Co. Ltd. to distribute its copyright-protected media content through pay TV terminals used in the home by Future TV’s subscribers.
Under the terms of the agreement, FAB will provide copyright protected content including high-definition video, music lessons, children's programs, and other educational and related programming. Future TV will integrate the content provided by FAB Universal with its operational platform and manage subscriber payments.
Future TV is a subsidiary of China Network Television (CNTV), the online division of China Central Television (CCTV), which is the national public broadcaster in China. It operates a national Internet TV platform, China Internet TV, the first such platform authorized by China's State Administration of Radio, Film and Television. With its established integrated broadcast platform for subscription TV, Future TV reaches 20 million families in China, provides over 1.3 million hours of quality video-on-demand programming and has one of the largest content libraries in China including prime-time shows, documentaries and educational curriculum programs and the exclusive Internet TV broadcasting of the Olympics and World Cup.
“The agreement with Future TV is a significant milestone for FAB, marking the launch of our subscription TV business and further extending our distribution platform. Future TV’s national Internet TV platform and extensive reach provides a strong foundation for us to enter the rapidly growing Internet TV industry in China. We can now market to Future TV’s sizeable subscriber base, leveraging FAB established premier brand to further monetize our copyright-protected media and entertainment content,” said Chris Spencer, CEO of FAB Universal. “Going forward, our ambition is to become a leading pay-TV content operator in China. Our plans include entering digital TV, through distribution agreements with cable network operators, and IPTV and over-the-top TV (with the set top box already installed in the television), through distribution agreements with telecom and content aggregation licensing providers. Expanding our distribution platform to encompass subscription TV will position FAB Universal at the forefront of the trend toward greater Internet usage and rising Internet penetration rates in China.”
According to Airoha Technology, IPTV home users in China numbered 8 million in 2010, and grew to 13.5 million users in 2011, and 23 million in 2012. IPTV users are estimated to reach 56.3 million in 2013 and break the 100 million-mark in 2015. Total cable TV users in China were approximately 220 million in the first quarter of 2013. However, digital cable TV is growing more rapidly as the Chinese Government is focused on its development. The users for digital cable TV amounted to over 120 million in 2012, representing a digitalization rate (the percentage of cable TV users switching to digital cable TV) of 64.2%, and grew to nearly 130 million users in the first quarter of 2013, representing a digitalization rate of 67.2%.
Comments & Business Outlook
PITTSBURGH--(BUSINESS WIRE announced that it has signed agreements to distribute its copyright-protected digital music content through China Unicom, China Mobile and China Telecom, the top three providers of mobile phone services in China.
� Expanding our distribution platform and increasing the quantity and variety of our content are the twin growth engines at FAB. With these agreements, we are now adding a mobile phone channel to FAB�s distribution platform and further leveraging both our exclusive and acquired copy-right protected digital music content. As we supply our digital music content directly to the subscribers of the top three mobile phone service providers in China, we will also reach new customers for our catalog of FAB-branded digital media and entertainment content,� said Chris Spencer, chief executive officer.
Comments & Business Outlook
Second Quarter 2013 Financial Results
Total revenue for the second quarter ended June 30, 2013 was $25.9 million compared $0.9 million for the second quarter of 2012 and $22.6 million for the first quarter ended March 31, 2013, a sequential increase of 14.6%.
gross profit was $11.5 million compared to $0.5 million for the second quarter of 2012 and $8.4 million for the first quarter of 2013, a sequential increase of 36.9%.
Net Income in the second quarter ended June 30, 2013 was $5.7 million, or $0.28 per share, compared to a net loss of $0.3 million, or $(0.06) per share, for the comparable period of 2012 and net income of $3.0 million, or $0.15 per share, for the first quarter ended March 31, 2013.
�FAB Universal delivered its third consecutive quarter of EPS growth, led by continued gains from our fast-growing, high-margin digital segment, which includes our Intelligent Media Kiosk business. On a sequential basis, gross profit grew by 47.4%, outpacing the 41% revenue increase to reach a gross margin of 80.3% ,� said Chris Spencer, CEO of FAB Universal. �We continued to expand our network of Intelligent Kiosks, adding over 2,000 for a total now of nearly 16,000, and intend to aggressively build out our network during the second half of the year.�
Spencer added, Based on our performance to date, we remain confident that we will achieve revenue of $98.9 million to $102.6 million and net income of $19.3 million to $20.1 million for the full year. However, because we have experienced variances between reported results and our guidance for both the first and second quarter of 2013, reflecting variability in the timing of signing new kiosk contracts, we are revising our guidance policy and going forward will only offer revenue and EPS guidance on an annual basis. Our established media and entertainment distribution platform and the power of the FAB brand give us the fundamentals to continue to drive strong organic growth.
Comments & Business Outlook
PITTSBURGH--(BUSINESS WIRE revenue growth of 186% over the third quarter of 2011 for its podcasting platform, Libsyn.
The Libsyn podcasting platform offers a suite of powerful monetization tools for publishers including a dynamic advertising and campaign management system (Alchemy) that targets the 25 million unique monthly audience members who download entertainment from the network. Advertising revenue grew 116% in the third quarter versus the second quarter of 2012. Advertising revenue is generated through the placement of third party podcast advertisements and producer-provided ads. The Alchemy system dynamically stitches ads into the content and provides campaign management and reporting. Revenues are generated through paid placement of podcast advertising from which the producers receive revenue sharing.
“It is very exciting to see a resurgence in podcast advertising, resulting from continued growth in podcast popularity. Advertising was one of the early monetization options for producers and Libsyn has developed many tools specifically geared to help producers maximize their monetization opportunities via advertising,” said Chris Spencer, CEO, FAB Universal Corp. “We know that podcast advertising is successful and have worked with many different Advertising Agencies including Performance Bridge, with whom we have run various monthly ad campaigns each and every month over the last five years. We now look forward to using our knowledge base and technology lead to expand our marketing channels in the US as well in our international franchises across China.”
Libsyn is very excited to announce a new advertiser, Ting.com, that is now working with podcasts on the Libsyn network. Ting is a mobile phone service provider covering the U.S. market. “We find that the relationship between podcast hosts and their audience creates an ROI for our advertising spend that is second to none,” said Sean Hurley, Marketing Manager of Ting. “There is a level of engagement between a podcaster and his audience that banner advertisements just can’t come anywhere close to replicating.”
Financial Target Agreements
The Preferred Stock (in connection with a recent reverse merger transaction) has no dividend rights or voting rights or the right to receive any assets of the Company upon liquidation, dissolution or winding up. The Preferred Stock will be convertible into shares of the Company’s common stock in three (3) tranches upon the occurrence of the following conversion events :
Comments & Business Outlook
PITTSBURGH--(BUSINESS WIRE
FAB Universal’s podcasting business, Libsyn, reached a second milestone in the third quarter, 2012, realizing a 98% increase in average weekly signups vs. the same period for 2011. Average weekly client account revenues increased 88% and overall weekly sign-ups in 2012 have increased by 70%.
Substantial growth in podcast download requests has continued with the third quarter showing a 14% increase over the second quarter of 2012 and 29% growth over the same period in 2011.
“We are excited by the continued growth and validation of our efforts to expand reoccurring revenues through hosting and monetization with our Facebook Timeline App, social media integration, Premium Content Subscriptions, iPhone Apps and world-class audience analytics which provide value to our podcast clients and their audiences,” said Laurie Sims, President, FAB Universal. “Third quarter results show that podcasting represents significant opportunities for revenue and audience expansion. We continue to exceed previous milestones with 25 million uniques, increasing customer acquisitions, and strong growth in revenue and download requests. With the popularity of podcasting on the rise, Libsyn remains the premier podcast distribution and monetization platform.”
Reverse Merger Activity
PITTSBURGH--(BUSINESS WIRE agreement to acquire 100% of the outstanding shares of Digital Entertainment International Ltd., herein referred to as FAB, a leading licensor and distributor of copyright-protected digital media content in China.
FAB generated audited revenues of $39.1 million in 2009, $55.5 million in 2010 and $70.9 million in 2011. Net income generated by FAB was $4.6 million in 2009, $11.5 million in 2010 and $15.3 million in 2011.
Founded in 2003, FAB is headquartered in Beijing and offers the largest selection in mainland China of copyrighted DVD’s, Blu-ray Discs, music CD’s, video games and downloadable digital content through three distribution channels – wholesale and retail, vending kiosks, and internet stores.
“We have been looking for the right international partner to help grow and monetize our digital media distribution business and with FAB we have found a high-growth company with outstanding leadership and innovative technology products uniquely positioned in the world’s largest consumer market,” said Chris Spencer, CEO of Wizzard Media. “FAB is in the process of leveraging its well-known and reputable retail media brand into a growing online and kiosk-based media distribution network. The best way to describe FAB is - Best Buy meets iTunes meets Redbox. We believe FAB has the opportunity to dominate mobile digital entertainment delivery throughout China as it currently does through its traditional wholesale and retail media distribution business.”
The FAB Media Kiosks have served to greatly enhance consumer ease-of-purchase while reducing the appeal of pirated content, positively transforming market dynamics in China for legitimate content and facilitating licensing opportunities with traditional media publishers who desire safe access to the world’s largest, fastest-growing consumer market. The combined company plans to aggressively expand through internal growth and domestic and international acquisitions over the next two years to build a global distribution powerhouse for mobile digital entertainment.
In return for 100% of the outstanding shares of FAB, Wizzard will issue shares equal to 49% of its outstanding shares at the time of the closing and two new seats on the Board of Directors. Additionally, FAB has the ability to receive or earn up to 78% of the outstanding shares of Wizzard upon meeting certain corporate governance and revenue milestones over the course of two years after closing. The current U.S.-based management of Wizzard Software will remain, including its CEO, CFO. Mr. Zhang, founder and controlling shareholder of FAB, will be welcomed as Chairman of the Board upon the closing of the transaction.
