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| 8-K - FORM 8-K - IDEANOMICS, INC. | t1700930_8k.htm |
Exhibit 99.1
Wecast Network Announces Q4 and Full Year 2016 Results
· Company Raises Full-Year Revenue Guidance to $300 Million
· Investor Update Call Scheduled Today at 8:00 a.m. ET
New York, NY, March 31, 2017 – Wecast Network Inc. (NASDAQ: WCST) (“Wecast” or the “Company” or “WCST”), announced today its Q4 and Full Year 2016 operating results for the period ended December 31, 2016 (a full copy of the Company’s annual report on Form 10-K is also being posted at www.sec.gov).
Conference Call: CEO, Bing Yang, Chairman Bruno Wu and CFO Simon Wang will host a conference call at 8:00 a.m. ET today.
To join the webcast, please visit the ‘Webcasts and Events’ section of the WCST corporate website, (http://corporate.wecastnetworkinc.com). Otherwise, the toll-free dial-in is: 877-407-3107; international callers should dial: 201-493-6796.
WCST FULL YEAR 2016 OPERATING RESULTS
Revenue for the year ended December 31, 2016 was $4,544,000, as compared to $4,606,000 for the same period in 2015, a decrease of approximately $62,000, or 1%. The revenue decrease was primarily due to the partnership with Zhejiang Yanhua Culture Media Co (“Yanhua”) and the restructuring of the video on demand business in Q4 2016.
Revenues, which were solely from our legacy video on demand business, were down quarter over quarter due to the new accounting mechanisms present in the previously announced new video on demand content model. In Q4 2016, the Company restructured its legacy video on demand business and signed a five year agreement to form a partnership with Yanhua where Yanhua will act as the exclusive distribution operator (within the territory of PRC) of the Company’s licensed library of major studio films.
Pursuant to the Yanhua Agreement, $107,517 of the first installment of RMB 6,500,000 was recognized as revenue in 2016 based on the relative fair value of licensed content delivered to Yanhua by December 31, 2016.
Cost of revenue was $4,434,000 for the year ended December 31, 2016, as compared to $3,674,000 for the same period in 2015, an increase of approximately $760,000, or 21%. The increase in cost of revenue was primarily due to the cost associated with the restructuring of the legacy video on demand business and the additional expense (approximately $564,000) caused by the restructuring. Our cost of revenue is primarily comprised of content licensing fees.
Gross profit for the year ended December 31, 2016 was $110,000, as compared to gross profit of $932,000 for 2015.
Selling, general and administrative expenses (SG&A) for the year ended December 31, 2016, increased approximately $2,134,000, or 26% to $10,371,000, as compared to $8,237,000 for the year ended
December 31, 2015. The increase was primarily attributed to the bad debt expense occurred in 2016 of $2,589,000, which was partially offset by a decrease in compensation expense by $550,000.
Professional fees are generally related to audit & review fees, legal fees and consulting fees. Our professional fees increased approximately $641,000, or 90%, to $1,357,000 for the year ended December 31, 2016, from $716,000 in 2015. The increase in professional fees was related to our increasing legal service fees, which increased from $56,000 in 2015 to $415,000 in 2016, primarily attributed to the restructuring-based investment activities that occurred in 2016.
Our depreciation and amortization expense increased approximately $99,000, or 25%, to $489,000 for the year ended December 31, 2016, from $390,000 during 2015. The increase was mainly due to the new office building purchased in 2016.
On November 10, 2016, the Board of Directors (“Board”) of WCST held a special meeting and at the recommendation of the Company’s audit committee, the Board determined that it is in the best interests of the Company and the Company’s shareholders to amend the terms of the SSS earn-out share award which would in effect reduce the total equity dilution to shareholders related to the earn-out and reduce the potential negative impact on the Company’s future earnings (by shortening the payout period and paying all earn-out shares earlier than required). Based on evidence provided to the Board, the requisite thresholds necessary to trigger issuance of all shares of common stock subject to the earn-out share award had been achieved and on November 11, 2016, the Company issued 10,000,000 shares of its common stock to Sun Seven Stars (“SSS”) at the closing price $1.37 on the stock issuance date, which accounts for $13.7 million share award expense (based on the market price of the common stock) which negatively impacted operating expense and therefore net income. This was a one time non-cash expense.
Our loss from operations increased $19,416,000 to $27,827,000 for the year ended December 31, 2016, from $8,411,000 during 2015. This was mostly due to the earn-out share award expenses mentioned above.
Basic and diluted loss per share for 2016 was $0.72 as compared to a $0.34 loss per share in the in 2015.
CEO Bing Yang stated, “As has been communicated and documented, my team, around the middle of 2016, began work on transforming Wecast. In that short period of time we assembled a new experienced management team, stabilized the foundation, capitalized the Company, rebranded the Company, reconfigured the business structure, expanded the Company’s mission and business lines, made several key investments and finally, injected several privately held and revenue producing assets into the corporation. Today, via the filing of the 10-K for 2016, we officially turn the page on the old company model and move on to the next chapter. And the success of that next chapter will come down to two things: First, driving the new operating model to produce an unprecedented opportunity for revenue & margin expansion and then second, building a track record of enhanced, precise and repeatable execution. I am pleased to note that today, the Company is raising its full-year revenue guidance form $280 million to $300 million based on our current visibility of, and internal projections for, 2017. If realized, this would represent an approximate 66x increase over 2016 revenue. Q1 2017 revenue will be based on approximately 5 weeks of revenue from our new businesses. This takes into account the timing of the closing of the Sun Video Group deal announced in late January and then the remaining time left in the quarter once it was deemed that Wecast had
control of Sun Video Group and could then consolidate its revenues. Therefore, in order to meet this annual target we expect revenues to ramp in Q2, Q3 & Q4.”
About Wecast Network Inc. (http://corporate.wecastnetworkinc.com)
Wecast Network Inc (NASDAQ: WCST) is leveraging and optimizing its current operations as a premium content Video On Demand service provider in China to evolve into a global, vertical, ubiquitous and transactional B2B2C, mobile-driven, consumer management platform for both enterprises and consumers. By aiming to establish the world’s premier multimedia, social networking and smart e-commerce-enabled network with the largest global effective connected user base, Wecast, through this expanded, cloud-based, ecosystem of connected screens combined with strong partnerships with leading global providers, will be capable of delivering a vast array of WCST/YOD–branded products and services to enterprise customers and end-use consumers - anytime and anywhere, across multiple platforms and devices.
Wecast has content distribution agreements in place with many of Hollywood's top studios including Disney Media Distribution, Paramount Pictures, NBC Universal and Twentieth Century Fox Television Distribution, Miramax, as well as a broad selection of the best content from Chinese filmmakers. In addition, the Company has governmental partnerships and licenses as well as numerous JV partnerships and strategic cooperation agreements with an array of distribution and content partners in the global new media space. Wecast is headquartered in both New York, NY and Beijing, China.
Safe Harbor Statement
This press release contains certain statements that may include "forward looking statements." All statements other than statements of historical fact included herein are "forward-looking statements." These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
CONTACT:
Jason Finkelstein
VP Strategy & Investor Relations
Wecast Network, Inc.
212-206-1216
Financial Tables Follow
Wecast Network, Inc., Its Subsidiaries and Variable Interest Entity
CONSOLIDATED STATEMENTS OF OPERATIONS
| Twelve Months Ended | ||||||||
| 2016 | 2015 | |||||||
| Revenue | $ | 4,543,616 | $ | 4,606,380 | ||||
| Cost of revenue | 4,434,260 | 3,673,895 | ||||||
| Gross profit | 109,356 | 932,485 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | 10,370,548 | 8,237,056 | ||||||
| Professional fees | 1,357,454 | 715,723 | ||||||
| Depreciation and amortization | 489,308 | 390,373 | ||||||
| Impairment of other intangible assets | 2,018,628 | - | ||||||
| Earn-out share award expense | 13,700,000 | - | ||||||
| Total operating expenses | 27,935,938 | 9,343,152 | ||||||
| Loss from operations | (27,826,582 | ) | (8,410,667 | ) | ||||
| Interest and other income/(expense): | ||||||||
| Interest expense, net | (254,292 | ) | (119,913 | ) | ||||
| Change in fair value of warrant liabilities | 324,432 | 189,833 | ||||||
| Equity in loss of equity method investees | (31,557 | ) | (156,135 | ) | ||||
| Impairment of equity method investments | (38,448 | ) | (214,998 | ) | ||||
| Others | 58,621 | 136,511 | ||||||
| Loss before income taxes and non-controlling interest | (27,767,826 | ) | (8,575,369 | ) | ||||
| Income tax benefit | 330,124 | 34,448 | ||||||
| Net loss | (27,437,702 | ) | (8,540,921 | ) | ||||
| Net loss attributable to non-controlling interest | 1,601,761 | 439,648 | ||||||
| Net loss attributable to Wecast Network shareholders | $ | (25,835,941 | ) | $ | (8,101,273 | ) | ||
| Basic and diluted loss per share | $ | (0.72 | ) | $ | (0.34 | ) | ||
| Weighted average shares outstanding: | ||||||||
| Basic and diluted | 35,998,001 | 23,948,487 | ||||||
Wecast Network, Inc., Its Subsidiaries and Variable Interest Entity
CONSOLIDATED Balance Sheets
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 2,538,976 | $ | 3,768,897 | ||||
| Restricted cash | - | 2,994,364 | ||||||
| Accounts receivable, net | 1,260,529 | 1,689,415 | ||||||
| Licensed content, current | 124,319 | 556,591 | ||||||
| Prepaid expenses | 285,588 | 362,421 | ||||||
| Deferred issuance cost | - | 551,218 | ||||||
| Other current assets | 322,483 | 157,594 | ||||||
| Total current assets | 4,531,895 | 10,080,500 | ||||||
| Property and equipment, net | 4,636,188 | 154,434 | ||||||
| Licensed content, non-current | 17,593,528 | 21,085 | ||||||
| Intangible assets, net | 389,620 | 2,412,591 | ||||||
| Goodwill | 6,648,911 | 6,648,911 | ||||||
| Long-term investments | 6,654,664 | 450,115 | ||||||
| Other non-current assets | 842,782 | 58,089 | ||||||
| Total assets | $ | 41,297,588 | $ | 19,825,725 | ||||
| LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable (including accounts payable of consolidated variable interest entities (“VIEs”) without recourse to the Company of $5,817 and $44,867 as of December 31, 2016 and 2015, respectively) | $ | 5,817 | $ | 45,788 | ||||
| Deferred revenue of VIEs without recourse to the Company | 824,563 | 15,080 | ||||||
| Accrued interest | 557,918 | 437,589 | ||||||
| Accrued other expenses (including accrued expenses of VIEs without recourse to the Company of $268,074 and $280,038 as of December 31, 2016 and 2015, respectively) | 704,771 | 758,477 | ||||||
| Accrued salaries (including accrued salaries of VIEs without recourse to the Company of nil and $10,861 as of December 31, 2016 and 2015, respectively) | 766,957 | 1,058,124 | ||||||
| Payable for purchase of building | 987,015 | - | ||||||
| Other current liabilities (including other current liabilities of VIEs without recourse to the Company of $394,314 and $298,422 as of December 31, 2016 and 2015, respectively) | 461,528 | 312,170 | ||||||
| Accrued license content fees of VIEs without recourse to the Company | 1,236,661 | 933,532 | ||||||
| Convertible promissory note | 3,000,000 | 3,000,000 | ||||||
| Warrant liabilities | 70,785 | 395,217 | ||||||
| Deposit payable | - | 2,994,364 | ||||||
| Total current liabilities | 8,616,015 | 9,950,341 | ||||||
| Deferred income taxes | - | 330,124 | ||||||
| Total liabilities | 8,616,015 | 10,280,465 | ||||||
| Commitments and contingencies: | ||||||||
| Convertible redeemable preferred stock: | ||||||||
| Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of $3,500,000 as of December 31, 2016 and 2015, respectively | 1,261,995 | 1,261,995 | ||||||
| Equity: | ||||||||
| Series E Preferred Stock - $0.001 par value; 16,500,000 shares authorized, 7,154,997 and 7,254,997 shares issued and outstanding, liquidation preference of $12,521,245 and $12,696,245 as of December 31, 2016 and December 31, 2015, respectively | 7,155 | 7,255 | ||||||
| Common stock - $0.001 par value; 1,500,000,000 shares authorized, 53,918,523 and 24,249,109 shares issued and outstanding as of December 31, 2016 and 2015, respectively | 53,918 | 24,249 | ||||||
| Additional paid-in capital | 149,021,460 | 97,512,542 | ||||||
| Accumulated deficit | (112,293,781 | ) | (86,457,840 | ) | ||||
| Accumulated other comprehensive loss | (1,415,717 | ) | (414,910 | ) | ||||
| Total Wecast Network shareholder's equity | 35,373,035 | 10,671,296 | ||||||
| Non-controlling interest | (3,953,457 | ) | (2,388,031 | ) | ||||
| Total equity | 31,419,578 | 8,283,265 | ||||||
| Total liabilities, convertible redeemable preferred stock and equity | $ | 41,297,588 | $ | 19,825,725 | ||||
Wecast Network, Inc., Its Subsidiaries and Variable Interest Entity
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2016 | 2015 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (27,437,702 | ) | $ | (8,540,921 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Share-based compensation expense | 319,718 | 1,240,615 | ||||||
| Provision for doubtful accounts | 2,825,124 | 9,087 | ||||||
| Depreciation and amortization | 489,938 | 390,373 | ||||||
| Amortization of debt issuance costs | 122,696 | - | ||||||
| Income tax benefit | (330,124 | ) | (34,448 | ) | ||||
| Equity in losses of equity method investees | 31,557 | 156,135 | ||||||
| Loss on disposal of assets | - | 2,538 | ||||||
| Change in fair value of warrant liabilities | (324,432 | ) | (189,833 | ) | ||||
| Earn-out share award expense | 13,700,000 | - | ||||||
| Impairment of intangible assets | 2,018,628 | - | ||||||
| Impairment of equity method investments | 38,448 | 214,998 | ||||||
| Impairment of licensed content | 496,467 | - | ||||||
| Foreign currency exchange gain | (79,662 | ) | (219,925 | ) | ||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable | (2,615,801 | ) | (607,426 | ) | ||||
| Licensed content | 37,568 | 499,581 | ||||||
| Prepaid expenses and other assets | (441,729 | ) | (74,469 | ) | ||||
| Accounts payable | (38,715 | ) | (65,026 | ) | ||||
| Accrued expenses, salary and other current liabilities | 634,401 | 196,027 | ||||||
| Deferred revenue | 809,483 | 1,649 | ||||||
| Accrued license content fees | 378,964 | 585,525 | ||||||
| Net cash used in operating activities | (9,365,173 | ) | (6,435,520 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property and equipment | (3,141,789 | ) | (35,179 | ) | ||||
| Investments in intangible assets | (2,992,072 | ) | (218,020 | ) | ||||
| Acquisition of leasehold improvements | (570,275 | ) | - | |||||
| Payments for long term investments | (3,733,750 | ) | - | |||||
| Deposit for investment | (972,077 | ) | - | |||||
| Net cash used in investing activities | (11,409,963 | ) | (253,199 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of shares and warrant | 20,000,000 | - | ||||||
| Cost associated with financing activities | (294,890 | ) | (310,156 | ) | ||||
| Net cash (used in)/provided by financing activities | 19,705,110 | (310,156 | ) | |||||
| Effect of exchange rate changes on cash | (159,895 | ) | (44,599 | ) | ||||
| Net decrease in cash | (1,229,921 | ) | (7,043,474 | ) | ||||
| Cash at the beginning of the year | 3,768,897 | 10,812,371 | ||||||
| Cash at the end of the year | $ | 2,538,976 | $ | 3,768,897 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest | $ | - | $ | - | ||||
| Exchange of Series E Preferred Stock for Common stock | $ | 100 | $ | 110 | ||||
| Issuance of convertible note for licensed content | $ | 17,717,847 | $ | - | ||||
| Issuance of shares for the settlement of liability | $ | 75,000 | $ | - | ||||
| Issuance of shares upon conversion of convertible note, including accrued interest and debt issuance cost | $ | 17,733,297 | $ | - | ||||
| Issuance of earn-out shares | $ | 13,700,000 | $ | - | ||||
| Acquisition of long term investment through transfer of Game IP rights | $ | 2,714,441 | $ | - | ||||
| Workforce intangible acquired for shares | $ | 121,695 | $ | - | ||||
| Payable for purchase of building | $ | 987,015 | $ | - | ||||
| Restricted cash received (returned) related to the deposit of financing activities | $ | 2,994,364 | $ | 2,994,364 | ||||