American Picture House Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s discussion and analysis of financial condition and results of operations Organizational History of the Company and Overview American Picture House Corporation aka American Picture House Pictures plans to be a premiere entertainment company with a focus on feature films, limited series, and content-enhancing technologies. APHP is managed by astute financiers and supported by seasoned creatives. To date, the Company has provided general consulting services to entertainment industry-based clients. These clients were interested in our entertainment industry expertise and general business knowledge. The services provided included the strategy, development, and procurement of materials including; business plans, financial projections, and corporate marketing materials for the entertainment industry. The Company has refocused its efforts and will no longer be providing these services to independent clients. Going forward, APHP plans to partner with filmmakers, showrunners, content developers and strategic technology partners to develop, package, finance, and produce high-quality feature films and television shows with broad-market appeal. The Company’s management, Board of Directors and advisors have had relationships with major studios due to many of them having worked within the entertainment industry on many films and shows in a variety of specialties including: writing, producing, directing, casting, sales, and licensing. Although these relationships have not yet yielded results to APHP to date, the Company anticipates it will be able to access these relationships to benefit the Company in its future endeavors. The Company intends to specialize in mid-budgeted productions where more than 100% of the budget can be collateralized by a film’s or show’s intellectual property (‘IP”), unsold licensing sales projections, pre-sold licensing contracts, incentive agreements, tax rebates, and grants. The Company’s management and advisors will use these assets to limit risk and guarantee greater profitability. The IP (e.g., the book rights, script, screenplay, etc.) of a particular film or show usually has a quantifiable value, especially if such IP was written by a recognized author or by a WGA (“Writers Guild of America”) writer and further enhanced by the addition of competent producers, proven directors and directors of photography, and talented actors. While the IP itself has value, the previously mentioned elements plus the addition of factors like choosing favorable filming locales to film in (that provide monetary and/or tax incentives) and formulating lean budgets, enable third party financiers to quantify a film’s or show’s value and this quantifiable-value can be utilized to secure additional equity investors and or be utilized to secure loans. Through the development of a strong package, APHP can limit its overall financial exposure, mitigate financial risk, and reduce the equity required from the Company to produce a film or show Loans and additional equity, are usually only secured for films that have a package that has strong elements and additional factors; therefore, a reduction in equity combined with third-party participation also is expected to increase profitability to the Company. The Company will strive to become synonymous with creative ability, financial sophistication, and leading-edge technology. The Company has optioned IP with the intent to co-finance and co-produce feature films and limited series shows. Filmmaking Stages and Our Strategy To understand our business strategy, it is useful to think of filmmaking in five stages - often with different teams involved at different stages: ● Development: The first stage in which the ideas for the film are created, rights to books/plays are acquired and the screenplay is written. Financing for the project has to be sought and obtained; ● Pre-Production: Arrangements and preparations are made for the shoot, such as hiring cast and film crew, selecting locations and constructing sets; ● Production: The raw footage and other elements for the film are recorded during the film shoot; ● Post-Production: The images, sound, and visual effects of the recorded film are edited and combined into a finished product; and ● Distribution: The completed film is distributed, marketed, and screened in cinemas and/or released to video or steaming services. 2 Our Strategy to Build Value Our business strategy is to purchase and/or option “entertainment properties” ( e.g., book rights, screenplays, scripts, etc. ). that have had some level of financial investment in the development stage before we acquire the entertainment property where the initial owner or development team decided to stop development for financial or other reasons after making a substantial investment in development. For this investment, we may share with the original team rights to revenue from the acquired entertainment properties. This strategy will allow the Company to reduce our initial cash outlay when acquiring intellectual properties, allows us to allocate more funds in moving the entertainment property up the filmmaking chain, gives us assistance and goodwill from the original development team, and reduces our financial risks. Our strategy requires us to make an informed assessment that our management team has the ability to move the script forward where the initial team failed while allowing APHP to capitalize on the initial investment. We seek to build value in our entertainment properties by many means, including the following: ● Hiring other qualified Writers Guild of America (“WGA”) writers to further develop, polish, or re-write entertainment properties; ● Securing or attaching quality talent ( e.g., producers, director, actors, etc.); ● Determining pre-sales values; ● Securing some pre-sales (mostly in international markets) ; ● Securing financial and banking relations; ● Hiring a talent agency, retaining attorneys; ● Determining shooting locations, including the best place to obtain financial incentives and/or grants; ● Developing a comprehensive budget and devising financing strategy; ● Securing a completion bond; and ● Developing production and marketing materials ( e.g., look-book, location scouting, poster-design, etc.). Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or “GAAP.” The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are fully described in Note 2 to our financial statements appearing elsewhere in this Quarterly Report, and we believe those accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements. COVID-19 Update To date, the COVID-19 pandemic has not had a material impact on the Company, particularly due to our current lack of operations. The pandemic may, however, have an impact on our ability to evaluate and acquire an operating entity through a reverse merger or otherwise. Off-Balance Sheet Arrangements None. 3 Results of Operations Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023 The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 2023 Change $ Revenues $ 23,003 $ 169,111 $ (146,108 ) Cost of revenues - 36,701 (36,701 ) 23,003 132,410 (109,407 ) Operating Expenses: General and administrative 1,501,932 183,603 1,318,329 Sales and marketing 13,975 - 13,975 Total Operating Expenses 1,515,907 183,603 1,332,304 Net operating income (loss) (1,492,904 ) (51,193 ) (1,441,711 ) Other Income (Expenses): Interest income 102 741 (639 ) Interest expense (3,185 ) (1,888 ) (1,298 ) Net Other Income (Expenses) (3,083 ) (1,147 ) (1,937 ) Income (loss) before income taxes (1,495,987 ) (52,340 ) (1,443,648 ) Income taxes - - - Net income (loss) $ (1,495,987 ) $ (52,340 ) $ (1,443,648 ) Revenues and Cost of Revenues During the three months ended March 31, 2024 and 2023, the Company had revenues of approximately $23,000 and $169,000, respectively. During the quarter ended March 31, 2024, the Company reported revenues of $23,003 from the BUFFALOED CAMA. Revenues during the 2023 period were derived from contracts with customers for consulting services. General and Administrative Expenses General and administrative expenses for the three months ended March 31, 2024 were approximately $1,502,000 compared to approximately $184,000 for the three months ended March 31, 2023, an increase of approximately $1.3 million. The increase was primarily attributable to the Company recording $1,258,160 of stock option compensation expense in the quarter ended March 31, 2024. As a public company, we expect general and administrative costs to continue to increase in future periods. Sales and Marketing Expenses Sales and marketing expenses for the three months ended March 31, 2024 were approximately $14,000 compared to $0 for the three months ended March 31, 2023. Sales and marketing expenses relate to our engagement of a part-time marketing consultant during the quarter and related expenses. 4 Other Income (Expense) Interest Income. Interest income for the three months ended March 31, 2024 and 2023 was minimal and consisted of interest earned on invested cash balances. Interest Expense. Interest expense for the three months ended March 31, 2024 and 2023 was approximately $3,200 and $1,900, respectively, and was primarily related to our Economic Injury Disaster Loan (“EIDL ”) and working capital loans. Liquidity and Capital Resources During the quarter ended March 31, 2024, the Company sold 75,000 shares of Common Stock at $0.20 per share to new investors resulting in total proceeds of approximately $15,000. We had an accumulated deficit of approximately $6.5 million, incurred a net loss of approximately $1.5 million, and had cash outflows from operations of approximately $436,000 as of and for the three months ended March 31, 2024. Further, we expect to continue to incur significant costs in the pursuit of our business plans. We cannot assure you that our plans to raise capital or to complete our film development and production activities will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we develop and produce feature films. To date, we have funded our operations with proceeds from sales of Common Stock and borrowings from related parties under promissory notes. As of March 31, 2024, we had cash and cash equivalents of approximately $25,000. Operating Activities During the three months ended March 31, 2024, operating activities used approximately $436,000 of cash, including providing a $220,000 of financing to a film production company and payments resulting in a $42,000 reduction in accounts payable and accrued expenses. During the three months ended March 31, 2023, operating activities consumed approximately $130,000 of cash, primarily resulting from $52,000 operating loss and payment of approximately $42,000 in accounts payable and accrued expenses. Investing Activities During the three months ended March 31, 2024 and 2023, investing activities included approximately $5,000 and $10,000 of produced and licensed film production costs. Additionally, during the quarter ended March 31, 2024, the Company invested approximately $3,000 in capitalized software. Financing Activities During the three months ended March 31, 2024, net cash provided by financing activities was approximately $265,000 including $15,000 of proceeds from the sale of Common Stock and $250,000 of working capital financing under a master loan agreement from a related party. During the three months ended March 31, 2023, net cash provided by financing activities was $125,000 comprised of working capital financing under a master loan agreement from a related party. 5 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to our market risk during the first quarter of 2024. For a discussion of our exposure to market risk, please see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our 2023 Form 10-K.